QuinStreet
Annual Report 2019

Plain-text annual report

K UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended June 30, 2019OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number: 001-34628 QuinStreet, Inc.(Exact name of registrant as specified in its charter) Delaware77-0512121(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)950 Tower Lane, 6th FloorFoster City, California 94404(Address of principal executive offices, including zip code)(650) 587-7700(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassTrading SymbolName of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per shareQNST The Nasdaq Stock Market LLC(Nasdaq Global Select Market)Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer☒ Accelerated filer☐Non-accelerated filer☐ Smaller reporting company☐Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒As of December 31, 2018, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sale price of the Company’s commonstock as reported by the Nasdaq Global Select Market on such date, was $726,576,963. For purposes of calculating the aggregate market value of shares held by non-affiliates, wehave assumed that all outstanding shares are held by non-affiliates, except for shares owned by each of our executive officers, directors and 5% or greater stockholders. In the caseof 5% or greater stockholders, we have not deemed such stockholders to be affiliates unless there are facts and circumstances indicating that such stockholders exercise any controlover our company. The determination of executive officer or affiliate status is not a conclusive determination for other purposes.Number of shares of common stock outstanding as of August 23, 2019: 50,966,660Documents Incorporated by Reference:Portions of the registrant’s definitive proxy statement relating to its 2019 annual stockholders’ meeting are incorporated by reference into Part III of this Annual Report onForm 10-K where indicated. QUINSTREET, INC.FOR THE FISCAL YEAR ENDED JUNE 30, 2019TABLE OF CONTENTS Page PART I. Item 1.Business3Item 1A.Risk Factors9Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings28Item 4.Mine Safety Disclosures28 PART II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities29Item 6.Selected Consolidated Financial Data30Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations33Item 7A.Quantitative and Qualitative Disclosures About Market Risk47Item 8.Financial Statements and Supplementary Data48Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure79Item 9A.Controls and Procedures79Item 9B.Other Information80 PART III. Item 10.Directors, Executive Officers and Corporate Governance81Item 11.Executive Compensation81Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters81Item 13.Certain Relationships and Related Transactions, and Director Independence81Item 14.Principal Accounting Fees and Services81 PART IV. Item 15.Exhibits, Financial Statement Schedules82Item 16.Form 10-K Summary86 Signatures87 2 PART ICAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTSThis report contains forward-looking statements. All statements other than statements of historical facts, including statements regarding our futurefinancial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. Terminology such as“believe,” “may,” “might,” “objective,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative ofthese terms or other similar expressions is intended to identify forward-looking statements. We have based these forward-looking statements largely on ourcurrent expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations,business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks and uncertainties that couldcause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, amongothers, those listed in Part 1, Item 1A. “Risk Factors” of this Annual Report on Form 10-K and elsewhere in this report, such as but not limited to: •our still developing industry and relatively new business model; •changes in the economic condition, market dynamics, regulatory enforcement or legislative environment affecting us, our third-partypublishers’, and our clients’ businesses; •our dependence on the availability and affordability of quality media from third-party publishers and strategic partners; •our dependence on Internet search companies to attract Internet visitors; •our ability to accurately forecast our results of operations and appropriately plan our expenses; •our ability to compete in our industry; •our ability to manage cyber security risks and costs associated with maintaining a robust security infrastructure; •our ability to continually optimize our websites to allow Internet visitors to access our websites through mobile devices; •our ability to develop new services, enhancements and features to meet new demands from our clients; and •our ability to successfully challenge regulatory audits, investigations or allegations of noncompliance with laws.Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason to conform these statementsto actual results or to changes in our expectations. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, and we qualify all of our forward-looking statements by these cautionary statements.Item 1.BusinessOur CompanyWe are a leader in performance marketplace products and technologies. Our approach to proprietary performance marketing technologies allowsclients to engage high intent digital media or traffic from a wide range of device types (e.g., mobile, desktop, tablet), in multiple formats or types of media(e.g., search engines, large and small media properties or websites, email), and in a wide range of cost-per-action, or CPA, forms. These forms of contact are theprimary “products” we sell to our clients, and include qualified clicks, leads, inquiries, calls, applications and customers. We specialize in customeracquisition for clients in high value, information-intensive markets, or “verticals,” including financial services, education, home services, and business-to-business technology. Our clients include some of the world’s largest companies and brands in those markets. While the majority of our operations andrevenue are in North America, we also have emerging businesses in Brazil and India.We generate revenue by delivering measurable online marketing results to our clients. The benefits to our clients include cost-effective andmeasurable customer acquisition costs, as well as management of highly targeted but also highly fragmented online media sources and access to our world-class proprietary technologies. We are predominantly paid on a negotiated or market-driven “per click,” “per lead,” or other “per action” basis that alignswith the customer acquisition cost targets of our clients. We bear the cost of paying Internet search companies, third-party publishers, strategic partners andother online media sources to generate qualified clicks, leads, inquiries, calls, applications or customers for our clients.3 Our competitive advantages include our media buying power, proprietary technologies, extensive data and experience in performance marketing, andsignificant online media market share in the markets or verticals we serve. Our advantage in online media buying is key to our business model and comesfrom our ability to effectively segment and match high-intent, unbranded media or traffic – one of the largest sources of traffic for customer acquisition – to asmany as hundreds of clients or client offerings and, in most cases, to match those visitors to multiple clients, which also satisfies the visitor’s desire to chooseamong alternatives and to shop multiple offerings. Together, the ability to match more visitors in any given flow of traffic or media to a client offering, and todo so multiple times, adds up to a significant media buying advantage compared to individual clients or other buyers for these types of media.Our proprietary technologies have been developed over the past 20 years to allow us to best segment and match media or traffic, to deliver optimizedresults for our clients and to operate our high volume and highly complex channel cost-efficiently.Our extensive data and experience in performance marketing reflect the execution, knowledge and learning from billions of dollars of media spend onthese campaigns over time. This is a steep and expensive learning curve. These learnings address millions of permutations of media sources, mix and order ofcreative and content merchandising, and approaches to the matching and segmentation of Internet visitors to optimize their experience and the results forclients. Together, these learnings allow us to run thousands of campaigns simultaneously and cost-effectively for our clients at acceptable media costs andmargins to us.Because of our deep expertise and capabilities in running financially successful performance marketing programs, we are able to effectively competefor sources and partners of high-intent, unbranded media, and our market share in our client verticals of this media is significant. Our media sources includeowned-and-operated organic or search engine optimization (“SEO”) websites, targeted search engine marketing (“SEM”) or pay-per-click (“PPC”) campaigns,social media and mobile programs, internal email databases, call center operations, partnerships with large and small online media companies, and more. Ourcollective media presence results in engagement with a significant share of online visitors in those markets or verticals, which leads us to be included inclient online media buys.We were incorporated in California on April 16, 1999 and reincorporated in Delaware on December 31, 2009. We have been a pioneer in thedevelopment and application of measurable marketing on the Internet. Clients pay us for the actual opt-in actions by visitors or customers that result from ourmarketing activities on their behalf, versus traditional impression-based advertising and marketing models in which an advertiser pays for a broad audience’sexposure to an advertisement.Market OpportunityChange in marketing strategy and approachWe believe that marketing approaches are changing as budgets shift from offline, analog advertising media to digital advertising media such asInternet marketing. These changing approaches require a shift to fundamentally new competencies, including:From qualitative, impression-driven marketing to analytic, data-driven marketingGrowth in Internet marketing enables a more data-driven approach to advertising. The measurability of online marketing allows marketers to collect asignificant amount of detailed data on the performance of their marketing campaigns, including the effectiveness of ad format and placement and userresponses. This data can then be analyzed and used to improve marketing campaign performance and cost-effectiveness on substantially shorter cycle timesthan with traditional offline media.From account management-based client relationships to results-based client relationshipsMarketers are becoming increasingly focused on strategies that deliver specific, measurable results. For example, marketers are attempting to betterunderstand how their marketing spending produces measurable objectives such as meeting their target marketing cost per new customer. As marketers adoptmore results-based approaches, the basis of client relationships with their marketing services providers is shifting from being more account management-based to being more results-oriented.4 From marketing messages pushed on audiences to marketing messages pulled by self-directed audiencesTraditional marketing messages such as television and radio advertisements are broadcast to a broad audience. The Internet enables more self-directedand targeted marketing. For example, when Internet visitors click on PPC search advertisements, they are expressing an interest in and proactively engagingwith information about a product or service related to that advertisement. The growth of self-directed marketing, primarily through online channels, allowsmarketers to present more targeted and potentially more relevant marketing messages to potential customers who have taken the first step in the buyingprocess, which can in turn increase the effectiveness of marketers’ spending.From marketing spending focused on large media buys to marketing spending optimized for fragmented mediaWe believe that media is becoming increasingly fragmented and that marketing strategies are changing to adapt to this trend. There are millions ofInternet websites, tens of thousands of which have significant numbers of visitors. While this fragmentation can create challenges for marketers, it also allowsfor improved audience segmentation and the delivery of highly targeted marketing messages, but innovative technologies and approaches are necessary toeffectively manage marketing given the increasing complexity resulting from more media fragmentation.Increasing complexity of online marketingOnline marketing is a dynamic and increasingly complex advertising medium. There are numerous online channels for marketers to reach potentialcustomers, including search engines, Internet portals, vertical content websites, affiliate networks, display and contextual ad networks, email, videoadvertising, and social media. We refer to these and other marketing channels as media. Each of these channels may involve multiple ad formats and differentpricing models, amplifying the complexity of online marketing. We believe that this complexity increases the demand for our vertical marketing and mediaservices due to our capabilities and to our experience managing and optimizing online marketing programs across multiple channels. Also, marketers andagencies often lack our ability to aggregate offerings from multiple clients in the same industry vertical, an approach that allows us to cover a wide selectionof visitor segments and provide more potential matches to visitor needs. This approach can allow us to convert more Internet visitors into qualified clicks,leads, inquiries, calls, applications, or customers from targeted media sources, giving us an advantage when buying or monetizing that media.Our Business ModelWe deliver measurable and cost-effective marketing results to our clients, typically in the form of a qualified click, lead, inquiry, call, application, orcustomer. Clicks, leads, inquiries, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketingcost to them. We are paid typically by clients when we deliver qualified clicks, leads, inquiries, calls, applications, or customers as defined by our agreementswith them. References to the delivery of customers means a sale or completed customer transaction (e.g., bound insurance policies or customer appointmentswith 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 providesound financial outcomes for us. To deliver clicks, leads, inquiries, calls, applications, and customers to our clients, generally we: •own or access targeted media through business arrangements (e.g., revenue sharing arrangements) or by purchasing media (e.g., clicks from majorsearch engines); •run advertisements or other forms of marketing messages and programs in that media to create visitor responses typically in the form of clicks (tofurther qualification or matching steps, or to online client applications or offerings), leads or inquiries (e.g., contact information), calls (to ourowned and operated call centers or that of our clients or their agents), applications (e.g., for enrollment or a financial product), or customers (e.g.,bound insurance policies); •match these clicks, leads, inquiries, calls, applications, or customers to client offerings or brands that we believe can meet visitor interests or needsand client targets and requirements; and •optimize client matches and media costs such that we achieve desired results for clients and a sound financial outcome for us.5 Media cost, or the cost to attract targeted Internet visitors, is the largest cost input to producing the measurable marketing results we deliver to clients.Balancing our clients’ customer acquisition cost and conversion objectives — or the rate at which the clicks, leads, inquiries, calls, or applications that wedeliver to them convert into customers — with our media costs and yield objectives, represents the primary challenge in our business model. We have beenable to effectively balance these competing demands by focusing on our media sources and creative capabilities, developing proprietary technologies andoptimization capabilities, and working to constantly improve segmentation and matching of visitors to clients through the application of our extensive dataand experience in performance marketing. We also seek to mitigate media cost risk by working with third-party publishers and media owners predominantlyon a revenue-share basis, which makes these costs variable and provides for risk management. Media purchased on a revenue-share basis has represented themajority of our media costs and of the Internet visitors we convert into qualified clicks, leads, inquiries, calls, applications, or customers for clients,contributing significantly to our ability to maintain profitability.Media and Internet visitor mixWe are a client-driven organization. We seek to be one of the largest providers of measurable marketing results on the Internet in the client industryverticals we serve by meeting the needs of clients for results, reliability and volume. Meeting those client needs requires that we maintain a diversified andflexible mix of Internet visitor sources due to the dynamic nature of online media. Our media mix changes with changes in Internet visitor usage patterns. Weadapt to those changes on an ongoing basis, and also proactively adjust our mix of vertical media sources to respond to client- or vertical-specificcircumstances and to achieve our financial objectives. Generally, our Internet visitor sources include: •websites owned and operated by us, with content