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QuinStreet Grows 32%; Financial Services Strong, Education Accelerates

Free cash flow is useful to us and investors because it represents the cash that our business generates from operations, before taking into account cash movements that are non-operational, and is a metric commonly used in our industry to understand the underlying cash generating capacity of a company's financial model. The Company believes that analysts and investors use free cash flow multiples as a metric for analyzing company valuations in our industry. Free cash flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, we think it is important to evaluate free cash flow along with our consolidated statement of cash flows.

We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. A reconciliation of these non-GAAP measures to GAAP is provided in the accompanying tables.

Legal Notice Regarding Forward Looking Statements

This press release and its attachments contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Words such as "will," "believe," "intend," "potential" and similar expressions are intended to identify forward-looking statements. These forward-looking statements include the quotations from management in this press release, as well as any statements regarding the Company's anticipated financial results and strategic and operational plans. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that may contribute to such differences include, but are not limited to: the Company's ability to deliver an adequate rate of growth and manage such growth; the impact of changes in government regulation and industry standards; the Company's ability to maintain and increase the number of visitors to its websites; the Company's ability to identify and manage acquisitions; the impact of the current economic climate on the Company's business; the Company's ability to attract and retain qualified executives and employees; the Company's ability to compete effectively against others in the online marketing and media industry; the impact and costs of any failure by the Company to comply with government regulations and industry standards; and costs associated with defending intellectual property infringement and other claims. More information about potential factors that could affect the Company's business and financial results is contained in the Company's annual report on Form 10-K as filed with the Securities and Exchange Commission on September 13, 2010. The Company does not intend and undertakes no duty to release publicly any updates or revisions to any forward-looking statements contained herein.

QUINSTREET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (Unaudited)
     
  September 30, June 30,
  2010 2010
Assets    
Current assets    
Cash and cash equivalents  $ 127,294  $ 155,770
Accounts receivable, net  61,944 51,466
Deferred tax assets 8,528 8,528
Prepaid expenses and other assets 4,974 3,123
Total current assets 202,740 218,887
     
Property and equipment, net 7,985 5,419
Goodwill 179,006 158,582
Other intangible assets, net 57,801 47,156
Deferred tax assets, noncurrent 3,975 3,972
Other assets, noncurrent 599 614
Total assets  $ 452,106  $ 434,630
     
Liabilities and Stockholders' Equity  
Current liabilities    
Accounts payable  $ 24,861  $ 16,776
Accrued liabilities 27,383 30,144
Deferred revenue 1,378 1,241
Debt 13,875 15,562
Total current liabilities 67,497 63,723
     
Deferred revenue, noncurrent 238 305
Debt, noncurrent 78,348 78,046
Other liabilities, noncurrent  2,529 2,534
Total liabilities 148,612 144,608
     
Stockholders' equity    
Common stock 48 47
Additional paid-in capital 223,570 217,581
Treasury stock (7,779) (7,779)
Accumulated other comprehensive (loss) income  (10) 9
Retained earnings 87,665 80,164
Total stockholders' equity 303,494 290,022
Total liabilities and stockholders' equity  $ 452,106  $ 434,630
 
 
QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
     
  Three Months Ended
  September 30,
  2010 2009
Net revenue  $ 103,616  $ 78,552
Cost of revenue (1)  73,629  55,047
Gross profit  29,987  23,505
Operating expenses: (1)
Product development  5,551  4,470
Sales and marketing  4,745  3,625
General and administrative  4,722  3,441
Operating income  14,969  11,969
Interest income  67  9
Interest expense  (989)  (748)
Other income (expense), net  164  120
Income before income taxes  14,211  11,350
Provision for taxes  (6,710)  (4,837)
Net income  $ 7,501  $ 6,513
     
Net income attributable to common stockholders 
Basic  $ 7,501  $ 2,207
Diluted  $ 7,501  $ 2,395
     
