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What changed in QUINSTREET, INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of QUINSTREET, INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+275 added−253 removedSource: 10-K (2024-08-21) vs 10-K (2023-08-21)

Top changes in QUINSTREET, INC's 2024 10-K

275 paragraphs added · 253 removed · 189 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

14 edited+1 added−1 removed62 unchanged
Biggest changeWe have been a pioneer in the development and application of measurable marketing on the Internet. Clients pay us for the actual opt-in actions by visitors or customers that result from our marketing activities on their behalf, versus traditional impression-based advertising and marketing models in which an advertiser pays for a broad audience’s exposure to an advertisement.
Biggest changeClients pay us for the actual opt-in actions by visitors or customers that result from our marketing activities on their behalf, versus traditional impression-based advertising and marketing models in which an advertiser pays for a broad audience’s exposure to an advertisement. 4 Market Opportunity Change in marketing strategy and approach We believe that marketing approaches are changing as budgets shift from offline, analog advertising media to digital advertising media such as Internet marketing.
As a result, we are subject to many federal and state laws and regulations, including restrictions on the use of unsolicited commercial email, such as the CAN-SPAM Act and state email marketing laws, and restrictions on the use of marketing activities conducted by telephone, including the Telemarketing Sales Rule and the Telephone Consumer Protection Act.
As a result, we are subject to many federal and state laws and regulations, including restrictions on the use of unsolicited commercial email, such as the CAN-SPAM Act and state email marketing laws, and restrictions on the use of marketing activities conducted by telephone, including the Telemarketing Sales Rule and the Telephone Consumer Protection Act (the “TCPA”).
Some of our competition also comes from agencies or clients spending directly with larger websites or portals, including Google, Yahoo! and Microsoft. Government Regulation We provide services through a number of different online and offline channels.
Some of our competition also comes from agencies or clients spending directly with larger websites or portals, including Google, Yahoo!, Microsoft and Facebook. Government Regulation We provide services through a number of different online and offline channels.
These changing approaches require a shift to fundamentally new competencies, including: 4 From qualitative, impression-driven marketing to analytic, data-driven marketing Growth in Internet marketing enables a more data-driven approach to advertising.
These changing approaches require a shift to fundamentally new competencies, including: From qualitative, impression-driven marketing to analytic, data-driven marketing Growth in Internet marketing enables a more data-driven approach to advertising.
We have demonstrated this commitment by: (1) adding Diversity as one of our core values, (2) producing our first gender and race demographic report, and (3) matching employee contributions to approved national associations and organizations ranging from legal advocacy to domestic support. We have also formed a Culture Committee to create inclusive and diverse events.
We have demonstrated this commitment by: (1) adding Diversity as one of our core values, (2) producing our annual gender and race demographic report, and (3) matching employee contributions to approved national associations and organizations ranging from legal advocacy to domestic support. We have also formed a Culture Committee to create inclusive and diverse events.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The SEC maintains an Internet site ( http://www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 9
Our proprietary technologies have been developed over the past 24 years to allow us to best segment and match media or traffic, to deliver optimized results for our clients and to operate our high volume and highly complex channel cost-efficiently.
Our proprietary technologies have been developed over the past 25 years to allow us to best segment and match media or traffic, to deliver optimized results for our clients and to operate our high volume and highly complex channel cost-efficiently.
References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us.
References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us.
The health of our workforce remains our top priority while we work to ensure a safe work environment in our offices around the world. 8 As of June 30, 2023, we had 937 employees, which consisted of 270 employees in product development, 51 in sales and marketing, 45 in general and administration and 571 in operations.
The health of our workforce remains our top priority while we work to ensure a safe work environment in our offices around the world. 8 As of June 30, 2024, we had 899 employees, which consisted of 506 in operations, 291 employees in product development, 58 in sales and marketing and 44 in general and administration.
Our development teams work closely with our marketing and operating teams to develop applications and systems that can be used across our business. In fiscal years 2023, 2022 and 2021, we spent $28.9 million, $21.9 million and $19.3 million on product development. Our primary data center is at a third-party co-location center in San Francisco, California.
Our development teams work closely with our marketing and operating teams to develop applications and systems that can be used across our business. In fiscal years 2024 and 2023, we spent $30.0 million and $28.9 million on product development. Our data centers are at third-party co-location centers in San Francisco, California and Las Vegas, Nevada.
In addition, these contracts do not contain penalty provisions for cancellation before the end of the contract term. Sales and Marketing We have an internal sales team that consists of employees focused on signing new clients and account managers who maintain and seek to increase our business with existing clients.
Sales and Marketing We have an internal sales team that consists of employees focused on signing new clients and account managers who maintain and seek to increase our business with existing clients.
Clients In fiscal years 2023, 2022 and 2021, we had one client, The Progressive Corporation, that accounted for 20%, 17% and 23% of net revenue. No other client accounted for 10% or more of net revenue in fiscal years 2023, 2022 and 2021.
Clients In fiscal years 2024 and 2023, we had one client that accounted for 12% and 20% of net revenue. No other client accounted for 10% or more of net revenue in fiscal years 2024 and 2023. Our top 20 clients accounted for 46% and 52% of net revenue in fiscal years 2024 and 2023.
Our top 20 clients accounted for 52%, 51% and 58% of net revenue in fiscal years 2023, 2022 and 2021. Since our service was first offered in 2001, we have developed a broad client base with many multi-year relationships. We enter into Internet marketing contracts with our clients, most of which are cancelable with little or no prior notice.
Since our service was first offered in 2001, we have developed a broad client base with many multi-year relationships. We enter into Internet marketing contracts with our clients, most of which are cancelable with little or no prior notice. In addition, these contracts do not contain penalty provisions for cancellation before the end of the contract term.
All of the critical components of the system are redundant, and we have a backup data center in Las Vegas, Nevada.
All of the critical components of the system are redundant.
Removed
Market Opportunity Change in marketing strategy and approach We believe that marketing approaches are changing as budgets shift from offline, analog advertising media to digital advertising media such as Internet marketing.
Added
We have been a pioneer in the development and application of measurable marketing on the Internet.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

104 edited+58 added−27 removed237 unchanged
Biggest changeAs a result, we face risks and uncertainties such as but not limited to: • our still developing industry and relatively new business model and products such as our QRP product for insurance agents; • changes in the general economic conditions and market dynamics in the United States, or in the specific markets in which we currently do business, including as a result of the COVID-19 pandemic and Russian-Ukraine military conflict; 10 • the impact of the COVID-19 pandemic and its aftermath on us, our third-party publishers’, and our clients’ businesses, the extent of which continues to be uncertain and will depend on future actions and outcomes that are highly uncertain and cannot be predicted, including the duration and scope of any resurgences of the pandemic; business and individuals’ actions in response to resurgences of the pandemic; further actions taken by governmental authorities to limit the human and economic impact of the pandemic (e.g., stimulus payments); the continued development, efficacy and distribution of vaccines for COVID-19; and the impact on economic activity including the length and depth of economic downturns or financial market instability that result from the pandemic; • changes in the regulatory enforcement or legislative environment; • our dependence on the availability and affordability of quality media from third-party publishers and strategic partners; • our dependence on Internet search companies to attract Internet visitors; • our ability to accurately forecast our results of operations and appropriately plan our expenses; • our ability to compete in our industry; • our ability to manage cybersecurity risks and costs associated with maintaining a robust security infrastructure; • our ability to continually optimize our websites to allow Internet visitors to access our websites through mobile devices; • our ability to develop new services, enhancements and features to meet new demands from our clients; • our ability to implement our enhanced products across our business and achieve client adoptions of such products; • our ability to successfully complete acquisitions, divestitures and other business development transactions including our ability to enter into, and manage the relationship and risks associated with, strategic partnerships; and • the occurrence of, and our ability to successfully challenge, regulatory audits, investigations or allegations of noncompliance with laws.
Biggest changeAs a result, we face risks and uncertainties such as but not limited to: • our still developing industry and relatively new business model and products such as our QRP product for insurance agents; • changes in the general economic conditions and market dynamics in the United States, or in the specific markets in which we currently do business, including as a result of pandemics and military conflicts; • changes in the regulatory enforcement or legislative environment; • our dependence on the availability and affordability of quality media from third-party publishers and strategic partners; • our dependence on Internet search companies to attract visitors to our owned and operated and our third-party publishers’ websites; • our ability to accurately forecast our results of operations and appropriately plan our expenses; • our ability to compete in our industry; • our ability to manage cybersecurity risks and costs associated with maintaining a robust security infrastructure; • our ability to continually optimize our websites for mobile devices; • our ability to develop new services, enhancements and features to meet new demands from our clients; • our ability to expand the capabilities of our platform including deployment of artificial intelligence features in our products; • our ability to implement our enhanced products across our business and achieve client adoptions of such products; • our ability to successfully complete acquisitions, divestitures and other business development transactions including our ability to enter into, and manage the relationship and risks associated with, strategic partnerships; and • the occurrence of, and our ability to successfully challenge, regulatory audits, investigations or allegations of noncompliance with laws.
Clients will reduce or stop spending marketing funds on our owned and operated websites or our third-party publisher and strategic partner websites if their investments do not generate marketing results and ultimately users or if we do not deliver advertisements in an appropriate and effective manner.
Clients will reduce or stop spending their marketing funds on our owned and operated websites or our third-party publisher and strategic partner websites if their investments do not generate marketing results and ultimately users or if we do not deliver advertisements in an appropriate and effective manner.
If we fail to maintain adequate safeguards to protect the security, confidentiality and integrity of personal information, including any failure to develop, implement and support our technology infrastructure and assessment processes, we may be in breach of our commitments to our clients and consumers.
If we fail to maintain adequate safeguards to protect the security, confidentiality and integrity of personal information, including any failure to develop, implement and support our technology infrastructure and assessment processes, we may be in breach of our commitments to our clients and consumers.
We compete with Internet and traditional media companies for high quality media and for a share of clients’ overall marketing budgets, including: • online marketing or media services providers such as LendingTree and MediaAlpha in the financial services client vertical; • offline and online advertising agencies; • major Internet portals and search engine companies with advertising networks; • other online marketing service providers, including online affiliate advertising networks and industry-specific portals or performance marketing services companies; • digital advertising exchanges, real-time bidding and other programmatic buying channels; • third-party publishers with their own sales forces that sell their online marketing services directly to clients; • in-house marketing groups and activities at current or potential clients; • offline direct marketing agencies; • mobile and social media; and • television, radio and print companies.
We compete with Internet and traditional media companies for high quality media and for a share of clients’ overall marketing budgets, including: • online marketing or media services providers such as LendingTree and MediaAlpha in the financial services client vertical; • offline and online advertising agencies; 20 • major Internet portals and search engine companies with advertising networks; • other online marketing service providers, including online affiliate advertising networks and industry-specific portals or performance marketing services companies; • digital advertising exchanges, real-time bidding and other programmatic buying channels; • third-party publishers with their own sales forces that sell their online marketing services directly to clients; • in-house marketing groups and activities at current or potential clients; • offline direct marketing agencies; • mobile and social media; and • television, radio and print companies.
These provisions include: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; 28 • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
These provisions include: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; 31 • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Growth, if any, may make it more difficult for us to accomplish the following: • successfully scaling our technology to accommodate a larger business and integrate acquisitions; • maintaining our standing with key vendors, including third-party publishers and Internet search and social media companies; • maintaining our client service standards; and • developing and improving our operational, financial and management controls and maintaining adequate reporting systems and procedures.
