QUINSTREET, INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this report. The
following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in
this report, particularly in the sections titled "Cautionary Note on
Forward-Looking Statements" and "Risk Factors."

Management Overview

We are a leader in performance marketplaces and technologies for the financial
services and home services industries. We specialize in customer acquisition for
clients in high value, information-intensive markets or "verticals," including
financial services and home services. Our clients include some of the world's
largest companies and brands in those markets. The majority of our operations
and revenue are in North America.

We deliver measurable and cost-effective marketing results to our clients,
typically in the form of qualified inquiries such as clicks, leads, calls,
applications, or customers. Clicks, leads, calls, and applications can then
convert into a customer or sale for clients at a rate that results in an
acceptable marketing cost to them. 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). 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. To deliver clicks, leads, calls, applications, and customers to our clients,
generally we:

• own or access targeted media through business arrangements (e.g., revenue

sharing arrangements with online publisher partners, large and small) or by

purchasing media (e.g., clicks from major search engines);

• run advertisements or other forms of marketing messages and programs in

that media that result in consumer or visitor responses, typically in the

form of clicks (by a consumer to further qualification or matching steps,

or to online client applications or offerings), leads (e.g., consumer

contact information), calls (from a consumer or to a consumer by our owned

and operated or contracted call centers or by that of our clients or their

       agents), applications (e.g., for enrollment or a financial product), or
       customers (e.g., funded personal loans); and

• continuously seek to display clients and client offerings to visitors or

consumers that result in the maximum number of consumers finding solutions

that can meet their needs and to which they will take action to respond,

resulting in media buying efficiency (e.g., by segmenting media or traffic

so that the most appropriate clients or client offerings can be displayed

or "matched" to each segment based on fit, response rates or conversion

       rates);


   •   through technology and analytics, seek to optimize combination of
       objectives to satisfy the maximum number of shopping or researching

visitors or consumers, deliver on client marketing objectives, effectively

compete for online media, and generate a sound financial outcome for us.

Our primary financial objective has been and remains creating revenue growth
from sustainable sources, at target levels of profitability. Our primary
financial objective is not to maximize short-term profits, but rather to achieve
target levels of profitability while investing in various growth initiatives, as
we continue to believe we are in the early stages of a large, long-term market
opportunity.

Our business derives its net revenue primarily from fees earned through the
delivery of qualified inquiries such as clicks, leads, calls, applications, or
customers. Through a vertical focus, targeted media presence and our technology
platform, we are able to deliver targeted, measurable marketing results to our
clients.

Our financial services client vertical represented 72%, 74% and 75% of net
revenue in fiscal years 2022, 2021 and 2020. Our home services client vertical
represented 27%, 23% and 10% of net revenue in fiscal years 2022, 2021 and 2020.
Other revenue, which primarily includes our performance marketing agency and
technology services, represented 1% of net revenue in fiscal years 2022 and
2021. In addition, revenue recognized from our divested businesses (including
our former education client vertical, business-to-business technology client
vertical, mortgage business, and Brazil businesses) represented 0%, 2% and 15%
of net revenue for fiscal years 2022, 2021 and 2020. See
Note 7, Divestitures, to our consolidated financial statements for more
information related to the divestitures. We generated the majority of our
revenue from sales to clients in the United States.

                                       38
--------------------------------------------------------------------------------

Trends Affecting our Business

Client Verticals

Our financial services client vertical has been challenged by a number of
factors in the past, including the limited availability of high quality media at
acceptable margins caused by the acquisition of media sources by competitors,
increased competition for high quality media and changes in search engine
algorithms. These factors may impact our business in the future again. To offset
this impact, we have enhanced our product set to provide greater segmentation,
matching, transparency and right pricing of media that have enabled better
monetization to provide greater access to high quality media sources. Moreover,
we have entered into strategic partnerships and acquisitions to increase and
diversify our access to quality media and client budgets. Our financial services
client vertical also benefits from more spending by clients in digital media and
performance marketing as digital marketing continues to evolve.

In addition, within our financial services client vertical, we derive a
significant amount of revenue from auto insurance carriers and the financial
results depend on the performance of the auto insurance industry. 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. More recently, the auto
insurance industry has experienced re-rating and related challenges, which has
affected and may continue to affect our operations and financial results in the
auto insurance business.

On July 1, 2020, we completed the acquisition of Modernize, a leading home
improvement performance marketing company, to broaden our customer and media
relationships in the home services client vertical. Our home services client
vertical has been expanding over the past several years, primarily driven by
successful execution of growth initiatives and synergies with the Modernize
acquisition.

