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Edited Transcript of QNST earnings conference call or presentation 6-May-20 9:00pm GMT

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FOSTER CITY May 25, 2020 (Thomson StreetEvents) — Edited Transcript of Quinstreet Inc earnings conference call or presentation Wednesday, May 6, 2020 at 9:00:00pm GMT

QuinStreet, Inc. – Chairman, President & CEO

QuinStreet, Inc. – Senior VP & CFO

William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Financial Services and Technology

Good day, ladies and gentlemen, and welcome to the QuinStreet Third Quarter Fiscal 2020 Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Erica Abrams. Please go ahead.

Thank you, Keith. Good afternoon, ladies and gentlemen. Thanks for joining us today as we report QuinStreet’s Third 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 results to differ from our forward-looking statements are discussed under the Legal Notice section in our Form 8-K filed with the SEC today, including disclosure about the effects of coronavirus and related restrictions on our business and are also discussed in more detail under the Risk Factors section in our SEC filings, including 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 are included in today’s press release, which is available on the Investor Relations website.

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

Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [3]

Thank you, Erica, and thank you all for joining us today. QuinStreet business fundamentals and financial position remains strong and resilient despite coronavirus. We rapidly and successfully shifted to working remotely in all geographies in March, and productivity and progress have continued to be excellent. The execution of our team throughout this period has really been outstanding, first, by moving so rapidly to working effectively remotely in all locations and functions and since by adapting quickly to the changes in our client and media markets caused by coronavirus. Due to that great work combined as usual with the scale of our opportunity, strength of our core capabilities and variabilized business model, we expect to deliver continued solid EBITDA and cash flow during this challenging period.

Our balance sheet is also strong with cash approaching $100 million and no bank debt. So again, QuinStreet’s business fundamentals and financial position remains strong and resilient. Beyond coronavirus, we are confident that our future has never been brighter.

Fiscal Q3 results were impacted by coronavirus-related reductions in client marketing budgets and consumer traffic in some areas of our business. Those effects accelerated during the quarter with year-over-year growth in revenue, excluding divested businesses, dropping from 20% in January to 9% in March. Adjusted EBITDA margin fell from 10% in January to an average of 6% in February and March due mainly to the loss of top line leverage and related lower media efficiency.

Our insurance client vertical has been performing best in the face of coronavirus. Auto insurance, our biggest business, grew 30% year-over-year.

QRP also continues to progress well and promises to be one of the most exciting business opportunities in the history of the company with a strong value proposition for agency clients and big-scale and SaaS-like margins for QuinStreet. Among its many advantages, QRP increases agent productivity and helps agencies more effectively work remotely and to serve consumers online. Launched QRP clients already represent over $6 million in estimated annual revenue opportunity once fully ramped. Signed and near-signed clients, not yet launched, represent $12 million of additional estimated annual revenue opportunity. The balance of clients in the advanced pipeline, not yet at the signing stage, represent $36 million more of estimated annual revenue opportunity. That means we believe we already have line of sight to over $50 million of estimated annual QRP revenue. We believe the full pipeline and market represent an estimated revenue opportunity of well over $100 million per year.

We made good progress on strategic initiatives in the quarter, narrowing our business footprint by successfully divesting our B2B client vertical in a sale to TechnologyAdvice, a B2B technology-focused firm headquartered in Nashville, Tennessee; and by also selling or spinning of all of our Brazil operations. As you would probably expect, the Goldman Sachs-led process to review strategic alternatives has paused due to current market uncertainties.

We have 4 main focus areas and objectives during the pandemic period including best serving the needs of clients and media partners to maintain long-term market position and share. A second core objective is to continue making progress on key new product, media and business expansion initiatives. A third core objective is to preserve cash and cash flow. And finally but second to none of the others, protecting our employees from health risks and economic uncertainty is a focus area and objective during the pandemic period. We feel good about those objectives for driving long-term shareholder value and about delivering on them.

Turning to our outlook. We expect revenue growth and EBITDA in the near term to continue to be impacted by coronavirus-related disruption and uncertainty. We expect continued volatility in client budgets and media, particularly in non-insurance client verticals. Forecasting specifics in these uncertain and unprecedented times is difficult. Our current estimate is for fiscal Q4 revenue, excluding divested businesses, to be down between 5% and 10% year-over-year. Adjusted EBITDA and cash flow margins are expected to be positive but in the lower single digits as we absorbed full quarter effects of coronavirus-related drops in top line leverage and media efficiency.

We will look to avoid layoffs during this pandemic that would be required to offset those drops. It seems unjust and bad corporate citizenship to lay off productive employees just to increase already positive profits and cash flow, especially given our strong balance sheet, not to mention the fact that those layoffs would also have the effect of slowing progress on important longer-term initiatives.