Growth, if any, may make it more difficult for us to accomplish the following: • successfully scaling our technology to accommodate a larger business and integrate acquisitions; • maintaining our standing with key vendors, including third-party publishers and Internet search and social media companies; 22 • maintaining our client service standards; and • developing and improving our operational, financial and management controls and maintaining adequate reporting systems and procedures.
Factors that may increase the volatility of our results of operations include, but are not limited to, the following: • changes in client volume; • loss of or reduced demand by existing clients and agencies; • the availability and price of quality media; • consolidation of media sources; • seasonality; • development and implementation of our media strategies and client initiatives; • changes in our revenue mix and shifts in margins related to changes in our media, client, or corporate development strategies; • changes in interest rates or increasing inflation; • an economic recession in the United States or other countries; • changes in Internet search engine algorithms that affect our owned and operated and our third-party publishers’ websites’ ability to attract and retain Internet visitors; and • regulatory and legislative changes, including economic sanctions imposed on governments or other third parties in regions in which we, our third-party publishers or our clients operate, or their interpretation or emphasis, in our and our clients’ industries.
Factors that may increase the volatility of our results of operations include, but are not limited to, the following: • changes in client volume; • loss of or reduced demand by existing clients and agencies; 19 • the availability and price of quality media; • consolidation of media sources; • seasonality; • development and implementation of our media strategies and client initiatives; • changes in our revenue mix and shifts in margins related to changes in our media, client, or corporate development strategies; • changes in interest rates or increasing inflation; • an economic recession in the United States or other countries; • changes in search engine algorithms that affect our owned and operated and our third-party publishers’ websites’ ability to attract and retain visitors; and • regulatory and legislative changes, including economic sanctions imposed on governments or other third parties in regions in which we, our third-party publishers or our clients operate, or their interpretation or emphasis, in our and our clients’ industries.
We derive all of our revenue from the sale of online marketing and media services, which is still a developing industry that has undergone rapid and dramatic changes in its relatively short history and which is characterized by rapidly-changing Internet media and advertising technology, evolving industry standards, regulatory uncertainty, and changing visitor and client demands.
We derive all of our revenue from the sale of online marketing and media services, which is still a developing industry that has undergone rapid and dramatic changes in its relatively short history and which is characterized by rapidly-changing online media and advertising technology, evolving industry standards, regulatory uncertainty, and changing visitor and client demands.
In addition, a substantial portion of our revenue is generated from a 9 limited number of clients and, if we lose a major client, our revenue will decrease and our business and prospects may be harmed. • We depend on third-party media sources, including strategic partners, for a significant portion of our visitors.
In addition, a substantial portion of our revenue is generated from a limited number of clients and if we lose a major client our revenue will decrease and our business and prospects may be harmed. • We depend on third-party media sources, including strategic partners, for a significant portion of our visitors.
We may be unable to anticipate all our vulnerabilities and 12 implement adequate preventative measures and, in some cases, we may not be able to immediately detect a security breach, cyber-attack or other similar incident. In the past, we have experienced security incidents involving access to our databases.
We may be unable to anticipate all our vulnerabilities and implement adequate preventative measures and, in some cases, we may not be able to immediately detect a security breach, cyber-attack or other similar incident. In the past, we have experienced security incidents involving access to our databases.
Each of our financial services and other client verticals is also subject to various laws and regulations, and our marketing activities on behalf of our clients are regulated. Many of these laws and regulations are frequently changing and can be subject to vagaries of interpretation and emphasis, and the extent and evolution of future government regulation is uncertain.
Each of our financial services and other client verticals is also subject to various laws and regulations, and our marketing activities on behalf of our clients are regulated. Many of these laws and regulations are frequently changing and can be subject to vagaries of interpretation and emphasis, and the extent and evolution of future regulation is uncertain.
Decreased participation in online advertising by our media sources or clients as a result of the proposed rules could have a material adverse impact on our business, results of operation and financial condition, as it may reduce the availability to us of qualified inquiries.
Decreased participation in online advertising by our media sources or clients as a result of the rules could have a material adverse impact on our business, results of operation and financial condition, as it may reduce the availability to us of qualified inquiries.
If we experience an increase in the time to bill and collect for our services, our results of operations and cash flows could be adversely affected. 19 We rely on certain advertising agencies for the purchase of various advertising and marketing services on behalf of their clients.
If we experience an increase in the time to bill and collect for our services, our results of operations and cash flows could be adversely affected. We rely on certain advertising agencies for the purchase of various advertising and marketing services on behalf of their clients.
There are risks and challenges inherent in conducting business in international markets, such as: • adapting our technologies and services to foreign clients’ preferences and customs; • successfully navigating foreign laws and regulations, including marketing, data privacy and security, employment and labor regulations; • changes in foreign political and economic conditions, including as a result of the Russia-Ukraine military conflict; • tariffs and other trade barriers, fluctuations in currency exchange rates and potentially adverse tax consequences; • language barriers or cultural differences; • reduced or limited protection for intellectual property rights in foreign jurisdictions; • difficulties and costs in staffing, managing or overseeing foreign operations; • education of potential clients who may not be familiar with online marketing; • challenges in collecting accounts receivables; • monitoring and complying with economic sanctions, including those resulting from the Russia-Ukraine military conflict; and • successfully interpreting and complying with the U.S.
There are risks and challenges inherent in conducting business in international markets, such as: • adapting our technologies and services to foreign clients’ preferences and customs; • successfully navigating foreign laws and regulations, including marketing, data privacy and security, employment and labor regulations; • changes in foreign political and economic conditions, including as a result of the Russia-Ukraine military conflict or the Israel-Hamas war; • tariffs and other trade barriers, fluctuations in currency exchange rates and potentially adverse tax consequences; • language barriers or cultural differences; • reduced or limited protection for intellectual property rights in foreign jurisdictions; • difficulties and costs in staffing, managing or overseeing foreign operations; • education of potential clients who may not be familiar with online marketing; • challenges in collecting accounts receivables; • monitoring and complying with economic sanctions, including those resulting from the Russia-Ukraine military conflict; and • successfully interpreting and complying with the U.S.
If we or any of our third-party publishers fail to comply with any provisions of these laws or 15 regulations, we could be subject to regulatory investigation, enforcement actions and litigation, as well as indemnification obligations with respect to our clients.
If we or any of our third-party publishers fail to comply with any provisions of these laws or regulations, we could be subject to regulatory investigation, enforcement actions and litigation, as well as indemnification obligations with respect to our clients.
If we are not able to comply with the requirements of the SOX Act in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would diminish investor confidence in our financial reporting and require additional financial and management resources, each of which may adversely affect our business and operating results. 27 In fiscal years 2017 and 2016, we identified material weaknesses in our internal control over financial reporting.
If we are not able to comply with the requirements of the SOX Act in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would diminish investor confidence in our financial reporting and require additional financial and management resources, each of which may adversely affect our business and operating results. 30 In fiscal years 2017 and 2016, we identified material weaknesses in our internal control over financial reporting.
In addition, we may also face liability for any failure of our third-party publishers, strategic partners, vendors or their respective affiliates to comply with regulatory requirements, as further described in the risk factor beginning, “Negative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth.” The law is unsettled on the extent of liability that an advertiser in our position has for the activities of third-party publishers, strategic partners or vendors.
In addition, we may also face liability for any failure of our third-party publishers, strategic partners, vendors or their respective affiliates to comply with regulatory requirements, as further described in the risk factor beginning, “ Negative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth. ” The law is unsettled on the extent of liability that an advertiser in our position has for the activities of third-party publishers, strategic partners or vendors.
Periodically, certain of our clients and publishers seek to prohibit or limit our collection or use of data derived from the use of cookies. 23 Furthermore, actions by service providers could restrict our ability to deliver Internet-based advertising.
Periodically, certain of our clients and publishers seek to prohibit or limit our collection or use of data derived from the use of cookies. Furthermore, actions by service providers could restrict our ability to deliver Internet-based advertising.
As a creator and a distributor of Internet content, we face potential liability and expenses for legal claims based on the nature and content of the materials that we create or distribute, including materials provided by our clients.
As a creator and a distributor of content, we face potential liability and expenses for legal claims based on the nature and content of the materials that we create or distribute, including materials provided by our clients.
In addition, our business model and product offerings continue to evolve. We believe that our implementation of our enhanced products and media strategies across our business is in a relatively early stage.
In addition, our business model and product offerings continue to evolve. We believe that our implementation of our enhanced products and media strategies across our business in a relatively early stage.
Foreign Corrupt Practices Act and similar foreign anti-bribery laws, particularly when operating in countries with varying degrees of governmental corruption. If we are unable to successfully expand and market our services abroad, our business and future growth may be harmed, and we may incur costs that may not lead to future revenue. Item 1B. Unresolve d Staff Comments None. 31
Foreign Corrupt Practices Act and similar foreign anti-bribery laws, particularly when operating in countries with varying degrees of governmental corruption. If we are unable to successfully expand and market our services abroad, our business and future growth may be harmed, and we may incur costs that may not lead to future revenue. 33 Item 1B. Unresolve d Staff Comments None.
Keeping our business in compliance with or bringing our business into compliance with new laws and regulations, therefore, may be costly, affect our revenue and harm our financial results.
Keeping our business in compliance with existing laws and regulations or bringing our business into compliance with new laws and regulations, therefore, may be costly, affect our revenue and harm our financial results.
In addition, we license content, software and other intellectual property rights from third-parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights to the products they license to us. 24 In addition, we have in the past, and may in the future, be subject to legal proceedings and claims that we have infringed the patents or other intellectual property rights of third-parties.
In addition, we license content, software and other intellectual property rights from third-parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights to the products they license to us. 27 In addition, we have in the past, and may in the future, be subject to legal proceedings and claims that we have infringed the patents or other intellectual property rights of third-parties.
If any of our clients decide not to continue to place marketing spend or advertising on our owned and operated websites or on our third-party publisher or strategic partner websites, we could experience a rapid decline in our revenue over a relatively short period of time.
If any of our clients decide not to continue to place marketing spend or advertisements on our owned and operated websites or on our third-party publisher or strategic partner websites, we could experience a rapid decline in our revenue over a relatively short period of time.
Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness. 26 We may be subject to short selling strategies that may drive down the market price of our common stock. Short sellers may attempt to drive down the market price of our common stock.
Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness. 29 We may be subject to short selling strategies that may drive down the market price of our common stock. Short sellers may attempt to drive down the market price of our common stock.
The ability and willingness of our counterparties to perform their obligations under any contract will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions including any economic downturn, public health crises including the COVID-19 pandemic, specific industry vertical conditions and the overall financial condition of the counterparty.
The ability and willingness of our counterparties to perform their obligations under any contract will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions including any economic downturn, public health crises, specific industry vertical conditions and the overall financial condition of the counterparty.
While no material weaknesses were identified in our internal control over financial reporting as of June 30, 2023, we cannot assure you that we will not in the future identify material weaknesses.
While no material weaknesses were identified in our internal control over financial reporting as of June 30, 2024, we cannot assure you that we will not in the future identify material weaknesses.
Furthermore, a substantial portion of our revenue is generated from a limited number of clients, including one client that accounted for 20% of our net revenue for fiscal year 2023. Our clients can generally terminate their contracts with us at any time or pause marketing spending without contract termination, and they do not have minimum spend requirements.