Acquisitions and Divestitures

Acquisitions have historically been, and continue to be, an important element of
our overall corporate strategy and use of capital. 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.

Furthermore, as a result of the decision to narrow our focus to the best
performing businesses and market opportunities, we completed a series of
business divestitures, including the divestiture of our former education client
vertical completed in fiscal year 2021, and the divestitures of our former B2B
client vertical, our businesses in Brazil consisting of QSB and VEMM along with
its interests in EDB, and our mortgage business completed in fiscal year 2020.

For detailed information regarding our acquisitions and divestitures, refer to
Note 6, Acquisitions, and Note 7, Divestitures, respectively, to our
consolidated financial statements.

Development, Acquisition and Retention of High Quality Targeted Media

One of the primary challenges of our business is finding or creating media that
is high quality and targeted enough to attract prospects for our clients at
costs that provide a sound financial outcome for us. In order to grow our
business, we must be able to find, develop, or acquire and retain quality
targeted media on a cost-effective basis. Consolidation of media sources,
changes in search engine algorithms and increased competition for available
media has, during some periods, limited and may continue to limit our ability to
generate revenue at acceptable margins. To offset this impact, we have developed
new sources of media, including entering into strategic partnerships with other
marketing and media companies and acquisitions. Such partnerships include
takeovers of performance marketing functions for large web media properties;
backend monetization of unmatched traffic for clients with large media buys; and
white label products for other performance marketing companies. We have also
focused on growing our revenue from call center, email, mobile and social media
traffic sources.

Seasonality

Our results are subject to significant fluctuation as a result of seasonality.
In particular, our quarters ending December 31 (our second fiscal quarter) are
typically characterized by seasonal weakness. In our second fiscal quarters,
there is generally lower availability of media during the holiday period on a
cost effective basis and some of our clients have lower budgets. 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.

                                       39
--------------------------------------------------------------------------------


Our results are also subject to fluctuation as a result of seasonality in our
clients' business. For example, revenue in our home services client vertical is
subject to cyclical and seasonal trends, as the consumer demand for home
services typically rises during the spring and summer seasons and declines
during the fall and winter seasons. Other factors affecting our clients'
businesses include macro factors such as credit availability in the market,
interest rates, the strength of the economy and employment.

Regulations

Our revenue has fluctuated in part as a result of federal, state and
industry-based regulations and developing standards with respect to the
enforcement of those regulations. Our business is affected directly because we
operate websites and conduct telemarketing and email marketing, and indirectly
affected as our clients adjust their operations as a result of regulatory
changes and enforcement activity that affect their industries.

Clients in our financial services vertical have been affected by laws and
regulations and the increased enforcement of new and pre-existing laws and
regulations. The effect of these regulations, or any future regulations, may
continue to result in fluctuations in the volume and mix of our business with
these clients.

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.

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. 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. For example, within our
financial services client vertical, certain lines of business, such as credit
cards and banking, have seen and may continue to see reductions in near-term
demand for our services due to the weakened, or additional weakening of,
economic and employment conditions, and the uncertainty over the length and
depth of the economic downturn. The extent to which the COVID-19 pandemic
impacts our business going forward will depend on numerous evolving factors we
cannot reliably predict, including the duration and scope of the pandemic;
resurgences of the pandemic due to the emergence and persistency of new variants
to COVID-19 or otherwise; business and individuals' actions in response to 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 prevalence of use of vaccines for COVID-19; and the
impact of the pandemic on economic activity including the length and depth of
economic or financial market instability. These factors may adversely impact
consumer, business, and government spending as well as our clients' ability to
pay for our services on an ongoing basis. 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.
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 years
2021 and 2020 also included the revenue generated from the divested businesses
(including our former education client vertical, business-to-business technology
client vertical, mortgage business, and Brazil businesses). See
Note 7, Divestitures, to our consolidated financial statements for more
information related to the divestitures.

Cost of Revenue

Cost of revenue consists primarily of media and marketing costs, personnel
costs, amortization of intangible assets, depreciation expense and facilities
expense. Media and marketing costs consist primarily of fees paid to third-party
publishers, media owners or managers, or to strategic partners that are directly
related to a revenue-generating event and of pay-per-click, or PPC, ad purchases
from Internet search companies. We pay these third-party publishers, media
owners or managers, strategic partners and Internet search companies on a
revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, basis.
Personnel costs include salaries, stock-based compensation expense, bonuses,
commissions and related taxes, and employee benefit costs. Personnel costs are
primarily related to individuals associated with maintaining our servers and
websites, our call center operations, our editorial staff, client management,
creative team, content, compliance group and media purchasing analysts. Costs
associated with software incurred in the development phase or obtained for
internal use are capitalized and amortized to cost of revenue over the
software's estimated useful life.

