QUINSTREET, INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended
June 30, 2022, filed with the Securities and Exchange Commission ("SEC").

This Quarterly Report on Form 10-Q contains "forward-looking statements" that
involve risks and uncertainties, as well as assumptions that, if they do not
materialize or if they prove incorrect, could cause our results to differ
materially from those expressed or implied by such forward-looking statements.
The statements contained in this Quarterly Report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are often
identified by the use of words such as, but not limited to, "anticipate,"
"believe," "expect," "can," "continue," "could," "estimate," "expect," "intend,"
"outlook," "may," "will," "plan," "project," "seek," "should," "target," "will,"
"would," and similar expressions or variations intended to identify
forward-looking statements. These statements reflect the beliefs and assumptions
of our management based on information currently available to management. Such
forward-looking statements are subject to risks, uncertainties and other
important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified in "Part II -Item
1A. Risk Factors" below, and those discussed in the sections titled "Special
Note Regarding Forward-Looking Statements" and "Risk Factors" included in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with
the SEC. Furthermore, such forward-looking statements speak only as of the date
of this report. Except as required by law, we undertake no obligation to update
any forward-looking statements to reflect events or circumstances after the date
of such statements.

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.


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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 67% of net revenue for both
the three and six months ended December 31, 2022 and 72% and 73% of net revenue
for the three and six months ended December 31, 2021. Our home services client
vertical represented 32% of net revenue for both the three and six months ended
December 31, 2022 and 27% and 26% of net revenue for the three and six months
ended December 31, 2021. Other revenue, which primarily includes performance
marketing agency and technology services, represented 1% of net revenue for both
the three and six months ended December 31, 2022 and 2021. We generated the
majority of our revenue from sales to clients in the United States.

One client in our financial services client vertical accounted for 19% and 22%
of our net revenue for the three and six months ended December 31, 2022 and 13%
and 14% of our net revenue for the three and six months ended December 31, 2021.
No other client accounted for 10% or more of our net revenue for the three and
six months ended December 31, 2022 or 2021.

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.

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.

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.

Our business also benefits from more spending by clients in digital media and
performance marketing as digital marketing continues to evolve.

Acquisitions

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
Corp. ("AmOne"), CloudControlMedia, LLC ("CCM") and MyBankTracker.com, LLC
("MBT") completed in fiscal year 2019.

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

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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.

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 regulation that may affect our business is 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. 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. Furthermore, we may experience disruptions to our business
operations resulting from supply chain disruptions affecting auto insurance
carrier budgets which could have a material adverse impact on our business,
financial condition, operating results and cash flows. Refer to Risk Factors
(Part II, Item 1A of this Form 10-Q) for a discussion of these factors and other
risks.

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.

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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 (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 December 31,
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 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.

Critical Accounting Policies, Estimates and Judgments

In presenting our consolidated financial statements in conformity with U.S.
generally accepted accounting principles, or GAAP, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities as of the date of
the financial statements, and reported amounts of revenue and expenses during
the reporting period.

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. Actual
results may differ significantly from these estimates.

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

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  • Revenue recognition;


  • Valuation of goodwill and intangible assets;


  • Stock-based compensation;


  • Business combination;


  • Income taxes; and


  • Valuation of long-lived assets.

For further information on our critical and other significant accounting
policies and estimates, see 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 the year ended June 30, 2022, filed with the SEC.

Recently Issued Accounting Standards

See Note 2, Summary of Significant Accounting Policies, to our condensed
consolidated financial statements.

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Results of Operations

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

                               Three Months Ended December 31,                        Six Months Ended December 31,
                               2022                       2021                       2022                       2021
                              (In thousands, except percentages)                    (In thousands, except percentages)
Net revenue            $ 134,048       100.0 %    $ 125,331       100.0 %   

$ 277,641 100.0 % $ 284,939 100.0 %
Cost of revenue (1) 125,510 93.6 115,554 92.2

