Good day, ladies and gentlemen, and welcome to QuinStreet Second Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I will now like to hand the conference over to Mr. Matthew Hunt of The Blueshirt Group for Investor Relations. Sir, you may begin.

Thank you. Good afternoon, ladies and gentlemen. Thanks for joining us today to report QuinStreet's second quarter fiscal 2013 financial results. Joining me on the call today are Doug Valenti, CEO; and Ken Hahn, CFO and COO of QuinStreet. This call is being simultaneously webcast on the Investor Relations section of our website at www.quinstreet.com. Before we get started, I would like to remind you that the following discussion contains forward-looking statements. These are statements that relate to future events or financial performance and involve risks and uncertainties. QuinStreet's actual results may vary materially from those discussed here. Factors that may cause the results to differ from our forward-looking statements are discussed in our most recent 10-Q filing with the SEC on November 5, 2012. Forward-looking statements are based on current expectations, and the company does not intend to and undertakes no duty to update this information to reflect future events or circumstances. Now I'll turn the call over to Doug, CEO of QuinStreet. Please go ahead.

Thank you, Matt. Hello, everyone, and thank you for joining us today. Revenue for the December quarter was $72 million. Adjusted EBITDA was 16% of revenue. We generated $11.3 million of operating cash flow and $12.8 million of normalized free cash flow. We also paid down debt by $3 million and closed the quarter with $108 million in cash and marketable securities. Product and market transitions in our Financial Services and Education client verticals continue to pressure our top line results. We are, though, making good progress on key initiatives that we believe position us for a return to growth. The efforts are worthwhile. The end markets for online performance marketing are large and growing. Our capabilities and assets are industry-leading, and our business model and balance sheet are strong. We remain enthusiastic about our long-term opportunity. I want to spend the next few minutes sharing with you some of the evidence we see of progress on the key initiatives that we believe position us for our eventual return to growth. First, in the Education client vertical. There, despite declines in the for-profit post-secondary industry and in our revenue, our estimates indicate that we are gaining share in our addressable market. We believe that this is due to a number of factors. The first being industry consolidation among third-party marketing services companies or lead providers, where we believe volume has dropped by 30% or more over the past 1 to 2 years. A second factor has been our focus on higher quality inquiries where demand from clients has remained strongest. A third factor has been client adoption of our newer click and call products. In the December quarter, revenue from our click product grew 500% year-over-year and 84% sequentially. Revenue from our call product was up 75% sequentially. These 2…

Thanks, Doug. Hello, and thanks again for joining us today. For our second quarter of fiscal 2013, we posted $71.8 million of revenue, a 21% decline compared with the same quarter last year. Adjusted net income for fiscal Q2 was $5.6 million or $0.13 per share on a fully diluted basis. Adjusted EBITDA was $11.2 million or a 16% margin. Our fundamental circumstance remains the same, albeit with more indicators of progress on our path to returning to growth, which Doug discussed, and I will do some more. We continue to progress on our initiatives to address the market issues in our 2 largest verticals: Education and Financial Services. We believe we are still on the right path, and while long in coming, are now beginning to see some of the right supporting metrics around the actions we have been taking for some time to navigate our challenges. So with that overall context, I'll now discuss the details of our fiscal Q2 results. Please see the supplemental data sheets available for download on the Investor Relations page of our corporate website. They provide, in tabular form, the figures that I will now walk through with you. For revenue by client vertical, in addition to walking you through the results and computations for each client vertical, it is helpful, I think, to also discuss what we believe our outcomes over time in these client verticals, as well as the indicators we are seeing that validate to us our belief in our return to revenue growth. Our Education client vertical represented 46% of Q2 revenue or $32.7 million. As you know well, this market continues to be challenged as clients in the vertical react to the regulatory environment. The year-over-year decline in revenue moderated to 11%, as we executed on a number…

[Operator Instructions] First question comes from Carter Malloy from Stephens.