Operating Expenses

We classify our operating expenses into three categories: product development,
sales and marketing, and general and administrative. Our operating expenses
consist primarily of personnel costs and, to a lesser extent, professional
services fees, facilities fees and other costs. Personnel costs for each
category of operating expenses generally include salaries, stock-based
compensation expense, bonuses, commissions and related taxes, and employee
benefit costs.

Product Development. Product development expenses consist primarily of personnel
costs, facilities fees and professional services fees related to the development
and maintenance of our products and media management platform. We are
constraining expenses generally to the extent practicable.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel
costs, facilities fees and professional services fees. We are constraining
expenses generally to the extent practicable.

General and Administrative. 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. We are
constraining expenses generally to the extent practicable.

Interest and Other Income, Net

Interest and other 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, 2022; 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 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 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.

Benefit from (Provision for) 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.

                                       41
--------------------------------------------------------------------------------

Results of Operations

The following table sets forth our consolidated statements of operations for the
periods indicated:

                                                   Fiscal Year Ended June 30,
                                 2022                         2021                        2020
                                               (In thousands, except percentages)
Net revenue             $ 582,099         100.0 %    $ 578,487         100.0 %   $ 490,339         100.0 %
Cost of revenue (1)       528,368          90.8        507,956          87.8       437,864          89.3
Gross profit               53,731           9.2         70,531          12.2        52,475          10.7
Operating expenses:
(1)
Product development        21,906           3.7         19,344           3.3        14,206           2.9
Sales and marketing        11,042           1.9         10,991           1.9         8,876           1.8
General and
administrative             25,501           4.4         26,270           4.6        23,188           4.7
Operating (loss)
income                     (4,718 )        (0.8 )       13,926           2.4         6,205           1.3
Interest income                10             -             39             -           230             -
Interest expense           (1,075 )        (0.2 )       (1,296 )        (0.2 )        (696 )        (0.1 )
Other income, net              21             -         16,660           2.9        12,947           2.6
(Loss) income before
income taxes               (5,762 )        (1.0 )       29,329           5.1        18,686           3.8
Benefit from
(provision for)
income taxes                  514           0.1         (5,774 )        (1.0 )        (584 )        (0.1 )
Net (loss) income       $  (5,248 )        (0.9 )%   $  23,555           4.1 %   $  18,102           3.7 %

(1) Cost of revenue and operating expenses include stock-based compensation

    expense as follows:



Cost of revenue              $ 7,475       1.3 %   $ 8,997       1.6 %   $ 8,569       1.7 %
Product development            2,575       0.4       2,339       0.4       1,819       0.4
Sales and marketing            2,378       0.4       2,459       0.4       1,701       0.3
General and administrative     6,078       1.0       5,838       1.0       4,628       0.9


Gross Profit

                       Fiscal Year Ended June 30,            2022 - 2021        2021 - 2020
                    2022          2021          2020          % Change           % Change
                             (In thousands)
Net revenue       $ 582,099     $ 578,487     $ 490,339                 1 %               18 %
Cost of revenue     528,368       507,956       437,864                 4 %               16 %
Gross profit      $  53,731     $  70,531     $  52,475               (24 %)              34 %


Net Revenue

Net revenue increased by $3.6 million, or 1%, in fiscal year 2022 compared to
fiscal year 2021. 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 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. 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. 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.

Net revenue increased by $88.1 million, or 18%, in fiscal year 2021 compared to
fiscal year 2020. Revenue from our home services client vertical increased by
$84.6 million, or 169%, primarily as a result of inorganic and organic (synergy)
revenue effects from the acquisition of Modernize completed in fiscal year 2021.
Revenue from our financial services client vertical increased by $60.5 million,
or 17%, primarily due to our enhanced product set and data analytics that
enabled access to more media and an increase

                                       42
--------------------------------------------------------------------------------


in client budgets in our insurance business, offset by a decline in revenue in
the credit-driven businesses due to weakening economic and employment
conditions caused by COVID-19. Other revenue, which primarily
includes performance marketing agency and technology services, contributed $5.5
million of revenue for fiscal year 2021. The business divestitures completed in
fiscal years 2021 and 2020 decreased revenue by $62.5 million for fiscal year
2021.