        256,755        92.5        257,059        90.2
Gross profit               8,538         6.4          9,777         7.8         20,886         7.5         27,880         9.8
Operating expenses:
(1)
Product development        7,174         5.3          4,861         3.8         14,000         5.0          9,486         3.4
Sales and marketing        3,166         2.4          2,834         2.3          6,266         2.3          5,740         2.0
General and
administrative             7,370         5.5          9,635         7.7         14,689         5.3         16,269         5.7
Operating loss            (9,172 )      (6.8 )       (7,553 )      (6.0 )      (14,069 )      (5.1 )       (3,615 )      (1.3 )
Interest income               12           -              -           -             19           -              -           -
Interest expense            (213 )      (0.2 )         (267 )      (0.2 )         (439 )      (0.1 )         (540 )      (0.2 )
Other (expense)
income, net                   (9 )         -              2           -            (32 )         -              6           -
Loss before income
taxes                     (9,382 )      (7.0 )       (7,818 )      (6.2 )      (14,521 )      (5.2 )       (4,149 )      (1.5 )
Benefit from income
taxes                      1,403         1.0          2,190         1.7          2,025         0.7          1,614         0.6
Net loss               $  (7,979 )      (6.0 )%   $  (5,628 )      (4.5 )%   $ (12,496 )      (4.5 )%   $  (2,535 )      (0.9 )%




(1) Cost of revenue and operating expenses include stock-based compensation
expense as follows:

Cost of revenue      $ 2,113         1.6 %   $ 2,267         1.8 %   $ 4,232         1.5 %   $ 4,088         1.4 %
Product
development              765         0.6         688         0.5       1,530         0.6       1,294         0.5
Sales and
marketing                658         0.5         727         0.6       1,310         0.5       1,459         0.5
General and
administrative         1,941         1.4       1,891         1.5       3,675         1.3       3,638         1.3


Gross Profit

                    Three Months Ended           Six Months Ended           Three           Six
                       December 31,                December 31,            Months         Months
                    2022          2021          2022          2021        % Change       % Change
                                    (In thousands)
Net revenue       $ 134,048     $ 125,331     $ 277,641     $ 284,939             7 %           (3 %)
Cost of revenue     125,510       115,554       256,755       257,059             9 %            - %
Gross profit      $   8,538     $   9,777     $  20,886     $  27,880           (13 %)         (25 %)


Net Revenue

Net revenue increased by $8.7 million, or 7%, for the three months ended
December 31, 2022 compared to the three months ended December 31, 2021. Revenue
from our home services client vertical increased by $9.2 million, or 27%,
primarily as a result of increased client budgets and successful implementation
of growth initiatives. Revenue from our financial services client vertical
decreased by $0.8 million, or 1%, primarily 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 offset by
an increase in revenue in our banking, credit cards and personal loans
businesses due to increased media and client budgets. Other revenue, which
primarily includes performance marketing agency and technology services,
contributed $1.8 million of revenue for the three months ended December 31,
2022, as compared to $1.4 million of revenue for the three months ended December
31, 2021.

Net revenue decreased by $7.3 million, or 3%, for the six months ended December
31, 2022 compared to the six months ended December 31, 2021. Revenue from our
financial services client vertical decreased by $23.8 million, or 11%, primarily
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 offset by an increase in revenue in our banking, credit cards
and personal loans businesses due to increased media and client budgets. Revenue
from our home

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services client vertical increased by $15.9 million, or 22%, primarily as a
result of increased client budgets and successful implementation of growth
initiatives. Other revenue, which primarily includes performance marketing
agency and technology services, contributed $3.6 million of revenue for the six
months ended December 31, 2022, as compared to $3.1 million of revenue for the
six months ended December 31, 2021.

Cost of Revenue and Gross Profit Margin

Cost of revenue increased by $10.0 million, or 9%, for the three months ended
December 31, 2022 compared to the three months ended December 31, 2021,
primarily driven by increased media and marketing costs of $5.6 million and
increased personnel costs of $3.8 million. The increase in media and marketing
costs was associated with higher revenue volumes. The increase in personnel
costs was mainly attributable to higher headcount, the impact of our annual
salary increase and higher incentive compensation. Gross profit margin, which is
the difference between net revenue and cost of revenue as a percentage of net
revenue, was 6% and 8% for the three months ended December 31, 2022 and 2021.
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 remained approximately flat for the six months ended December
31, 2022 compared to the six months ended December 31, 2021. Gross profit margin
was 8% and 10% for the six months ended December 31, 2022 and 2021. The decrease
in gross profit margin was primarily attributable to increased personnel costs
and depreciation and amortization expense as a percentage of revenue.