Furthermore, a substantial portion of our revenue is generated from a limited number of clients, including one client that accounted for 12% of our net revenue for fiscal year 2024. Our clients can generally terminate their contracts with us at any time or pause marketing spending without contract termination, and they do not have minimum spend requirements.
Any compromise of our security could limit the adoption of our products and services and have an adverse effect on our business. We also face risks associated with security breaches, cyber-attacks and other similar incidents affecting third parties conducting business over the Internet.
Any compromise of our security could limit the adoption of our products and services and have an adverse effect on our business. We also face risks associated with security breaches, cyber-attacks and other similar incidents affecting third parties conducting business online.
We are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
General Risk Factors We are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
Any decline in the supply of media available through these third-party publishers’ websites (including via regulatory action specific to those websites or to third-party media sources generally), or increase in the price of this media, could cause our revenue to decline or our cost to reach visitors to increase. • We are exposed to data privacy and security risks, particularly given that we gather, transmit, store and otherwise process personal information.
Any decline in the supply of media available through these third-party publishers’ websites (including via regulatory action specific to those websites or to third-party media sources generally), or increase in the price of this media, could cause our revenue to decline or our cost to reach visitors to increase. • We are exposed to data privacy and security risks, particularly given that we gather, transmit, store and otherwise process personal information and implement artificial intelligence technology in certain products.
These factors include those discussed in this “Risk Factors” section of this report and other factors such as: • our ability to grow our revenues and adjusted EBITDA margin and to manage any such growth effectively; • changes in earnings estimates or recommendations by securities analysts; • announcements about our revenue, earnings or other financial results, including outlook, that are not in line with analyst expectations; • negative publicity about us, our industry, our clients or our clients’ industries; • an economic recession in the United States or other countries; • geopolitical and predominantly domestic as well as potentially international economic conditions in addition to public health crises such as the COVID-19 pandemic and geopolitical conflicts such as the Russia-Ukraine military conflict and resulting economic sanctions; 25 • our ability to find, develop or retain high quality targeted media on a cost-effective basis; • relatively low trading volume in our stock, which creates inherent volatility regardless of factors related to our business performance or prospects; • the sale of, or indication of the intent to sell, substantial amounts of our common stock by our directors, officers or substantial shareholders; • stock repurchase programs; • announcements by us or our competitors of new services, significant contracts, commercial relationships, acquisitions or capital commitments; • fluctuations in the stock price and operating results of our competitors or perceived competitors that operate in our industries; and • our commencement of, involvement in, or a perceived threat of litigation or regulatory enforcement action.
These factors include those discussed in this “Risk Factors” section of this report and other factors such as: • our ability to grow our revenues and adjusted EBITDA margin and to manage any such growth effectively; • changes in earnings estimates or recommendations by securities analysts; • announcements about our revenue, earnings or other financial results, including outlook, that are not in line with analyst expectations; • negative publicity about us, our industry, our clients or our clients’ industries; • an economic recession in the United States or other countries; • domestic and international economic conditions, geopolitical conflicts such as the Russia-Ukraine military conflict and the resulting economic sanctions and the Israel-Hamas war and the possible expansion of such conflict in the surrounding areas, and public health crises; • our ability to find, develop or retain high quality targeted media on a cost-effective basis; 28 • relatively low trading volume in our stock, which creates inherent volatility regardless of factors related to our business performance or prospects; • the sale of, or indication of the intent to sell, substantial amounts of our common stock by our directors, officers or substantial shareholders; • stock repurchase programs; • announcements by us or our competitors of new services, significant contracts, commercial relationships, acquisitions or capital commitments; • fluctuations in the stock price and operating results of our competitors or perceived competitors that operate in our industries; and • our commencement of, involvement in, or a perceived threat of litigation or regulatory enforcement action.
For example, macroeconomic conditions such as an economic downturn or a recession in the United States or other countries or public health crises such as the COVID-19 pandemic and the Russia-Ukraine military conflict have impacted and may continue to impact our clients’ marketing spend in the short-term and potentially in the long-term.
For example, macroeconomic conditions such as an economic downturn, a recession in the United States or other countries, a public health crises such as the COVID-19 pandemic and geopolitical conflicts such as the Russia-Ukraine military conflict and the Israel-Hamas war have impacted, and may continue to impact, our clients’ marketing spend in the short-term and potentially in the long-term.
Worldwide economic conditions remain uncertain due to various global disruptions, including geopolitical events, such as war, the threat of war (including collateral damage from cyberwarfare), or terrorist activity; natural disasters; power shortages or outages; major public health issues, including pandemics; and significant local, national, or global events capturing the attention of a large part of the population, which could prevent or hinder our, or third-party publishers’ or our clients’ ability to do business, increase our costs, and negatively affect our stock price.
Worldwide economic conditions remain uncertain due to various global disruptions, including geopolitical events, such as war, the threat of war (including collateral damage from cyberwarfare and targeted security attacks), terrorist activity, natural disasters, climate change and extreme-weather related events, power shortages or outages, major public health issues, including pandemics, and significant local, national, or global events capturing the attention of a large part of the population, which could prevent or hinder our, our third-party publishers’ or our clients’ ability to do business, increase our costs, and negatively affect our stock price.
If adopted, the proposed rules could have a material adverse impact on our media sources and our clients, especially smaller businesses, as these media sources and clients may not be able to continue to participate in, or may substantially reduce their participation in, the online advertising channel due to increased costs, technological compliance challenges and additional legal risks, including potential liabilities or claims relating to compliance.
The FCC rules could have a material adverse impact on our media sources and our clients, especially smaller businesses, as they may not be able to continue to participate in, or may substantially reduce their participation in, the online advertising channel due to increased costs, technological compliance challenges and additional legal risks, including potential liabilities or claims relating to compliance.
These uncertainties may cause our clients or potential clients to delay or reduce spending, which could negatively impact our revenue and operating results and make it difficult for us to accurately plan future business activities.
These uncertainties have in the past and may in the future cause our clients or potential clients to delay or reduce spending, which could negatively impact our revenue and operating results and make it difficult for us to accurately plan future business activities.
The introduction of new technologies and services embodying new technologies and the emergence of new industry standards and practices could render our existing technologies and services obsolete and unmarketable or require unanticipated investments in technology. We continually make enhancements and other modifications to our proprietary technologies as well as our product and service offerings.
The introduction of new technologies and services embodying new technologies, including artificial intelligence and machine learning, and the emergence of new industry standards and practices could render our existing technologies and services obsolete and unmarketable or require unanticipated investments in technology. We continually make enhancements and other modifications to our proprietary technologies as well as our product and service offerings.
Because our subsidiary CCM provides performance marketing agency and technology services to clients in financial services, education and other markets, we may still be subject to investigations, audits, inquiries, claims or litigation related to education.
Because our subsidiary CloudControlMedia, LLC (“CCM”) provides performance marketing agency and technology services to clients in financial services, education and other markets, we may still be subject to investigations, audits, inquiries, claims or litigation related to education.
Security concerns relating to our technological infrastructure, data privacy concerns relating to our data collection and processing practices and any perceived or public disclosure of any actual unauthorized or accidental access to or disclosure or use of personal information, whether through breach of our network or that of third parties with which we engage, by an unauthorized party or due to employee theft, misuse, or error, could harm our reputation, impair our ability to attract website visitors and to attract and retain our clients, result in a loss of confidence in the security of our products and services, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and results of operations.
In addition, such third-parties may not comply with applicable disclosure or contractual requirements, which could expose us to liability. 13 Security concerns relating to our technological infrastructure, data privacy concerns relating to our data collection and processing practices and any perceived or public disclosure of any actual unauthorized or accidental access to or disclosure or use of personal information, whether through breach of our network or that of third parties with which we engage, by an unauthorized party or due to employee theft, misuse, or error, could harm our reputation, impair our ability to attract website visitors and to attract and retain our clients, result in a loss of confidence in the security of our products and services, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and results of operations.
Any actual or alleged security breach, cyber-attack or other similar incident may also result in a misappropriation of our confidential or proprietary information (including personal information) or that of our users, clients and third-party publishers, which could result in legal and financial liability, regulatory intervention, and harm to our reputation.
Any actual or alleged security breach, cyber-attack or other similar incident may result in a misappropriation of our confidential or proprietary information (including personal information) or that of our users, clients and third-party publishers, which could result in legal and financial liability, remediation expense, cancellation of client contracts, regulatory intervention, and harm to our reputation.
In addition, new laws or regulations (including amendments thereof or changes in enforcement of existing laws or regulations applicable to us or our clients) could affect the activities or strategies of us or our clients and, therefore, lead to reductions in their level of business with us or otherwise impact our business.
In addition, new laws or regulations (including amendments thereof or changes in enforcement of existing laws or regulations applicable to us or our clients) could affect the activities or strategies of us, our clients or our third-party service providers and, therefore, lead to reductions in their level of business with us or otherwise impact our business or our business model.
We, our third-party publishers’, and our clients’ businesses operate in highly regulated industries, subject to many laws and regulatory requirements, including federal, state, and local laws and regulations regarding unsolicited commercial email, telemarketing, search engines, Internet tracking technologies, direct marketing, data privacy and security, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, export of encryption technology, acceptable content and quality of goods, and taxation, among others.
We, our third-party publishers’, and our clients’ businesses operate in highly regulated industries, subject to many laws and regulatory requirements, including federal, state, and local laws and regulations regarding unsolicited commercial email, telemarketing, search engines, Internet tracking technologies, comparison shopping platforms, direct marketing, data privacy and security, advertising and consumer protection, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets, use of artificial intelligence, export of encryption technology, acceptable content and quality of goods, and taxation, among others.
In our quarters ending March 31 (our third fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending December 31. Moreover, our lending clients’ businesses are subject to seasonality.
In our quarters ending March 31 (our third fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending December 31. Moreover, our personal loans, home services and banking clients’ businesses are subject to seasonality.
Our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, or other natural disasters, power loss, terrorist attacks, break-ins, hardware or software failures, telecommunications failures, security breaches, cyber-attacks and other similar incidents, computer viruses or other attempts to harm our systems, and similar events.
Our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, or other natural disasters, climate change and extreme-weather related events, power loss, terrorist attacks, war, break-ins, hardware or software failures, telecommunications and electrical failures, security breaches, cyber-attacks and other similar security incidents, computer viruses or other attempts to harm our systems, and similar events.
Our board of directors canceled the prior stock repurchase program that commenced in July 2017 and authorized a new stock repurchase program allowing the repurchase of up to $40.0 million worth of common stock. As of June 30, 2023, approximately $19.0 million remained available for stock repurchases pursuant to the board authorization.
Our board of directors canceled the prior stock repurchase program that commenced in July 2017 and in April 2022 authorized a new stock repurchase program allowing the repurchase of up to $40.0 million worth of common stock. As of June 30, 2024, approximately $16.8 million remained available for stock repurchases pursuant to the board authorization.
Furthermore, our clients may make business decisions based on their own experiences with the TCPA regardless of our products and the changes we implemented to comply with the new regulations. These decisions may negatively affect our revenue or profitability.
Furthermore, our clients may make business decisions based on their own experiences with the TCPA regardless of our products and the changes we implemented to comply with the new regulations.
Adverse consequences resulting from increasing economic or political conflicts between the United States and China, Russia’s invasion of Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries, and various other market issues may have broader implications on economies outside the region, including increased instability in the worldwide financial markets and economy, increases in inflation, recessionary economic cycles, and enhanced volatility in foreign currency exchange rates.