Cost of Revenue and Gross Profit Margin

Cost of revenue increased by $20.4 million, or 4%, in fiscal year 2022 compared
to fiscal year 2021. This was primarily driven by increased media and marketing
costs of $15.4 million, increased personnel costs of $3.3 million and increased
amortization of intangible assets of $0.5 million. The increase in media and
marketing costs was associated with higher revenue volumes. The increase in
personnel costs was mainly attributable to a higher headcount. The increase in
amortization expense was primarily due to the acquisitions of intangible assets
in fiscal year 2022. Gross profit margin, which is the difference between net
revenue and cost of revenue as a percentage of net revenue, was 9% in fiscal
year 2022 compared to 12% in fiscal year 2021. The decrease in gross profit
margin was primarily attributable to increased media and marketing costs as a
percentage of revenue.

Cost of revenue increased by $70.1 million, or 16%, in fiscal year 2021 compared
to fiscal year 2020. This was primarily driven by increased media and marketing
costs of $58.0 million, increased personnel costs including stock-based
compensation expense of $6.0 million, and increased amortization of intangible
assets of $4.7 million. The increase in media and marketing costs was associated
with higher revenue volumes. The increase in personnel costs was primarily due
to higher headcount associated with the Modernize acquisition, increased
incentive compensation associated with the achievement of performance objectives
for fiscal year 2021 and increased stock-based compensation expense. The
increase in amortization expense was primarily due to the acquisitions of
intangible assets in fiscal year 2021. Gross profit margin was 12% in fiscal
year 2021 compared to 11% in fiscal year 2020. The increase in gross profit
margin was primarily attributable to decreased media and marketing costs as a
percentage of revenue.

Operating Expenses

                                       Fiscal Year Ended June 30,            2022 - 2021        2021 - 2020
                                    2022          2021          2020          % Change           % Change
                                             (In thousands)
Product development              $   21,906     $  19,344     $  14,206                13 %               36 %
Sales and marketing                  11,042        10,991         8,876                 - %               24 %
General and administrative           25,501        26,270        23,188                (3 %)              13 %
Operating expenses               $   58,449     $  56,605     $  46,270                 3 %               22 %

Product Development Expenses

Product development expenses increased by $2.6 million, or 13%, in fiscal year
2022 compared to fiscal year 2021. 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.

Product development expenses increased by $5.1 million, or 36%, in fiscal year
2021 compared to fiscal year 2020. This was primarily due to increased personnel
costs of $4.5 million as a result of higher headcount associated with the
Modernize acquisition, increased incentive compensation associated with the
achievement of performance objectives for fiscal year 2021 and increased
stock-based compensation expense.

Sales and Marketing Expenses

Sales and marketing expenses were approximately flat in fiscal year 2022
compared to fiscal year 2021.

Sales and marketing expenses increased by $2.1 million, or 24%, in fiscal year
2021 compared to fiscal year 2020. This was primarily due to increased personnel
costs of $2.2 million as a result of increased incentive compensation associated
with the achievement of performance objectives for fiscal year 2021 and
increased stock-based compensation expense.

                                       43
--------------------------------------------------------------------------------

General and Administrative Expenses

General and administrative expenses decreased by $0.8 million, or 3%, in fiscal
year 2022 compared to fiscal year 2021. This was primarily due to an adjustment
to contingent consideration of $0.9 million recorded in fiscal year 2022.

General and administrative expenses increased by $3.1 million, or 13%, in fiscal
year 2021 compared to fiscal year 2020. This was primarily due to increased
personnel costs of $2.0 million as a result of increased stock-based
compensation expense and increased incentive compensation associated with the
achievement of performance objectives for fiscal year 2021.

Interest and Other Income, Net

                                       Fiscal Year Ended June 30,            2022 - 2021        2021 - 2020
                                    2022          2021          2020          % Change           % Change
                                             (In thousands)
Interest income                  $       10     $      39     $     230               (74 %)             (83 %)
Interest expense                     (1,075 )      (1,296 )        (696 )             (17 %)              86 %
Other income, net                        21        16,660        12,947              (100 %)              29 %

Interest and other income, net $ (1,044 ) $ 15,403 $ 12,481

          (107 %)              23 %

Interest income relates to interest earned on our cash and cash equivalents in
fiscal years 2022, 2021 and 2020.

Interest expense decreased by $0.2 million, or 17%, in fiscal year 2022 compared
to fiscal year 2021 primarily due to decreased imputed interest on a lower
average outstanding balance of the post-closing payments related to our business
acquisitions. Interest expense increased by $0.6 million, or 86%, in fiscal year
2021 compared to fiscal year 2020 primarily due to increased imputed interest on
a higher average outstanding balance of the post-closing payments related to our
business acquisitions completed in fiscal year 2021.

