Erica Abrams - Co-Founder and Managing Director Douglas Valenti - Chairman and Chief Executive Officer Gregory Wong - Chief Financial Officer and Senior Vice President

John Campbell - Stephens

Good day, and welcome to QuinStreet fourth quarter 2014 earnings conference call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Erica Abrams. Please go ahead.

Thank you, operator, and good afternoon, ladies and gentlemen. Thank you for joining us today to report QuinStreet's fourth quarter fiscal 2014 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 relate to future events or financial performance and involve risks and uncertainties. QuinStreet's actual results may vary materially from those discussed here. Factors that may cause the results to differ from our forward-looking statements are discussed in our most recent 10-K filing with the SEC, completed on August 20, 2013. Forward-looking statements are based on current expectations, and the company does not intend to, and undertakes no duty to, update this information to reflect future events or circumstances. Now, I will turn the call over to Doug, CEO of QuinStreet. Please go ahead.

Thank you, Erica. Hello, everyone. Thank you for joining us today. Fiscal Q4 revenue was $67.6 million, just above the outlook we provided in our last call. Adjusted EBITDA was 3% of revenue, in line with our outlook for single digits, and consistent with management’s expectations. EBITDA margin reflected our aggressive investments in new products, media, and marketing initiatives, as forecast. Those investments are clearly beginning to pay off. In auto insurance, almost 50% of revenue is already coming from the recently launched new products described in our last call. The products are driving renewed, positive momentum and have significantly increased our growth opportunities in that important market. We now expect double digit sequential growth in auto insurance revenue in the current, or September quarter, our fiscal Q1, and year over year growth beginning in the December quarter. We are seeing benefits from a broader product line and expanded media footprint across the financial services vertical. We expect revenue in all of our financial services client groups, which include auto insurance, mortgage, credit cards, health and life insurance, and deposit accounts to grow sequentially in the September quarter, the first time that has happened in five years. And, we expect our financial services client vertical in total to grow year over year beginning in the December quarter. We are seeing good results and progress on other strategic initiatives as well. For example, last quarter was our strongest quarter yet of signing and growing distribution partnerships with large media companies, an important strategic and diversification initiative for the company. These relationships are driving good volumes of new, high-quality visitors for our client programs and generating new streams of performance marketing revenues for our partners, which now include AOL, Mint.com, FICO, and TransUnion, among others. We also entered into important relationships in new product areas, including, for example, with Bankrate and the auto insurance leads market, where we are matching our traffic from our proprietary media network to Bankrate’s clients in addition to the clients we serve directly. The relationship is early, but draws on complementary capabilities and assets, and could be important as both companies work toward an improved auto insurance marketing experience for internet visitors and better outcomes for clients. The education client vertical continues to be a mixed bag. The for-profit industry is still challenged and in transition, and that is putting downward pressure on marketing spend and our revenues. But, there are also a lot of positives to report for our education business. We have made very good progress shifting to higher-quality products now needed by for-profit schools, and we have been able to hold and increase average pricing as a result. We also believe that we have continued to gain share of shrinking spending on online lead generation by for-profit schools. All in all, we continue to work to navigate the challenges in the for-profit education market and to maintain a solid, profitable core business there. We continue to invest in clicks, calls, and higher-intent leads as those products align better with the for-profit education industry’s needs. And we have restructured and augmented our leadership team in the education client vertical to better pursue those opportunities. At the same time, we are making good progress growing not-for-profit client revenue and international revenue, mostly in Brazil, at high rates. Revenue from not-for-profit and international clients is expected to reach over $20 million, or 16%, of education revenue in fiscal year 2015, up from 10% last year. In total, we expect modest sequential growth in the education client vertical in the September quarter. Our other client vertical, which includes B2B, home services, and medical, grew nicely last quarter and last year, also benefitting from our company-wide initiatives to expand our products, media, and clients, and from improved execution, resulting from a mid-year reorganization. We expect continued solid performance from those businesses. Given the just-completed fiscal year, I wanted to update you on the progress of some of our most important product and media initiatives. Along with our product efforts in auto insurance, these are the initiatives that are helping to drive new momentum, overcome and offset declines elsewhere, and position us for a return to long term growth. First, mobile. We grew revenue from mobile traffic in fiscal year 2014 by over 50% to over $30 million by developing mobile-specific and mobile-optimized programs and user experiences. We plan to grow revenue from mobile traffic by over 50% again in fiscal year 2015. Next, call center. We grew call center revenue in fiscal year 2014 by over 100% to about $21 million, as we expanded programs to all verticals and added call and call-related products to the mix. We plan to grow call center revenue by another 45% in fiscal 2015. Partnerships with large media companies. We grew revenue from distribution partnerships with large media companies from about $700,000 in fiscal 2013 to over $11 million in fiscal 2014. We expect to grow revenues from those partnerships by over 50% again this year. Social media. We grew revenue from social media sources by 77% in fiscal 2014, to over $6 million. We plan to grow revenue there by almost 40% in fiscal 2015. Not-for-profit educational clients. We grew revenue from not-for-profit clients by about 50% in fiscal 2014 to over $10 million, and we expect to grow that revenue by another 45% in fiscal 2015 to almost $15 million. Brazil. We grew education revenue in Brazil by 100% in fiscal 2014 to $2 million. We expect to double revenue there again in fiscal 2015 to $4 million. We are off to a great start in that important and large market. We are well-positioned for strong long term growth in Brazil. Education click products. We grew ref from our click products in education by 47% in fiscal 2014. We expect to more than double revenue from that important product in fiscal 2015 to over $11 million. Now, turning to our fiscal Q1 outlook, revenue is expected to be back over $70 million and to come in at approximately $71 million. Adjusted EBITDA margins will continue to be positive and in the low single digits in the next couple of quarters, as we continue to transform the business and invest in revenue growth initiatives, especially in auto insurance. On margins, I think it is important to understand that our businesses, except auto insurance, are contributing such that we could return to adjusted EBITDA margins of approximately 20%. But that would be at the expense of the pursuit of important initiatives in auto insurance to return the company to overall growth. We are investing most heavily in auto insurance because we believe that client vertical to be our single largest addressable market opportunity, and because we have such a strong position with clients, products, and other assets on which to build. We believe we are investing smartly, prudently, and effectively against that important opportunity. We will continue to report our progress to you in detail. We remain in strong financial condition as we continue to progress through this transitional and transformational period. We plan to keep investing in initiatives to return to growth, but we also plan to continue to manage positive adjusted EBITDA and cash flows. Our net cash position at the end of last quarter was $46 million. Performance marketing is a big and important opportunity. We are seeing good success in our initiatives to diversify and expand our media, products, and client footprint. We are also seeing growing interest and success from client and media partners alike. Our investments in new initiatives are working and are key to returning the business to year over year growth. Margins will re-expand with the return of top line growth and as we wind down this heavy investment period. With that, I’ll turn the call over to Greg, who will discuss the financials in more detail.