Adverse consequences resulting from increasing economic or political conflicts between the United States and China, Russia’s invasion of Ukraine and the subsequent economic sanctions imposed by the U.S., NATO and other countries, the Israel-Hamas war and the possible expansion of such conflict in the surrounding areas, and various other market issues may have broader implications on economies outside of their respective regions, including increased instability in the worldwide financial markets and economy, increases in inflation, recessionary economic cycles, and enhanced volatility in foreign currency exchange rates.
Our online marketing services and content were originally designed for desktop or laptop computers. The shift from desktop or laptop computers to mobile devices could potentially deteriorate the user experience for mobile visitors to our websites and may make it more difficult for mobile visitors to respond to our offerings.
The shift from desktop or laptop computers to mobile devices could potentially deteriorate the user experience for mobile visitors to our websites and may make it more difficult for mobile visitors to respond to our offerings.
Clients may also fail to renew their contracts or reduce their level of business with us, leading to lower revenue. 11 In addition, reductions in business by one or more significant clients has in the past triggered, and may in the future trigger, price reductions for other clients whose prices for certain products are determined in whole or in part by client bidding or competition which may reduce our ability to monetize media, further decreasing revenue.
In addition, reductions in business by one or more significant clients has in the past triggered, and may in the future trigger, price reductions for other clients whose prices for certain products are determined in whole or in part by client bidding or competition which may reduce our ability to monetize media, further decreasing revenue.
In addition, inherent industry specific risks (e.g., insurance industry loss ratios and cutbacks) and poor macroeconomic conditions such as high interest rates, inflationary environments as well as other short-term events could decrease our clients’ advertising spending and thereby have a material adverse effect on our business, financial condition, operating results and cash flows. 22 If the market for online marketing services fails to continue to develop, our success may be limited, and our revenue may decrease.
In addition, inherent industry specific risks (e.g., insurance industry loss ratios and cutbacks) and poor macroeconomic conditions such as high interest rates, inflationary environments as well as other short-term events could decrease our clients’ advertising spending and thereby have a material adverse effect on our business, financial condition, operating results and cash flows.
In connection with our owned and our third-party publishers’ email campaigns to generate traffic for our clients, we are subject to various state and federal laws regulating commercial email communications, including the federal CAN-SPAM Act.
Violations of the abusiveness provisions are subject to civil money penalties and possible conduct prohibitions. In connection with our owned and our third-party publishers’ email campaigns to generate traffic for our clients, we are also subject to various state and federal laws regulating commercial email communications, including the federal CAN-SPAM Act.
Under our acquisition agreement with CCM, the purchase consideration included $7.5 million in post-closing payments and an estimated fair value of contingent consideration of $3.6 million. Under our acquisition agreement with AmOne, the purchase consideration included $8.0 million in post-closing payments. Under our acquisition agreement with Modernize, the purchase consideration included $27.5 million in post-closing payments.
For example, under our acquisition agreement with AquaVida, the purchase consideration included $4.0 million in post-closing payments and an estimated fair value of contingent consideration of $2.1 million. Under our acquisition agreement with CCM, the purchase consideration included $7.5 million in post-closing payments and an estimated fair value of contingent consideration of $3.6 million.
Changes in search engine algorithms have in the past harmed, and may in the future harm, the websites’ placements in both paid and organic search result listings, which may reduce the number of visitors to our owned and operated and our third-party publishers’ websites and as a result, cause our revenue to decline. • Negative changes in economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth. • Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition and results of operations. • If we fail to continually enhance and adapt our products asend services to keep pace with rapidly changing technologies and industry standards, we may not remain competitive and could lose clients or advertising inventory. • Our results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts’ and investors’ expectations. • Limitations restricting our ability to market to users or collect and use data derived from user activities by technologies, service providers or otherwise could significantly diminish the value of our services and have an adverse effect on our ability to generate revenue. • If we do not adequately protect our intellectual property rights, our competitive position and business may suffer. • We are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows. • We face risks and uncertainties related to the COVID-19 pandemic and its aftermath, which could significantly disrupt our operations and have a material adverse impact on our business, financial condition, operating results and cash flows.
Changes in search engine algorithms have in the past harmed, and may in the future harm, the websites’ placements in both paid and organic search result listings, which may reduce the number of visitors to our owned and operated and our third-party publishers’ websites and as a result, cause our revenue to decline. • Negative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth. • Our cash and cash equivalents may be exposed to banking institution risk. • If we fail to continually enhance and adapt our products and services to keep pace with rapidly changing technologies and industry standards, we may not remain competitive and could lose clients or advertising inventory. • Our results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts’ and investors’ expectations. • As a result of changes in our business model, increased investments, increased expenditures for certain businesses, products, services and technologies, we anticipate fluctuations in our adjusted EBITDA margin. • Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our services, which could cause us to lose clients and harm our results of operations. • Limitations restricting our ability to market to users or collect and use data derived from user activities by technologies, service providers or otherwise could significantly diminish the value of our services and have an adverse effect on our ability to generate revenue. • If we do not adequately protect our intellectual property rights, our competitive position and business may suffer. 10 • We are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
Our ability to attract visitors and, thereby, potential customers to our clients, also depends in part on our clients providing competitive levels of customer service, responsiveness and prices to such visitors. If our clients do not provide competitive levels of service to visitors, our reputation and therefore our ability to attract additional clients and visitors could be harmed.
Our ability to attract visitors and, thereby, potential customers to our clients, also depends in part on our clients providing competitive levels of customer service, responsiveness and prices to such visitors.
We have experienced fluctuations in organic rankings for a number of our owned and operated and our third-party publishers’ websites and some of our paid listing campaigns have also been harmed by search engine algorithmic changes.
We have experienced fluctuations in organic rankings for a number of our owned and operated and our third-party publishers’ websites and some of our paid listing campaigns have also been harmed by search engine algorithmic changes. Search companies could determine that our or our third-party publishers’ websites’ content is either not relevant or is of poor quality.
The failure of our yield-optimized monetization technology to effectively match advertisements or client offerings with our content in a manner that results in increased revenue for our clients could have an adverse impact on our ability to maintain or increase our revenue from client marketing spend.
The failure of our yield-optimized monetization technology to effectively match advertisements or client offerings with our content in a manner that results in increased revenue for our clients could have an adverse impact on our ability to maintain or increase our revenue from client marketing spend. 11 Even if our content is effectively matched with advertisements or client offerings, our current clients may not continue to place marketing spend or advertisements on our websites or our third-party publisher or strategic partner websites.
If we fail to adapt successfully, we could lose clients or advertising inventory. 16 Our results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts’ and investors’ expectations.
Our results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and could cause our results of operations to fall short of analysts’ and investors’ expectations.
For example, the COVID-19 pandemic and the Russian-Ukraine military conflict have in the short-run, and may over the longer term, make our results of operations difficult to predict, especially for our credit-driven businesses.
For example, pandemics such as the COVID-19 pandemic and geopolitical conflicts such as the Russian-Ukraine military conflict and the Israel-Hamas war, have previously, and may over the longer term, make our results of operations difficult to predict, especially for our credit-driven businesses.
The TCPA regulations have resulted in an increase in individual and class action litigation against marketing companies for alleged TCPA violations. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission (the “FCC”) or fines of up to $1,500 per violation imposed through private litigation or by state authorities.
TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission (the “FCC”) or fines of up to $1,500 per violation imposed through private litigation or by state authorities.
As a result of new products and investments, we may expect fluctuations in our adjusted EBITDA margin. To maintain target levels of profitability, from time to time, we may restructure our operations or make other adjustments to our workforce.
As a result of new products and investments, we may expect fluctuations in our adjusted EBITDA margin. To maintain target levels of profitability, from time to time, we may restructure our operations or make other adjustments to our workforce. For example, in November 2016, we announced a corporate restructuring resulting in the reduction of approximately 25% of personnel costs.
Moreover, our business could be materially and adversely affected directly by the FCC’s proposed rules, as we also generate a substantial portion of our revenue from our own operation of websites to generate qualified inquiries. As of the date of this report, the FCC’s proposed rules have been released for public comment only and have not been formally adopted.
Moreover, our business could be materially and adversely affected directly by the FCC’s rules, as we also generate a substantial portion of our revenue from our own operation of websites to generate qualified inquiries.
If any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
If any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. 18 If we fail to continually enhance and adapt our products and services to keep pace with rapidly changing technologies and industry standards, we may not remain competitive and could lose clients or advertising inventory.
We cannot assure you that we will be able to acquire media inventory that meets our clients’ performance, price and quality requirements, in which case our revenue could decline or our operating costs could increase. We are exposed to data privacy and security risks, particularly given that we gather, transmit, store and otherwise process personal information.
We cannot assure you that we will be able to acquire media inventory that meets our clients’ performance, price and quality requirements, in which case our revenue could decline or our operating costs could increase.
In addition, evaluating, negotiating and completing strategic transactions, including acquisitions, investments or divestitures, may distract management from our other businesses and result in significant expenses.
In addition, evaluating, negotiating and completing strategic transactions, including acquisitions, investments or divestitures, may distract management from our other businesses and result in significant expenses. Moreover, we may invest significant resources towards evaluating and negotiating strategic alternatives that do not ultimately result in a strategic transaction.
Negative perceptions of our business may result in additional regulation, enforcement actions by the government and increased litigation, or harm to our ability to attract or retain clients, third-party publishers or strategic partners, any of which may affect our business and result in lower revenue. 30 Any damage to our reputation, including from publicity from legal proceedings against us or companies that work within our industry, governmental proceedings, users impersonating or scraping our websites, unfavorable media coverage, consumer class action litigation, or the disclosure of security breaches, cyber-attacks or other similar incidents, could adversely affect our business, financial condition and results of operations.
Any damage to our reputation, including from publicity from legal proceedings against us or companies that work within our industry, governmental proceedings, users impersonating or scraping our websites, unfavorable media coverage, consumer class action litigation, or the disclosure of security breaches, cyber-attacks or other similar incidents, could adversely affect our business, financial condition and results of operations.
These risks and uncertainties could pertain to other viruses, pandemics or other such unforeseen and broad-based public health crises. Risks Related to Our Business and Industry We operate in an industry that is still developing and have a relatively new business model that is continually evolving, which makes it difficult to evaluate our business and prospects.
Risks Related to Our Business and Industry We operate in an industry that is still developing and have a relatively new business model that is continually evolving, which makes it difficult to evaluate our business and prospects.
Moreover, we may invest significant resources towards evaluating and negotiating strategic alternatives that do not ultimately result in a strategic transaction. 21 Our acquisitions or investments could also result in dilutive issuances of our equity securities, the incurrence of debt or deferred purchase price obligations, contingent liabilities, amortization expense, impairment of goodwill or restructuring charges, any of which could harm our financial condition or results.
Our acquisitions or investments could also result in dilutive issuances of our equity securities, the incurrence of debt or deferred purchase price obligations, contingent liabilities, amortization expense, impairment of goodwill or restructuring charges, any of which could harm our financial condition or results.
In particular, our quarters ending December 31 (our second fiscal quarter) are typically characterized by seasonal weakness. During that quarter, there is generally lower availability of media during the holiday period on a cost-effective basis and some of our clients have lower budgets.
During that quarter, there is generally lower availability of media during the holiday period on a cost-effective basis and some of our clients have lower budgets.
If our access to data is limited in the future, we may be unable to provide effective technologies and services to clients and we may lose clients and revenue. Risks Related to Our Intellectual Property If we do not adequately protect our intellectual property rights, our competitive position and business may suffer.