Other income, net, was immaterial in fiscal year 2022. Other income, net, was
$16.7 million in fiscal year 2021 primarily due to a gain of $16.6 million
recognized from the divestiture of our education client vertical. Other income,
net, was $12.9 million in fiscal year 2020 primarily due to a net disposition
gain of $13.6 million recognized from the business divestitures completed during
the fiscal year.

Benefit from (Provision for) Income Taxes

                                                         Fiscal Year Ended June 30,
                                                     2022            2021          2020
                                                               (In thousands)
Benefit from (provision for) income taxes           $   514       $    (5,774 )   $ (584 )
Effective tax rate                                      8.9 %            19.7 %      3.1 %


We recorded a benefit from income taxes of $0.5 million in fiscal year 2022,
primarily as a result of a net benefit for deferred federal and state income
taxes of $0.9 million offset by current state and foreign taxes of $0.4 million.

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.

We recorded a provision for income taxes of $0.6 million in fiscal year 2020,
primarily as a result of deferred federal and state income taxes of $3.5
million, offset by an expected tax refund of $3.1 million to be received from
the California Franchise Tax Board, based on a settlement reached in the third
quarter of fiscal year 2020.

Our effective tax rate was 8.9%, 19.7%, and 3.1% in fiscal years 2022, 2021 and
2020.

                                       44
--------------------------------------------------------------------------------


A provision of the Tax Cuts and Jobs Act (TCJA) is effective for us for the
fiscal year ending June 30, 2023, creating a significant change to the treatment
of research and experimental (R&E) expenditures under Section 174 of the IRC
(Sec. 174 expenses). Historically, businesses have had the option of deducting
Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs
over five years. The new TCJA provision, however, eliminates this option and
requires Sec. 174 expenses associated with research conducted in the U.S. to be
capitalized and amortized over a 5-year period. For expenses associated with
research outside of the United States, Sec. 174 expenses are required to be
capitalized and amortized over a 15-year period. We are currently assessing the
impact of the provision, however a material impact to cash taxes is not expected
due to available net operating losses and tax credits.

Liquidity and Capital Resources

As of June 30, 2022, our principal sources of liquidity consisted of cash and
cash equivalents of $96.4 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. We believe our cash equivalents are liquid and accessible.

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. Our primary operating cash requirements
include the payment of media costs, personnel costs, costs of information
technology systems and office facilities. Our ability to fund these requirements
will depend on our future cash flows, which are determined, in part, by future
operating performance and are, therefore, subject to prevailing global
macroeconomic conditions including the impact of COVID-19, and financial,
business and other factors, some of which are beyond our control. 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.

The following table summarizes our cash flows for the periods indicated:

                                                            Fiscal Year Ended June 30,
                                                         2022          2021          2020
                                                                  (In thousands)
Net cash provided by operating
activities                                             $  28,672     $  50,615     $  47,608
Net cash (used in) provided by
investing activities                                      (9,225 )     (36,457 )       8,868
Net cash used in financing
activities                                               (33,315 )     (11,312 )     (11,632 )

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.

Cash provided by operating activities was $28.7 million in fiscal year 2022
compared to $50.6 million in fiscal year 2021 and $47.6 million in fiscal year
2020.

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 non-cash adjustments primarily
consisted of depreciation and amortization of $17.0 million and stock-based
compensation expense of $18.5 million. 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 decreases in accounts receivable, accrued
liabilities and accounts payable were primarily due to lower revenue levels in
the two months ended June 30, 2022 as compared to the two months ended June 30,
2021, and the timing of receipts and payments. The decrease in prepaid expenses
and other assets was primarily due to the state tax refund of $3.3 million.

Cash provided by operating activities in fiscal year 2021 consisted of net
income of $23.6 million, adjusted for non-cash adjustments of $24.2 million and
changes in working capital accounts of $2.8 million. The non-cash adjustments
primarily consisted

                                       45
--------------------------------------------------------------------------------


of stock-based compensation expense of $19.6 million, depreciation and
amortization of $16.2 million, and a decrease in deferred tax assets of $5.4
million primarily due to provision for income taxes recorded in fiscal year
2021, offset by a gain of $16.6 million recognized from the divestiture of our
education client vertical. The changes in working capital accounts were
primarily attributable to an increase in accrued liabilities of $10.6 million,
an increase in accounts payable of $6.6 million, and a decrease in prepaid
expenses and other assets of $6.0 million, offset by an increase in accounts
receivable of $20.1 million. The increases in accounts payable and accrued
liabilities were due to the timing of payments. The decrease in prepaid expenses
and other assets was primarily due to the refund of an unamortized prepaid
expense of $5.3 million. The increase in accounts receivable was due to the
timing of receipts.