Thanks, Doug. Hello, and thanks again for joining us today. Today, I’ll provide a brief recap of the quarter, an overview of the past fiscal year, and then more detail on our fourth fiscal quarter. At a high level for Q4, we posted $67.6 million of revenue, an 11% decline compared to the same quarter last year. Adjusted net income was $526,000 or $0.01 per share on a fully diluted basis. Adjusted EBITDA was $1.8 million or 3% margin, consistent with management expectations and the outlook we provided on the last call. Looking back at fiscal 2014 as a whole, it has been a transformational year for QuinStreet, particularly in the back half. We made good progress with our product, market, and media expansion strategies that we have been discussing for some time. Specifically, in auto insurance, we launched our full range of complementary new products at the end of the third quarter and have already transitioned approximately 50% of our revenue to those products in that important client vertical. This is a big success for us, as it significantly expands our addressable market and allows us to better differentiate quality, which leads to better monetization and increased access to high-quality media sources. We began to see the impact of these benefits at an accelerated rate in the latter part of the fourth quarter. We ended the year with a clear momentum shift that we continue to see as we move into fiscal Q1. We now expect the company to deliver year over year revenue growth for fiscal 2015. While we’ve invested significantly over the past year to support our product offerings and our growth initiatives, we continue to be financially disciplined and maintain a fundamentally strong business model, delivering 9% adjusted EBITDA margin for the year and generating $18 million of operating cash flow, $10 million of free cash flow, and $15 million of normalized free cash flow. Overall, our net cash position increased from $35 million at the beginning of the year to $46 million at year-end. So with that overall context, I’ll now discuss the details of our fiscal Q4 results. Please see the supplemental data sheets available for download on the investor relations page of our corporate website. They provide essentially all the figures that I will now walk you through. For revenue by client vertical, our education client vertical represented 40% of Q4 revenue or $27 million, a decline of 18% compared to the year ago quarter. The decline was primarily driven by continued challenges in the for-profit education market. We are progressing well with our initiatives to offset the for-profit industry headwinds. These initiatives include a continuing shift of our product mix to deliver more premium, highly qualified higher-intent leads, which are needed by our clients given the current regulatory dynamics they are facing. We are also seeing good progress with click product, which not only broadens our product footprint but also gives us access to client budget that is in addition to what is available to us with our traditional lead product. We believe both of these initiatives reduce risk and provide a more stable base of education revenue. We are also making great progress with our efforts with not-for-profit schools and our international expansion in Brazil, both of which have been growing at a rapid pace and are not subject to the regulatory dynamics of the for-profit education market. International and not-for-profit schools represented 10% of our education revenue this past fiscal year, and we expect that to grow to 16% in fiscal 2015. Although these are early markets for performance marketing online, they are now providing meaningful impact to our overall education results and represent a huge opportunity for QuinStreet. We believe that over time, the progress we are making with for-profits and continued strong growth with not-for-profit schools and Brazil will return our overall education business to year over year revenue growth. This is a great long term business for us. Our financial services client vertical represented 40% of Q4 revenue or $27.2 million, a decline of 13% compared to the year ago quarter. As discussed in our last call, in auto insurance, we launched a full range of complementary, click, lead, and policy products at the end of Q3, and are pleased with the client adoption, engagement, and ramp of those products that we saw in the latter part of the fourth quarter. We expect that ramp to continue at an accelerated pace in future quarters, and expect double digit sequential revenue growth from auto insurance in Q1. Client marketing budgets in auto insurance are substantial, and this represents the largest addressable market for the company. Importantly, we saw a momentum