If our access to data is limited in the future, we may be unable to provide effective technologies and services to clients and we may lose clients and revenue.
Under our acquisition agreement with Mayo Labs, the purchase consideration included $2.0 million in post-closing payments. Under our acquisition agreement with FCE, the purchase consideration included $4.0 million in post-closing payments and contingent consideration of up to an additional $9.0 million. Also, the anticipated benefit of many of our strategic transactions, including anticipated synergies, may not materialize.
Under our acquisition agreement with Modernize, the purchase consideration included $27.5 million in post-closing payments. Also, the anticipated benefit of many of our strategic transactions, including anticipated synergies, may not materialize.
In addition, if there are changes in the usage and functioning of search engines or decreases in consumer use of search engines, for example, as a result of the continued development of artificial intelligence technology, this could negatively impact our owned and operated and our third-party publishers’ websites.
In addition, changes in the usage and functioning of search engines or decreases in consumer use of search engines, for example, as a result of the continued development of artificial intelligence technology, could negatively impact our owned and operated and our third-party publishers’ websites. 14 Negative changes in the economic conditions and the regulatory environment have had in the past, and may in the future have, a material and adverse impact on our revenue, business and growth.
For example, we believe increased regulation may continue to occur in the area of data privacy and security, and laws and regulations applying to the solicitation, collection, retention, deletion, sharing, use and other processing of personal information.
For example, regulation in data privacy and security is rapidly evolving in the U.S. and internationally, including laws, rules and regulations applying to the solicitation, collection, retention, deletion, sharing, use and other processing of personal information.
In addition, from time to time, we may be subject to investigations, inquiries or litigation by various regulators, which may harm our reputation regardless of the outcome of any such action.
If our clients do not provide competitive levels of service to visitors, our reputation and therefore our ability to attract additional clients and visitors could be harmed. 32 In addition, from time to time, we may be subject to investigations, inquiries or litigation by various regulators, which may harm our reputation regardless of the outcome of any such action.
Although to our knowledge no sensitive financial or personal information has been compromised and no statutory breach notification has been required, any future security incidents could result in the compromise of such data and subject us to liability or remediation expense or result in cancellation of client contracts.
Any future security incidents could result in the compromise of such data and subject us to liability or remediation expense or result in cancellation of client contracts.
If our proprietary technologies or our new or enhanced products and services fail to achieve their intended purpose or are less effective than technologies or products and services used by our competitors, our business could be harmed. Our future success will also depend in part on our ability to successfully adapt to rapidly changing online media formats and other technologies.
If our proprietary technologies or our new or enhanced products and services fail to achieve their intended purpose or are less effective than the technologies or products and services used by our competitors, our business could be harmed.
As we grow our business, we expect to continue to invest in technology services, hardware and software. Creating the appropriate security support for our technology platforms is expensive and complex, and our execution could result in inefficiencies or operational failures and increased vulnerability to security breaches, cyber-attacks and other similar incidents.
Creating the appropriate security support for our technology platforms is expensive and complex, and our execution could result in inefficiencies or operational failures and increased vulnerability to security breaches, cyber-attacks and other similar incidents. We may also make commitments to our clients regarding our security practices in connection with clients’ due diligence.
To attract and retain visitors, we use search engine optimization (“SEO”) which involves developing content to optimize ranking in search engine results.
In addition, we may fail to optimally manage our paid listings, or our proprietary bid management technologies may fail. To attract and retain visitors, we use search engine optimization (“SEO”) which involves developing content to optimize ranking in search engine results.
The online marketing services market is relatively new and rapidly evolving, and it uses different measurements from traditional media to gauge its effectiveness. Some of our current or potential clients have little or no experience using the Internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the Internet.
Some of our current or potential clients have little or no experience using the Internet for advertising and marketing purposes and have allocated only limited portions of their advertising and marketing budgets to the Internet.
Competition from other marketing service providers’ online and offline offerings has affected and may continue to affect both volume and price, and, thus, revenue, profit margins and profitability.
Competition from other marketing service providers’ online and offline offerings has affected and may continue to affect both volume and price, and, thus, revenue, profit margins and profitability. If we fail to deliver results that are superior to those that other online marketing service providers deliver to clients, we could lose clients and market share, and our revenue may decline.
In addition, cybersecurity incidents, cyber-attacks and other breaches have been occurring globally at a more frequent and severe level, and are evolving in nature and will likely continue to increase in frequency and severity in the future. Our existing security measures may not be successful in preventing security breaches, cyber-attacks or other similar incidents.
In addition, cybersecurity incidents, cyber-attacks and other breaches have been occurring globally at a more frequent and severe level, are evolving in nature and will likely continue to increase in frequency and severity in the future. Additionally, some actors are using artificial intelligence technology to launch more automated, targeted and coordinated attacks.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease additional facilities to accommodate our engineering, sales, marketing, and operations throughout the United States. Outside of the United States, we lease facilities to accommodate engineering and operations in India.
Biggest changeWe also lease additional facilities to accommodate our engineering, sales, marketing, and operations throughout the United States. Outside of the United States, we lease facilities to accommodate engineering and operations in India and Mexico. We believe that our existing facilities are suitable and adequate for our present purposes.
Item 2. P roperties Our corporate headquarters are located at 950 Tower Lane, Suite Nos. 500 and 600, Foster City, California 94404 and consist of approximately 44,556 square feet of office space under a lease with an expiration date in October 2023. This facility accommodates our engineering, sales, marketing, operations, finance and administrative activities.
Item 2. P roperties As of June 30, 2024, our corporate headquarters are located at 950 Tower Lane, Suite No. 1200, Foster City, California 94404 and consist of approximately 22,915 square feet of office space under a lease with an expiration date in October 2028. This facility accommodates our engineering, sales, marketing, operations, finance and administrative activities.
Removed
In March 2023, we amended our lease agreement. Under the amended agreement, upon the expiration of the current lease, our corporate headquarters will be relocated to Suite No. 1200 within the same building and consist of approximately 22,915 square feet of office space with a lease term of five years.
Removed
We may add new facilities and expand our existing facilities as we add employees and expand our markets, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeHowever, the outcome of such legal matters is subject to significant uncertainties. Item 4. Mine Saf ety Disclosures Not Applicable. 32 PART II
Biggest changeHowever, the outcome of such legal matters is subject to significant uncertainties. Item 4. Mine Saf ety Disclosures Not Applicable. 35 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 32 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Item 6. Selected Consolidated Financial Data 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 35 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table summarizes the stock repurchase activity that took place in the open market during the fourth quarter of fiscal year 2023: Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares May Yet Be Purchased Under the Share Repurchase Program April 1, 2023 - April 30, 2023 — $ — — $ 20,000,107 May 1, 2023 - May 31, 2023 22,976 8.08 22,976 19,813,722 June 1, 2023 - June 30, 2023 94,573 8.61 94,573 18,996,891 Total 117,549 $ 8.50 117,549 (1) Excludes $0.03 per share broker commission. 33 Performance Graph The following performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of QuinStreet, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
Biggest changePerformance Graph The following performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of QuinStreet, Inc. under the Securities Act of 1933, as amended, or the Exchange Act. 36 The following performance graph shows a comparison from June 30, 2019 through June 30, 2024 of cumulative total return for our common stock, the Nasdaq Composite Index and the RDG Internet Composite Index.
Data for the Nasdaq Composite Index and the RDG Internet Composite Index assume reinvestment of dividends. Recent Sales of Unregistered Securities There were no unregistered sales of our equity securities in fiscal year 2023. 34
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among QuinStreet, Inc., the NASDAQ Composite Index and the RDG Internet Composite Index Recent Sales of Unregistered Securities There were no unregistered sales of our equity securities in fiscal year 2024.
The following performance graph shows a comparison from June 30, 2018 through June 30, 2023 of cumulative total return for our common stock, the Nasdaq Composite Index and the RDG Internet Composite Index. Such returns are based on historical results and are not intended to suggest future performance.
Such returns are based on historical results and are not intended to suggest future performance. Data for the Nasdaq Composite Index and the RDG Internet Composite Index assume reinvestment of dividends.
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The following table shows the high and low sale prices per share of our common stock as reported on the Nasdaq Global Select Market for the periods indicated: Fiscal Year Ended June 30, 2023 High Low First quarter ended September 30, 2022 $ 13.51 $ 10.19 Second quarter ended December 31, 2022 $ 14.38 $ 10.56 Third quarter ended March 31, 2023 $ 18.03 $ 14.37 Fourth quarter ended June 30, 2023 $ 15.64 $ 6.92 Fiscal Year Ended June 30, 2022 High Low First quarter ended September 30, 2021 $ 19.06 $ 16.13 Second quarter ended December 31, 2021 $ 18.60 $ 13.28 Third quarter ended March 31, 2022 $ 18.49 $ 10.45 Fourth quarter ended June 30, 2022 $ 12.25 $ 8.55 On August 14, 2023, the closing price as reported on the Nasdaq Global Select Market of our common stock was $9.70 per share and we had approximately 42 stockholders of record of our common stock.
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On August 12, 2024, the closing price as reported on the Nasdaq Global Select Market of our common stock was $17.11 per share and we had approximately 38 stockholders of record of our common stock.
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There was no stock repurchase activity during the fourth quarter of fiscal year 2024. As of June 30, 2024, approximately $16.8 million remained available for stock repurchases pursuant to the board authorization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeEarnings from our limited non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. 41 Results of Operations The following table sets forth our consolidated statements of operations for the periods indicated: Fiscal Year Ended June 30, 2023 2022 2021 (In thousands, except percentages) Net revenue $ 580,624 100.0 % $ 582,099 100.0 % $ 578,487 100.0 % Cost of revenue (1) 532,101 91.6 528,368 90.8 507,956 87.8 Gross profit 48,523 8.4 53,731 9.2 70,531 12.2 Operating expenses: (1) Product development 28,893 5.0 21,906 3.7 19,344 3.3 Sales and marketing 12,542 2.2 11,042 1.9 10,991 1.9 General and administrative 27,904 4.8 25,501 4.4 26,270 4.6 Operating (loss) income (20,816 ) (3.6 ) (4,718 ) (0.8 ) 13,926 2.4 Interest income 296 0.1 10 — 39 — Interest expense (790 ) (0.2 ) (1,075 ) (0.2 ) (1,296 ) (0.2 ) Other (expense) income, net (52 ) — 21 — 16,660 2.9 (Loss) income before income taxes (21,362 ) (3.7 ) (5,762 ) (1.0 ) 29,329 5.1 (Provision for) benefit from income taxes (47,504 ) (8.2 ) 514 0.1 (5,774 ) (1.0 ) Net (loss) income $ (68,866 ) (11.9 )% $ (5,248 ) (0.9 )% $ 23,555 4.1 % (1) Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue $ 7,923 1.4 % $ 7,475 1.3 % $ 8,997 1.6 % Product development 2,880 0.5 2,575 0.4 2,339 0.4 Sales and marketing 2,298 0.4 2,378 0.4 2,459 0.4 General and administrative 5,685 1.0 6,078 1.0 5,838 1.0 Gross Profit Fiscal Year Ended June 30, 2023 - 2022 2022 - 2021 2023 2022 2021 % Change % Change (In thousands) Net revenue $ 580,624 $ 582,099 $ 578,487 — % 1 % Cost of revenue 532,101 528,368 507,956 1 % 4 % Gross profit $ 48,523 $ 53,731 $ 70,531 (10 %) (24 %) 42 Net Revenue Net revenue was approximately flat in fiscal year 2023 compared to fiscal year 2022.