Cash provided by operating activities in fiscal year 2020 consisted of net
income of $18.1 million, adjusted for non-cash adjustments of $19.4 million and
changes in working capital accounts of $10.1 million. The non-cash adjustments
primarily consisted of stock-based compensation expense of $16.7 million and
depreciation and amortization of $11.5 million, offset by a net disposition gain
of $13.6 million recognized from the business divestitures completed in fiscal
year 2020. The changes in working capital accounts were primarily attributable
to a decrease in accounts receivable of $11.4 million and a decrease in other
assets, noncurrent of $5.5 million, offset by an increase in prepaid expenses
and other assets of $8.1 million. The decrease in accounts receivable was due to
the timing of receipts. The decrease in other assets, noncurrent, was primarily
due to a reclassification of unamortized prepaid expense of $4.3 million from
long-term to short-term as we expected to receive payment within the next 12
months. The increase in prepaid expenses and other assets was primarily due to
the reclassification of $4.3 million as discussed above, as well as an expected
tax refund of $3.1 million to be received from the California Franchise Tax
Board, based on a settlement reached in the third quarter of fiscal year 2020.

Net Cash (Used in) Provided by 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 $9.2 million in fiscal year 2022, compared
to cash used in investing activities of $36.5 million in fiscal year 2021 and
cash provided by investing activities of $8.9 million in fiscal year 2020.

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 2021 was primarily due to
payments for the acquisitions of Modernize, Mayo Labs and FCE, net of cash
acquired, of $49.3 million, capital expenditures and internal software
development costs of $5.1 million, and investment in equity securities of $4.0
million, offset by $21.9 million of cash received from the divestitures of our
education client vertical and B2B client vertical.

Cash provided by investing activities in fiscal year 2020 was primarily due to
$15.4 million cash received from the business divestitures completed in fiscal
year 2020, net of cash divested of $0.3 million, offset by capital expenditures
and internal software development costs of $4.3 million, and a cash payment of
$2.0 million associated with an insignificant business acquisition completed in
fiscal year 2020.

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
post-closing payments related to business acquisitions.

Cash used in financing activities was $33.3 million in fiscal year 2022,
compared to cash used in financing activities of $11.3 million in fiscal year
2021 and $11.6 million in fiscal year 2020.

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 in fiscal year 2021 was due to the payment of
withholding taxes related to the release of restricted stock, net of share
settlement of $8.0 million, and payment of post-closing payments and contingent
consideration related to acquisitions of $7.7 million, offset by proceeds from
the exercise of stock options of $4.4 million.

                                       46
--------------------------------------------------------------------------------


Cash used in financing activities in fiscal year 2020 was due to the
post-closing payments and contingent consideration related to acquisitions of
$9.3 million, and payments of withholding taxes related to the release of
restricted stock, net of share settlement of $6.4 million, offset by proceeds
from the exercise of stock options of $4.1 million.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any material relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.

Contractual Obligations

The following table sets forth payments due under our contractual obligations as
of June 30, 2022:

                                       Total         Less than 1 Year       1-3 Years       3-5 Years
                                                              (In thousands)
Operating leases (1)                 $   10,865     $            6,084     $     4,708     $        73
Post-closing payment related to
acquisitions (2)                         28,437                 11,673          11,816           4,948
Contingent consideration related
to acquisitions (2)                       1,787                  1,102             685               -
Total                                $   41,089     $           18,859     $    17,209     $     5,021

(1) 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 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. In April 2018, the lease agreement was amended to
extend the lease term through October 31, 2023. Under the amended lease
agreement, during the first year of the extended lease term, the monthly base
rent was abated for the first eight months and increased to $0.2 million for the
remaining four months. During the second year of the extended lease term, the
monthly base rent was abated for the first five months and increased to $0.3
million for the remaining seven months. Subsequently, after each 12-month
anniversary, the monthly base rent increases by approximately 3%. We have an
option to extend the term of the lease for an additional five years following
October 31, 2023.
(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. See Note 6, Acquisitions, to our

consolidated financial statements for more information on the post-closing

payments and contingent consideration payments related to our business

acquisitions.

The above table does not include approximately $2.5 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.

Critical Accounting Policies and Estimates

We have prepared our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP"). In doing so, we are required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the reporting period. Actual results may
differ significantly from these estimates. 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. On an ongoing basis, we reconsider and
evaluate our estimates and assumptions.

We refer to these estimates and assumptions as critical accounting policies and
estimates. We believe that the critical accounting policies listed below involve
our more significant judgments, estimates and assumptions and, therefore, could
have the greatest potential impact on our consolidated financial statements. 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.