and offerings that are relevant to our clients’ target customers; •visitors acquired from PPC advertisements purchased on major search engines and sent to our websites; •third-party publishers (including strategic partners) with whom we have a relationship and whose content or traffic is relevant to our clients’target customers; •email lists owned by us or by third-parties; and •advertisements run through online advertising networks, directly with major websites or portals, social media networks, or mobile networks.Our StrategyOur goal is to continue to be one of the largest and most successful performance marketing companies on the Internet, and eventually in otherdigitized media forms. We believe that we are in the early stages of a very large and long-term market opportunity. Our strategy for pursuing this opportunityincludes the following key components: •focus on generating sustainable revenues by providing measurable value to our clients; •build QuinStreet and our industry sustainably by behaving ethically in all we do and by providing quality content and website experiences toInternet visitors; •remain vertically focused, choosing to grow through depth, expertise and coverage in our current client verticals; enter new client verticalsselectively over time, organically and through acquisitions; •build a world class organization, with best-in-class capabilities for delivering measurable marketing results to clients and high yields or returnson media costs; •develop and evolve the best products, technologies and platform for managing successful performance marketing campaigns on the Internet;focus on technologies that enhance media yield, improve client results and achieve scale efficiencies; •build and apply unique data advantages from running some of the largest campaigns over long periods of time in our client verticals, includingthe steep learning curves of what campaigns work best to optimize each media type and each client’s results; •build and partner with vertical content websites that attract high intent visitors in the client and media verticals we serve; and •be a client-driven organization and develop a broad set of media sources and capabilities to reliably meet client needs.6 ClientsIn fiscal years 2019, 2018 and 2017, we had one client, The Progressive Corporation, that accounted for 22%, 23% and 17% of net revenue. No otherclient accounted for 10% or more of net revenue in fiscal years 2019, 2018 and 2017. Our top 20 clients accounted for 54%, 57% and 52% of net revenue infiscal years 2019, 2018 and 2017. Since our service was first offered in 2001, we have developed a broad client base with many multi-year relationships. Weenter into Internet marketing contracts with our clients, most of which are cancelable with little or no prior notice. In addition, these contracts do not containpenalty provisions for cancellation before the end of the contract term.Sales and MarketingWe have an internal sales team that consists of employees focused on signing new clients and account managers who maintain and seek to increaseour business with existing clients. Our sales people and account managers are each focused on a particular client vertical so that they develop an expertise inthe marketing needs of our clients in that particular vertical.Technology and InfrastructureWe have developed a suite of technologies to manage, improve and measure the results of the marketing programs we offer our clients. We use acombination of proprietary and third-party software as well as hardware from established technology vendors. We use specialized software for clientmanagement, building and managing websites, acquiring and managing media, managing our third-party publishers, and using data and optimization toolsto best match Internet visitors to our marketing clients. We have invested significantly in these technologies and plan to continue to do so to meet thedemands of our clients and Internet visitors, to increase the scalability of our operations, and enhance management information systems and analytics in ouroperations. Our development teams work closely with our marketing and operating teams to develop applications and systems that can be used across ourbusiness. In fiscal years 2019, 2018 and 2017, we spent $12.3 million, $13.8 million and $13.5 million on product development.Our primary data center is at a third-party co-location center in San Francisco, California. All of the critical components of the system are redundant,and we have a backup data center in Las Vegas, Nevada. We have implemented these backup systems and redundancies to minimize the risk associated withearthquakes, fire, power loss, telecommunications failure, and other events beyond our control.Intellectual PropertyWe rely on a combination of patent, trade secret, trademark and copyright laws in the United States and other jurisdictions together withconfidentiality agreements and technical measures to protect the confidentiality of our proprietary rights. To protect our trade secrets, we control access toour proprietary systems and technology and enter into confidentiality and invention assignment agreements with our employees and consultants andconfidentiality agreements with other third-parties. QuinStreet is a registered trademark in the United States and other jurisdictions. We also have registeredand unregistered trademarks for the names of many of our websites, and we own the domain registrations for many of our website domains.Our CompetitorsOur primary competition falls into two categories: advertising and direct marketing services agencies, and online marketing and media companies. Wecompete for business on the basis of a number of factors including return on marketing expenditures, price, access to targeted media, ability to deliver largevolumes or precise types of customer prospects, and reliability.Advertising and direct marketing services agenciesOnline and offline advertising and direct marketing services agencies control the majority of the large client marketing spending for which weprimarily compete. So, while they are sometimes our competitors, agencies are also often our clients. We compete with agencies to attract marketing budgetor spending from offline forms to the Internet or, once designated to be spent online, to be spent with us versus the agency or by the agency with others.When spending online, agencies spend with us and with portals, other websites and ad networks.7 Online marketing and media companiesWe compete with other Internet marketing and media companies, in many forms, for online marketing budgets. Most of these competitors competewith us in one client vertical. Examples include LendingTree in the financial services client vertical and Higher Ed Growth, LLC in the education clientvertical. Some of our competition also comes from agencies or clients spending directly with larger websites or portals, including Google, Yahoo! andMicrosoft.Government RegulationWe provide services through a number of different online and offline channels. As a result, we are subject to many federal and state laws andregulations, including restrictions on the use of unsolicited commercial email, such as the CAN-SPAM Act and state email marketing laws, and restrictions onthe use of marketing activities conducted by telephone, including the Telemarketing Sales Rule and the Telephone Consumer Protection Act. Our business isalso subject to federal and state laws and regulations regarding unsolicited commercial email, telemarketing, user privacy, search engines, Internet trackingtechnologies, direct marketing, data security, data privacy, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets,export of encryption technology, acceptable content and quality of goods, and taxation, among others.In addition, we provide services to a number of our clients that operate in highly regulated industries, particularly in our financial services andeducation verticals. In our financial services vertical, our websites and marketing services are subject to various federal, state and local laws, including statelicensing laws, federal and state laws prohibiting unfair acts and practices, and federal and state advertising laws. In addition, we are a licensed insuranceagent in all fifty states. In our education client vertical, nearly all of the revenue is generated from post-secondary education institutions. Post-secondaryeducation institutions are subject to extensive federal and state regulations and accrediting agency standards, including the Higher Education Act of 1965 asamended (the “HEA”), Department of Education regulations under the HEA, individual state higher education regulations, as well as regulations of theFederal Trade Commission and Consumer Finance Protection Bureau and other federal agencies. Such state and federal regulations govern many aspects ofthese clients’ operations, including marketing and recruiting activities, as well as the school’s eligibility to participate in Title IV federal student financialaid programs, which is the principal source of funding for many of our education clients. Although we are not a higher education institution, we may berequired to comply with such education laws and regulations as a result of our role as a vendor to higher education institutions, either directly or indirectlythrough our contractual arrangements with clients. Since 2010, there have been significant additions and changes to these regulations and increasingenforcement of them by regulators. In addition, Congress is considering changes to the HEA. These changes may place additional regulatory burdens on post-secondary schools generally, and specific initiatives may be targeted at companies like us that serve higher education institutions. In recent years, aparticularly high level of regulatory and legislative scrutiny has been focused on for-profit higher education institutions, several of which are clients. Thecosts of compliance with these regulations and new laws may increase in the future and any failure on our part to comply with such laws may subject us tosignificant liabilities.EmployeesAs of June 30, 2019, we had 637 employees, which consisted of 167 employees in product development, 42 in sales and marketing, 39 in general andadministration and 389 in operations. None of our employees are represented by a labor union, except for our employees in Brazil who are represented by aunion as required by Brazilian law.Available InformationWe file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and other filings required by the SEC. We make these reports and filings available free of charge on our website via the investorrelations page on www.quinstreet.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We alsowebcast our earnings calls and certain events we host with members of the investment community on our investor relations page athttp://investor.quinstreet.com. The content of our website is not intended to be incorporated by reference into this report or in any other report or documentwe file, and any reference to this website and others included in this report is intended to be an inactive textual reference only.The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internetsite (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with theSEC.8 Item 1A.Risk FactorsInvesting in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information inthis periodic report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of,or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actuallyoccur, our business, financial condition or results of operations could be adversely affected. In those cases, the trading price of our common stock coulddecline and you may lose all or part of your investment.Risks Related to Our Business and IndustryWe operate in an industry that is still developing and have a relatively new business model that is continually evolving, which makes it difficult toevaluate our business and prospects.We derive all of our revenue from the sale of online marketing and media services, which is still a developing industry that has undergone rapid anddramatic changes in its relatively short history and which is characterized by rapidly-changing Internet media and advertising technology, evolving industrystandards, regulatory uncertainty, and changing visitor and client demands. We believe that our implementation of our enhanced products and mediastrategies across our business is in a relatively early stage. As a result, we face risks and uncertainties such as but not limited to: •our still developing industry and relatively new business model; •changes in the economic condition, market dynamics, regulatory enforcement or legislative environment affecting us, our third-partypublishers’, and our clients’ businesses; •our dependence on the availability and affordability of quality media from third-party publishers and strategic partners; •our dependence on Internet search companies to attract Internet visitors; •our ability to accurately forecast our results of operations and appropriately plan our expenses; •our ability to compete in our industry; •our ability to manage cyber security risks and costs associated with maintaining a robust security infrastructure; •our ability to continually optimize our websites to allow Internet visitors to access our websites through mobile devices; •our ability to develop new services, enhancements and features to meet new demands from our clients; •our ability to implement our enhanced products across our business and achieve client adoptions of such products; and •our ability to successfully challenge regulatory audits, investigations or allegations of noncompliance with laws.If we are unable to address these risks, our business, results of operations and prospects could suffer.Negative changes in the market conditions and the regulatory environment have had in the past, and may in the future have, a material and adverseimpact on our revenue, business and growth.Adverse macroeconomic conditions could cause decreases or delays in spending by our clients and could harm our ability to generate revenue and ourresults of operations. Moreover, to date, we have generated a large majority of our revenue from clients in our financial services and education clientverticals. Changes in the market conditions and the regulatory environment in these two highly-regulated client verticals in particular have in the pastnegatively impacted, and may continue to negatively impact, our clients’ businesses, marketing practices and budgets and, therefore, our financial results.For example, market conditions such as decreased consumer enrollment in client schools could lead to decisions such as cessation of new enrollments orclosure of such schools in our education client vertical.We, our third-party publishers’, and our clients’ businesses operate in highly regulated industries, subject to many laws and regulatory requirements,including federal, state, and local laws and regulations regarding unsolicited commercial email, telemarketing, user privacy, search engines, Internet trackingtechnologies, direct marketing, data security, data privacy, pricing, sweepstakes, promotions, intellectual property ownership and infringement, trade secrets,export of encryption technology, acceptable content and quality of goods, and taxation, among others. Each of our financial services, education and otherclient verticals is also subject to various laws and regulations, and our marketing activities on behalf of our clients are regulated. Many of these laws andregulations are frequently changing and can be subject to vagaries of interpretation and emphasis, and the extent and evolution of9 future government regulation is uncertain, therefore, keeping our business in compliance with or bringing our business into compliance with new laws maybe costly, affect our revenue and harm our financial results. For example, we believe increased regulation may occur in the area of data privacy, and laws andregulations applying to the solicitation, collection, processing or use of personally identifiable information. Further, foreign laws and regulations such as theGeneral Data Protection Regulation (“GDPR”), which became effective in May 2018, may apply to our business and marketing activities that are offered toEuropean Union users. The GDPR creates a range of new compliance obligations and penalties for non-compliance are significant. The foregoing could affectour ability to use and share data and may result in expenditures to ensure our ability to store, process and share data in accordance with applicable laws andregulations. Violations or alleged violations of laws by us, our third-party publishers or clients could result in damages, fines, criminal prosecution,unfavorable publicity, and restrictions on our ability to operate, any of which could have a material adverse effect on our business, financial condition, andresults of operations. In addition, new laws or regulations or changes in enforcement of existing laws or regulations applicable to our clients could affect theactivities or strategies of our clients and, therefore, lead to reductions in their level of business with us.For example, the Federal Communications Commission amended the Telephone Consumer Protection Act (the “TCPA”) that affects telemarketingcalls including SMS or text messaging. Certain provisions of the regulations became effective in July 2012, and additional regulations requiring priorexpress written consent for certain types of telemarketing calls became effective in October 2013. Our efforts to comply with the TCPA has not had a materialimpact on traffic conversion rates. However, depending on future traffic and product mix, it could potentially have a material effect on our revenue andprofitability, including increasing our and our clients’ exposure to enforcement actions and litigation. The changes to the TCPA