Looking post-coronavirus. We are confident and enthusiastic about our strategy to narrow our footprint and focus our efforts on a smaller number of our biggest and best long-term business opportunities. Those opportunities would include a heavier mix of QRP and likely other high-margin technology products with deeper integrations into our clients and our networks. We still expect annual revenue of well over $400 million in the new format even before our plan to aggressively invest in the remaining businesses.

We also expect revenue and EBITDA growth to be more predictable and even faster than our pre-coronavirus footprint, which in turn we expect to drive greater shareholder value. Trailing 12 months revenue for our go-forward core financial services and Home Services businesses was $414 million through March 31, representing a 3-year compound annual growth rate of 34%.

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

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Gregory Wong, QuinStreet, Inc. – Senior VP & CFO [4]

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Thank you, Doug. Hello, and thanks to everyone for joining us today. To start, I hope everyone is staying safe and healthy during these unprecedented times. Total revenue for the third quarter grew 11% year-over-year to $128.7 million, a record quarter for QuinStreet. Revenue, excluding divested businesses, grew 15% year-over-year to $126.3 million. Adjusted EBITDA for the quarter was $9.3 million or 7% of revenue. Adjusted net income was $7 million or $0.13 per share on a fully diluted basis. We grew our cash balance by $21 million to close the quarter with $97.1 million of cash and equivalents and no bank debt.

Looking at revenue by client vertical. Our financial services client vertical represented 77% of Q3 revenue and grew 15% year-over-year to $99.5 million. During the quarter, the most significant impact from the coronavirus was seen in our credit cards and personal loans businesses, where client marketing spend was down due to concerns about deteriorating economic activity and consumer credit quality.

Auto insurance, our largest business, performed best in the face of the pandemic where revenue increased 30% year-over-year, reflecting strong spending from a broad range of large carrier clients.

The client vertical we historically referred to as other, which included Home Services and B2B, represented 11% of Q3 revenue and declined 6% year-over-year to $13.8 million. As Doug discussed, we divested our B2B business in the middle of February. Moving forward, we will refer to our other client vertical as simply Home Services.

Home Services revenue for the third quarter grew 8% year-over-year to $11.5 million. Year-over-year revenue growth in Home Services slowed somewhat due to coronavirus as consumers limited their exposure to outsiders in their homes.

Our education client vertical represented 12% of Q3 revenue and grew 4% year-over-year to $15.4 million.

Moving on to adjusted EBITDA. Adjusted EBITDA was $9.3 million or 7% of revenue. Profitability in the quarter was negatively impacted by the loss of top line leverage and media buying efficiency primarily due to pandemic-related client budget cuts and media drops in the quarter.

Turning to the balance sheet. We had a good quarter overall, growing our cash balance by $21 million, including $11.1 million of proceeds from the sale of our B2B business and Brazil operations. We closed the quarter with $97.1 million and no bank debt. Cash flow from operations was $15.2 million, and normalized free cash flow was $7.4 million or 6% of revenue. Most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model.

Looking ahead to our fiscal Q4. Forecasting with any level of certainty during this pandemic is challenging to say the least. Our current estimate is for Q4 revenue, excluding divested businesses, to be down between 5% and 10% year-over-year. Adjusted EBITDA and cash flow margins are expected to be positive in the lower single digits as we absorb full quarter effects of coronavirus-related drops and top line leverage and media efficiency. For your modeling purposes, Q4 2019 revenue, excluding divested businesses, was $116.1 million.

In summary, despite the impact of coronavirus during the quarter, we are pleased with our financial performance and remain optimistic about the underlying strength of our business over the long term. QuinStreet has a highly resilient business model, and we’ve proven our ability to perform well over the past 20 years during economic downturns.

There are 3 key points that can help investors better understand our business model. First, we have a highly variablized financial model, which has allowed us to be adjusted EBITDA and cash flow positive during difficult times. The largest cost on our P&L is media, which fluctuates with revenue. So when revenue goes down, our largest cost also declines.

Second, during difficult economic times, consumers tend to shop to lower their monthly expenses. QuinStreet’s performance marketplaces embedded across the world’s largest shopping channel, the Internet, helped consumers save money.

And finally, we have a great balance sheet with nearly $100 million of cash, low bank debt and expect to continue to generate positive cash flows from our business moving forward.

With that, I’ll turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We’ll take our first question from Carter Trent with Stephens.

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Carter Andrew Trent, Stephens Inc., Research Division – Research Associate [2]

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Just wonder, what kind of feedback have you been getting from the carriers who are already using the QRP platform? And also, what do you attribute to the recent pipeline growth?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [3]

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Thanks, Carter. I got the first question. The second half, I didn’t get clearly, so I may have to ask you that one again. The feedback’s been very positive. In fact, unanimously positive about the performance of the platform and about how it’s helping their operations. We just had a client — I got a — sent a text from a client just a few days ago, the most recently launched client, that said, “We don’t need any more testing. We’re rolling this out across the floor. This thing is as good as it can be.” So we’re super pleased with the performance of the platform. And the feedback again has been unanimously positive and in some cases, like I just covered, growing. And so very good progress on QRP. In terms of the — I think you said to what you attribute the growth of the platform. What do you mean, the QRP platform?