                                       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. 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 pursuant
to the five-step framework contained in ASC 606, Revenue from Contracts with
Customers: (i) identify the contract with a client; (ii) identify the
performance obligations in the contract, including whether they are distinct in
the context of the contract; (iii) determine the transaction price, including
the constraint on variable consideration; (iv) allocate the transaction price to
the performance obligations in the contract; and (v) recognize revenue when (or
as) the Company satisfies the performance obligations.

As part of determining whether a contract exists, probability of collection is
assessed on a client-by-client basis at the outset of the contract. Clients are
subjected to a credit review process that evaluates the clients' financial
position and the ability and intention to pay. If it is determined from the
outset of an arrangement that the client does not have the ability or intention
to pay, we will conclude that a contract does not exist and will continuously
reassess our evaluation until we are able to conclude that a contract does
exist.

Generally, our contracts specify the period of time as one month, but in some
instances the term may be longer. However, for most of our contracts with
clients, either party can terminate the contract at any time without penalty.
Consequently, enforceable rights and obligations only exist on a day-to-day
basis, resulting in individual daily contracts during the specified term of the
contract or until one party terminates the contract prior to the end of the
specified term.

We have assessed the services promised in our contracts with clients and have
identified one performance obligation, which is a series of distinct services.
Depending on the client's needs, these services consist of a specified or an
unlimited number of clicks, leads, calls, applications, customers, etc.
(hereafter collectively referred to as "marketing results") to be delivered over
a period of time. We satisfy these performance obligations over time as the
services are provided. We do not promise to provide any other significant goods
or services to our clients.

Transaction price is measured based on the consideration that we expect to
receive from a contract with a client. Our contracts with clients contain
variable consideration as the price for an individual marketing result varies on
a day-to-day basis depending on the market-driven amount a client has committed
to pay. However, because we ensure the stated period of our contracts does not
generally span multiple reporting periods, the contractual amount within a
period is based on the number of marketing results delivered within the period.
Therefore, the transaction price for any given period is fixed and no estimation
of variable consideration is required.

If a marketing result delivered to a client does not meet the contractual
requirements associated with that marketing result, our contracts allow for
clients to return a marketing result generally within 5-10 days of having
received the marketing result. Such returns are factored into the amount billed
to the client on a monthly basis and consequently result in a reduction to
revenue in the same month the marketing result is delivered. No warranties are
offered to our clients.

We do not allocate transaction price as we have only one performance obligation
and our contracts do not generally span multiple periods. Taxes collected from
clients and remitted to governmental authorities are not included in revenue. We
elected to use the practical expedient which allows us to record sales
commissions as expense as incurred when the amortization period would have been
one year or less.

We bill clients monthly in arrears for the marketing results delivered during
the preceding month. Our standard payment terms are 30-60 days. 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. We
receive a fee from our clients and separately pay a fee to the Internet search
companies, third-party publishers and strategic partners. We evaluate whether we
are the principal (i.e., report revenue on a gross basis) or agent (i.e., report
revenue on a net basis). In doing so, we first evaluate whether we control the
goods or services before they are transferred to the clients. If we control the
goods or services before they are transferred to the clients, we are the
principal in the transaction. As a result, the fees paid by our clients are
recognized as revenue and the fees paid to our Internet search companies,
third-party publishers and strategic partners are included in cost of revenue.
If we do not control the goods or services before they are transferred to the
clients, we are the agent in the transaction and recognize revenue on a net
basis. We have one subsidiary, CCM, which provides performance marketing agency
and technology services to clients in financial services, education and other
markets, recognizing revenue on a net basis. 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. The fair value of restricted stock units with a service condition
("service-based RSU") is determined based on the closing price of our common
stock on the date of grant. To estimate the fair value of stock options and
purchase rights granted under the employee stock purchase plan ("ESPP"), we
selected the Black-Scholes option pricing model. The fair value of restricted
stock units with a service and performance condition ("performance-based RSU")
is determined based on the closing price of our common stock on the date of
grant. Grant date as defined by ASC 718 is determined when the components that
comprise the performance targets have been fully established. If a grant date
has not been established, the compensation expense associated with the
performance-based RSUs is re-measured at each reporting date based on the
closing price of our common stock at each reporting date until the grant date
has been established. For restricted stock units with a service and market
condition ("market-based RSU"), we selected the Monte Carlo simulation model to
estimate the fair value on the date of grant. In applying these models, our
determination of the fair value of the award is affected by assumptions
regarding a number of subjective variables. These variables include, but are not
limited to, the expected stock price volatility over the term of the award and
the employees' actual and projected stock option exercise and pre-vesting
employment termination behaviors. We estimate the expected volatility of our
common stock based on our historical volatility over the expected term of the
award. We have no history or expectation of paying dividends on our common
stock. The risk-free interest rate is based on the U.S. Treasury yield for a
term consistent with the expected term of the award.