Operating Expenses

                               Three Months Ended          Six Months Ended           Three            Six
                                  December 31,               December 31,            Months           Months
                                2022          2021         2022         2021        % Change         % Change
                                              (In thousands)
Product development          $    7,174     $  4,861     $ 14,000     $  9,486              48 %            48 %
Sales and marketing               3,166        2,834        6,266        5,740              12 %             9 %
General and administrative        7,370        9,635       14,689       16,269             (24 %)          (10 %)
Operating expenses           $   17,710     $ 17,330     $ 34,955     $ 31,495               2 %            11 %

Product Development Expenses

Product development expenses increased by $2.3 million, or 48%, for the three
months ended December 31, 2022 compared to the three months ended December 31,
2021, primarily due to increased personnel costs of $1.9 million as a result of
higher headcount, the impact of our annual salary increase and higher incentive
compensation.

Product development expenses increased by $4.5 million, or 48%, for the six
months ended December 31, 2022 compared to the six months ended December 31,
2021, primarily due to increased personnel costs of $3.7 million as a result of
as a result of higher headcount, the impact of our annual salary increase and
increased incentive compensation.

Sales and Marketing Expenses

Sales and marketing expenses increased by $0.3 million, or 12%, for the three
months ended December 31, 2022 compared to the three months ended December 31,
2021, primarily due to increased personnel costs of $0.4 million.

Sales and marketing expenses increased by $0.5 million, or 9%, for the six
months ended December 31, 2022 compared to the six months ended December 31,
2021, primarily due to increased personnel costs of $0.6 million.

General and Administrative Expenses

General and administrative expenses decreased by $2.3 million, or 24%, for the
three months ended December 31, 2022 compared to the three months ended December
31, 2021, primarily due to an adjustment to contingent consideration of $2.7
million recorded in the second quarter of fiscal year 2022, offset by an
adjustment to allowance for bad debt of $0.6 million.

General and administrative expenses decreased by $1.6 million, or 10%, for the
six months ended December 31, 2022 compared to the six months ended December 31,
2021, primarily due to an adjustment to contingent consideration of $2.7 million
recorded in the second quarter of fiscal year 2022, offset by an adjustment to
allowance for bad debt of $0.6 million.

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Benefit from Income Taxes

                              Three Months Ended          Six Months Ended
                                 December 31,               December 31,
                               2022          2021         2022         2021
                                             (In thousands)
Benefit from income taxes   $    1,403      $ 2,190     $   2,025     $ 1,614


As of December 31, 2022, we have not recorded any significant valuation
allowance adjustments based on the information and evidence available at the
time. However, if there are unfavorable changes to actual operating results or
to projections of future income, we may determine that it is more likely than
not that such deferred tax assets may not be realizable.

We recorded a benefit from income taxes of $1.4 million and $2.0 million for the
three and six months ended December 31, 2022 and a benefit from income taxes of
$2.2 million and $1.6 million for the three and six months ended December 31,
2021.

Liquidity and Capital Resources

As of December 31, 2022, our principal sources of liquidity consisted of cash
and cash equivalents of $79.1 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.

In April 2022, our Board of Directors canceled our 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.
During the three months ended September 30, 2022, we repurchased and retired
285,644 shares of our common stock at an average price of $10.65 per share, at a
total cost of $3.1 million (including a broker commission of $0.03 per share).
There were no repurchases in the three months ended December 31, 2022.
Repurchases under this program took place in the open market and were made under
a Rule 10b5-1 plan. The repurchased shares of common stock were recorded as
treasury stock and were accounted for under the cost method. As of December 31,
2022, approximately $20.0 million remained available for stock repurchases
pursuant to the board authorization.