Biggest changeThe following table presents our consolidated statements of operations for the periods indicated: Fiscal Year Ended June 30, 2024 2023 2022 (In thousands, except percentages) Net revenue $ 613,514 100.0 % $ 580,624 100.0 % $ 582,099 100.0 % Cost of revenue (1) 567,268 92.5 532,101 91.6 528,368 90.8 Gross profit 46,246 7.5 48,523 8.4 53,731 9.2 Operating expenses: (1) Product development 30,045 4.9 28,893 5.0 21,906 3.7 Sales and marketing 13,607 2.2 12,542 2.2 11,042 1.9 General and administrative 30,659 5.0 27,904 4.8 25,501 4.4 Operating loss (28,065 ) (4.6 ) (20,816 ) (3.6 ) (4,718 ) (0.8 ) Interest income 408 0.1 296 0.1 10 — Interest expense (680 ) (0.1 ) (790 ) (0.2 ) (1,075 ) (0.2 ) Other (expense) income, net (2,059 ) (0.3 ) (52 ) — 21 — Loss before income taxes (30,396 ) (4.9 ) (21,362 ) (3.7 ) (5,762 ) (1.0 ) (Provision for) benefit from income taxes (935 ) (0.2 ) (47,504 ) (8.2 ) 514 0.1 Net loss $ (31,331 ) (5.1 )% $ (68,866 ) (11.9 )% $ (5,248 ) (0.9 )% (1) Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue $ 8,409 1.4 % $ 7,923 1.4 % $ 7,475 1.3 % Product development 3,147 0.5 2,880 0.5 2,575 0.4 Sales and marketing 2,968 0.5 2,298 0.4 2,378 0.4 General and administrative 9,177 1.5 5,685 1.0 6,078 1.0 41 Gross Profit Fiscal Year Ended June 30, 2024 - 2023 2023 - 2022 2024 2023 2022 % Change % Change (In thousands) Net revenue $ 613,514 $ 580,624 $ 582,099 6 % — % Cost of revenue 567,268 532,101 528,368 7 % 1 % Gross profit $ 46,246 $ 48,523 $ 53,731 (5 %) (10 %) Gross profit % 8 % 8 % 9 % Net Revenue Net revenue increased by $32.9 million, or 6%, in fiscal year 2024 compared to fiscal year 2023.
Some of the estimates and assumptions 47 we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances.
Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances.
Determining whether we control the goods or services before they are transferred to the clients may require judgment. Stock-Based Compensation We measure and record the expense related to stock-based transactions based on the fair values of stock-based payment awards, as determined on the date of grant.
Determining whether we control the goods or services before they are transferred to the clients may require judgment. 48 Stock-Based Compensation We measure and record the expense related to stock-based transactions based on the fair values of stock-based payment awards, as determined on the date of grant.
Consequently, we do not have significant financing components in our arrangements. 48 Separately from the agreements that we have with clients, we have agreements with Internet search companies, third-party publishers and strategic partners that we engage with to generate targeted marketing results for our clients.
Consequently, we do not have significant financing components in our arrangements. Separately from the agreements that we have with clients, we have agreements with Internet search companies, third-party publishers and strategic partners that we engage with to generate targeted marketing results for our clients.
For example, weather-related and supply chain events have led to increases in insurance industry loss ratios, which decreased our clients’ advertising spending and thereby had a material adverse effect on our business.
For example, inflation, weather-related and supply chain events have led to increases in insurance industry loss ratios, which decreased our clients’ advertising spending and thereby had a material adverse effect on our business.
General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense. Interest and Other (Expense) Income, Net Interest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense.
General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense. 40 Interest and Other (Expense) Income, Net Interest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense.
Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as of June 30, 2023; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing.
Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as of June 30, 2024; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing.
In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and may have a material effect on our financial condition and operating results.
In future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and comprehensive loss and may have a material effect on our financial condition and operating results.
Net Cash Used in Financing Activities Cash flows from financing activities generally include repurchases of common stock, payment of withholding taxes related to the release of restricted stock, net of share settlement, proceeds from the exercise of stock options and issuance of common stock under employee stock purchase plan, and post-closing payments related to business acquisitions.
Net Cash Used in Financing Activities Cash flows from financing activities generally include repurchases of common stock, payment of withholding taxes related to the release of restricted stock, net of share settlement, proceeds from the exercise of stock options and issuance of common stock under employee stock purchase plan, and post-closing payments and contingent consideration related to business acquisitions.
Based on the results of the qualitative assessment completed as of April 30, 2023 and 2022, there were no indicators of impairment. Long-Lived Assets We evaluate long-lived assets, such as property and equipment and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Based on the results of the qualitative assessment completed as of April 30, 2024, there were no indicators of impairment. Long-Lived Assets We evaluate long-lived assets, such as property and equipment and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients).
We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans or customer appointments with clients).
In assessing the qualitative factors, we consider the impact of key factors such as changes in the general economic conditions, changes in industry and competitive environment, stock price, actual revenue performance compared to previous years, forecasts and cash flow generation. We had one reporting unit for purposes of allocating and testing goodwill for fiscal years 2023 and 2022.
In assessing the qualitative factors, we consider the impact of key factors such as changes in the general economic conditions, changes in industry and competitive environment, stock price, actual revenue performance compared to previous years, forecasts and cash flow generation. We had one reporting unit for purposes of allocating and testing goodwill for fiscal year 2024.
As of April 30, 2023 and 2022, we evaluated our long-lived assets and concluded there were no indicators of impairment. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements for information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements.
As of April 30, 2024, we evaluated our long-lived assets and concluded there were no indicators of impairment. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements for information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements. 50
Acquisition related costs are not considered part of the consideration, and are expensed as operating expenses as incurred. Contingent consideration, if any, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until settlement at the end of the assessment period.
Acquisition related costs in a business combination are not considered part of the consideration, and are expensed as operating expenses as incurred. Contingent consideration, if any, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until settlement at the end of the assessment period.
Cash used in financing activities was $19.5 million in fiscal year 2023, compared to cash used in financing activities of $33.3 million in fiscal year 2022 and $11.3 million in fiscal year 2021. 46 Cash used in financing activities in fiscal year 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $11.6 million, repurchases of common stock of $5.6 million, and the payment of withholding taxes related to the release of restricted stock, net of share settlement of $5.4 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $3.2 million.
Cash used in financing activities in fiscal year 2023 was due to payment of post-closing payments and contingent consideration related to acquisitions of $11.6 million, repurchases of common stock of $5.6 million, and the payment of withholding taxes related to the release of restricted stock, net of share settlement of $5.4 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $3.2 million.
Cash used in investing activities in fiscal year 2023 was primarily due to capital expenditures and internal software development costs of $15.0 million.
Cash used in investing activities in fiscal year 2023 was primarily composed of $15.0 million capital expenditures and capitalized internal software development costs.
Net Cash Used in Investing Activities Cash flows from investing activities generally include capital expenditures, capitalized internal software development costs, acquisitions from time to time, business divestitures, and investment in equity securities. Cash used in investing activities was $15.1 million in fiscal year 2023 compared to $9.2 million in fiscal year 2022 and $36.5 million in fiscal year 2021.
Net Cash Used in Investing Activities Cash flows from investing activities generally include capital expenditures, capitalized internal software development costs, acquisitions from time to time and investment in equity securities. Cash used in investing activities was $22.7 million in fiscal year 2024, compared to $15.1 million in fiscal year 2023 and $9.2 million in fiscal year 2022.
We have one option to extend the term of the lease for an additional three years. (2) In accordance with the terms of the acquisitions completed in fiscal years 2022, 2021 and 2019 we are required to make post-closing payments and contingent consideration payments.
The amended agreement commenced in fiscal year 2024, with a lease term of five years and one option to extend the term of the lease for an additional three years. (2) In accordance with the terms of the acquisitions completed in fiscal years 2024, 2022, 2021 and 2019, we are required to make post-closing payments and contingent consideration payments.
Interest expense decreased by $0.3 million, or 27%, in fiscal year 2023 compared to fiscal year 2022 primarily due to decreased imputed interest on a lower average outstanding balance of the post-closing payments related to our business acquisitions.
Interest expense relates to imputed interest on post-closing payments related to our acquisitions. Interest expense decreased by $0.1 million, or 14%, in fiscal year 2024 compared to fiscal year 2023 primarily due to decreased imputed interest on a lower average outstanding balance of the post-closing payments.
The changes in working capital accounts were primarily attributable to a decrease in accrued liabilities of $5.0 million and a decrease in accounts payable of $2.9 million, offset by a decrease in accounts receivable of $5.5 million and a decrease in prepaid expenses and other assets of $3.0 million.
The changes in working capital accounts were primarily attributable to an increase in accounts receivable of $44.9 million, offset by an increase in accounts payable of $10.5 million, an increase in accrued liabilities of $25.4 million, and a decrease in prepaid expenses and other current assets of $3.0 million.
The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended June 30, 2023 2022 2021 (In thousands) Net cash provided by operating activities $ 11,838 $ 28,672 $ 50,615 Net cash used in investing activities (15,125 ) (9,225 ) (36,457 ) Net cash used in financing activities (19,459 ) (33,315 ) (11,312 ) Net Cash provided by Operating Activities Cash flows from operating activities are primarily the result of our net (loss) income adjusted for depreciation and amortization, provision for or benefit from sales returns and doubtful accounts receivable, stock-based compensation expense, change in the fair value of contingent consideration, non-cash lease expense, gains and losses on divestitures of businesses, deferred income taxes and changes in working capital components.
The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended June 30, 2024 2023 2022 (In thousands) Net cash provided by operating activities $ 12,039 $ 11,838 $ 28,672 Net cash used in investing activities (22,735 ) (15,125 ) (9,225 ) Net cash used in financing activities (12,511 ) (19,459 ) (33,315 ) Net Cash provided by Operating Activities Cash flows from operating activities are primarily the result of our net (loss) income adjusted for depreciation and amortization, provision for or benefit from sales returns and doubtful accounts receivable, stock-based compensation expense, change in the fair value of contingent consideration, non-cash lease expense, deferred income taxes, impairment of investment in equity securities and changes in working capital components.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.
We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical. All remaining businesses that are not significant enough for separate reporting are included in other revenue. Our revenue recognized in fiscal year 2021 also included the revenue generated from our divested former education client vertical.
We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical. All remaining businesses that are not significant enough for separate reporting are included in other revenue.
(Provision for) Benefit from Income Taxes Fiscal Year Ended June 30, 2023 2022 2021 (In thousands) (Provision for) benefit from income taxes $ (47,504 ) $ 514 $ (5,774 ) Effective tax rate (222.4 %) 8.9 % 19.7 % We recorded a provision for income taxes of $47.5 million in fiscal year 2023, primarily as a result of establishing a valuation allowance against the net deferred tax assets, which resulted in deferred federal and state income taxes of $47.1 million and current state and foreign income taxes of $0.4 million.
(Provision for) Benefit from Income Taxes Fiscal Year Ended June 30, 2024 2023 2022 (In thousands) (Provision for) benefit from income taxes $ (935 ) $ (47,504 ) $ 514 Effective tax rate (3.1 %) (222.4 %) 8.9 % We recorded a provision for income taxes of $0.9 million in fiscal year 2024, primarily as a result of a net expense for deferred federal, state and foreign income taxes of $0.5 million and current state and foreign income taxes of $0.4 million.