We recognize stock-based compensation expense for options and service-based RSUs
using the straight-line method, and for performance-based RSUs and market-based
RSUs using the graded vesting method, based on awards ultimately expected to
vest. We recognize stock-based compensation expense for the purchase rights
granted under the ESPP using the straight-line method over the offering period.
We estimate future forfeitures at the date of grant. On an annual basis, we
assess changes to our estimate of expected forfeitures based on recent
forfeiture activity. The effect of adjustments made to the forfeiture rates, if
any, is recognized in the period that change is made.

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. The excess of the purchase price
over the fair values of these identifiable assets and liabilities is recorded as
goodwill. During the measurement period, which may be up to one year from the
acquisition date, we may record adjustments to the assets acquired and
liabilities assumed with the corresponding offset to goodwill.

In determining the fair value of assets acquired and liabilities assumed in a
business combination, we used the income approach to value our most significant
acquired assets. Significant assumptions relating to our estimates in the income
approach include base revenue, revenue growth rate net of client attrition,
projected gross margin, discount rates, projected operating expenses and the
future effective income tax rates. The valuations of our acquired businesses
have been performed by a third-party valuation specialist under our management's
supervision. We believe that the estimated fair value assigned to the assets
acquired and liabilities assumed are based on reasonable assumptions and
estimates that marketplace participants would use. However, such assumptions are
inherently uncertain and actual results could differ from those estimates.
Future changes in our assumptions or the interrelationship of those assumptions
may negatively impact future valuations. 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.

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. We include the results of operations of the businesses
acquired as of the beginning of the acquisition dates.

Goodwill

We conduct a test for the impairment of goodwill at the reporting unit level on
at least an annual basis and whenever there are events or changes in
circumstances that would more likely than not reduce the estimated fair value of
a reporting unit below its carrying value. Application of the goodwill
impairment test requires judgment, including the identification of reporting
units, assigning assets and liabilities to reporting units, assigning goodwill
to reporting units, and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units
include estimating future cash flows and determining appropriate discount rates,
growth rates, an appropriate control premium and other assumptions. Changes in
these

                                       49
--------------------------------------------------------------------------------

estimates and assumptions could materially affect the determination of fair
value for each reporting unit which could trigger impairment.

We perform our annual goodwill impairment test on April 30 and conduct a
qualitative assessment to determine whether it is necessary to perform a
quantitative goodwill impairment test. In assessing the qualitative factors, we
consider the impact of key factors such as changes in the general economic
conditions including the impact of COVID-19, 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 2022 and 2021. Based on the
results of the qualitative assessment completed as of April 30, 2022 and 2021,
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. If necessary, a quantitative test is performed that requires the
application of judgment when assessing the fair value of an asset. When we
identify an impairment, we reduce the carrying amount of the asset to its
estimated fair value based on a discounted cash flow approach or, when available
and appropriate, to comparable market values. As of April 30, 2022 and 2021, we
evaluated our long-lived assets and concluded there were no indicators of
impairment.

Income Taxes

We account for income taxes using an asset and liability approach to record
deferred taxes. Our deferred income tax assets represent temporary differences
between the financial statement carrying amount and the tax basis of existing
assets and liabilities that will result in deductible amounts in future years,
including net operating loss carry forwards. Deferred tax assets and liabilities
are measured using the currently enacted tax rates that apply to taxable income
in effect for the years in which those tax assets and liabilities are expected
to be realized or settled. Valuation allowances are provided when necessary to
reduce deferred tax assets to the amount expected to be realized. We regularly
assess the realizability of our deferred tax assets. Judgment is required to
determine whether a valuation allowance is necessary and the amount of such
valuation allowance, if appropriate. We consider all available evidence, both
positive and negative, to determine, based on the weight of available evidence,
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. In evaluating the need, or continued need, for a valuation
allowance we consider, among other things, the nature, frequency and severity of
current and cumulative taxable income or losses, forecasts of future
profitability, and the duration of statutory carryforward periods. Our judgment
regarding future profitability may change due to future market conditions
including the impact of COVID-19, changes in U.S. or international tax laws and
other factors.

We recognize tax benefits from an uncertain tax position only if it is more
likely than not, based on the technical merits of the position, that the tax
position will be sustained on examination by the tax authorities. 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.

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.