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.

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.

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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 70% and 68% of net revenue
for the three and nine months ended March 31, 2023 and 72% and 73% of net
revenue for the three and nine months ended March 31, 2022. Our home services
client vertical represented 29% and 31% of net revenue for the three and nine
months ended March 31, 2023 and 27% and 26% of net revenue for the three and
nine months ended March 31, 2022. Other revenue, which primarily includes
performance marketing agency and technology services, represented 1% of net
revenue for both the three and nine months ended March 31, 2023 and 2022. 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 25% and 23%
of our net revenue for the three and nine months ended March 31, 2023 and 19%
and 16% of our net revenue for the three and nine months ended March 31, 2022.
No other client accounted for 10% or more of our net revenue for the three and
nine months ended March 31, 2023 or 2022.

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 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.

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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 and inflationary pressures
affecting auto insurance carrier budgets which could have a material adverse
impact on our business, financial condition, operating results and cash flows.
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 March 31, 2023;
however interest expense could increase if, among other things, we enter into a
new borrowing agreement to manage liquidity or make additional acquisitions
through debt financing. Interest 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 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.

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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.

•

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.

Results of Operations

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

                                 Three Months Ended March 31,                           Nine Months Ended March 31,
                               2023                        2022                      2023                        2022
                              (In thousands, except percentages)                    (In thousands, except percentages)
Net revenue            $ 172,671       100.0 %    $ 150,658        100.0 %  

$ 450,312 100.0 % $ 435,597 100.0 %
Cost of revenue (1) 155,633 90.1 136,567 90.6

412,388 91.6 393,626 90.4
Gross profit

              17,038         9.9         14,091          9.4        37,924         8.4         41,971          9.6
Operating expenses:
(1)
Product development        7,832         4.5          5,509          3.8    

21,832 4.8 14,995 3.4
Sales and marketing 3,385 2.0 2,033 1.3

     9,651         2.1          7,773          1.8
General and
administrative             7,230         4.2          5,489          3.6        21,919         4.9         21,758          5.0
Operating (loss)
income                    (1,409 )      (0.8 )        1,060          0.7       (15,478 )      (3.4 )       (2,555 )       (0.6 )
Interest income               46           -              7            -            65           -              7            -
Interest expense            (187 )      (0.1 )         (277 )       (0.1 )        (626 )      (0.2 )         (817 )       (0.2 )
Other (expense)
income, net                  (12 )         -             45            -           (44 )         -             51            -
(Loss) income before
income taxes              (1,562 )      (0.9 )          835          0.6    

(16,083 ) (3.6 ) (3,314 ) (0.8 )
Benefit from income
taxes

                      1,083         0.6          1,395          0.9    

3,108 0.7 3,009 0.7
Net (loss) income $ (479 ) (0.3 )% $ 2,230 1.5 %

$ (12,975 ) (2.9 )% $ (305 ) (0.1 )%

(1) Cost of revenue and operating expenses include stock-based compensation
expense as follows:
Cost of revenue      $ 2,006         1.2 %   $  491         0.3 %   $ 6,238         1.4 %   $ 4,579         1.1 %
Product
development              695         0.4        203         0.1       2,225         0.5       1,497         0.3
Sales and
marketing                660         0.4         18           -       1,970         0.4       1,477         0.3
General and
administrative         1,947         1.1        699         0.5       5,622         1.2       4,337         1.0




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Gross Profit
                    Three Months Ended           Nine Months Ended          Three          Nine
                         March 31,                   March 31,              Months        Months
                    2023          2022          2023          2022         % Change      % Change
                                    (In thousands)
Net revenue       $ 172,671     $ 150,658     $ 450,312     $ 435,597             15 %           3 %
Cost of revenue     155,633       136,567       412,388       393,626             14 %           5 %
Gross profit      $  17,038     $  14,091     $  37,924     $  41,971             21 %         (10 %)


Net Revenue

Net revenue increased by $22.0 million, or 15%, for the three months ended March
31, 2023 compared to the three months ended March 31, 2022. Revenue from our
financial services client vertical increased by $11.9 million, or 11%, primarily
due to an increase in revenue in our credit cards, personal loans and banking
businesses due to increased media and client budgets. This was offset by 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.
Revenue from our home services client vertical increased by $9.6 million, or
24%, primarily as a result of increased client budgets and successful execution
of growth initiatives. Other revenue, which primarily includes performance
marketing agency and technology services, contributed $2.2 million of revenue
for the three months ended March 31, 2023, as compared to $1.7 million of
revenue for the three months ended March 31, 2022.