This was primarily due to increased personnel costs of $1.5 million as a result of higher headcount, and increased professional services costs of $0.7 million. Sales and Marketing Expenses Sales and marketing expenses increased by $1.5 million, or 14%, in fiscal year 2023 compared to fiscal year 2022.
This was primarily due to increased personnel costs of $1.7 million as a result of higher headcount and increased stock-based compensation, partially offset by decreased professional services costs of $0.6 million. Sales and Marketing Expenses Sales and marketing expenses increased by $1.1 million, or 8%, in fiscal year 2024 compared to fiscal year 2023.
Cash used in financing activities in fiscal year 2022 was due to repurchases of common stock of $15.3 million, payment of post-closing payments and contingent consideration related to acquisitions of $12.6 million, and the payment of withholding taxes related to the release of restricted stock, net of share settlement of $7.3 million, offset by proceeds from the exercise of stock options of $1.9 million.
Cash used in financing activities was $12.5 million in fiscal year 2024, compared to $19.5 million in fiscal year 2023 and $33.3 million in fiscal year 2022. 46 Cash used in financing activities in fiscal year 2024 was due to payment of post-closing payments and contingent consideration related to acquisitions of $7.0 million, payment of withholding taxes related to the release of restricted stock, net of share settlement of $6.7 million, and repurchases of common stock of $2.3 million, offset by proceeds from the issuance of common stock under the employee stock purchase plan and exercise of stock options of $3.5 million.
Operating Expenses Fiscal Year Ended June 30, 2023 - 2022 2022 - 2021 2023 2022 2021 % Change % Change (In thousands) Product development $ 28,893 $ 21,906 $ 19,344 32 % 13 % Sales and marketing 12,542 11,042 10,991 14 % — % General and administrative 27,904 25,501 26,270 9 % (3 %) Operating expenses $ 69,339 $ 58,449 $ 56,605 19 % 3 % Product Development Expenses Product development expenses increased by $7.0 million, or 32%, in fiscal year 2023 compared to fiscal year 2022.
Operating Expenses Fiscal Year Ended June 30, 2024 - 2023 2023 - 2022 2024 2023 2022 % Change % Change (In thousands) Product development $ 30,045 $ 28,893 $ 21,906 4 % 32 % Sales and marketing 13,607 12,542 11,042 8 % 14 % General and administrative 30,659 27,904 25,501 10 % 9 % Operating expenses $ 74,311 $ 69,339 $ 58,449 7 % 19 % Product Development Expenses Product development expenses increased by $1.2 million, or 4%, in fiscal year 2024 compared to fiscal year 2023.
The decreases in accounts receivable, accrued liabilities and accounts payable were primarily due to lower revenue levels in the two months ended June 30, 2023 as compared to the two months ended June 30, 2022, and the timing of receipts and payments.
The increases in accounts receivable, accrued liabilities and accounts payable were primarily due to higher revenue levels in the two months ended June 30, 2024 as compared same period in prior year, and the timing of receipts and payments.
(Provision for) Benefit from Income Taxes We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business.
(Provision for) Benefit from Income Taxes We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our limited non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.
The increase in prepaid expenses and other assets was primarily due to increased prepayments made to third-party publishers . Cash provided by operating activities in fiscal year 2022 consisted of net loss of $5.2 million, adjusted for non-cash adjustments of $33.8 million and changes in working capital accounts of $0.1 million.
The decrease in prepaid expenses and other current assets was primarily due to decreased prepayments made to third-party publishers and lower amortization expense . Cash provided by operating activities in fiscal year 2023 consisted of net loss of $68.9 million, adjusted for non-cash adjustments of $86.7 million and changes in working capital accounts of $6.0 million.
Interest and Other (Expense) Income, Net Fiscal Year Ended June 30, 2023 - 2022 2022 - 2021 2023 2022 2021 % Change % Change (In thousands) Interest income $ 296 $ 10 $ 39 2860 % (74 %) Interest expense (790 ) (1,075 ) (1,296 ) (27 %) (17 %) Other (expense) income, net (52 ) 21 16,660 (348 %) (100 %) Interest and other (expense) income, net $ (546 ) $ (1,044 ) $ 15,403 (48 %) (107 %) Interest income relates to interest earned on our cash and cash equivalents in fiscal years 2023, 2022 and 2021.
Interest and Other (Expense) Income, Net Fiscal Year Ended June 30, 2024 - 2023 2023 - 2022 2024 2023 2022 % Change % Change (In thousands) Interest income $ 408 $ 296 $ 10 38 % 2860 % Interest expense (680 ) (790 ) (1,075 ) (14 %) (27 %) Other (expense) income, net (2,059 ) (52 ) 21 3860 % (348 %) Interest and other expense, net $ (2,331 ) $ (546 ) $ (1,044 ) 327 % (48 %) Interest income relates to interest earned on our cash and cash equivalents.
In March 2023, the lease agreement was further amended, pursuant to which the corporate headquarters will be relocated to a different floor within the same building upon the expiration of the existing lease. The amended agreement will commence in fiscal year 2024, with undiscounted future minimum payment of $8.4 million and a lease term of five years.
In March 2023, the lease agreement was further amended, pursuant to which the corporate headquarters will be relocated to a different floor within the same building upon the expiration of the existing lease.
The terms of certain lease agreements include rent escalation provisions and tenant improvement allowances. In February 2010, we entered into a lease agreement for our corporate headquarters located at 950 Tower Lane, Foster City, California with an expiration date in October 2018 and an option to extend the term of the lease twice by one additional year.
We lease various office facilities, including our corporate headquarters in Foster City, California. The terms of certain lease agreements include rent escalation provisions and tenant improvement allowances. In February 2010, we entered into a lease agreement and into a subsequent lease amendment in April 2018 for our corporate headquarters located at 950 Tower Lane, Foster City, California.
The above table does not include approximately $2.6 million of long-term income tax liabilities for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing of these potential future payments.
The above table does not include approximately $2.7 million of long-term income tax liabilities as of June 30, 2024 for uncertainty in income taxes due to the fact that we are unable to reasonably estimate the timing of these potential future payments. Critical Accounting Policies and Estimates We have prepared our consolidated financial statements in conformity with GAAP.
Revenue Recognition We generate our revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We recognize revenue when we transfer control of promised goods or services to our clients in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
We recognize revenue when we transfer control of promised goods or services to our clients in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements contained in this report. See Note 2, Summary of Significant Accounting Principles , to our consolidated financial statements for further information on our critical and other significant accounting policies.
In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements contained in this report.
Revenue from our financial services client vertical decreased by $37.4 million, or 9%, due to a decrease in revenue in our insurance business associated with decreased spending by certain insurance carriers to address profitability concerns caused by higher incident rates, inflation, and higher costs to repair and replace vehicles.
This was partially offset by a decrease in revenue in our insurance business associated with decreased spending by insurance carriers to address profitability concerns caused by inflation and higher costs to repair and replace vehicles.
This was offset by an increase in revenue in our credit cards, personal loans and banking businesses due to increased media and client budgets. Revenue from our home services client vertical increased by $34.3 million, or 22%, primarily as a result of increased client budgets and successful execution of growth initiatives.
Revenue from our financial services client vertical increased by $12.9 million, or 3%, due to an increase in revenue in our credit cards, personal loans and banking businesses due to increased media and client budgets.
Cash used in investing activities in fiscal year 2022 was primarily due to capital expenditures and internal software development costs of $7.5 million, and $1.8 million cash paid at the closing of two immaterial acquisitions completed in fiscal year 2022.
Cash used in investing activities in fiscal year 2024 was primarily composed of $16.7 million capital expenditures and capitalized internal software development costs, $4.5 million cash payment at the closing of business acquisitions in the third quarter of fiscal year 2024, and $1.5 million of other investing activities.
We have completed several strategic acquisitions in the past, including the acquisitions of Modernize, Mayo Labs and FCE completed in fiscal year 2021, and the acquisitions of AmOne, CCM, and MBT completed in fiscal year 2019. For detailed information regarding our acquisitions, refer to Note 6, Acquisitions to our consolidated financial statements.
We have completed several strategic acquisitions in the past, including the acquisitions of BestCompany and AquaVida completed in fiscal year 2024, two immaterial acquisitions in fiscal year 2022, the acquisitions of Modernize, Mayo Labs and FCE completed in fiscal year 2021, and the acquisitions of AmOne, CCM, and MBT completed in fiscal year 2019.
The Company evaluated the need for a valuation allowance at year end by considering among other things, the nature, frequency and severity of current and cumulative losses, reversal of taxable temporary differences, tax planning strategies, forecasts of future profitability, and the duration of statutory carryforward periods based upon this analysis the Company determined that the significant negative evidence associated with cumulative losses in recent periods and current results outweighed the positive evidence as of June 30, 2023 and accordingly, the near-term realization of certain of these assets was deemed not more likely than not.
Based upon this analysis, we determined that the significant negative evidence associated with cumulative losses in recent periods and current results outweighed the positive evidence as of June 30, 2023 and accordingly, the near-term realization of certain of these assets was deemed not more likely than not.
Other revenue, which primarily includes our performance marketing agency and technology services, represented 1% of net revenue in fiscal years 2023, 2022 and 2021. In addition, revenue recognized from our divested former education client vertical represented 0%, 0% and 2% of net revenue for fiscal years 2023, 2022 and 2021.
Our financial services client vertical represented 64% and 66% of net revenue in fiscal years 2024 and 2023. Our home services client vertical represented 35% and 33% of net revenue in fiscal years 2024 and 2023. Other revenue, which primarily includes our performance marketing agency and technology services, represented 1% of net revenue in fiscal years 2024 and 2023.
Interest and penalties related to unrecognized tax benefits are recognized within income tax expense. 49 Business Combinations We account for business combinations using the acquisition method, which requires that the total consideration for each of the acquired business be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.
We account for asset acquisitions using the cost accumulation and allocation model, whereby the costs of acquisition are allocated to the assets acquired on a relative fair value basis in accordance with our accounting policies. 49 We account for business combinations using the acquisition method, which requires that the total consideration for each of the acquired business be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.
The non-cash adjustments primarily consisted of depreciation and amortization of $17.0 million and stock-based compensation expense of $18.5 million .
The non-cash adjustments primarily consisted of stock-based compensation expense of $23.7 million, depreciation and amortization expense of $24.0 million, and impairment charge for investment in equity securities of $2.0 million.
Liquidity and Capital Resources As of June 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $73.7 million and cash we expect to generate from future operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase.
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.
Cash provided by operating activities was $11.8 million in fiscal year 2023, compared to cash provided by operating activities of $28.7 million in fiscal year 2022 and cash provided by operating activities of $50.6 million in fiscal year 2021. 45 Cash provided by operating activities in fiscal year 2023 consisted of net loss of $68.9 million, adjusted for non-cash adjustments of $86.7 million and changes in working capital accounts of $6.0 million.
Cash provided by operating activities in fiscal year 2024 consisted of a net loss of $31.3 million, adjusted for non-cash adjustments of $50.4 million, and a net decrease in cash from changes in working capital of $7.0 million.
Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons. We believe that our principal sources of liquidity will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and thereafter for the foreseeable future.
Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons.
We recorded a provision for income taxes of $5.8 million in fiscal year 2021, primarily as a result of deferred federal and state income taxes of $5.3 million and current state and foreign taxes of $0.4 million. Our effective tax rate was (222.4%), 8.9%, and 19.7% in fiscal years 2023, 2022 and 2021.