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Carter Andrew Trent, Stephens Inc., Research Division – Research Associate [4]

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Yes, the pipeline. Yes.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [5]

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Yes. The — we have a — just an extraordinarily strong pipeline that has been worked by industry veterans with great connections. The feedback from the private clients and private efforts that we did a year or 2 ago were very positive, and folks new about that. Some of our carrier partners are working the pipeline for us. This is something I think we’ve talked about in individual sessions. I’m not sure I’ve ever talked about on the calls, but this is not just a QuinStreet initiative. The largest carriers in the independent agent channel are very aggressively backing this platform. And in many cases, in fact, I think the majority of our launched and advanced pipeline clients, at least the ones at the signing stage, were referrals from big agency partners — I’m sorry, big carrier partners.

So I think that, combination, that’s a great product proven, great feedback from the initial private clients and then you have carriers pushing it alongside us with a team that’s out of the industry and what connected in the industry. I think all those things are working in our favor, and there are very, very strong winds at our back. It’s — again, it delivers — we have had reports of it delivering upwards of 40% improvement in productivity for the agents. So that is a — that’s pretty staggering in terms of the benefits you can see. And it’s not surprising, right? This is a unified platform. You enter the data once, you get multiple competing quotes. Those quotes, because we have the most integrations end to end with the big carriers, are much more active than previous quotes. You don’t get a lot of requoting. You don’t get a lot of misquoting. You don’t have to enter the data 2, 3, 4 times. You want to get 2, 3, 4 quotes from 2, 3, 4 carriers, and it’s a benefit on [time], benefit of health benefit. This is just a very, very fundamental improvement in the channel.

And then for our carrier partners, not only do they get more productivity out of the channel, which is important because this is a very big channel for them, but they get much better workflow management, workflow control, which would mean reduced cost, better quality and vastly improved reporting from every angle that they want. So it’s just a great product at the right time and a good channel and everybody benefits. So it’s one of the business opportunities you get excited about as a business person to have something that works so well to deliver so much value for everybody. So we’re — I would say that that’s the QRP report.

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Operator [6]

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We’ll take our next question from Jason Kreyer with Craig-Hallum.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst [7]

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Apologies if I ask a question that’s already been addressed. I was waiting to get into the queue for a bit here. But just wondering if you can walk through the last several weeks’ financial performance on a channel basis, I mean, I think you called out that auto insurance has remained pretty strong through this market. So just wondering what components of the business are seeing the most impact from the economic slowdown or COVID.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [8]

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You bet. Let’s start with auto insurance. Auto insurance remains strong throughout the quarter and actually gained steam. And March was, I think, Greg, the strongest month of the quarter. Correct me if I — if that’s not correct.

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Gregory Wong, QuinStreet, Inc. – Senior VP & CFO [9]

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That’s right. We accelerated throughout the quarter in our auto insurance business, which resulted in March being a record month for — in the history of the company in auto insurance.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [10]

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And so auto insurance remains strong. It’s a combination of a number of factors. First of all, we have — all the carriers are doing pretty well because of reduced driving, reduced incident rates, so they have a lot of money. They want to — they’d like to put that money back into marketing and share gains. They expect this to be a period of heavy shopping, both because consumers are at home and online more and because a lot of consumers are going to be financially challenged. And one of the things, and Greg alluded to this, that consumers do when they’re financially challenged, they shop their line items, monthly line items, including insurance and see if they can save money. And in almost every case, because of the complexity of the insurance market and the changing dynamics of that market, if you shop, you’re probably going to save money. And it’s not unusual at all. You see reports from our carrier partners. But back when we were running our own shopping service, direct-to-consumer shopping service, insurance.com, we had — we were seeing on average for consumers that shopped and switched $400 a year, and so that’s meaningful to the average consumer.

So insurance — and by the way, let me not mention — let me make sure I do mention. I don’t want to be remiss to not mention. The team has got a great set of initiatives that are very fundamental and very long-term oriented. And we’re making great progress on those initiatives, and those are continuing and adding a lot to that momentum. So for all those reasons, auto insurance, of course, is our biggest business now, well over 50%, I think, of revenue or still around 50% of revenue at least. And we’ll be well over as we finish divestitures. It is doing very well.

The businesses that fared worst during the pandemic were credit cards and personal loans. They were both down considerably in the quarter and started deteriorating in probably late January, start — the slope increase down in February and continued down in March and seem to kind of plateau — hit equilibrium near the end of the month and certainly in April. And so that — those businesses were deteriorating because the banks and the lenders are having a hard time keeping up with the rapid changes in the macroeconomic environment and the consumer credit as a result of that deterioration.