Ken, my question, first, for you is on your confidence in guidance and can you discuss how you build it up and what the influential factors there are? In particular, I want to make sure you guys are comfortable with where the competition is for good media on the insurance side and that, that's not going to -- that situation won't further deteriorate.

Sure. And to acknowledge on the front end, it's been a little rough with our forecasting for a few quarters now, so a very fair question. The process that we use is we take the input of each of the verticals, and then we review it as a group. We have made some improvements, by the way, I believe, over the past few months on that process given some of the issues we've had historically. I believe it's more rigorous now and everybody understands the importance, and we poke and prod perhaps more than we used to. On the media side, particularly to your question on insurance, these guys evaluate all of their media opportunities. One by one, they walk through. They have a stack rank order. They look at those versus our ability to monetize, and they obviously consider that since it's been our limiting factor recently in Financial Services, auto insurance particularly. And they consider that in their forecast. So that's the mechanical answer. But again, there's been a fairly significant effort, which, I believe and we will see, I believe, has been successful in our forecasting process and what I hope is our accuracy going forward with our forecast. And so -- yes, and by the way, all that said, times are uncertain and there have been a lot of moving pieces, so there's still not complete clarity. But we're doing what we can with the information that we have, even if it isn't quite as clear and easy as it used to be for us.

Okay. And then also -- thanks much in the beginning of the call for giving us a lot of the data guides on the absolute contribution of some of the new products. And in the true spirit of being an annoying sell-side analyst, I've got to ask, can you give us also the absolute nonprofit revenue that you're generating now and/or the absolute revenue generating on the Education click products?

I don't think we have that in front of us, Carter. It's a fair question. I think the number -- and again, I don't have it in front of me so...

And just to be clear, you -- we -- you disclosed that the 2 combined, right?

Click and call.

Click and call was $10 million.

But by the way, clicks and calls are both about $5 million -- both running at about $5 million per year. I said they were combined $10 million, but it's a pretty even split between the 2.

Okay, and -- that's across Education and insurance? Or that's...

No, that's just somewhere in the $3 million to $5 million range or single-digit millions range. Again, which is not a -- it's -- in all of these cases, they're not that big yet, but the rates at which they're growing are impressive and important and the markets that they represent in terms of potential over the next quarters and years are quite significant.

And I think incrementally, and I apologize for being master of the obvious here, but the point of this is, of course, that the core for-profit business, it's been a tough industry for some time, and we've been trying to do things in new markets. While that comes back, we do believe it's going to come back to be very clear. Although maybe painful for a bit longer, we wanted to discuss with you and give you some more numbers around the other initiatives in these newer markets we have been exploring while that market has been painful. So no immediate bounce back, but it's actually pretty promising, all of these initiatives that we've been working on for a couple of years. And as Doug said, they're smaller numbers, but millions of dollars a year, so.

Yes, that's where they always start, right? [indiscernible] We do want to give you good percentages to help you there [indiscernible]...

The one thing I had confused there is when you talked on the call [ph] about the call product [indiscernible], I was making sure. So on Insurance.com and all the site traffic growth we've seen there, but that's newer products coming out there both on the call side, the call transfer side, as well as the realtime bidding -- or realtime quotes rather. That's not part of that number, right? That's a separate?

That is not. Those numbers are just Education. Those are just Education numbers that I was providing there.

Our next question comes from Shyam Patil from Raymond James. Shyam Patil - Raymond James & Associates, Inc., Research Division: In terms of the growth rate of the growth trajectory, do you guys believe that 2014 or next year will be a year of growth or is it too early to tell, too many moving parts? And then the second question is just on the tax rate, what do you think about a tax rate for the balance of this year?