Net revenue increased by $14.7 million, or 3%, for the nine months ended March
31, 2023 compared to the nine months ended March 31, 2022. Revenue from our home
services client vertical increased by $25.5 million, or 22%, primarily as a
result of increased client budgets and successful execution of growth
initiatives. Revenue from our financial services client vertical decreased by
$11.8 million, or 4%, 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 credit cards, personal loans and banking businesses due to
increased media and client budgets. Other revenue, which primarily includes
performance marketing agency and technology services, contributed $5.8 million
of revenue for the nine months ended March 31, 2023, as compared to $4.7 million
of revenue for the nine months ended March 31, 2022.

Cost of Revenue and Gross Profit Margin

Cost of revenue increased by $19.1 million, or 14%, for the three months ended
March 31, 2023 compared to the three months ended March 31, 2022, primarily
driven by increased media and marketing costs of $12.2 million and increased
personnel costs of $5.9 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
increases, higher incentive compensation, and increased stock-based compensation
expense. Gross profit margin, which is the difference between net revenue and
cost of revenue as a percentage of net revenue, was 10% and 9% for the three
months ended March 31, 2023 and 2022. The increase in gross profit margin was
primarily attributable to decreased media and marketing costs as a percentage of
revenue.

Cost of revenue increased by $18.8 million, or 5%, for the nine months ended
March 31, 2023 compared to the nine months ended March 31, 2022, primarily
driven by increased personnel costs of $13.8 million and increased media and
marketing costs of $3.0 million. The increase in personnel costs was mainly
attributable to higher headcount, the impact of our annual salary increases,
higher incentive compensation, and increased stock-based compensation expense.
The increase in media and marketing costs was associated with higher revenue
volumes. Gross profit margin was 8% and 10% for the nine months ended March 31,
2023 and 2022. The decrease in gross profit margin was primarily attributable to
increased personnel costs as a percentage of revenue.

Operating Expenses

                               Three Months Ended          Nine Months Ended          Three            Nine
                                    March 31,                  March 31,              Months          Months
                                2023          2022         2023          2022        % Change        % Change
                                               (In thousands)
Product development          $    7,832     $  5,509     $  21,832     $ 14,995             42 %             46 %
Sales and marketing               3,385        2,033         9,651        7,773             67 %             24 %
General and administrative        7,230        5,489        21,919       21,758             32 %              1 %
Operating expenses           $   18,447     $ 13,031     $  53,402     $ 44,526             42 %             20 %




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Product Development Expenses

Product development expenses increased by $2.3 million, or 42%, for the three
months ended March 31, 2023 compared to the three months ended March 31, 2022,
primarily due to increased personnel costs of $2.3 million as a result of higher
headcount, the impact of our annual salary increases, higher incentive
compensation, and increased stock-based compensation expense.

Product development expenses increased by $6.8 million, or 46%, for the nine
months ended March 31, 2023 compared to the nine months ended March 31, 2022,
primarily due to increased personnel costs of $6.0 million as a result of higher
headcount, the impact of our annual salary increases, increased incentive
compensation, and increased stock-based compensation expense.

Sales and Marketing Expenses

Sales and marketing expenses increased by $1.4 million, or 67%, for the three
months ended March 31, 2023 compared to the three months ended March 31, 2022,
primarily due to increased personnel costs of $1.4 million as a result of
increased stock-based compensation expense, the impact of our annual salary
increases and increased incentive compensation.

Sales and marketing expenses increased by $1.9 million, or 24%, for the nine
months ended March 31, 2023 compared to the nine months ended March 31, 2022,
primarily due to increased personnel costs of $2.0 million as a result of
increased stock-based compensation expense, the impact of our annual salary
increases and increased incentive compensation.

General and Administrative Expenses

General and administrative expenses increased by $1.7 million, or 32%, for the
three months ended March 31, 2023 compared to the three months ended March 31,
2022, primarily due to increased personnel costs of $1.5 million as a result of
increased stock-based compensation expense, the impact of our annual salary
increases and increased incentive compensation.

General and administrative expenses increased by $0.2 million, or 1%, for the
nine months ended March 31, 2023 compared to the nine months ended March 31,
2022, primarily due to increased personnel costs of $2.3 million as a result of
increased stock-based compensation expense, the impact of our annual salary
increases and increased incentive compensation. This is offset by an adjustment
to contingent consideration of $2.7 million recorded in the second quarter of
fiscal year 2022.

Benefit from Income Taxes
                              Three Months Ended          Nine Months Ended
                                   March 31,                  March 31,
                               2023          2022          2023         2022
                                              (In thousands)
Benefit from income taxes   $    1,083      $ 1,395     $    3,108     $ 3,009


As of March 31, 2023, 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 and record a material
non-cash income tax charge.