Net income per share attributable to common stockholders
Basic  $ 0.17  $ 0.16
Diluted  $ 0.16  $ 0.16
     
Weighted average shares used in computing net income per share attributable to common stockholders
Basic  45,098  13,405
Diluted  47,112  15,381
     
     
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:
     
Cost of revenue  $ 1,144  $ 728
Product development  724  253
Sales and marketing  1,206  507
General and administrative  656  741
 
 
QUINSTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)  
 (Unaudited)  
     
  Three Months Ended
  September 30,
  2010 2009
     
Cash flows from operating activities
Net income  $ 7,501  $ 6,513
Adjustments to reconcile net income to net cash provided by 
 operating activities:
Depreciation and amortization 5,897 3,952
Provision for sales returns and doubtful accounts receivable (470) 216
Stock-based compensation 3,730 2,229
Excess tax benefits from stock-based compensation (287) (94)
Other non-cash adjustments, net 15 102
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (10,008) (5,849)
Prepaid expenses and other assets (1,852) (236)
Other assets, noncurrent 20 44
Accounts payable 6,960 843
Accrued liabilities (2,727) 4,229
Deferred revenue 70 (116)
Other liabilities, noncurrent (5) (25)
Net cash provided by operating activities 8,844 11,808
Cash flows from investing activities
Restricted cash (6) 3
Proceeds from sales of property and equipment -- 44
Capital expenditures (902) (443)
Business acquisitions, net of notes payable and cash acquired (34,121) (11,763)
Internal software development costs (384) (316)
Net cash used in investing activities (35,413) (12,475)
Cash flows from financing activities
Payments for issuance of common stock (5) --
Proceeds from exercise of common stock options 2,095 296
Proceeds from bank debt -- 6,500
Principal payments on bank debt (900) (750)
Principal payments on acquisition-related notes payable (3,365) (1,963)
Excess tax benefits from stock-based compensation 287 94
Repurchases of common stock -- (577)
Net cash (used in) provided by financing activities (1,888) 3,600
Effect of exchange rate changes on cash and cash equivalents (19) (20)
Net (decrease) increase in cash and cash equivalents (28,476) 2,913
Cash and cash equivalents at beginning of period 155,770 25,182
Cash and cash equivalents at end of period  $ 127,294  $ 28,095
 
 
QUINSTREET, INC.
RECONCILIATION OF NET INCOME TO
ADJUSTED NET INCOME
 (In thousands)
 (Unaudited)
     
  Three Months Ended
  September 30,
  2010 2009
Net Income  $ 7,501  $ 6,513
Amortization of intangible assets  4,922  3,155
Stock-based compensation 3,730 2,229
Tax impact of the above items (2,673) (1,885)
Adjusted net income  $ 13,480 $ 10,012
     
Adjusted diluted net income per share  $ 0.29  
     
Weighted-average shares used to compute adjusted diluted net income per share 47,112  
     
     
QUINSTREET, INC.
RECONCILIATION OF NET INCOME
TO ADJUSTED EBITDA
 (In thousands)
 (Unaudited)
     
     
  Three Months Ended
  September 30,
  2010 2009
Net income  $ 7,501  $ 6,513
Interest and other income (expense), net  758  619
Provision for taxes  6,710  4,837
Depreciation and amortization   5,897  3,952
Stock-based compensation  3,730  2,229
     
Adjusted EBITDA  $ 24,596  $ 18,150
 
 
QUINSTREET, INC.
RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW
 (In thousands)
 (Unaudited)
     
     
  Three Months Ended
  September 30,
  2010 2009
Net cash provided by operating activities   $ 8,844  $ 11,808
Capital expenditures  (902)  (443)
Internal software development costs (384)  (316)
Free cash flow  $ 7,558  $ 11,049
CONTACT:  The Blueshirt Group
          Erica Abrams
            (415) 217-5864
            erica@blueshirtgroup.com 
          Matthew Hunt
            (415) 489-2194 
            matt@blueshirtgroup.com

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