Sure, Shyam. We have not done the forecast for next year yet. Our projections right now -- our firm projections, at least firm internally, are just we have those in place for the next 2 quarters and those 2 quarters, and as Ken indicated, with some degree of higher confidence, recognizing it's still a very noisy, uncertain, volatile time because of all the things we've talked about, looked like they will be -- looks like that we will be up from this past quarter, which we, again, based on those numbers would indicate at least a near-term bottoming and we hope a long-term bottoming. But we don't have projections beyond that. I would say that as we look at the -- the progress that is projected over the next couple of quarters, and as we look at the range of initiatives against which we're making good progress and where they -- it looked like they lead us, it certainly would be our hope and I would say that we'll be able to give you more on next quarter's call as we're closer to having next year's plan done. And at that point, I could tell you whether or not we have -- what our confidence level is. But I would say that it certainly is our hope based on the numbers we've done in the past couple of quarters and based on the progress, the next couple of quarters and beyond that next year would be a growth year over this year. And then, Ken, I don't know if you have any difference of point of view on that.

No, I don't at all. It's -- visibility still isn't great, which is what we keep emphasizing. But we're seeing more. And there really are the right indicators and we have a lot of excitement around auto insurance, what's going to happen and trying to figure out the specific timing and how that offsets, but as we look at the business, and we're not providing hard forecasts, of course, by the different vertical. The second derivative is getting better, we believe, across all of the businesses. So -- and sometimes it can take a little bit of time as you guys I'm sure know, you certainly know when you're inside a business, it can take a little while for the results to show on the top line. But things are feeling better. We don't want to get ahead of ourselves after such a hard year, but things really do seem to be getting better. And again, I think we're going to see improving trends going forward.

And then Sean, you had a question about a tax rate.

You're going to take that one?

I am not getting anywhere near that one.

So I think 40% going forward makes sense. There is going to be a little bit of noise in this next quarter. The R&D tax credit was extended as you might or might know on January 3 and so we'll take that this coming quarter. I think 40% is a fine number for you to use. We will probably beat that by a little bit for the next 2 quarters. But without getting too granular, I'd say just use the 40%. It's not the most important thing we're focused on right now, but that will be close enough.

[Operator Instructions] We have a question from Michael Purcell from Stifel, Nicolaus. Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division: I was wondering if you could just give us a little more color on the financial side, the traction you're having with the call transfer and the bound policies. When you -- I thought I wrote down that you have 16 new clients for these products, and again, if my numbers are off, my apologies.

That's correct. Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division: And that you thought they'd increase about 50%. These are very interesting to us. I'm just wondering if you could give us any more color on how those are progressing.

It's actually progressing very well. The client adoption is strong. The client interest is strong. We always would like for it to come faster, but the proverbial -- and I don't even want to say it because it might imply something about our clients, but the proverbial, "Dogs are eating the dog food." I mean this is a product that is fulfilling a lot of demand out there that clients have for receiving a new customers and new customer prospects in the ways that best fit their businesses and their business models. So again, when we say we now have 16 clients on the new products, the new products set, that compares to historically somewhere around 20 to 25 clients on the historic SureHits product. So that's a big deal. And the 50%, 5-0 percent, from there based on our advanced pipeline and folks that are already signed, just not launched, the confidence interval there over the next 3 to 6 months, which is the range that we have on that pipeline analysis, has us getting to -- I think it's 25 to 32 clients. So it could actually end up being 100%. And so again, these are meaningful clients with big budgets that they spend in various ways, most of which and many of which are not -- and here it is [ph] measurable or potentially as targeted and as attractive as what we do. So we are -- I think it's a super important metric that's why we shared it because we've been talking for a long time about the expanded product set. But when you get clients to invest the time to negotiate these deals and contracts with us, and very importantly to then go through the pretty rigorous technical and technology implementation flows that it takes…