We recorded a benefit from income taxes of $1.1 million and $3.1 million for the
three and nine months ended March 31, 2023 and a benefit from income taxes of
$1.4 million and $3.0 million for the three and nine months ended March 31,
2022.

Liquidity and Capital Resources

As of March 31, 2023, our principal sources of liquidity consisted of cash and
cash equivalents of $63.0 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.

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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. In
the first quarter of fiscal year 2023, 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). 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. There were no repurchases
made during the three months ended March 31, 2023. As of March 31, 2023,
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:

                                                         Nine Months Ended
                                                             March 31,
                                                        2023          2022
                                                          (In thousands)

Net cash (used in) provided by operating activities $ (6,131 ) $ 20,981
Net cash used in investing activities

                   (10,654 )      (6,775 )
Net cash used in financing activities                   (16,677 )     (15,052 )


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 used in operating activities was $6.1 million for the nine months ended
March 31, 2023, compared to cash provided by operating activities of $21.0
million for the nine months ended March 31, 2022.

Cash used in operating activities for the nine months ended March 31, 2023
consisted of a net loss of $13.0 million, offset by non-cash adjustments of
$26.8 million, and a net decrease in cash from changes in working capital of
$19.9 million. The non-cash adjustments primarily consisted of stock-based
compensation expense of $16.1 million, depreciation and amortization expense of
$14.0 million, and an increase in deferred tax assets of $3.3 million primarily
due to benefit from income taxes recorded for the first three quarters of fiscal
year 2023. The changes in working capital accounts were primarily attributable
to an increase in accounts receivable of $25.1 million and an increase in
prepaid expenses and other assets of $3.8 million, offset by an increase in
accrued liabilities of $10.9 million. The increases in accounts receivable and
accrued liabilities were primarily due to higher revenue levels for the two
months ended March 31, 2023 as compared to the two months ended March 31, 2022,
and the timing of receipts and payments. The increase in prepaid expenses and
other assets was primarily due to increased prepayments made to third-party
publishers.

Cash provided by operating activities for the nine months ended March 31, 2022
consisted of a net loss of $0.3 million, offset by non-cash adjustments of $24.4
million, and a net decrease in cash from changes in working capital of $3.1
million. The non-cash adjustments primarily consisted of depreciation and
amortization expense of $12.7 million, stock-based compensation expense of $11.9
million, an adjustment to contingent consideration of $2.7 million, and an
increase in deferred tax assets of $2.8 million due to benefit from income taxes
recorded for the first three quarters of fiscal year 2022. The changes in
working capital accounts were primarily attributable to a decrease in accrued
liabilities of $8.2 million and a decrease in accounts payable of $5.4 million,
offset by a decrease in accounts receivable of $9.8 million. The decreases in
accounts receivable, accrued liabilities and accounts payable were primarily due
to lower revenue levels in the month ended March 31, 2022 as compared to the
month ended March 31, 2021, and the timing of receipts and payments.

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Investing Activities

Cash flows from investing activities generally include capital expenditures,
capitalized internal software development costs, and acquisitions from time to
time.

Cash used in investing activities was $10.7 million for the nine months ended
March 31, 2023, compared to cash used in investing activities of $6.8 million
for the nine months ended March 31, 2022.

Cash used in investing activities in the nine months ended March 31, 2023 was
primarily due to capital expenditures and internal software development costs of
$10.5 million.

Cash used in investing activities in the nine months ended March 31, 2022 was
primarily due to capital expenditures and internal software development costs of
$5.9 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 $16.7 million for the nine months ended
March 31, 2023, compared to cash used in financing activities of $15.1 million
for the nine months ended March 31, 2022.

Cash used in financing activities in the nine months ended March 31, 2023 was
due to payment of post-closing payments and contingent consideration related to
acquisitions of $10.4 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 $4.7 million, offset by proceeds from the exercise of stock
options and issuance of common stock under the employee stock purchase plan of
$3.2 million.

Cash used in financing activities in the nine months ended March 31, 2022 was
due to payment of post-closing payments and contingent consideration related to
acquisitions of $9.8 million, payment of withholding taxes related to the
release of restricted stock, net of share settlement of $6.6 million, offset by
proceeds from the exercise of stock options of $1.3 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

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.

As of March 31, 2023, we have additional operating leases for office spaces that
have not yet commenced, with undiscounted future minimum payments of $9.5
million. These operating leases will commence between the remainder of fiscal
year 2023 and fiscal year 2024, with lease terms of greater than three years to
five years. Other than the additional lease obligations, 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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