shift in our financial services client vertical in the fourth quarter, which we are continuing to see as we have entered Q1. Our life and health insurance, credit cards, and deposits businesses all experienced double digit year over year revenue growth this past quarter, and we expect that trend to continue in Q1. We also expect all of our financial services businesses to grow sequentially for the first time in five years. Revenue from our other client verticals represented 24% of Q4 revenue and grew 16% compared to the year ago quarter to $13.3 million. Solid execution from our B2B technology and home services client verticals drove the growth. Both of these businesses experienced double digit year over year revenue growth in the fourth quarter, and we expect that trend to continue in Q1. Moving to a discussion of the EBITDA, for adjusted EBITDA, we delivered $1.8 million or a 3% margin, consistent with management expectations and the outlook provided last quarter. As we outlined in the last call, EBITDA margin in Q4 reflected our increased investment in media marketing spending for its growth initiatives, including our expanded product set in auto insurance as well as diversifying and growing high-quality media sources throughout the business. These investments are working, and we will continue to invest aggressively in media and marketing to support our growth initiatives across the entire business, but particularly in auto insurance. We believe that once our products are ramped and optimized, they will result in meaningful revenue growth at good margins over time. For the near term, we expect that investment to outpace revenue, resulting in EBITDA margins in the low single digits for the next couple of quarters, but to be clear, EBITDA margin will re-expand as we see the top line grow. Remember, our historical adjusted EBITDA target has been 20%, and we believe that is the right structural target for our long term model as we increase the top line over time. That being said, we will not rush back to those margins if it comes at the sacrifice of continuing to invest in initiatives that we believe will drive long term shareholder value. Moving to the tax front, our rate, as we are close to breakeven on the tax basis, is not meaningful. For your modeling purposes, we expect our ongoing rate to be approximately 40%. Moving to the balance sheet, as discussed in our press release, the recent decline in our stock price over the last few weeks triggered a need to evaluate our goodwill carrying value. We are currently conducting an evaluation as to whether goodwill is impaired. The GAAP figures are preliminary until that evaluation is complete, and we plan to make changes, if any, prior to filing our form 10-K. Of course, a goodwill impairment charge is noncash in nature, and does not affect any revenue, adjusted net income, adjusted EBITDA, or cash flow figures. Our cash and marketable securities balance at year-end was $123 million. You can see the details in the cash flow statement of our earnings release, but the largest items were the generation of $18 million of cash flow from operations, capital expenditures of $8 million, and payments on debt of $15.4 million. Total debt decreased to $77 million from $93 million at the beginning of the year, due to repayments, and we had no new borrowings. Our net cash position is a positive $46 million. To summarize, three primary points. One, we ended our fiscal year with results demonstrating real progress on the plans we’ve been sharing with you, initiatives to return us to growth. In Q4, we experienced a real momentum shift in the business, delivering double digit year over year revenue growth in five of our businesses: life and health insurance, credit cards, deposit accounts, B2B technology, and home services, and we expect those businesses to grow double digits year over year again in Q1. We also saw good progress with the ramp of our new auto insurance products in the latter part of Q4 and now expect double digit sequential growth in the September quarter from that important business. Two, we have a fundamentally strong business model that continued to deliver respectable EBITDA margins and solid cash generation this past year. We will continue to be financially disciplined and maintain a strong balance sheet in this important period of investment over the next few quarters. And three, QuinStreet is a leader in online performance marketing, and we operate in large, attractive addressable markets. With an over 14-year track record, we believe we have the market expertise and the best competitive assets to capitalize on this enormous market opportunity. With that, I’ll turn the call over to the operator to open up the Q&A.