Very hard to underwrite consumers. A few weeks ago, 3% of them were unemployed, and now 20% are unemployed. So you’ve seen a natural pulling back and a natural constraining of standards or filters and raising of standards, I should say. And so those businesses were most impacted. They’ve been — and knock on wood, because, again, we’re dependent it continues. I would — as I indicated, pretty much stabilized in late March and April, and we’re seeing more stability around this hopeful, sustainable bottom and plateau going into May. Obviously, we haven’t been through a pandemic before, so we don’t know. But typically, what happens is, in these instances, is the clients pull back until they get more clarity and/or adjust their portfolios and underwriting models, and then they start easing back in. We have not seen much easing back in yet, but we haven’t seen the second leg down either. So we’ve been at a point of [stabilization], as I said, for a month or 2 now. And so those businesses were down considerably and not quite as much as I’ve heard reported in some other places for us as others, but they were down considerably.

And then the business in between is Home Services. And we are in about 10 to 12 services or sub verticals, if you will, in Home Services. The services that require folks to come into your home are down pretty hard in Home Services comparably so, I would say, to the credit cards and personal loans drops. And of course, that’s for different reasons. In this case, it’s mainly because consumers aren’t looking because of social isolation or shelter in place, shelter at home.

The services related more to the exterior of the home, and we have a lot of those or to home security or health-related products that go into home are doing very well. And so it’s a little bit of a Tail of 2 Cities in Home Services. So that business is down maybe 1/3 as much as personal loans and credit cards as we were able to much more quickly shift our efforts to the places where there’s more of a tailwind and less of a headwind.

So those were — if you look at the mix of businesses that matter most, that’s kind of what we’re seeing. By the way, I should mention our banking business, which is a new and expanding and rapidly growing piece of our business, did pretty well. We saw pretty good activity from source of funds, marketing and from investment management marketing. And so we’re shifting a lot of our banking — a lot of our efforts from the team, that same team runs credit cards and banking at the senior level. They’re shifting all their efforts over to banking while we wait out some of the credit card problems. So that’s the — that’s kind of the mix.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst [11]

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I appreciate all the color you gave there. I wanted to focus on one of those components you talked about in personal loans. I know when you made the AmOne acquisition a year or so ago, one of the components of that was the turndown service. The — I think it was like a credit repair, credit monitoring service. Has that held in there a little bit, helping to offset a little bit of the challenge in there? Or has that not really had a meaningful bounce either?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [12]

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It has. It had an initial drop and shutdown, too, because once people go through these credit repair and/or debt forgiveness processes, they still have some obligations. And there was fear that locking consumers into new obligations in such a rapidly changing environment was dangerous, and so we saw an initial hit there, initial — pretty dramatic drop in activity in client demand. And we’ve seen that come back much more aggressively than the lending side.

And 40% or more of our historic personal businesses is in that category. So we’re somewhat diversified in that business because we do have and represent those services for consumers and unfortunately, we’re probably going to go through a period where a lot more consumers need those services.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst [13]

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Okay. Great. And then two quick ones on QRP. Just one, at this current environment with having everybody work from home, is that creating any delays to rollouts of any particular carriers or agents? And then number two, just wondering if you could address the opportunity for captive agents as it relates to QRP.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [14]

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You bet. I’d say, if you ask the team working the pipeline for QRP, they would say not — no meaningful effects, and they’re not — and they would say — and I’m proud of them for this, they’re saying, “We’re not going to use that as an excuse, Doug.” But realistically, some of the agencies’ launch time lines moved a little bit largely because they’re working from home and their engineering staff is working from home, and it’s just a little bit harder to get stuff done. But I would say that those delays, while measurable, don’t change our outlook for that business growth. We still are very bullish on that business and expect that to be very big over the — and to be coming at us really hard over the next year or 2.

So some is the answer but still a, as you heard, very healthy progress and a very healthy pipeline, and we’re super excited about the clients that we have launched and watching their ramp so that we can — each quarter, we’ll report to you what we know. And we now have revenue. There’s not a lot of revenue yet because the agency clients are newly launched and they are doing their own testing and making sure everybody’s trained because it does require training to use the new platform. But as you heard, one of the clients said, “Hey, we don’t need any more training. We don’t need any more testing. We’re going into the whole floor. This thing is working fine for us.” We’re hoping to see a lot more of them. And if we do, then as we report to you next quarter, we would like to begin to report once it becomes a meaningful item, just — not just the opportunity but the actual revenue. And then we’ll begin to be able to model ramps and be able to give you a better sense for timing.