regulations have resulted inan increase in individual and class action litigation against marketing companies for alleged TCPA violations. Additionally, we generate leads from whichusers provide a phone number, and a significant amount of revenue comes from calls made by our internal call centers as well as, in some cases, by third-partypublishers’ call centers. We also purchase a portion of our lead data from third-party publishers and cannot guarantee that these third-parties will comply withthe regulations. Any failure by us or the third-party publishers on which we rely for telemarketing, email marketing, and other lead generation activities toadhere to or successfully implement appropriate processes and procedures in response to existing regulations and changing regulatory requirements couldresult in legal and monetary liability, significant fines and penalties, or damage to our reputation in the marketplace, any of which could have a materialadverse effect on our business, financial condition, and results of operations. Furthermore, our clients may make business decisions based on their ownexperiences with the TCPA regardless of our products and the changes we implemented to comply with the new regulations. These decisions may negativelyaffect our revenue or profitability.In connection with our owned and our third-party publishers’ email campaigns to generate traffic for our clients, we are subject to various state andFederal laws regulating commercial email communications, including the federal CAN-SPAM Act. For example, in 2012, several of our clients were nameddefendants in a California Anti-Spam lawsuit relating to commercial emails which allegedly originated from us and our third-party publishers. While thematter was ultimately resolved in our clients’ favor, we were nonetheless obligated to indemnify certain of our clients for the fees incurred in the defense ofsuch matter. Further, foreign laws and regulations, such as the Canadian Anti-Spam Law, may also apply to our business activities to the extent we are doingbusiness with or marketing to consumers in foreign jurisdictions. If we or any of our third-party publishers fail to comply with any provisions of these laws orregulations, we could be subject to regulatory investigation, enforcement actions, and litigation, as well as indemnification obligations with respect to ourclients. Any negative outcomes from such regulatory actions or litigation, including monetary penalties or damages, could have a material adverse effect onour financial condition, results of operation, and reputation.From time to time, we are subject to audits, inquiries, investigations, claims of non-compliance and lawsuits by federal and state governmentalagencies, regulatory agencies, attorneys general, and other governmental or regulatory bodies, any of whom may allege violations of legal requirements. Forexample, in June 2012, we entered into an Assurance of Voluntary Compliance agreement following a civil investigation into certain of our marketingpractices related to our education client vertical that was conducted by the attorneys general of a number of states. If the results of any future investigations,audits, inquiries, claims or litigation are unfavorable to us, we may be required to pay monetary fines or penalties or have restrictions placed on our business,which could materially adversely affect our business, financial condition, results of operations, and cash flows.Federal and state regulations and increased oversight of clients in our education vertical have negatively affected, and may continue to negativelyaffect, our clients’ businesses, marketing practices, and budgets, any or all of which could reduce our clients’ level of business with us and thereby have amaterial adverse effect on our financial results.To date, we have generated a large portion of our revenue from our education client vertical, and nearly all of that revenue was generated from post-secondary education institutions. Post-secondary education institutions are subject to extensive federal and state regulations and accrediting standards(including the Higher Education Act, Department of Education regulations and individual state higher education regulations) and oversight by variousregulatory enforcement authorities (including the Department of Education, the Federal Trade Commission, the Consumer Finance Protection Bureau andstate attorneys general). Such regulations govern many aspects of these clients’ operations, including marketing and recruiting activities, as well as privatestudent lending and the school’s eligibility to participate in Title IV federal student financial aid programs, which is the principal source of funding for manyof our10 education clients. In addition, there have been significant changes to these regulations in recent years and a high level of regulatory scrutiny andenforcement activity (e.g., investigations of our clients and other post-secondary education institutions). Heightened regulatory activity and legislative andregulatory scrutiny may continue in the post-secondary education sector. Such activity and scrutiny may have an adverse effect on our operating results asour management may be required to devote substantial time and resources to such matters, and such matters may result in lower client marketing spend.For example, in January 2014, the Department of Education initiated an investigation of a U.S. publicly traded for-profit education client with respectto its enrollment activities and job placement, among other things, and in July 2014, the Department of Education signed an agreement with that sameeducation client requiring it to wind down or sell its campuses.Similarly, in July 2015, the Federal Trade Commission initiated an investigation of another publicly traded U.S. for-profit education client withrespect to its recruiting and enrollment practices, and in January 2016, the Federal Trade Commission filed a lawsuit against a different publicly-traded U.S.for-profit education client with respect to its advertising practices. In September 2016, the Department of Education took action which resulted in the closureof another large for-profit education provider. In January 2019, a U.S. publicly traded for-profit education client entered into agreements with attorneysgeneral from 48 states and the District of Columbia thereby bringing closure to a five-year investigation. Our largest not-for-profit education client alsoentered federal receivership in January 2019. These legal proceedings may delay payment of amounts owed to us or result in us receiving less than theamounts owed. Moreover, the Department of Education, the Consumer Finance Protection Bureau, the Federal Trade Commission and several state attorneysgeneral currently have open investigations with several other post-secondary educational institutions. Regulatory decisions may also adversely impact oureducation clients indirectly. For example, in October 2016, the Department of Education published its final defense to repayment rule, which streamlines andliberalizes a procedure whereby students may have their federal loans forgiven. And, in December 2017, the Department of Education announced a new tieredsystem approach to determine loan forgiveness. This may streamline the government’s review of students’ requests to have their loans forgiven, which may inturn involve claims by the government against education providers. In connection with these or other investigations of our clients’ marketing practices,regulatory authorities may also make requests to us for information, which requests may consume substantial time and resources and result in a negativeeffect on our operating results. These and other similar regulatory and enforcement activities have affected, and are expected to continue to affect, our clients’businesses and marketing practices, which have resulted in, and may continue to result in, a decrease in these clients’ spending with us and fluctuations in thevolume and mix of our business with these clients. This may be the case notwithstanding the fact that we are not a target of these regulatory investigations orinquiries and the fact that our marketing practices consist largely of utilizing client-provided or client-approved online marketing materials subject to clientadvertising guidelines.In addition, changes in, or new interpretations of, applicable laws, regulations, standards or policies applicable to these clients could have a materialadverse effect on their accreditation, authorization to operate in various states, or receipt of funds under Title IV programs, any of which, in turn, may harmour ability to generate revenue from these clients and negatively impact our financial results. For example, in September 2017, the Department of Educationapproved conversion of two for-profit post-secondary education institutions to operate as non-profit post-secondary education institutions. These types ofconversions may not be successful, may subject the institutions to adverse publicity or otherwise adversely impact our business.Finally, although we are not a higher education institution, we are sometimes required to comply with such education laws and regulations as a resultof our role as a vendor to higher education institutions, either directly or indirectly through our contractual arrangements with clients. Failure to comply witheducation laws and regulations could result in breach of contract and indemnification claims against us, subject us to regulatory sanctions and could causedamage to our reputation and impair our business.A reduction in online marketing spend by our clients, a loss of clients or lower advertising yields may seriously harm our business, financial condition,and results of operations. In addition, a substantial portion of our revenue is generated from a limited number of clients and, if we lose a major client, ourrevenue will decrease and our business and prospects may be harmed.We rely on clients’ marketing spend on our owned and operated websites and on our network of third-party publisher and strategic partner websites.We have historically derived, and we expect to continue to derive, the majority of our revenue through the delivery of qualified clicks, leads, inquiries, calls,applications, and customers. One component of our platform that we use to generate client interest is our system of monetization tools, which is designed tomatch content with client offerings in a manner that optimizes revenue yield and end-user experience. Clients will stop spending marketing funds on ourowned and operated websites or our third-party publisher and strategic partner websites if their investments do not generate marketing results and ultimatelyusers or if we do not deliver advertisements in an appropriate and effective manner. The failure of our yield-optimized monetization technology to effectivelymatch advertisements or client offerings with our content in a manner that results in increased revenue for our clients could have an adverse impact on ourability to maintain or increase our revenue from client marketing spend.11 Even if our content is effectively matched with advertisements or client offerings, our current clients may not continue to place marketing spend oradvertisements on our websites. If any of our clients decided not to continue marketing spend or advertising on our owned and operated websites or on ourthird-party publisher or strategic partner websites, we could experience a rapid decline in our revenue over a relatively short period of time. Any factors thatlimit the amount our clients are willing to and do spend on marketing or advertising with us, or to purchase marketing results from us, could have a materialadverse effect on our business.Furthermore, a substantial portion of our revenue is generated from a limited number of clients, including one client that accounted for 22% of our netrevenue for fiscal year 2019. Our clients can generally terminate their contracts with us at any time, and they do not have minimum spend requirements.Clients may also fail to renew their contracts or reduce their level of business with us, leading to lower revenue.In addition, reductions in business by one or more significant clients has in the past triggered, and may in the future trigger, price reductions for otherclients whose prices for certain products are determined in whole or in part by client bidding or competition which may reduce our ability to monetize media,further decreasing revenue. Any future such price or volume reductions, or drop in media monetization, could result in lower revenue or margin. We expectthat a limited number of clients will continue to account for a significant percentage of our revenue, and the loss of any one of these clients, or a materialreduction in their marketing spending with us, could decrease our revenue and harm our business.We depend on third-party publishers, including strategic partners, for a significant portion of our visitors. Any decline in the supply of media availablethrough these third-party publishers’ websites or increase in the price of this media could cause our revenue to decline or our cost to reach visitors toincrease.A significant portion of our revenue is attributable to visitor traffic originating from third-party publishers (including strategic partners). In manyinstances, third-party publishers can change the media inventory they make available to us at any time in ways that could impact our results of operations. Inaddition, third-party publishers may place significant restrictions on our offerings. These restrictions may prohibit advertisements from specific clients orspecific industries, or restrict the use of certain creative content or formats. If a third-party publisher decides not to make its media channel or inventoryavailable to us, decides to demand a higher revenue-share or places significant restrictions on the use of such inventory, we may not be able to find mediainventory from other websites that satisfies our requirements in a timely and cost-effective manner. Consolidation of Internet advertising networks and third-party publishers could eventually lead to a concentration of desirable inventory on websites or networks owned by a small number of individuals or entities,which could limit the supply or impact the pricing of inventory available to us. In the past, we have experienced declines in our financial services clientvertical primarily due to volume declines caused by losses of available media from third-party publishers acquired by competitors, changes in search enginealgorithms which reduced or eliminated traffic from some third-party publishers and increased competition for quality media. We cannot assure you that wewill be able to acquire media inventory that meets our clients’ performance, price, and quality requirements, in which case our revenue could decline or ouroperating costs could increase.We depend upon Internet search companies to direct a significant portion of visitors to our owned and operated and our third-party publishers’websites. Changes in search engine algorithms have in the past harmed, and may in the future harm, the websites’ placements in both paid and organicsearch result listings, which may reduce the number of visitors to our owned and operated and our third-party publishers’ websites and as a result, causeour revenue to decline.Our success depends on our ability to attract online visitors to our owned and operated and our third-party publishers’ websites and convert them intocustomers for our clients in a cost-effective manner. We depend on Internet search companies to direct a substantial share of visitors to our owned andoperated and our third-party publishers’ websites. Search companies offer two types of search results: organic and paid listings. Organic listings are displayedbased solely on formulas designed by the search companies. Paid listings are displayed based on a combination of the advertiser’s bid price for particularkeywords and the search engines’ assessment of the website’s relevance and quality. If one or more of the search engines or other online sources on which werely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers, and traffic to our websites coulddecrease. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.Our ability to maintain or grow the number of visitors to our owned and operated and our third-party publishers’ websites from search companies is notentirely within our control. Search companies frequently revise their algorithms and changes in their algorithms have in the past caused, and could in thefuture cause, our owned and operated and our third-party publishers’ websites to receive less favorable placements. We have experienced fluctuations inorganic rankings for a number of our owned and operated and our third-party publishers’ websites and some of our paid listing campaigns have also beenharmed by search engine algorithmic changes. Search companies could determine that our or our third-party publishers’ websites’ content is either notrelevant or is of poor quality.12 In addition, we may fail to optimally manage our paid listings, or our proprietary bid management technologies may fail. To attract and retain visitors,we use search engine optimization (“SEO”) which involves developing content to optimize ranking in search engine results. Our ability to successfullymanage SEO efforts across our owned and operated websites and our third-party publishers’ websites depends on our timely and effective modification ofSEO practices implemented in response to periodic changes in search engine algorithms and methodologies and changes in search query trends. If we fail tosuccessfully manage our SEO strategy, our owned and operated and our third-party publishers’ websites may receive less favorable placement in organic orpaid listings, which would reduce the number of visitors to our sites, decrease conversion rates and repeat business and have a detrimental effect on ourability to generate revenue. If visits to our owned and operated and our third-party publishers’ websites decrease, we may need to use more costly sources toreplace lost visitors, and such increased expense could adversely affect our business and profitability. Even if we succeed in driving traffic to our owned andoperated websites, our third-party publishers’ websites and to our clients’ websites, we may not be able to effectively monetize this traffic or otherwise retainusers. Our failure to do so could result in lower advertising revenue from our owned and operated websites as well as third-party publishers’ websites, whichwould have an adverse effect on our business, financial condition, and results of operations.We are subject to risks with respect to counterparties, and failure of such counterparties to meet their obligations could cause us to suffer losses ornegatively impact our results of operations and cash flows.We have entered into, and expect to enter into in the future, various contracts, including contracts with clients, third-party publishers and strategicpartners, that subject us to counterparty risks. The ability and willingness of our counterparties to perform their obligations under any contract will depend ona number of factors that are beyond our control and may include, among other things, general economic conditions, specific industry vertical conditions, andthe overall financial condition of the counterparty. As a result, clients, third-party publishers or strategic partners may seek to renegotiate the terms of theirexisting agreements with us, terminate their agreements with us for convenience (where permitted) or avoid performing their obligations under thoseagreements. Should a counterparty fail to honor its contractual obligations with us or terminate its agreements with us for convenience (where permitted), wecould sustain significant losses or write-offs, which could have a material adverse effect on our business, financial condition, results of operations and cashflows.If we fail to continually enhance and adapt our products and services to keep pace with rapidly changing technologies and industry standards, we maynot remain competitive and could lose clients or advertising inventory.The online media and marketing industry is characterized by rapidly changing standards, changing technologies, frequent new product and serviceintroductions, and changing user and client demands. The introduction of new technologies and services embodying new technologies and the emergence ofnew industry standards and practices could render our existing technologies and services obsolete and unmarketable or require unanticipated investments intechnology. We continually make enhancements and other modifications to our proprietary technologies, and these changes may contain design orperformance defects that are not readily apparent. If our proprietary technologies fail to achieve their intended purpose or are less effective than technologiesused by our competitors, our business could be harmed.Our future success will depend in part on our ability to successfully adapt to these rapidly changing online media formats and other technologies. Ifwe fail to adapt successfully, we could lose clients or advertising inventory.Our results of operations have fluctuated in the past and may do so in the future, which makes our results of operations difficult to predict and couldcause our results of operations to fall short of analysts’ and investors’ expectations.Historically, quarterly and annual results of operations have fluctuated due to changes in our business, our industry, and the general economic andregulatory climate. We expect our future results of operations to vary significantly from quarter to quarter due to a variety of factors, many of which arebeyond our control. Our fluctuating results of operations could cause our performance and outlook to be below the expectations of securities analysts andinvestors, causing the price of our common stock to decline. Our business changes and evolves over time, and, as a result, our historical results of operationsmay not be useful to you in predicting our future results of operations. Factors that may increase the volatility of our results of operations include, but are notlimited to, the following: •changes in client volume; •loss of or reduced demand by existing clients and agencies; •the availability and price of quality media; •consolidation of media sources; •seasonality;13 •developing and implementing our media strategies and client initiatives; •changes in our revenue mix and shifts in margins related to changes in our media strategies or client initiatives; •changes in interest rates; •changes in Internet search engine algorithms that affect our owned and operated and our third-party publishers’ websites ability to attract andretain Internet visitors; and •regulatory and legislative changes, or their interpretation or emphasis, in our and our client industries.As a result of changes in our business model, increased investments, increased expenditures for certain businesses, products, services, and technologies,we anticipate fluctuations in our adjusted EBITDA margin.We have invested and expect to continue to invest in new businesses, products, markets, services and technologies, including more expensive forms ofmedia. For example, we expended significant resources in developing new products and technologies and made strategic outlays in, among other things,partnerships, which in the short term may have the effect of reducing our adjusted EBITDA margin. If we are unsuccessful in our monetization efforts withrespect to new products and investments, we may fail to engage and retain users and clients. We may have insufficient revenue to fully offset liabilities andexpenses in connection with these investments and may experience inadequate or unpredictable return of capital on our investments. As a result of theseinvestments, we expect fluctuations in our adjusted EBITDA margin.To maintain target levels of profitability, from time to time, we may restructure our operations or make other adjustments to our workforce. Forexample, in November 2016, we announced a corporate restructuring resulting in the reduction of approximately 25% of personnel costs.Our visitor traffic can be impacted by interest rate volatility.Visitor traffic to our online platforms in our financial services client vertical can increase or decrease with interest rate movements. A decline ininterest rates may lead to reduced client demand for media, as there are more consumers in the marketplace seeking financing and, accordingly, clients mayreceive more organic media volume. Similarly, an increase in interest rates may lead to reduced client demand for media as higher interest rate payments maydeter consumers in the marketplace from seeking financing. Further, the credit risks for our financial services client vertical may vary depending on if theloans are secured or unsecured obligations. For example, personal loans are unsecured obligations and generally carry shorter terms and smaller loan amountsthan mortgages thus they generally are riskier assets for lenders than mortgages or other secured loans. Federal Reserve Board actions, regulations restrictingthe amount of interest and fees that may be charged to consumers and general market conditions affecting access to credit could also cause significant visitorfluctuations and have a material and adverse effect on our business.If we fail to compete effectively against other online marketing and media companies and other competitors, we could lose clients and our revenue maydecline.The market for online marketing is intensely competitive, and we expect this competition to continue to increase in the future both from existingcompetitors and, given the relatively low barriers to entry into the market, from new competitors. We compete both for clients and for high-quality media. Wecompete for clients on the basis of a number of factors, including return on investment of client’s marketing spending, price, and client service.We compete with Internet and traditional media companies for high quality media and for a share of clients’ overall marketing budgets, including: •online marketing or media services providers such as LendingTree in the financial services client vertical and Higher Ed Growth, LLC in theeducation client vertical; •offline and online advertising agencies; •major Internet portals and search engine companies with advertising networks; •other online marketing service providers, including online affiliate advertising networks and industry-specific portals or lead generationcompanies; •digital advertising exchanges, real-time bidding and other programmatic buying channels; •third-party publishers with their own sales forces that sell their online marketing services directly to clients;14 •in-house marketing groups and activities at current or potential clients; •offline direct marketing agencies; •mobile and social media; and •television, radio, and print companies.Finding, developing and retaining high quality media on a cost-effective basis is challenging because competition for web traffic among websites andsearch engines, as well as competition with traditional media companies, has resulted and may continue to result in significant increases in media pricing,declining margins, reductions in revenue, and loss of market share. In addition, if we expand the scope of our services, we may compete with a greater numberof websites, clients, and traditional media companies across an increasing range of different services, including in vertical markets where competitors mayhave advantages in expertise, brand recognition, and other areas. Internet search companies with brand recognition, such as Google, Yahoo! and Bing, havesignificant numbers of direct sales personnel and substantial proprietary advertising inventory and web traffic that provide a significant competitiveadvantage and have a significant impact on pricing for Internet advertising and web traffic. Some of these companies may offer or develop more verticallytargeted products that match users with products and services and, thus, compete with us more directly. The trend toward consolidation in online marketingmay also affect pricing and availability of media inventory and web traffic. Many of our current and potential competitors also have other competitiveadvantages over us, such as longer operating histories, greater brand recognition, larger client bases, greater access to advertising inventory on high-trafficwebsites, and significantly greater financial, technical, and marketing resources. As a result, we may not be able to compete successfully. Competition fromother marketing service providers’ online and offline offerings has affected and may continue to affect both volume and price, and, thus, revenue, profitmargins, and profitability. If we fail to deliver results that are superior to those that other online marketing service providers deliver to clients, we could loseclients and market share, and our revenue may decline.We are exposed to online security risks and security breaches particularly given that we gather, transmit and store personally identifiable information.If we fail to maintain adequate security and supporting infrastructure, we may be in breach of our commitments to our clients. Unauthorized access to oraccidental disclosure of confidential or proprietary data in our network systems may cause us to incur significant expenses and may negatively affect ourreputation and business.Nearly all of our products and services are web-based, and online performance marketing is data-driven. As a result, the amount of data stored on ourservers has been increasing. We gather, transmit, and store information about our users and marketing and media partners, including personally identifiableinformation. This information may include social security numbers, credit scores, credit card information, and financial and health information, some ofwhich is held or managed by our third-party vendors. As a result, we are subject to certain contractual terms, including third-party security reviews, as well asfederal, state and foreign laws and regulations designed to protect personally identifiable information. Complying with these contractual terms and variouslaws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. In addition, our existingsecurity measures may not be successful in preventing security breaches. As we grow our business, we expect to continue to invest in technology services,hardware and software. Creating the appropriate security support for our technology platforms is expensive and complex, and our execution could result ininefficiencies or operational failures and increased vulnerability to cyber-attacks. We may also make commitments to our clients regarding our securitypractices in connection with clients’ due diligence. If we do not adequately implement and enforce these security policies to the satisfaction of our clients, wecould be in violation of our commitments to our clients and this could result in a loss of client confidence, damage to our reputation and loss of business.Despite our implementation of security measures and controls, our information technology and infrastructure are susceptible to circumvention by an internalparty, external party, or unrelated third-party, such that electronic or physical computer break-ins, cyber-attacks, malware, viruses, fraud, employee error, andother disruptions and security breaches that could result in third-parties gaining unauthorized access to our systems and data. In addition, the increased use ofmobile devices increases the risk of unintentional disclosure of data including personally identifiable information. We may be unable to anticipate all ourvulnerabilities and implement adequate preventative measures and, in some cases, we may not be able to immediately detect a security incident. In the past,we have experienced security incidents involving access to our databases. Although to our knowledge no sensitive financial or personal information hasbeen compromised and no statutory breach notification has been required, any future security incidents could result in the compromise of such data andsubject us to liability or remediation expense or result in cancellation of client contracts. Any security incident may also result in a misappropriation of ourproprietary information or that of our users, clients, and third-party publishers, which could result in legal and financial liability, as well as harm to ourreputation. Any compromise of our security could limit the adoption of our products and services and have an adverse effect on our business.We also face risks associated with security breaches affecting third-parties conducting business over the Internet. Consumers generally are concernedwith security and privacy on the Internet, and any publicized security problems could negatively affect consumers’ willingness to provide privateinformation on the Internet generally, including through our services. Some of our business is conducted through third-parties, which may gather, transmit,and store information about our users and marketing and media15 partners, through our infrastructure or through other systems. A security breach at any such third-party could be perceived by consumers as a security breachof our systems and in any event could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability andsubject us to regulatory penalties and sanctions. In addition, such third-parties may not comply with applicable disclosure or contractual requirements, whichcould expose us to liability.Security concerns relating to our technological infrastructure, privacy concerns relating to our data collection practices and any perceived or publicdisclosure of actual unauthorized disclosure of personally identifiable information, whether through breach of our network or that of third-parties which weengage with, by an unauthorized party, employee theft, misuse, or error could harm our reputation, impair our ability to attract website visitors and to attractand retain our clients, result in a loss of confidence in the security of our products and services, or subject us to claims or litigation arising from damagessuffered by consumers, and thereby harm our business and results of operations. In the past few years, several major companies, such as Equifax, Yahoo!,Sony, Home Depot, Target and LinkedIn, have experienced high-profile security breaches that exposed their customers’ personal information. In addition, wecould incur significant costs for which our insurance policies may not adequately cover us and expend significant resources in protecting against securitybreaches and complying with the multitude of state, federal and foreign laws regarding data privacy and data breach notification obligations. We may need toincrease our security-related expenditures to maintain or increase our systems’ security or to address problems caused and liabilities incurred by securitybreaches.Many people are using mobile devices to access the Internet. If we fail to optimize our websites to keep pace with this shift in user devices, we may notremain competitive and could lose clients or visitors to our websites.The number of people who access the Internet through mobile devices such as smart phones and tablets has increased dramatically in the past severalyears, and we expect the trend to continue. Our online marketing services and content were originally designed for desktop or laptop computers. The shiftfrom desktop or laptop computers to mobile devices could potentially deteriorate the user experience for visitors to our websites and may make it moredifficult for visitors to respond to our offerings. It also