[Operator instructions.] And our first question will come from John Campbell with Stephens Incorporated. John Campbell - Stephens: It sounds like you guys are definitely seeing and expecting continued sharp not-for-profit education revenue in full year 2015. And I may have missed this, but just give us your general expectations for the for-profit side looking out over the next several quarters. And then maybe just further on that, if you guys could talk to us a little bit about the initial conversations you’re having and kind of the early stages of budget planning cycles for calendar year 2015? Just both sides of that education spectrum.

Sure, John. And we actually just finished a budget cycle for fiscal 2015, because our fiscal, you may recall, ends in June. So we just started a new fiscal year, and we won’t necessarily rebudget for the calendar. But overall, our view on for-profit education is that it will continue to be the most challenged of our businesses. I think it’s the only business we’re now projecting to be down year over year in fiscal 2015. Education overall we expect to be approximately flat to down in single digits, and for-profit education, we expect to be down approximately 10% year over year. We feel pretty good about that forecast, but I will, of course, add the obvious, which is it’s a pretty challenged space, and there’s been a lot about it up and down that we haven’t anticipated as the clients go through various stages of transformation and adjustment and adaptation to their new reality. But again, from budgeting standpoint, for for-profits, we think down probably in the neighborhood of 10%, plus or minus a little, and overall education flat to down in the single digits, as the revenue from growth in nonprofits and international, particularly in primarily Brazil, though we have a nicely growing but smaller business in India, offset some of those declines in for-profit. John Campbell - Stephens: And the reason I was asking was more on the budget planning cycle for those guys as they set aside their budget for calendar year 2015, because given you guys are on the fiscal year, could there potentially be tapering headwinds kind of middle of the year for you guys?

It’s a great question. They’re mixed. We have some of them who have fiscal years ending in April and some of them, Devry, for example, thinks on our fiscal year. But you’re right, there’s a bunch of them on the calendar year too. I would say it really is a mixed bag. We’re seeing some clients doing fairly well, and we’re working very hard to continue to do well with them and grow our budgets there. And then we’re seeing other clients that are declining and having real structural issues. And we’re working hard to be as supportive as we can there, but also be cautious about our services there. So again, I don’t think there’s a lot of new news, other than it appears to be a dampening wave of issues, but is still generally, as most of them have reported down and to the right. Just at a little bit, it’s what education analysts, if you read them, continue to say a lot of less worse stuff, which is about as clear a silver lining as you can put on it. John Campbell - Stephens: I think you guys kind of alluded to the higher-quality product you’re starting to focus on, on the for-profit side. How do those differ from some of your more traditional offerings? And then can you give us an idea of what the margin profile is there, for the more traditional products?