But I think the ramp of this business is likely to be months to quarters, not years. It’s hard to not use a platform that delivers us much value. And it’s so simple to integrate. It’s a SaaS product, of course. It’s not like you have to do a lot of integration generally. And the productivity increases that you’re going to see in your business for a price point that’s really competitive with historic much less capable systems at this point is super compelling. So we’re very focused on it. We’re very pleased with the progress. We’ve got a lot of support from a client base on the agency side. We’re getting a lot of support from the client base on the carrier side. And so that’s why we’re willing to keep telling you what we know and we’ve given you — much like we did last quarter, we gave you some pipeline stats. We felt like it’s important to continue to give you pipeline stats, and hopefully, we’ll be able to start adding revenue into — in the not-too-distant future.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division – Senior Research Analyst [15]

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On the…

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [16]

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Okay. Captive agents. I’d say that little — less but not 0 opportunity on the captive agent side for QRP. So they don’t — they are captive agents, so they’re representing one carrier’s product. The biggest — best examples being, of course, the great networks at State Farm, Allstate and Farmers and have — which are kind of some of the best known, biggest brands with captive agent networks. So they have their own systems for their own product.

That being said, I don’t think it’s crazy to expect that there may be some adoption of this product to allow those agents to broaden their product line. I’m not saying that there’s 100% that we — chance we’ll go and do that. But I would also say there’s definitely not 100% chance it won’t happen, and we are having productive discussions with a lot of carriers about using QRP. And those carriers run the full range of captive independent direct.

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Operator [17]

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We’ll take our next question from Jim Goss with Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [18]

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Got a couple also. One, you’ve talked about having SaaS-type margin levels for QRP. Could you flesh out a little what type of margin profile you expect either earlier or at maturity?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [19]

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Sure. And the difference between this product, although it’s highly complementary, of course, to our historic core business and it’s spun out of our historic core business and serves the same channels of clients, is that there’s no media cost. And as you know, Jim, historically, media runs approximately — or over the past several years, media costs run about 70% of revenue. And so we believe that the — we expect the gross margins on QRP to be 90% plus. We have an engineering team, and we have some folks who work in sales pipeline and account management. Most of those folks — some of those folks — not many of them will be applied to gross margin, which means that we expect a contribution margin. So after all direct expenses to be somewhere in the 70% to 80% range, and we expect to be at the — at that level as soon as we get to kind of somewhere in the — I don’t know, Greg. Is it mid-single-digit millions of dollars of revenue that we hit the 70% and start ramping from there?

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Gregory Wong, QuinStreet, Inc. – Senior VP & CFO [20]

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Yes, that’s right.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [21]

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So this is a — and as it scales, it’s just very little incremental cost to us for new clients. So it’s a classic SaaS-like business. It’s a software package that you log in to our cloud, and then you apply it and use it in your operations, and we charge you on a usage basis commensurate with historic products, systems that these agencies are used to using. We’re not changing the pricing model on them. We’re just giving a better product and pricing competitively with legacy products, so you get great adoption and hopefully continued great performance.

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [22]

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Okay. And there was a comment you made about a $400 million plus of revenue base. Is that the current revenue base adjusted for just a couple of areas you’ve divested, Brazil and B2B? Or is it after you’ve adjusted out perhaps some other areas, whether it’s credit card and personal loan, if you thought that was more than temporary or some other areas you might choose to divest to get to the businesses you want to run on a continuing basis?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [23]

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Yes. The revenue, excluding divested businesses numbers that we talk about in the press release and that I and Greg talked about, only exclude B2B, Brazil and, Greg, mortgage?

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Gregory Wong, QuinStreet, Inc. – Senior VP & CFO [24]

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No, just B2B and Brazil.

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [25]

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Just B2B and Brazil. And so that’s the comparator. I would say that you should not assume that we are necessarily done with our review of divestiture opportunities or programs. I would also say you can’t — you should not necessarily assume that we aren’t done. We are continuing to evaluate aggressively options in some other areas to decide what we think is the right thing to do and whether or not some of those businesses can compete for the position in our core where we — with the requirements really being the ability to — big scale opportunities with the ability to more predictably and aggressively grow revenue and expand margin and defend and take out some of the unpredictability and volatility that we’ve seen. So certainly, we did not meet those requirements for us. We just never found a way to make that into our model. Brazil did not — is coming way too slow — too difficult to break into the market with our model given what was going on down there, and the incumbents were very different market model, which was not as good for the clients but still dominated and too difficult to get through the noise. And I’d say that we have a couple of other areas that we’re looking at and that we’re assessing either as divestitures or places where if they — if we keep them until they prove they can compete for the new footprint, at a minimum, they will be — their investments will be cut pretty dramatically. So we’re going to get down to this footprint one way or the other and — but in terms of the numbers, as Greg said, the numbers exclude just — that we used in the press release, including the growth numbers, I guess, and in my script, just exclude B2B and Brazil. So [to the extent, we come] there.