requires us to develop new product offerings specifically designed for mobile devices, such as socialmedia advertising opportunities. Additionally, the monetization of our online marketing services and content on these mobile devices might not be aslucrative for us compared to those on desktop and laptop computers. If we fail to optimize our websites cost effectively and improve the monetizationcapabilities of our mobile marketing services, we may not remain competitive, which may negatively affect our business and results of operations.Third-party publishers, strategic partners, vendors, or their respective affiliates may engage in unauthorized or unlawful acts that could subject us tosignificant liability or cause us to lose clients and revenue.We generate a significant portion of our web visitors from online media that we source directly from our third-party publishers’ and strategic partners’owned and operated websites, as well as indirectly from the affiliates of our third-party publishers and strategic partners. We also rely on third-party callcenters and email marketers. Some of these third-parties, strategic partners, vendors, and their respective affiliates are authorized to use our clients’ brands,subject to contractual restrictions. Any activity by third-party publishers, strategic partners, vendors, or their respective affiliates which violates themarketing guidelines of our clients or that clients view as potentially damaging to their brands (e.g., search engine bidding on client trademarks), whether ornot permitted by our contracts with our clients, could harm our relationship with the client and cause the client to terminate its relationship with us, resultingin a loss of revenue. Moreover, because we do not have a direct contractual relationship with the affiliates of our third-party publishers and strategic partners,we may not be able to monitor the compliance activity of such affiliates. If we are unable to cause our third-party publishers and strategic partners to monitorand enforce our clients’ contractual restrictions on such affiliates, our clients may terminate their relationships with us or decrease their marketing budgetswith us. In addition, we may also face liability for any failure of our third-party publishers, strategic partners, vendors or their respective affiliates to complywith regulatory requirements, as further described in the risk factor beginning, “Negative changes in the market conditions and the regulatory environmenthave had in the past, and may in the future have, a material and adverse impact on our revenue, business, and growth.”The law is unsettled on the extent of liability that an advertiser in our position has for the activities of third-party publishers, strategic partners, orvendors. Department of Education regulations impose liability on our education clients for misrepresentations made by their marketing service providers. Inaddition, certain of our contracts impose liability on us, including indemnification obligations, for the acts of our third-party publishers, strategic partners, orvendors. We could be subject to costly litigation and, if we are unsuccessful in defending ourselves, we could incur damages for the unauthorized or unlawfulacts of third-party publishers, strategic partners, or vendors.16 We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.Our success and future growth depend upon the continued services of our management team, including Douglas Valenti, Chief Executive Officer, andother key employees in all areas of our organization. From time to time, there may be changes in our key employees resulting from the hiring or departure ofexecutives and employees, which could disrupt our business. We have, in the past, experienced declines in our business and a depressed stock price, makingour equity and cash incentive compensation programs less attractive to current and potential key employees. If we lose the services of key employees or if weare unable to attract and retain additional qualified employees, our business and growth could suffer.If we are unable to collect our receivables from our clients, our results of operations and cash flows could be adversely affected.We expect to obtain payment from our clients for work performed and maintain an allowance against receivables for potential losses on clientaccounts. Actual losses on client receivables could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. Wemay not accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as any evolving industry standards, changing regulatoryconditions, and changing visitor and client demands, could also result in financial difficulties for our clients, including insolvency or bankruptcy. As a result,this could cause clients to delay payments to us, request modifications to their payment arrangements that could extend the timing of cash receipts, or defaulton their payment obligations to us. For example, in the third quarter of fiscal year 2019, we recorded a one-time charge of $8.7 million for bad debt expenserelated to a large former education client, which arose in part due to the U.S. Department of Education placing restrictions on one of its for-profit school fromTitle IV programs. If we experience an increase in the time to bill and collect for our services, our results of operations and cash flows could be adverselyaffected.We rely on certain advertising agencies for the purchase of various advertising and marketing services on behalf of their clients. Such agencies mayhave or develop high-risk credit profiles, which may result in credit risk to us.A portion of our client business is sourced through advertising agencies and, in many cases, we contract with these agencies and not directly with theunderlying client. Contracting with these agencies subjects us to greater credit risk than where we contract with clients directly. In many cases, agencies arenot required to pay us unless and until they are paid by the underlying client. In addition, many agencies are thinly capitalized and have or may develophigh-risk credit profiles. This credit risk may vary depending on the nature of an agency’s aggregated client base. If an agency were to become insolvent, or ifan underlying client did not pay the agency, we may be required to write off account receivables as bad debt. Any such write-offs could have a materiallynegative effect on our results of operations for the periods in which the write-offs occur.Damage to our reputation could harm our business, financial condition and results of operations.Our business is dependent on attracting a large number of visitors to our owned and operated and our third-party publishers’ websites and providingclicks, leads, inquiries, calls, applications, and customers to our clients, which depends in part on our reputation within the industry and with our clients.Certain other companies within our industry have in the past, engaged in activities that others may view as unlawful or inappropriate. These activities bythird-parties, such as spyware or deceptive promotions, may be seen as characteristic of participants in our industry and may therefore harm the reputation ofall participants in our industry, including us.Our ability to attract visitors and, thereby, potential customers to our clients, also depends in part on our clients providing competitive levels ofcustomer service, responsiveness and prices to such visitors. If our clients do not provide competitive levels of service to visitors, our reputation and thereforeour ability to attract additional clients and visitors could be harmed.In addition, from time to time, we may be subject to investigations, inquiries or litigation by various regulators, which may harm our reputationregardless of the outcome of any such action. For example, in 2012 we responded to a civil investigation conducted by the attorneys general of a number ofstates into certain of our marketing and business practices resulting in us entering into an Assurance of Voluntary Compliance agreement. Negativeperceptions of our business may result in additional regulation, enforcement actions by the government and increased litigation, or harm our ability to attractor retain clients, third-party publishers or strategic partners, any of which may affect our business and result in lower revenue.Any damage to our reputation, including from publicity from legal proceedings against us or companies that work within our industry, governmentalproceedings, users impersonating or scraping our websites, unfavorable media coverage, consumer class action17 litigation, or the disclosure of information security breaches or private information misuse, could adversely affect our business, financial condition andresults of operations.If we do not effectively manage any future growth or if we are not able to scale our products or upgrade our technology, network hosting infrastructurequickly enough to meet our clients’ needs, our operating performance will suffer and we may lose clients.We have experienced growth in our operations and operating locations during certain periods of our history. This growth has placed, and any futuregrowth may continue to place, significant demands on our management and our operational and financial infrastructure. Growth, if any, may make it moredifficult for us to accomplish the following: •successfully scaling our technology to accommodate a larger business and integrate acquisitions, including our recent acquisition of AmOneCorp. (“AmOne”), CloudControlMedia, LLC (“CCM”) and MyBankTracker.com, LLC (“MBT”); •maintaining our standing with key vendors, including Internet search companies and third-party publishers; •maintaining our client service standards; and •developing and improving our operational, financial and management controls and maintaining adequate reporting systems and procedures.Our future success depends in part on the efficient performance of our software and technology infrastructure. As the numbers of websites and Internetusers increase, our technology infrastructure may not be able to meet the increased demand. Unexpected constraints on our technology infrastructure couldlead to slower website response times or system failures and adversely affect the availability of websites and the level of user responses received, which couldresult in the loss of clients or revenue or harm to our business and results of operations.In addition, our personnel, systems, procedures, and controls may be inadequate to support our future operations. The improvements required tomanage growth may require us to make significant expenditures, expand, train and manage our employee base, and reallocate valuable managementresources. We may spend substantial amounts to purchase or lease data centers and equipment, upgrade our technology and network infrastructure to handleincreased traffic on our owned and operated websites and roll out new products and services. Any such expansion could be expensive and complex and couldresult in inefficiencies or operational failures. If we do not implement such expansion successfully, or if we experience inefficiencies and operational failuresduring its implementation, the quality of our products and services and our users’ experience could decline. This could damage our reputation and cause usto lose current and potential users and clients. The costs associated with these adjustments to our architecture could harm our operating results. Accordingly,if we fail to effectively manage any future growth, our operating performance will suffer, and we may lose clients, key vendors and key personnel.Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our services, whichcould cause us to lose clients and harm our results of operations.Our delivery of marketing and media services depends on the continuing operation of our technology infrastructure and systems. Any damage to orfailure of our systems could result in interruptions in our ability to deliver offerings quickly and accurately or process visitors’ responses emanating from ourvarious web presences. Interruptions in our service could reduce our revenue and profits, and our reputation could be damaged if users or clients perceive oursystems to be unreliable. Our systems and operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss,break-ins, hardware or software failures, telecommunications failures, cyber-attacks, computer viruses or other attempts to harm our systems, and similarevents. If we or third-party data centers that we utilize were to experience a major power outage, we would have to rely on back-up generators. These back-upgenerators may not operate properly through a major power outage and their fuel supply could also be inadequate during a major power outage or disruptiveevent. Furthermore, we do not currently have backup generators at our Foster City, California headquarters. Information systems such as ours may bedisrupted by even brief power outages, or by the fluctuations in power resulting from switches to and from back-up generators. This could give rise toobligations to certain of our clients which could have an adverse effect on our results of operations for the period of time in which any disruption of utilityservices to us occurs.Our primary data center is at a third-party co-location center in San Francisco, California. All of the critical components of the system are redundantand we have a backup data center in Las Vegas, Nevada. We have implemented these backup systems and redundancies to minimize the risk associated withearthquakes, fire, power loss, telecommunications failure, and other events beyond our control; however, these backup systems may fail or may not beadequate to prevent losses.18 Any unscheduled interruption in our service would result in an immediate loss of revenue. If we experience frequent or persistent system failures, theattractiveness of our technologies and services to clients and third-party publishers could be permanently harmed. The steps we have taken to increase thereliability and redundancy of our systems are expensive, reduce our operating margin and may not be successful in reducing the frequency or duration ofunscheduled interruptions.Acquisitions, investments and divestitures could complicate operations, or could result in dilution and other harmful consequences that may adverselyimpact our business and results of operations.Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. For example, weacquired MBT in May 2019, CCM in April 2019, and AmOne in October 2018. Any of our future acquisitions, investments or divestitures could be materialto our financial condition and results of operations. We may evaluate and enter into discussions regarding a wide array of potential strategic transactions. Theprocess of integrating an acquired company, business or technology has created, and will continue to create, unforeseen operating challenges, risks andexpenditures, including that the acquisitions do not advance our corporate strategy, that we get an unsatisfactory return on our investments, that theacquisitions may distract management from our other businesses, or that we may have difficulty (i) integrating an acquired company’s accounting, financialreporting, management information and information security, human resource, and other administrative systems to permit effective management, and the lackof control if such integration is delayed or not implemented; (ii) integrating the controls, procedures and policies at companies we acquire appropriate for apublic company; and (ii) transitioning the acquired company’s operations, users and customers onto our existing platforms. The success of these acquisitionswill depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones. It may take longer thanexpected to realize the full benefits from these acquisitions, such as increased revenue, enhanced efficiencies, or increased market share, or the benefit mayultimately be smaller than we expected. Our failure to address these risks or other problems encountered in connection with our past or future acquisitionsand investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and harm ourbusiness generally.Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt or deferred purchase price obligations,contingent liabilities, amortization expense, impairment of goodwill or restructuring charges, any of which could harm our financial condition or results. Forexample, under our acquisition agreement with MBT, we are required to pay $4.0 million in post-closing payments and an estimated earn-out of $1.5 million.Under our acquisition agreement with CCM, we are required to pay $7.5 million in post-closing payments and an estimated earn-out of $3.6 million. Underour acquisition agreement with AmOne, we are required to pay $8.0 million in post-closing payments. Also, the anticipated benefit of many of ouracquisitions, including anticipated synergies, may not materialize. In connection with a disposition of assets or a business, we may agree to provideindemnification for certain potential liabilities or retain certain liabilities or obligations, which may adversely impact our financial condition or results.We rely on call centers, Internet and data center providers, and other third-parties for key aspects of the process of providing services to our clients, andany failure or interruption in the services and products provided by these third-parties could harm our business.We rely on internal and third-party call centers as well as third-party vendors, data centers and Internet providers. Notwithstanding disaster recoveryand business continuity plans and precautions instituted to protect our clients and us from events that could interrupt delivery of services, there is noguarantee that such interruptions would not result in a prolonged interruption in our ability to provide services to our clients. Any temporary or permanentinterruption in the services provided by our call centers or third-party providers could significantly harm our business.In addition, any financial or other difficulties our third-party providers face may have negative effects on our business, the nature and extent of whichwe cannot predict. We exercise little control over our third-party vendors, which increases our vulnerability to problems with the services they provide. Welicense technology and related databases from third-parties to facilitate analysis and storage of data and delivery of offerings. We have experiencedinterruptions and delays in service and availability for data centers, bandwidth and other technologies in the past. Any errors, failures, interruptions or delaysexperienced in connection with these third-party technologies and services could adversely affect our business and could expose us to liabilities to third-parties.19 We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not beavailable or may not be available on favorable terms and our business and financial condition could therefore be adversely affected.While we anticipate that our existing cash and cash equivalents and cash we expect to generate from future operations will be sufficient to fund ouroperations for at least the next 12 months, we may need to raise additional capital, including debt capital, to fund operations in the future or to financeacquisitions. If we seek to raise additional capital in order to meet various objectives, including developing future technologies and services, increasingworking capital, acquiring businesses, and responding to competitive pressures, capital may not be available on favorable terms or may not be available atall. Lack of sufficient capital resources could significantly limit our ability to take advantage of business and strategic opportunities. Any additional capitalraised through the sale of equity or debt securities with an equity component would dilute our stock ownership. If adequate additional funds are notavailable, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy, including potential additional acquisitions ordevelopment of new technologies.Our quarterly revenue and results of operations may fluctuate significantly from quarter to quarter due to fluctuations in advertising spending,including seasonal and cyclical effects.In addition to other factors that cause our results of operations to fluctuate, results are also subject to significant seasonal fluctuation. In particular, ourquarters ending December 31 (our second fiscal quarter) are typically characterized by seasonal weakness. During that quarter, there is generally loweravailability 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 (ourthird fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscalyears ending December 31. Moreover, our lending clients’ businesses are subject to seasonality. For example, our clients that offer mortgage products arehistorically subject to seasonal trends. These trends reflect the general patterns of the mortgage industry and housing sales, which typically peak in the springand summer seasons. Other factors affecting our clients’ businesses include macro factors such as credit availability, the strength of the economy andemployment. Any of the foregoing seasonal trends, or the combination of them, may negatively impact our quarterly revenue and results of operations.Furthermore, advertising spend on the Internet, similar to traditional media, tends to be cyclical and discretionary as a result of factors beyond ourcontrol, including budgetary constraints and buying patterns of clients, as well as economic conditions affecting the Internet and media industry. Forexample, weather and other events have in the past, led to short-term increases in insurance industry client loss ratios and damage or interruption in ourclients’ operations, either of which can lead to decreased client spend on online performance marketing. In addition, inherent industry specific risks (e.g.,Insurance industry loss ratios and cutbacks) and poor macroeconomic conditions as well as other short-term events could decrease our clients’ advertisingspending and thereby have a material adverse effect on our business, financial condition, and operating results.If the market for online marketing services fails to continue to develop, our success may be limited, and our revenue may decrease.The online marketing services market is relatively new and rapidly evolving, and it uses different measurements from traditional media to gauge itseffectiveness. Some of our current or potential clients have little or no experience using the Internet for advertising and marketing purposes and haveallocated only limited portions of their advertising and marketing budgets to the Internet. The adoption of online marketing, particularly by those companiesthat have historically relied upon traditional media for advertising, requires the acceptance of a new way of conducting business, exchanging informationand evaluating new advertising and marketing technologies and services.In particular, we are dependent on our clients’ adoption of new metrics to measure the success of online marketing campaigns with which they may nothave prior experience. Certain of our metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harmour reputation and negatively affect our business. We present key metrics such as cost-per-click, cost-per-lead and cost-per-acquisition, some of which arecalculated using internal data. We periodically review and refine some of our methodologies for monitoring, gathering, and calculating these metrics. Whileour metrics are based on what we believe to be reasonable measurements and methodologies, there are inherent challenges in deriving our metrics. Inaddition, our user metrics may differ from estimates published by third-parties or from similar metrics of our competitors due to differences in methodology. Ifclients or publishers do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, it could negatively affect our businessmodel and current or potential clients’ willingness to adopt our metrics.20 We may also experience resistance from traditional advertising agencies who may be advising our clients. We cannot assure you that the market foronline marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than weanticipate, the success of our business may be limited, and our revenue may decrease.If we do not adequately protect our intellectual property rights, our competitive position and business may suffer.Our ability to compete effectively depends upon our proprietary systems and technology. We rely on patent, trade secret, trademark and copyright law,confidentiality agreements, and technical measures to protect our proprietary rights. We enter into confidentiality agreements with our employees,consultants, independent contractors, advisors, client vendors, and publishers. These agreements may not effectively prevent unauthorized disclosure ofconfidential information or unauthorized parties from copying aspects of our services or obtaining and using our proprietary information. For example, pastor current employees, contractors or agents may reveal confidential or proprietary information. Further, these agreements may not provide an adequateremedy in the event of unauthorized disclosures or uses, and we cannot assure you that our rights under such agreements will be enforceable. Effective patent,trade secret, copyright, and trademark protection may not be available in all countries where we currently operate or in which we may operate in the future.Some of our systems and technologies are not covered by any copyright, patent or patent application. We cannot guarantee that: (i) our intellectual propertyrights will provide competitive advantages to us; (ii) our ability to assert our intellectual property rights against potential competitors or to settle current orfuture disputes will be effective; (iii) our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legalprotection may be weak; (iv) any of the patent, trademark, copyright, trade secret or other intellectual property rights that we presently employ in ourbusiness will not lapse or be invalidated, circumvented, challenged, or abandoned; (v) competitors will not design around our protected systems andtechnology; or (vi) that we will not lose the ability to assert our intellectual property rights against others.We have from time to time become aware of third-parties who we believe may have infringed our intellectual property rights. Such infringement orinfringement of which we are not yet aware could reduce our competitive advantages and cause us to lose clients, third-party publishers or could otherwiseharm our business. Policing unauthorized use of our proprietary rights can be difficult and costly. Litigation, while it may be necessary to enforce or protectour intellectual property rights, could result in substantial costs and diversion of resources and management attention and could adversely affect ourbusiness, even if we are successful on the merits. In addition, others may independently discover trade secrets and proprietary information, and in such caseswe could not assert any trade secret rights against such parties.Third-parties may sue us for intellectual property infringement, which, even if unsuccessful, could require us to expend significant costs to defend orsettle.We cannot be certain that our internally developed or acquired systems and technologies do not and will not infringe the intellectual property rightsof others. In addition, we license content, software and other intellectual property rights from third-parties and may be subject to claims of infringement ifsuch parties do not possess the necessary intellectual property rights to the products they license to us.In addition, we have in the past, and may in the future, be subject to legal proceedings and claims that we have infringed the patents or otherintellectual property rights of third-parties. These claims sometimes involve patent holding companies or other adverse patent owners who have no relevantproduct revenue and against whom our own intellectual property rights, if any, may therefore provide little or no deterrence. For example, in December 2012,Internet Patents Corporation (“IPC”) filed a patent infringement lawsuit against us in the Northern District of California alleging that some of our websitesinfringe a patent held by IPC. IPC is a non-practicing entity that relies on asserting its patents as its primary source of revenue. In addition, third-parties haveasserted and may in the future assert intellectual property infringement claims against our clients, and we have agreed in certain circumstances to indemnifyand defend against such claims. Any intellectual property-related infringement claims, whether or not meritorious and regardless of the outcome of thelitigation, could result in costly litigation, could divert management resources and attention and could cause us to change our business practices. Should webe found liable for infringement, we may be required to enter into licensing agreements, if available on acceptable terms or at all, pay substantial damages, orlimit or curtail our systems and technologies. Moreover, we may need to redesign some of our systems and technologies to avoid future infringementliability. Any of the foregoing could prevent us from competing effectively and increase our costs.Additionally, the laws relating to use of trademarks on the Internet are unsettled, particularly as they apply to search engine functionality. Forexample, other Internet marketing and search companies have been sued for trademark infringement and other intellectual property-related claims fordisplaying ads or search results in response to user queries that include trademarked terms. The outcomes of these lawsuits have differed from jurisdiction tojurisdiction. We may be subject to trademark infringement, unfair competition, misappropriation or other intellectual property-related claims which could becostly to defend and result in substantial damages or otherwise limit or curtail our activities, and therefore adversely affect our business or prospects.21 Limitations on our ability to collect and use data derived from user activities, as well as new technologies that block our ability to deliver Internet-based advertising, and if our emails are not delivered and accepted or are routed by email providers less favorably than other emails could significantlydiminish the value of our services and have an adverse effect on our ability to generate revenue.When a user visits our websites, we use technologies, including “cookies,” to collect information such as the user’s IP address and the user’s pastresponses to our offerings. We also have relationships with data partners that collect and provide us with user data. We access and analyze this information inorder to determine the effectiveness of a marketing campaign and to determine how to modify the campaign. The use of cookies is the subject of litigation,regulatory scrutiny and industry self-regulatory activities, including the discussion of “do-not-track” technologies and guidelines.Additionally, users are able to block or delete cookies from their browser. Periodically, certain of our clients and publishers seek to prohibit or limitour collection or use of data derived from the use of cookies. Technologies, tools, software and applications (including new and enhanced web browsers)have been developed, and are likely to continue to be developed, that can block or allow users to opt out of display, search, and Internet-based advertisingand content, delete or block the cookies used to deliver such advertising, or shift the location in which advertising appears on pages so that ouradvertisements do not show up in the most monetizable places on our pages or are obscured. As a result, the adoption of such technologies, tools, software,and applications could reduce the number of display and search advertisements that we are able to deliver and/or our ability to deliver Internet-basedadvertising and this, in turn, could reduce our results of operations.Furthermore, if email service providers (“ESPs”) or internet service providers (“ISPs”), implement new or more restrictive email or content delivery oraccessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails to consumers or for consumers to access ourwebsites and services. For example, if ESPs categorize our emails as “promotional,” then these emails may be directed to an alternate and less readilyaccessible section of a consumer’s inbox. In the event ESPs materially limit or halt the delivery of our emails, or if we fail to deliver emails to consumers in amanner compatible with ESPs’ email handling or authentication technologies, our ability to contact consumers through email could be significantlyrestricted. In addition, if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, or if ISPs prioritizeor provide superior access to our competitors’ content, our business and results of operations may be adversely affected.Interruptions, failures or defects in our data collection systems, as well as privacy concerns and regulatory changes or enforcement actions affectingour or our data partners’ ability to collect user data, could also limit our ability to analyze data from, and thereby optimize, our clients’ marketing campaigns.If our access to data is limited in the future, we may be unable to provide effective technologies and services to clients and we may lose clients and revenue.If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis or effectively preventfraud could be impaired, which would adversely affect our ability to operate our business.In order to comply with the Sarbanes-Oxley Act of 2002 (“SOX Act”), our management is responsible for establishing and maintaining adequateinternal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles in the United States. We may in the future discover areas of ourinternal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or detect allerror and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the controlsystem’s objectives will be met. All control systems have inherent limitations, and, accordingly, no evaluation of controls can provide absolute assurancethat misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we are unable to maintain proper andeffective internal controls, we may not be able to produce accurate financial statements on a timely basis, which could adversely affect our ability to operateour business and could result in regulatory action.We have previously identified material weaknesses in our internal control over financial reporting in both fiscal years 2017 and 2016. Although webelieve these material weaknesses have since been remediated, if we identify additional material weaknesses in the future or otherwise fail to maintain aneffective system of internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.We must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financialcondition. In addition, the SOX Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting as of the endof our fiscal year, and the effectiveness of our disclosure controls and procedures quarterly. If we are not able to comply with the requirements of the SOX Actin a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatoryauthorities, which would22 diminish investor confidence in our financial reporting and require additional financial and management resources, each of which may adversely affect ourbusiness and operating results.In fiscal years 2017 and 2016, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency,or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of ourannual or interim financial statements will not be prevented or detected on a timely basis. Specifically, in fiscal year 2017, we disclosed a material weaknessin internal control over financial reporting over the