We recorded a provision for income taxes of $47.5 million in fiscal year 2023, primarily as a result of establishing a valuation allowance against the net deferred tax assets, which resulted in deferred federal and state income taxes of $47.1 million and current state and foreign income taxes of $0.4 million.
The decrease in gross profit margin was primarily attributable to increased personnel costs as a percentage of revenue as we continue to invest in long-term growth initiatives and capabilities. Cost of revenue increased by $20.4 million, or 4%, in fiscal year 2022 compared to fiscal year 2021.
Our gross profit was $46.2 million for fiscal year 2024 compared to $48.5 million for fiscal year 2023, a decrease of $2.3 million, or 5%, primarily driven by higher personnel costs as a percentage of revenue to support our continued efforts to invest in long-term growth initiatives and capabilities.
See Note 7, Divestitures, to our consolidated financial statements for more information related to the divestiture. Cost of Revenue Cost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense.
Cost of Revenue Cost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense.
Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested.
Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested. Other (expense) income, net includes impairment charge for investment in equity securities, gains and losses on foreign currency exchange, and other non-operating items.
Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date. Our primary operating cash requirements include the payment of media costs, personnel costs, costs of information technology systems and office facilities.
Our short-term and long-term liquidity requirements primarily arise from our working capital requirements, capital expenditures, internal software development costs, repurchases of our common stock, and acquisitions from time to time. Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date.
The increase in our effective tax rate for the fiscal year 2023 compared to fiscal year 2022 was primarily due to a one-time, non-cash charge to establish a valuation allowance for the net deferred tax assets.
We recorded a one-time non-cash charge to income tax expense of $52.4 million to establish a valuation allowance against its net deferred tax assets in the fourth quarter of fiscal year 2023. Our effective tax rate was (3.1%), (222.4%) and 8.9% in fiscal years 2024, 2023 and 2022.
Revenue from our home services client vertical increased by $24.3 million, or 18%, primarily as a result of increased client budgets and the successful integration of the Modernize acquisition.
Revenue from our home services client vertical increased by $18.8 million, or 10%, primarily as a result of increased client budgets and successful execution of our growth initiatives. Other revenue increased by $1.2 million, or 16%, which primarily includes performance marketing agency and technology services.
This was primarily due to increased personnel costs of $1.6 million as a result of higher headcount, the impact of our annual salary increases, and increased incentive compensation. Sales and marketing expenses were approximately flat in fiscal year 2022 compared to fiscal year 2021.
This was primarily due to increased personnel costs as a result of higher headcount and increased stock-based compensation. 42 General and Administrative Expenses General and administrative expenses increased by $2.8 million, or 10%, in fiscal year 2024 compared to fiscal year 2023.
An example of a regulatory change that may affect our business is the amendment of the Telephone Consumer Protection Act (the “TCPA”) that affects telemarketing calls. Our clients may make business decisions based on their own experiences with the TCPA regardless of our products and compliance practices. Those decisions may negatively affect our revenue and profitability.
Our clients may make business decisions based on their own experiences with the TCPA regardless of our products and compliance practices. Those decisions may negatively affect our revenue and profitability. Basis of Presentation Net Revenue Our business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers.
Contractual Obligations The following table sets forth payments due under our contractual obligations as of June 30, 2023: Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (In thousands) Operating leases (1) $ 18,593 $ 5,521 $ 6,121 $ 5,285 $ 1,666 Post-closing payment related to acquisitions (2) 17,498 12,373 5,125 — — Contingent consideration related to acquisitions (2) 1,039 1,039 — — — Total $ 37,130 $ 18,933 $ 11,246 $ 5,285 $ 1,666 (1) We lease various office facilities, including our corporate headquarters in Foster City, California.
Contractual Obligations The following table summarizes our payments due under our contractual obligations as of June 30, 2024: Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (In thousands) Operating leases (1) $ 13,921 $ 3,896 $ 5,631 $ 4,185 $ 209 Post-closing payment related to acquisitions (2) 18,143 8,416 9,727 — — Contingent consideration related to acquisitions (2) 2,466 956 1,510 — — Total $ 34,530 $ 13,268 $ 16,868 $ 4,185 $ 209 (1) Represents payments for our operating lease obligations, including short term lease obligations.
See Note 7, Divestitures, to our consolidated financial statements for more information related to the divestiture.
For detailed information regarding our acquisitions, refer to Note 6, Acquisitions to our consolidated financial statements.
General and Administrative Expenses General and administrative expenses increased by $2.4 million, or 9%, in fiscal year 2023 compared to fiscal year 2022. This was primarily due to an allowance for bad debt expense of $2.0 million recorded in fiscal year 2023, and increased professional services costs of $0.7 million.
Cost of Revenue and Gross Profit Margin Cost of revenue increased by $35.2 million, or 7%, in fiscal year 2024 compared to fiscal year 2023. This was primarily driven by increased media and marketing costs of $20.8 million due to higher revenue volumes.
Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks. 40 Basis of Presentation Net Revenue Our business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers.
See Note 2, Summary of Significant Accounting Principles , to our consolidated financial statements for further information on our critical and other significant accounting policies. 47 Revenue Recognition We generate our revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers.
Other revenue, which primarily includes performance marketing agency and technology services, contributed $7.8 million of revenue for fiscal year 2023, as compared to $6.2 million of revenue for fiscal year 2022. Net revenue increased by $3.6 million, or 1%, in fiscal year 2022 compared to fiscal year 2021.
Other (expense) income, net, increased by $2.0 million, or 3,860% in fiscal year 2024 compared to fiscal year 2023 primarily due impairment charge for investment in equity securities of $2.0 million recorded in third quarter of fiscal year 2024.
This was primarily driven by increased personnel costs of $16.4 million and increased amortization of intangible assets of $2.0 million, offset by decreased media and marketing costs of $15.9 million. The increase in personnel costs was mainly due to higher headcount, the impact of our annual salary increases, increased incentive compensation and increased stock-based compensation expense.
Personnel costs increased by $8.3 million mainly due to higher average headcount and higher incentive compensation due to revenue growth, and increased stock-based compensation expense. Depreciation and amortization expense increased by $4.6 million mainly due to additional capitalization of internally developed software.
Removed
Our financial services client vertical represented 66%, 72% and 74% of net revenue in fiscal years 2023, 2022 and 2021. Our home services client vertical represented 33%, 27% and 23% of net revenue in fiscal years 2023, 2022 and 2021.
Added
An example of a regulatory change that may affect our business is the amendment of the TCPA that affects telemarketing and the consent requirements for certain types of telemarketing calls and automated messaging. The scope and interpretation of the laws that are or may be applicable to the automated delivery of voice and text messages are continuously evolving and developing.
Removed
COVID-19 We continue to monitor the impacts from the COVID-19 pandemic that may unfavorably affect our business, such as reductions in client spending on marketing and advertising, drops in media availability or performance, deteriorating consumer spending, fluctuations in interest rates, and credit quality of our receivables.
Added
Results of Operations A discussion regarding our results of operations for fiscal year 2024 compared to fiscal year 2023 is presented below.
Removed
The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, clients, publishers, business partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time.
Added
A discussion regarding our results of operations for fiscal year 2023 compared to fiscal year 2022 can be found under the heading Results of Operation in Part II, Item 7., Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for fiscal year 2023, filed with the SEC on August 21, 2023, which is available on the SEC’s website at www.sec.gov .
Removed
Even after the initial COVID-19 outbreak subsided, we have experienced and may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
Added
Other costs including facilities, equipment and supplies increased by $1.3 million primarily due to increases in software license fees and maintenance contracts. Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, remained relatively flat at 8% in fiscal years 2024 and 2023.
Removed
Furthermore, we may experience disruptions to our business operations resulting from supply chain disruptions and inflationary pressures affecting auto insurance carrier budgets which could have a material adverse impact on our business, financial condition, operating results and cash flows.
Added
This was primarily due to higher stock-based compensation by $3.5 million as a result of not achieving the conditions for performance-based restricted stock in fiscal year 2023 and higher other expenses by $1.2 million primarily due to changes in business and sales tax reserves, partially offset by lower bad debt expense of $2.0 million.
Removed
Other income and expense includes gains and losses on foreign currency exchange, gains and losses on divestitures of subsidiaries, client verticals and assets that were not considered to be strategically important to our business, and other non-operating items.
Added
The net deferred tax expense is related to indefinite lived deferred tax liabilities unable to be offset with deferred tax assets. As a result of continued operating losses, the Company maintained a valuation allowance against its net deferred tax assets.
Removed
Revenue from our financial services client vertical decreased by $9.7 million, or 2%, primarily due to a decrease in revenue in our insurance business associated with decreased spending by insurance carriers to address profitability concerns caused by higher incident rates, weather-related catastrophes, inflation, and higher costs to repair and replace vehicles.
Added
We evaluated the need for a valuation allowance at year end by considering among other things, the nature, frequency and severity of current and cumulative losses, reversal of taxable temporary differences, tax planning strategies, forecasts of future profitability, and the duration of statutory carryforward periods.
Removed
This is offset by an increase in revenue in our credit-driven businesses due to some economic recovery from the impact of the COVID-19 pandemic. Other revenue, which primarily includes performance marketing agency and technology services, contributed $6.2 million of revenue for fiscal year 2022, as compared to $5.5 million of revenue for fiscal year 2021.
Added
The increase in our effective tax rate for fiscal year 2024 compared to fiscal year 2023 was primarily due to the one-time charge related to the recognition of valuation allowance in fiscal year 2023. 43 Adjusted EBITDA Fiscal Year Ended June 30, 2024 2023 2022 (In thousands) Other Financial Data: Adjusted EBITDA (1) $ 20,365 $ 16,690 $ 31,030 (1) We define adjusted EBITDA as net income (loss) less depreciation and amortization expense, stock-based compensation expense, interest and other expense, net, provision for (benefit from) income taxes, restructuring costs, acquisition costs, litigation settlement expense, tax settlement expense, and contingent consideration adjustment.
Removed
The divestiture of our former education client vertical, completed in fiscal year 2021, resulted in a decrease in revenue by $11.6 million for fiscal year 2022, as compared to fiscal year 2021. Cost of Revenue and Gross Profit Margin Cost of revenue increased by $3.7 million, or 1%, in fiscal year 2023 compared to fiscal year 2022.
Added
We include adjusted EBITDA in this report because (i) we seek to manage our business to a level of adjusted EBITDA as a percentage of net revenue, (ii) it is used internally by management for planning purposes, including preparation of internal budgets; to allocate resources; to evaluate the effectiveness of operational strategies and capital expenditures as well as the capacity to service debt, (iii) it is a key basis upon which management assesses our operating performance, (iv) it is one of the primary metrics investors use in evaluating Internet marketing companies, (v) it is a factor in determining compensation, (vi) it is an element of certain financial covenants under our historical borrowing arrangements, and (vii) it is a factor that assists investors in the analysis of ongoing operating trends.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur market risk exposure is primarily the result of fluctuations in inflation or interest rates. Interest Rate Risk We invest our cash equivalents in money market funds. Cash and cash equivalents are held for working capital purposes and acquisition financing. We do not enter into investments for trading or speculative purposes.
Biggest changeInterest Rate Risk We invest our cash equivalents in money market funds. Cash and cash equivalents are held for working capital purposes and acquisition financing. We do not enter into investments for trading or speculative purposes.
Item 7A. Quanti tative and Qualitative Disclosures about Market Risk 50 We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.
Item 7A. Quanti tative and Qualitative Disclosures about Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.

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