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [26]

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Just one last one. Have you — and I know you said the Goldman Sachs-led process is put on hold a little bit for — because of the coronavirus issue. Do you have a time frame over which you’d like to get down to what the core businesses are so that you then have a time frame and revenue base to grow from? Is that another year or 2? Or is it sort of a rolling-type process?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [27]

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Much sooner than a year or 2. Honestly, we would like to make decisions and execute options as soon as possible, and we’re behaving accordingly. I can tell you that, internally, ideally, we’d like to have it done by the beginning of the next fiscal year. Whether or not we can get that done remains to be seen. At a minimum, I’d like to know exactly what we’re going to do with each of those businesses by beginning of the next fiscal year. So — and as you know, that’s 2 months away.

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Operator [28]

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(Operator Instructions) We’ll take our next question from Adam Klauber with William Blair.

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Adam Klauber, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Financial Services and Technology [29]

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How has the debt repair business done since COVID set in? And is that something, I would think in a tougher economy, could potentially pick up also?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [30]

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It initially did not do well because, again, they, too, were trying to make sure they adjusted their models for rapidly changing consumer credit environment. And then we saw it begin to pick up and has recovered much more quickly than the lending side. And we agree that that’s a business that, unfortunately, is probably going to get bigger in the next months, quarters and years for too many years as the — as we continue to wrestle with this — with unemployment, the bad economic environment. And I think, as you know, historically, that’s been somewhere in the neighborhood of 40% to 50% of our business on the personal loan side.

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Adam Klauber, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Financial Services and Technology [31]

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Great. And then as far as your fourth quarter forecast, insurance, again, was very strong. I think you said you had a record March. Did you conservatively say that, that business does — considerably may not grow as much in your forecast for fourth quarter as you saw in the third quarter?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [32]

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Our current forecast has that business growing pretty close to the same rate that it grew in the third quarter.

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Adam Klauber, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Financial Services and Technology [33]

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Okay. Okay. And then as far as the education business, sorry if you said this already, how is the more traditional non-for-profit schools? Are they still out there spending money?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [34]

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They are except on the campus basis. What we saw in education from a coronavirus dynamic standpoint was a dramatic drop very quickly in campus-based marketing budgets as you can well imagine because they don’t know if they’re even going to have people on campus in the fall. So why market for them? And that’s pretty meaningful for us. I don’t think it was quite 50% of our business in education. It used to be. But it was — it’s quite meaningful. And again, I don’t have the number in front of me, but if I were to guess, my estimate would be it was going into coronavirus, so it was probably in the 30% plus range, and it went away almost completely. And so we had to pivot very hard in education over to online. And so what we are seeing is a lot of growth in online programs and online demand including for the not-for-profit schools and a pretty aggressive shift over from those folks in terms of their interest and budgets. And so that team, growing 4%, 5% year-over-year in last quarter, which was pretty a herculean task on their part because they had to move hard and fast to get that done, so still growing, still a big opportunity.

Still — jury is still out in terms of whether or not that’s going to be able to compete for a place in the core. We are evaluating that. We’re excited about the team that’s working on it now. But we’re also evaluating whether or not that’s the business that’s going to compete with the core and so what could the outcomes be? We’re going to keep it — keep investing in it as we continue to demonstrate that we can grow in the not-for-profit world and that we can grow in other nondegree programs like coding camps and certificate programs and those kinds of areas. That would be the case for keeping it and growing it and investing in it. There’s a case for keeping it but not investing until they demonstrate those things. If we think that, that could still happen in some highly probabilistic way and then there’s a case for divesting that business that we’ll be evaluating as well. So we’re going through that full assessment, and we’ll make a decision. And again, as I told Jim, in coming months, not coming quarters or years.

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Adam Klauber, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Financial Services and Technology [35]

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And then the last question on QRP. Are you expecting much revenue to start hitting next quarter? Or is the actual revenue expected still to be maybe 2, 3 quarters out?

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Douglas Valenti, QuinStreet, Inc. – Chairman, President & CEO [36]

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We have revenue now. It’s just not very much yet. So it’s — we have more — we had revenue last quarter. But again, if you can imagine, it’s — we had a few launched agency clients with a few of their agents testing and training. So it was pretty de minimis. And so we will have revenue this quarter. How much? We just can’t tell yet. Again — and I know you guys are sick and tired hearing me say this, but we’ve just never done it before. So I would say that I don’t expect us to have 7-figure plus revenue in QRP in all likelihood until next fiscal year, which, of course, is just 2 months away. And just hard for me to see us getting the 5 or so agencies that are not live do testing and training and rolled out across their floor fast enough to get any — to do any better than that. But I would say that it’s hard to — it’s just as hard to imagine, but we won’t have at least 7 figures, and it looks more like 8 figures revenue in QRP next fiscal year given the strength of the pipeline, the launch of clients and all those things. So that’s kind of how we’re looking at.