completeness and accuracy of the accounting for non-standard revenue credits and in fiscal year 2016, weidentified a material weakness in our internal control over financial reporting over the accuracy of the accounting for stock-based compensation expense formarket-based restricted stock units. We believe we have fully remediated the material weakness identified in fiscal year 2017 as of June 30, 2018, andremediated the material weakness identified in fiscal year 2016 as of June 30, 2017. However, we cannot assure you that the measures we have taken to datewill be sufficient to identify or prevent future material weaknesses.Furthermore, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Materialweaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by the reporting requirements underSection 404 of the SOX Act. The standards required for a Section 404 assessment under the SOX Act may in the future require us to implement additionalcorporate governance practices and adhere to additional reporting requirements. These stringent standards require that our audit committee be advised andregularly updated on management’s assessment of internal control over financial reporting. Our management may not be able to effectively and timelyimplement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are or will be applicableto us as a public company. If we fail to maintain effective internal control over financial reporting, our business and reputation may be harmed and our stockprice may decline. Furthermore, investor perceptions of us may be adversely affected which could cause a decline in the market price of our common stock.As a creator and a distributor of Internet content, we face potential liability and expenses for legal claims based on the nature and content of thematerials that we create or distribute, including materials provided by our clients. If we are required to pay damages or expenses in connection with theselegal claims, our results of operations and business may be harmed.We display original content and third-party content on our websites and in our marketing messages. In addition, our clients provide us withadvertising creative and financial information (e.g., insurance premium or credit card interest rates) that we display on our owned and operated websites andour third-party publishers’ websites. As a result, we face potential liability based on a variety of claims, including defamation, negligence, deceptiveadvertising (including Department of Education regulations regarding misrepresentation in education marketing and Federal Trade Commission regulations),copyright or trademark infringement. We are also exposed to risk that content provided by third-parties or clients is inaccurate or misleading, and for materialposted to our websites by users and other third-parties. These claims, whether brought in the United States or abroad, could divert our management’s time andattention away from our business and result in significant costs to investigate, defend, and respond to investigative demands, regardless of the merit of theseclaims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages.We face additional risks in conducting business in international markets.We have entered into certain international markets and may enter into additional international markets in the future, including through acquisitions.We have limited experience in marketing, selling and supporting our services outside of the United States, and we may not be successful in introducing ormarketing our services abroad. For example, in fiscal year 2015, we acquired a company specializing in online marketing to financial services clients inBrazil. While we already have a foothold in the Brazilian education market, our expansion into the financial services market in Brazil is new and as such, wecannot guarantee that we will achieve the same success as we have with the Brazilian education market.There are risks and challenges inherent in conducting business in international markets, such as: •adapting our technologies and services to foreign clients’ preferences and customs; •successfully navigating foreign laws and regulations, including marketing, privacy regulations, employment and labor regulations; •changes in foreign political and economic conditions; •tariffs and other trade barriers, fluctuations in currency exchange rates and potentially adverse tax consequences; •language barriers or cultural differences;23 •reduced or limited protection for intellectual property rights in foreign jurisdictions; •difficulties and costs in staffing, managing or overseeing foreign operations; •education of potential clients who may not be familiar with online marketing; •challenges in collecting accounts receivables; and •successfully interpreting and complying with the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws, particularly whenoperating in countries with varying degrees of governmental corruption.If we are unable to successfully expand and market our services abroad, our business and future growth may be harmed, and we may incur costs thatmay not lead to future revenue.We may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.We have a substantial amount of goodwill and purchased intangible assets on our consolidated balance sheet as a result of acquisitions. The carryingvalue of goodwill represents the fair value of an acquired business in excess of identifiable assets and liabilities as of the acquisition date. The carrying valueof intangible assets with identifiable useful lives represents the fair value of relationships, content, domain names, acquired technology, among others, as ofthe acquisition date, and are amortized based on their economic lives. We are required to evaluate our intangible assets for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable. Goodwill that is expected to contribute indefinitely to our cash flows is notamortized, but must be evaluated for impairment at least annually. If necessary, a quantitative test is performed to compare the carrying value of the asset toits estimated fair value, as determined based on a discounted cash flow approach, or when available and appropriate, to comparable market values. If thecarrying value of the asset exceeds its current fair value, the asset is considered impaired and its carrying value is reduced to fair value through a non-cashcharge to earnings. Events and conditions that could result in impairment of our goodwill and intangible assets include adverse changes in the regulatoryenvironment, a reduced market capitalization or other factors leading to reduction in expected long-term growth or profitability. Goodwill impairment analysis and measurement is a process that requires significant judgment. Our stock price and any estimated control premium arefactors affecting the assessment of the fair value of our underlying reporting units for purposes of performing any goodwill impairment assessment. Forexample, our public market capitalization sustained a decline after December 31, 2012 and June 30, 2014 to a value below the net book carrying value of ourequity, triggering the need for a goodwill impairment analysis. As a result of our goodwill impairment analysis, we recorded a goodwill impairment charge inthose periods. Additionally, in the third quarter of fiscal year 2016, our stock price experienced volatility and our public market capitalization decreased to avalue below the net book carrying value of our equity, triggering the need for an interim impairment test. While no impairment was recorded as a result of theinterim impairment test, it is possible that another material change could occur in the future. We will continue to conduct impairment analyses of ourgoodwill on an annual basis, unless indicators of possible impairment arise that would cause a triggering event, and we would be required to take additionalimpairment charges in the future if any recoverability assessments reflect estimated fair values that are less than our recorded values. Further impairmentcharges with respect to our goodwill could have a material adverse effect on our financial condition and results of operations.We could lose clients if we fail to detect click-through or other fraud on advertisements in a manner that is acceptable to our clients.We are exposed to the risk of fraudulent clicks or actions on our websites or our third-party publishers’ websites, which could lead our clients tobecome dissatisfied with our campaigns, and in turn, lead to loss of clients and related revenue. Click-through fraud occurs when an individual clicks on anad displayed on a website, or an automated system is used to create such clicks, with the intent of generating the revenue-share payment to the publisherrather than viewing the underlying content. Action fraud occurs when online lead forms are completed with false or fictitious information in an effort toincrease a publisher’s compensable actions. From time to time, we have experienced fraudulent clicks or actions. We do not charge our clients for fraudulentclicks or actions when they are detected, and such fraudulent activities could negatively affect our profitability or harm our reputation. If fraudulent clicks oractions are not detected, the affected clients may experience a reduced return on their investment in our marketing programs, which could lead the clients tobecome dissatisfied with our campaigns, and in turn, lead to loss of clients and related revenue. Additionally, from time to time, we have had to, and in thefuture may have to, terminate relationships with publishers whom we believed to have engaged in fraud. Termination of such relationships entails a loss ofrevenue associated with the legitimate actions or clicks generated by such publishers.24 As a public company, we are subject to compliance initiatives that require substantial time from our management and result in significantly increasedcosts that may adversely affect our operating results and financial condition.The Securities Exchange Act of 1934, Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, andother rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including corporate governance practices. These andproposed corporate governance laws and regulations under consideration may further increase our compliance costs. If compliance with these various legaland regulatory requirements diverts our management’s attention from other business concerns, it could have a material adverse effect on our business,financial condition and results of operations. These laws and regulations also make it more difficult and more expensive for us to obtain director and officerliability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similarcoverage than available to a private company. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board ofdirectors, on committees of our board of directors, or as executive officers.Risks Related to the Ownership of Our Common StockOur stock price has been volatile and may continue to fluctuate significantly in the future, which may lead to you not being able to resell shares of ourcommon stock at or above the price you paid, delisting, securities litigation or hostile or otherwise unfavorable takeover offers.The trading price of our common stock has been volatile since our initial public offering and may continue to be subject to wide fluctuations inresponse to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this report and otherfactors such as: •our ability to grow our revenues and adjusted EBITDA margin and to manage any such growth effectively; •changes in earnings estimates or recommendations by securities analysts; •announcements about our revenue, earnings or other financial results, including outlook, that are not in line with analyst expectations; •geopolitical and world economic conditions; •our ability to find, develop or retain high quality targeted media on a cost effective basis; •relatively low trading volume in our stock, which creates inherent volatility regardless of factors related to our business performance orprospects; •the sale of, or indication of the intent to sell, substantial amounts of our common stock by our directors, officers or substantial shareholders; •stock repurchase programs; •announcements by us or our competitors of new services, significant contracts, commercial relationships, acquisitions or capital commitments; •fluctuations in the stock price and operating results of our competitors or perceived competitors that operate in our industries; •our commencement of, involvement in, or a perceived threat of litigation or regulatory enforcement action; and •negative publicity about us, our industry, our clients or our clients’ industries.In recent years, the stock market in general, and the market for technology and Internet-based companies in particular, has experienced extreme priceand volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industryfactors may seriously affect the market price of our common stock, regardless of our actual operating performance. As a result of this volatility, you may notbe able to sell your common stock at or above the price paid for the shares. In addition, in the past, following periods of volatility in the overall market andthe market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, ifinstituted against us, could result in substantial costs and a diversion of our management’s attention and resources.Moreover, a low or declining stock price may make us attractive to hedge funds and other short-term investors which could result in substantial stockprice volatility and cause fluctuations in trading volumes for our stock. A relatively low stock price may also cause us to become subject to an unsolicited orhostile acquisition bid which could result in substantial costs and a diversion of25 management attention and resources. In the event that such a bid is publicly disclosed, it may result in increased speculation and volatility in our stock priceeven if our board of directors decides not to pursue a transaction.If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, ourstock price and trading volume could decline.The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us, our business orthe industries or businesses of our clients. If any of the analysts issue an adverse opinion regarding our stock or if our actual results do not meet analystestimates, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, wecould lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.Our directors and executive officers and their respective affiliates have substantial influence over us and could delay or prevent a change in corporatecontrol.As of June 30, 2019, our directors and executive officers, together with their affiliates, beneficially or otherwise owned approximately 11% of ouroutstanding common stock. As a result, these stockholders, acting together, have substantial influence over the outcome of matters submitted to ourstockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, thesestockholders, acting together, have significant influence over the management and affairs of our company. Accordingly, this concentration of ownership mayhave the effect of: •delaying, deferring or preventing a change in corporate control; •impeding a merger, consolidation, takeover or other business combination involving us; or •discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.We cannot guarantee that our stock repurchase program will be fully consummated or that our stock repurchase program will enhance long-termstockholder value, and stock repurchases could increase the volatility of the price of our stock and could diminish our cash reserves.Our board of directors has authorized a stock repurchase program allowing us to repurchase up to 966,000 outstanding shares of our common stockthat commenced in October 2017. As of June 30, 2019, the number of shares that remains available for repurchase pursuant to our stock repurchase program is903,636 shares. The timing and actual number of shares repurchased will depend on a variety of factors including the price, cash availability and othermarket conditions. The stock repurchase program, authorized by our board of directors, does not obligate us to repurchase any specific dollar amount or toacquire any specific number of shares and does not have an expiration date. The stock repurchase program could affect the price of our stock and increasevolatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our stock. The existence of our stockrepurchase program could also cause the price of our common stock to be higher than it would be in the absence of such a program and could potentiallyreduce the market liquidity for our common stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves. There canbe no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels atwhich we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation andinvestor confidence in us and may negatively impact our stock price. Although our stock repurchase program is intended to enhance long-term stockholdervalue, short-term stock price fluctuations could reduce the program’s effectiveness.We may be subject to short selling strategies that may drive down the market price of our common stock.Short sellers may attempt to drive down the market price of our common stock. Short selling is the practice of selling securities that the seller does notown but may have borrowed with the intention of buying identical securities back at a later date. The short seller hopes to profit from a decline in the value ofthe securities between the time the securities are borrowed and the time they are replaced. As it is in the short seller’s best interests for the price of the stock todecline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuerand its business prospects to create negative market momentum. Although traditionally these disclosed shorts were