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:

                                               Six Months Ended
                                                 December 31,
                                              2022          2021
                                                (In thousands)

Net cash provided by operating activities $ 3,200 $ 19,687
Net cash used in investing activities (7,138 ) (3,979 )
Net cash used in financing activities (13,384 ) (10,977 )

Operating Activities

Cash flows from operating activities are primarily the result of our net loss
adjusted for depreciation and amortization, provision for or benefit from sales
returns and doubtful accounts receivable, stock-based compensation expense,
non-cash lease expense, deferred income taxes and changes in working capital
components.

Cash provided by operating activities was $3.2 million for the six months ended
December 31, 2022, compared to cash provided by operating activities of $19.7
million for the six months ended December 31, 2021.

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Cash provided by operating activities for the six months ended December 31, 2022
consisted of a net loss of $12.5 million and a net decrease in cash from changes
in working capital of $1.9 million, offset by non-cash adjustments of $17.5
million. The changes in working capital accounts were primarily attributable to
a decrease in accrued liabilities of $5.5 million and a decrease in accounts
payable of $4.7 million, offset by a decrease in accounts receivable of $9.3
million. The decreases in accounts receivable, accrued liabilities and accounts
payable were primarily due to lower revenue levels in the two months ended
December 31, 2022 as compared to the two months ended December 31, 2021, and
timing of receipts and payments. The non-cash adjustments primarily consisted of
stock-based compensation expense of $10.7 million, depreciation and amortization
expense of $9.0 million, and an increase in deferred tax assets of $2.3 million
primarily due to benefit from income taxes recorded for the first two quarters
of fiscal year 2023.

Cash provided by operating activities for the six months ended December 31, 2021
consisted of a net loss of $2.5 million, offset by non-cash adjustments of $20.1
million and a net increase in cash from changes in working capital of $2.1
million. The non-cash adjustments primarily consisted of stock-based
compensation expense of $10.5 million, depreciation and amortization expense of
$8.4 million, an adjustment to contingent consideration of $2.7 million, and an
increase in deferred tax assets of $1.6 million due to benefit from income taxes
recorded for the first two quarters of fiscal year 2022. The changes in working
capital accounts were primarily attributable to a decrease in accounts
receivable of $23.3 million, offset by a decrease in accrued liabilities of
$15.5 million and a decrease in accounts payable of $6.9 million. The decreases
in accounts receivable, accrued liabilities and accounts payable were primarily
due to lower revenue levels in the two months ended December 31, 2021 as
compared to the two months ended December 31, 2020, and the timing of receipts
and payments.

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 $7.1 million for the six months ended
December 31, 2022, compared to cash used in investing activities of $4.0 million
for the six months ended December 31, 2021.

Cash used in investing activities in the six months ended December 31, 2022 was
due to capital expenditures and internal software development costs of $7.0
million.

Cash used in investing activities in the six months ended December 31, 2021 was
due to capital expenditures and internal software development costs of $3.0
million, and $1.0 million cash paid at the closing of an immaterial acquisition
completed in the second quarter of fiscal year 2022.

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.

Cash used in financing activities was $13.3 million for the six months ended
December 31, 2022, compared to cash used in financing activities of $11.0
million for the six months ended December 31, 2021.

Cash used in financing activities in the six months ended December 31, 2022 was
due to payment of post-closing payments and contingent consideration related to
acquisitions of $7.2 million, repurchases of common stock of $4.7 million, and
payment of withholding taxes related to the release of restricted stock, net of
share settlement of $3.2 million, offset by proceeds from the exercise of stock
options and issuance of common stock under the employee stock purchase plan of
$1.8 million.

Cash used in financing activities in the six months ended December 31, 2021 was
due to payment of post-closing payments and contingent consideration related to
acquisitions of $6.5 million, payment of withholding taxes related to the
release of restricted stock, net of share settlement of $5.5 million, offset by
proceeds from the exercise of stock options of $1.0 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.

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Contractual Obligations

Our contractual obligations primarily consist of operating leases, post-closing
payments and contingent consideration payments recognized from our acquisitions.
These contractual obligations impact our short-term and long-term liquidity and
capital resource needs. There have been no material changes in our contractual
obligations as presented in Part II, Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K for our fiscal year ended June 30, 2022.



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