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Operator [37]

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(Operator Instructions) At this time, this will conclude today’s question-and-answer session. A replay of today’s call will be available starting today, May 6, 2020, at 7:00 p.m. Central Time Zone and ending on May 13, 2020, 7:00 p.m. Central Time Zone by dialing the following phone numbers, (719) 457-0820 and toll-free (888) 203-1112 with a passcode of 7941495. Thank you. This does conclude today’s conference. We appreciate everyone’s participation. You may now disconnect.

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TML introduces mortgages for credit impaired borrowers

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TML introduces mortgages for credit impaired borrowers

The Mortgage Lender (TML) is launching a range of residential mortgages to cater for borrowers who have suffered some form of credit issue through a change in circumstance.

 

The Lumi-branded range is available up to 75 per cent loan to value (LTV), across four categories to support customers with defaults, county court judgements (CCJs) and mortgage arrears.

The products are available for employed, self-employed and complex income applicants.

Rates start at 4.98 per cent for a two-year fix and 5.29 per cent for a five-year fix at 70 per cent loan to value and are open for loans between £25,001 and £1m.

It also offers criteria for unsecured arrears, bankruptcy and pay day loans outside that of TML’s standard range.

The lender said it was taking a pragmatic approach to the real-world experience many clients are facing and it was providing “a stepping-stone for homemovers or those remortgaging and, in some cases, credit repair”.

TML sales and product director Steve Griffiths said: “Now more than ever lenders need to have criteria that caters for a wide range of customer circumstances and recognise that the last 12 months has been financially difficult for many people.

Doug Hall director of distributor 3mc added: “We are seeing increasing numbers of customers whose financial situation has been impacted by the coronavirus pandemic who need products that are appropriate for their circumstances now.

“Through sharing our knowledge and challenges with lenders, like TML, the specialist lending sector is proving it can meet those needs in a responsible way.

“The launch of Lumi is great news for brokers and customers. It shows lenders are listening and able to respond to the market, improving customer choice and competition.”

 



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Landmark Point Predictive Fraud Study Details Record Year for Auto Loan Fraud in 2020

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SAN DIEGO–(BUSINESS WIRE)–Apr 15, 2021–

Point Predictive Inc., the San Diego-based artificial intelligence and data science company that helps lenders predict the trustworthiness of loan application information, published research detailing increased levels of attempted loan fraud in 2020, which the company believes could continue through 2021.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20210415005688/en/

US Auto Loan Fraud Reaches $7.3 Billion in 2020 (Graphic: Business Wire)

The company’s Auto Fraud Report is the auto finance industry’s most comprehensive annual assessment of application fraud risk. The 2020 edition includes unique insights about income and employment misrepresentation, identity fraud, and collateral fraud for US auto lenders, as well as the impacts of the pandemic on this important sector of the economy.

“2020 was a pivotal year for fraud risk, with auto loan fraud reaching $7.3 billion of originations,” said Frank McKenna, Chief Fraud Strategist for Point Predictive. “The pandemic heightened fear and anxiety and likely made consumers more vulnerable to scams and frauds. The ensuing economic turmoil caused an immediate and dramatic rise in unemployment, increasing some people’s willingness to engage in loan fraud. Furthermore, a flood of stimulus money and generous lender forbearance programs simultaneously increased the level of fraud while delaying lenders’ ability to recognize it.”

Many lenders have praised Point Predictive’s research due to the breadth, detail, and scope of the analysis. This year’s analysis drew from the Point Predictive anti-fraud Consortium dataset, a secure and private data science collaboration among dozens of US lenders. The Consortium now includes over 94 million loan applications containing 85 individual fields of data on each application. Every month, activity from 45,000 dealerships contributes to a view of vehicle financing that spans nearly all 157,000 US auto dealers. This data set tracks over $2.7 billion in known early payment default and the company’s machine learning techniques have generated more than 10 billion risk attributes, offering unparalleled insight into mostly hidden risk trends and the ability to predict more fraud than ever before.

“Consortium data is deeper and more predictive of risk than any credit bureau or public records source,” said McKenna. He continued, “This vast and deeply-specific data on each loan application gave us incredible clarity into fraud risk that lenders are exposed to. And one thing is for sure: the risk of fraud to auto lenders rose dramatically as the pandemic unfolded.”

One of the most significant trends addressed by the analysis was the marked uptick in income and employment misrepresentation. As the lockdowns began, Consortium members were suddenly impacted by a 100% year-over-year increase of falsified income and employment claims on auto loan applications, a level of risk which continued throughout the year. Detected among the trend was the use of over 300 new, but bogus employers each month, used by applicants to fraudulently convince lenders of steady sources of income.

Completing a complex risk picture for fraud managers, the report notes that scams like synthetic identity creation, credit washing, and even lawful impacts of credit repair efforts complicate efforts by lenders to guard against fraud in order to more quickly serve trustworthy borrowers.