Sure, the kind of traditional average conversion rate education lead online, which was the bulk of the business in that industry for most players, including us, for well over a decade, it is a product that’s really in decline. Most of the clients under the new regulatory regime, and with the way they’re managing their call centers, just can’t convert those leads at a rate that’s high enough to make the economics make sense. And there also concerns in the ecosystem, not necessarily in our ecosystem, but generally in the ecosystem, about how those leads are generated and whether or not they can meet the new, much higher expectations and compliance standards of the industry. So that product itself, what we’re seeing industry-wide, is decline in demand and oversupply. And for much and most of the industry, significant declines in pricing as a result of that, not surprisingly, from basic economics, which has happened over the last three or four years. We, on the other hand, have been able to actually increase our average pricing over that same period, in total about 5%. But we’ve increased pricing, and we’ve done that by shifting to, as you ask about, more premium, higher-quality products. And that product set includes leads, certainly, but leads that are more highly qualified and higher intent, that either we’re filtering more aggressively or our publisher partners are, or that we’re qualifying to different standards, or that we’re pulling out of media sources that by their nature are further and deeper into the funnel, and therefore closer to an ability to convert. The next product, and I’ll come back to the margins question in a moment as well, the next premium product really is the click product, and we’re seeing continued very strong interest in that product. It’s really been more supply constrained by us than it has been demand constrained by the clients. And that product generally, because it’s a click over to the client’s website after a matching process, typically, has a very high conversion rate for the clients. Tends to be anywhere from easily 5x to 10x, kind of what the conversion rate is on average traditional lead product that I talked about. So we have grown pretty aggressively that product, but not nearly as fast as we want to, given the great results for clients, and what we continue to see from clients as very, very strong demand and big budget opportunities. And so we’ve shifted aggressively there, and you're going to see us shift, as you heard in my remarks, even more aggressively there over the next number of months, and of course quarters and years. We think that’s a product that’s got an awful lot of legs to it for nonprofit and for-profit clients, and allows us to access budgets and grow budget and grow pricing and do very well there. And then there’s a call product that we continue to grow, not nearly as big as the first two, but either in the call straight to the client or a call that’s screened in our call center and then warm transferred to the client that we continue to work on. As far as margins, the margins generally on those products are probably average 5 points on average lower, less, than what we saw in the mix when we were more heavily the average lead product. But we have seen those margins continue to increase as we’re able to get clients to test the products, and then eventually pay us more for them, because they’re worth a lot more for them. So we don’t believe that structurally this deteriorates our education margins over the medium to long term at all while it does have some effect in the near term, as we both work on optimizing those media sources and those processes and work to get clients to increase their pricing. But over the long term, we think it’s a much more stable business. We think it’s at least as high a margin, and we like that business a lot. The major hit that we’ve taken to education margins - and education margins, by the way, are still quite good - over the past couple of years has really been a result of the significant losses that we and others have seen across our organization portfolio due to Google algorithm changes. We still have a lot of great organic traffic in education, but we lost a lot of great organic traffic in education, which is our biggest organic portfolio. And of course that’s been something that was kind of industry wide, and I think for the most part, we did certainly as well as anybody else, and better than most there. But that’s a pretty big hit, when you take out 100% margin revenue. So again, the overall media margin drop in education over the past couple of years has been in the neighborhood of single digits, mid to high single digits, depending on what period you look at in particular. The vast majority of that is driven by the loss of organic traffic. We think the new product mix is not something that structurally damages our margin profile going forward.

That will conclude today’s conference call. If you would like to listen to a replay of this call, one will be available starting today, August 12, 2014, at 7 p.m. Central time, and will be available until August 19, 2014, at 7 p.m. Central time. To access the replay, please dial the phone number 1-888-203-1112, or 719-457-0820 and enter passcode 2618268. Thank you. That does conclude our conference.