I don't have the numbers broken out for the new model volumes on the various products, and we don't break those out. So -- and I don't -- that one, I'm not even going to venture a range guess because I don't, literally don't have it in front of me. We track the metrics more than we do that because, as I said, you got to get the clients in place. You got to get them in the various states. You got to get enough clients in enough of the segments in order to get enough for the monetization. So what's important at this stage is clients in RPI, not yet revenue, but revenue derives from clients in RPI. On the -- it's not experimental pricing at all. Pricing is quite solid and with these clients on the bound policy side and has been so for quite some time that we haven't disclosed it, but it's a -- as you -- as I think you know, it's an agency contract and we get paid -- rather than having the historic structure of a relatively small upfront and significant PF [ph], or policy-enforced component, which is kind of a residual as individuals renew, which is a traditional agency structure. Some of what took us the time -- and by the way, that traditional agency fee structure is what hurt some of our predecessors in online and the online insurance agency business. Because they couldn't make enough money up front and then the PF [ph] for the renewals was actually declining and I don't have -- again, I don't have the specific data in front of me, but the rate of change or churn among insurance policyholders is up hundreds of percent over the past few years as individuals have learned to and have been incentivized to switch insurance carriers. So relying on the PF [ph] is quite foolhardy. But anyway, our model is to not rely on the PF [ph]. We make enough money with our clients to make the business work on the upfront. And we have plenty of margin on the upfront. But it's in the -- to give you an indication, it's in the hundreds of dollars per policy is where it is. And, of course, that depends on what policy, what risk profile or what client in what state, but that would be the general answer to the pricing question. But not experimental, pretty solid and quite attractive quite frankly, if you look at the margin on it.

[Operator Instructions] We have a question from Douglas Anmuth from JPMorgan. Bo Nam - JP Morgan Chase & Co, Research Division: This is Bo Nam on behalf of Doug. I've got a quick clarification. I think when you were speaking about margin guidance for the -- for, I think, it was for the remaining of the year or I'm not sure if it was for the remainder or for next quarter, you said it was mid-teens. If it is for the remainder of the year or for the full year, can you kind of give us a little bit of more color, or a little bit of a split between how 3Q and 4Q will look.

Sure. And you heard both correctly. And that's probably the confusion is we said that we expect next quarter adjusted EBITDA margin to be in the mid-teens. I said that I think Ken repeated it, and then Ken also said that we expect the year now to come in, in the mid-teens. As you know, we historically have targeted and have hit a 20% adjusted EBITDA margin, but we did say -- we have said the last couple of calls, on last call I guess in particular, that, that was very much dependent on top line initiatives. If the top line remained flat, which, of course, as you saw last quarter it has, that we are going to choose to continue to invest on our growth initiatives rather than reduce costs or cut headcount or do anything like that in order to get to 20% in the short term. So that's the main part of that story there. In terms of the mix between the 2 quarters, we don't expect -- it's noisy enough that I don't think there's a meaningful difference. I think we're in the range of where we are now plus or minus a little bit is about what we think in both of the quarters. And we're -- we certainly -- if some of the revenue initiatives come beyond where we think, then it'll be on the plus side of that. If they don't, then it'll be closer to where we were probably last quarter. Now look at the softness in revenue last quarter and we came in at 16% adjusted EBITDA. So hopefully, we've got -- we've shown that we have a lot of resilience on the downside given the variability of the model, but we do benefit quite a bit if we get a little bit more help on the top line.

And to add on, and I'll be a little bit redundant to what you said, but the -- so I don't think any of that is a great surprise if you look at the models on The Street. You guys, I think, already have this pretty much for the year, by and large. So you heard us last quarter. Important to note though that we do believe 20% is still the right number over the longer term. Nothing's changed structurally on this business. We just don't want to at this point, and as you probably know over time, we've been rigorous in making structural changes to get to that 20%. At this point, that does not make sense. With the revenue softness and the tightness in our resources and our employee base, we believe it would be a mistake at this point to do anything like that. We do see these opportunities for growth, and the investments we're making there are quite real. And we believe firstly in the space you need to be a growing company, it's important for our investors in the way you view us as much as anything else, but we need to make this a growth company again. And hence, to cut back on the investment and to eliminate some of these opportunities that we do think are very attractive and that will return us to growth, we think would be a mistake at this particular time. But don't be confused. There will be excess in the system again, and we do believe there's nothing fundamentally different about the businesses after we get through this period of time and that we'll be delivering 20% while still having lots of excess to invest. So it will be a little while, but that's where we think it's going. But no change in the model over time. It's just this particular period.