“As a lender, you have to keep your guard up at all times. No assumptions can be made about any loan application until every single one clears a satisfactory fraud review,” said Steve Christensen, Executive Vice President of Elite Acceptance Corp. “The analysis and outlook from Point Predictive is essential reading in order to be prepared. For Elite Acceptance, the crucial trends to get ahead of are the dealer implications, such as a sale price inflation of over 10% on the top 10 models,” said Christensen. He concluded, “I credit Point Predictive for exposing the truth behind what is presented to lenders by dealers and borrowers.”

Additionally, the analysis of auto loan fraud in 2020 covers other concerning trends, including clusters of fraud in certain states and metropolitan statistical areas (MSAs), new tactics used by self-employed borrowers, patterns of suspicious and ambiguous naming conventions for fake employers, synthetic identity centers, Social Security number manipulation tactics, vehicles subjected to inflated pricing, and the systematic disputing of multiple negative tradelines on a credit report in order to make the borrower appear to be more creditworthy. Power booking is also on the rise, wherein dealers inflate sale prices and falsify down payments to increase the chances of loan approval.

The Auto Fraud Report concludes with recommendations from Point Predictive’s fraud experts for staying ahead of fraud in 2021. Tim Grace, Chairman and CEO of Point Predictive, encourages lenders to bolster fraud defenses and staff. “In times of crisis, there is often a need to reduce costs to stay profitable amidst decreasing volumes. But this is a mistake. The rate of fraud and risk will increase over the next 18 months, making fraud prevention and staffing one of the most important investments you can make in maintaining the health of your portfolio. Resist the urge to cut costs where it matters most.”

Auto, mortgage, and student lenders who are interested in receiving a copy of Point Predictive’s 2020 Annual Auto Fraud Report should contact [email protected].

About Point Predictive Inc.

Point Predictive enables lenders to fund more loans simply with a unique combination of Artificial and Natural Intelligence™ (Ai+Ni™) to power machine learning technology solutions. Point Predictive helps automotive, mortgage, retail and personal loan finance companies to identify the consumer applications with truthful and reliable information without the intense interrogation and verification of data caused by lower tech solutions currently in use. Highly regarded as the most trusted fraud and misrepresentation analytic solution providers, Point Predictive has transformed that trust to enable lenders to fund more loans to more consumers simply. Point Predictive uses big data powerfully orchestrated from millions of examples of true and falsified loan applications, billions of derived proprietary data elements, and scientifically selected third-party data sources to build powerful machine learning models with the added natural intelligence of human experience.

Located in San Diego, California, more information about Point Predictive can be found at www.PointPredictive.com.

View source version on businesswire.com:https://www.businesswire.com/news/home/20210415005688/en/

CONTACT: Dennis Behrman

VP of Marketing & Growth, Point Predictive

858-227-6644

[email protected]

KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA

INDUSTRY KEYWORD: TECHNOLOGY FINANCE AUTOMOTIVE GENERAL AUTOMOTIVE SECURITY BANKING PROFESSIONAL SERVICES SOFTWARE DATA MANAGEMENT

SOURCE: Point Predictive Inc.

Copyright Business Wire 2021.

PUB: 04/15/2021 10:57 AM/DISC: 04/15/2021 10:57 AM

http://www.businesswire.com/news/home/20210415005688/en



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TML announce launch of new residential Lumi products

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Steve Griffiths TML





A new, Lumi-branded, residential product has been launched by The Mortgage Lender, following a rise in demand from borrowers who have been financially impacted by the pandemic.

TML say that the range is available up to 75% loan to value, across four Lumi categories and caters for customers with defaults, CCJs, and mortgage arrears. It also offers enhanced credit criteria for unsecured arrears, bankruptcy and payday loans when compared to TML’s core range.

Lumi products are available for employed, self-employed and complex income applicants. The minimum loan is £25,001 and the maximum loan is £1m with rates starting at 4.98% for a two-year fix and 5.29% for a five-year fix at 70% loan to value.

Steve Griffiths, The Mortgage Lender sales and product director, said: “Now more than ever lenders need to have criteria that caters for a wide range of customer circumstances and recognise that the last 12 months has been financially difficult for many people.

“Our Lumi range, which is available through specialist distributors, takes a pragmatic approach to the real-world experience many of our broker partners are presented with when they are sourcing a mortgage for their clients.

“It offers fair rates combined with a flexible approach to underwriting that provides a stepping-stone for home-movers or those remortgaging and, in some cases, credit repair.”

Doug Hall, 3mc director, adds: “We are seeing increasing numbers of customers whose financial situation has been impacted by the Coronavirus pandemic who need products that are appropriate for their circumstances now.

“Through sharing our knowledge and challenges with lenders, like TML, the specialist lending sector is proving it can meet those needs in a responsible way. The launch of Lumi is great news for brokers and customers. It shows lenders are listening and able to respond to the market, improving customer choice and competition.”

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