limited in their ability to accessmainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding documentcreation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy andveracity by means of so-called “research reports” that mimic the type of investment analysis performed by large Wall Street firms and independent researchanalysts. These short attacks have, in the past, led to selling of shares26 in the market. Further, these short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in theU.S. and they are not subject to certification requirements imposed by the Securities and Exchange Commission. Accordingly, the opinions they express maybe based on distortions, omissions or fabrications. Companies that are subject to unfavorable allegations, even if untrue, may have to expend a significantamount of resources to investigate such allegations and/or defend themselves, including shareholder suits against the company that may be prompted bysuch allegations. We have in the past, and may in the future, be the subject of shareholder suits that we believe were prompted by allegations made by shortsellers.Provisions in our charter documents under Delaware law and in contractual obligations could discourage a takeover that stockholders may considerfavorable and may lead to entrenchment of management.Our amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes incontrol or changes in our management without the consent of our board of directors. These provisions include: •a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of amajority of our board of directors; •no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; •the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or theresignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; •the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, includingpreferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; •a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of ourstockholders; •the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officeror the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including theremoval of directors; and •advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose mattersto be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies toelect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.We are also subject to certain anti-takeover provisions under Delaware law. Under Delaware law, a corporation may not, in general, engage in abusiness combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the boardof directors has approved the transaction.We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend onappreciation in the price of our common stock.We have not declared or paid dividends on our common stock and we do not intend to do so in the near term. We currently intend to invest our futureearnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock in the near term, and capital appreciation,if any, of our common stock will be your sole source of gain for the foreseeable future.Item 1B.Unresolved Staff CommentsNone.Item 2.PropertiesOur principal executive office is located in a leased facility in Foster City, California, consisting of approximately 63,998 square feet of office spaceunder a lease with an expiration date in October 2018. The lease was amended in April 2018. The extended lease term began on November 1, 2018 andexpires on October 31, 2023, and decreased the square feet of office space to approximately 44,556. This facility accommodates our principal engineering,sales, marketing, operations, finance and administrative activities. We27 also lease additional facilities to accommodate sales, marketing, and operations throughout the United States. Outside of the United States, we also leasefacilities to accommodate engineering, sales, marketing, and operations in Brazil and India.We may add new facilities and expand our existing facilities as we add employees and expand our markets, and we believe that suitable additional orsubstitute space will be available as needed to accommodate any such expansion of our operations.Item 3.Legal ProceedingsFrom time to time, we may become involved in legal proceedings and claims arising in the ordinary course of business. Certain of our outstandinglegal matters include claims for indeterminate amounts of damages. We record a liability when we believe that it is probable that a loss has been incurred andthe amount can be reasonably estimated. Based on our current knowledge, we do not believe that there is a reasonable possibility that the final outcome ofpending or threatened legal proceedings to which we are a party, either individually or in the aggregate, will have a material adverse effect on our financialposition, results of operations and cash flows. However, the outcome of such legal matters is subject to significant uncertainties.Item 4.Mine Safety DisclosuresNot Applicable.28 PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesThe following table shows the high and low sale prices per share of our common stock as reported on the Nasdaq Global Select Market for the periodsindicated: Fiscal Year Ended June 30, 2019 High Low First quarter ended September 30, 2018 $16.42 $12.12 Second quarter ended December 31, 2018 $17.75 $12.48 Third quarter ended March 31, 2019 $20.02 $12.66 Fourth quarter ended June 30, 2019 $16.81 $12.98 Fiscal Year Ended June 30, 2018 High Low First quarter ended September 30, 2017 $8.00 $3.36 Second quarter ended December 31, 2017 $10.97 $6.86 Third quarter ended March 31, 2018 $14.65 $8.27 Fourth quarter ended June 30, 2018 $14.12 $9.76On August 23, 2019, the closing price as reported on the Nasdaq Global Select Market of our common stock was $11.02 per share and we hadapproximately 56 stockholders of record of our common stock.We have never declared or paid, and do not anticipate declaring or paying, any dividends on our common stock. Any future determination as to thedeclaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including ourfinancial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deemrelevant.For equity compensation plan information refer to Item 12 in Part III of this Annual Report on Form 10-K.Stock Repurchase ProgramIn July 2017, the Board of Directors authorized a stock repurchase program allowing us to repurchase up to 905,000 outstanding shares of ourcommon stock. In October 2017, the Board of Directors increased the number of outstanding shares that may be repurchased to 966,000 shares. There is noguarantee as to the exact number of shares that will be repurchased by us, and we may discontinue repurchases at any time. There were no repurchases underthis stock repurchase program during fiscal year 2019. As of June 30, 2019, the number of shares that remains available for repurchase pursuant to our stockrepurchase program is 903,636 shares.Performance GraphThe following performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section,and shall not be deemed to be incorporated by reference into any filing of QuinStreet, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.29 The following performance graph shows a comparison from June 30, 2014 through June 30, 2019 of cumulative total return for our common stock, theNasdaq Composite Index and the RDG Internet Composite Index. Such returns are based on historical results and are not intended to suggest futureperformance. Data for the Nasdaq Composite Index and the RDG Internet Composite Index assume reinvestment of dividends.Recent Sales of Unregistered SecuritiesThere were no unregistered sales of our equity securities in fiscal year 2019.Item 6.Selected Consolidated Financial DataThe following selected consolidated financial data should be read together with “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and with the consolidated financial statements and accompanying notes appearing elsewhere in this report. The selected consolidatedfinancial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. The results of acquired businesseshave been included in our consolidated financial statements since their respective dates of acquisition. Our historical results are not necessarily indicative ofour future results and any interim results are not necessarily indicative of the results for a full fiscal year.30 We derived the consolidated statements of operations data for fiscal years ended June 30, 2019, 2018 and 2017 and the consolidated balance sheetsdata as of June 30, 2019 and 2018 from our audited consolidated financial statements appearing elsewhere in this report. The consolidated statements ofoperations data for fiscal years ended June 30, 2016 and 2015 and the consolidated balance sheets data as of June 30, 2017, 2016 and 2015 are derived fromour audited consolidated financial statements, which are not included in this report. Fiscal Year Ended June 30, 2019 2018 2017 2016 2015 (In thousands, except per share data) Consolidated Statements of Operations Data: Net revenue$455,154 $404,358 $299,785 $297,706 $282,140 Cost of revenue (1) 393,509 345,947 269,409 270,963 252,002 Gross profit 61,645 58,411 30,376 26,743 30,138 Operating expenses: (1) Product development 12,329 13,805 13,476 16,431 17,948 Sales and marketing 8,755 10,414 9,189 12,020 14,544 General and administrative 29,834 18,556 15,934 17,166 16,823 Restructuring charges — — 2,441 — — Total operating expenses 50,918 42,775 41,040 45,617 49,315 Operating income (loss) 10,727 15,636 (10,664) (18,874) (19,177)Interest income 290 181 138 61 72 Interest expense (367) — (346) (585) (3,818)Other income (expense), net 69 687 (2,416) 112 2,671 Interest and other (expense) income, net (8) 868 (2,624) (412) (1,075)Income (loss) before income taxes 10,719 16,504 (13,288) (19,286) (20,252)Benefit from (provision for) income taxes 51,761 (574) 1,080 (134) 244 Net income (loss)$62,480 $15,930 $(12,208) $(19,420) $(20,008) Net income (loss) per share: (2) Basic$1.26 $0.34 $(0.27) $(0.43) $(0.45)Diluted$1.18 $0.32 $(0.27) $(0.43) $(0.45) Weighted-average shares used in computing net income (loss) per share: Basic 49,581 46,417 45,594 45,197 44,454 Diluted 52,754 49,872 45,594 45,197 44,454 (1)Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue$7,354 $3,982 $3,109 $3,780 $3,120 Product development 1,606 1,949 1,834 2,340 2,395 Sales and marketing 1,358 1,222 1,154 1,825 2,144 General and administrative 3,810 3,029 2,759 3,023 2,196 Restructuring charges — — 42 — — (2)See Note 4, Net Income (Loss) per Share, to our consolidated financial statements for an explanation of the method used to calculate basic and diluted netincome (loss) per share of common stock.31 June 30, 2019 2018 2017 2016 2015 (In thousands) Consolidated Balance Sheets Data: Cash and cash equivalents$62,522 $64,700 $49,571 $53,710 $60,468 Working capital 59,679 69,592 47,301 44,264 69,549 Total assets 324,611 220,296 174,308 193,102 205,153 Long-term liabilities 18,083 3,938 3,672 4,631 20,740 Total debt — — — 15,000 15,049 Total stockholders' equity 222,829 148,326 118,082 124,752 135,585 Fiscal Year Ended June 30, 2019 2018 2017 2016 2015 (In thousands) Consolidated Statements of Cash Flows Data: Net cash provided by operating activities$37,965 $26,979 $18,536 $1,015 $6,133 Depreciation and amortization 8,975 7,767 11,377 15,087 18,867 Capital expenditures 1,972 610 1,160 1,859 3,346 Fiscal Year Ended June 30, 2019 2018 2017 2016 2015 (In thousands) Other Financial Data: Adjusted EBITDA (1)$34,489 $34,679 $12,010 $7,853 $9,984 (1)We define adjusted EBITDA as net income (loss) less (benefit from) provision for income taxes, depreciation expense, amortization expense, stock-basedcompensation expense, interest and other (expense) income, net, acquisition related expense, contingent consideration adjustment, shareholder litigationexpense, external expenses related to the material weakness disclosed in our FY 2017 Annual Report on Form 10-K, and restructuring expense. Please seethe “adjusted EBITDA” section within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.The following table presents a reconciliation of adjusted EBITDA to net income (loss) calculated in accordance with U.S. generally acceptedaccounting principles (GAAP), the most comparable GAAP measure, for each of the periods indicated: Fiscal Year Ended June 30, 2019 2018 2017 2016 2015 (In thousands) Net income (loss)$62,480 $15,930 $(12,208) $(19,420) $(20,008)Interest and other expense (income), net 8 (868) 2,624 412 1,075 (Benefit from) provision for income taxes (51,761) 574 (1,080) 134 (244)Depreciation and amortization 8,975 7,767 11,377 15,087 18,867 Stock-based compensation expense 14,128 10,182 8,856 10,968 9,855 Acquisition costs 736 667 — — — Contingent consideration adjustment (100) (152) — — — Shareholder litigation expense 23 16 — 375 — Material weakness related expense — 563 — — — Restructuring — — 2,441 297 439 Adjusted EBITDA$34,489 $34,679 $12,010 $7,853 $9,984 32 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidatedfinancial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect ourplans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause orcontribute to these differences include those discussed below and elsewhere in this report, particularly in the sections titled “Cautionary Note on Forward-Looking Statements” and “Risk Factors.”Management OverviewWe are a leader in performance marketplace products and technologies. We specialize in customer acquisition for clients in high value, information-intensive markets or “verticals,” including financial services, education, home services and business-to-business technology. Our clients include some of theworld’s largest companies and brands in those markets. While the majority of our operations and revenue are in North America, we also have emergingbusinesses in Brazil and India.We deliver measurable and cost-effective marketing results to our clients, typically in the form of a qualified click, lead, inquiry, call, application, orcustomer. Clicks, leads, inquiries, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketingcost to them. We are typically paid by clients when we deliver qualified clicks, leads, inquiries, calls, applications, or customers as defined by our agreementswith them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customerappointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs andmargins that provide sound financial outcomes for us. To deliver clicks, leads, inquiries, calls, applications, and customers to our clients, generally we: •own or access targeted media through business arrangements (e.g., revenue sharing arrangements) or by purchasing media (e.g., clicks from majorsearch engines); •run advertisements or other forms of marketing messages and programs in that media to create visitor responses typically in the form of clicks (tofurther qualification or matching steps, or to online client applications or offerings), leads or inquiries (e.g., contact information), calls (to ourowned and operated call centers or that of our clients or their agents), applications (e.g., for enrollment or a financial product), or customers (e.g.,bound insurance policies); •match these clicks, leads, inquiries, calls, applications, or customers to client offerings or brands that we believe can meet visitor interests or needsand client targets and requirements; and •optimize client matches and media costs such that we achieve desired results for clients and 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 primaryfinancial objective is not to maximize profits, but rather to achieve target levels of profitability while investing in various growth initiatives, as we continueto believe we are in the early stages of a large, long-term market opportunity.Our business derives its net revenue from fees earned through the delivery of qualified clicks, leads, inquiries, calls, applications, or customers and, toa lesser extent, display advertisements, or impressions. Through a vertical focus, targeted media presence and our technology platform, we are able to delivertargeted, measurable marketing results to our clients.Our financial services client vertical represented 73%, 70% and 62% of net revenue in fiscal years 2019, 2018 and 2017. Our education client verticalrepresented 15%, 19% and 24% of net revenue in fiscal years 2019, 2018 and 2017. Our other client vertical, consisting of home services and business-to-business technology, represented 12%, 11% and 14% of net revenue in fiscal years 2019, 2018 and 2017. We generated the majority of our revenue fromsales to clients in the United States.Trends Affecting our BusinessClient VerticalsOur financial services client vertical has been challenged by a number of factors in the past, including the limited availability of high quality media atacceptable margins caused by the acquisition of media sources by competitors, increased competition for high33 quality media and changes in search engine algorithms. These factors may impact our business in the future again. To offset this impact, we have enhancedour product set to provide greater segmentation, matching, transparency and right pricing of media that have enabled better monetization to provide greateraccess to high quality media sources. Moreover, we have entered into strategic partnerships and acquisitions to increase and diversify our access to qualitymedia and client budgets. Our financial services client vertical also benefits from more spending by clients in digital media and performance marketing asdigital marketing continues to evolve.Our education client vertical has been significantly challenged by regulations and enforcement activity affecting U.S. for-profit education institutionsover the past several years. For example, in July 2015, the Federal Trade Commission initiated an investigation of a publicly traded U.S. for-profit educationclient with respect to its recruiting and enrollment practices. These and other similar regulatory and enforcement activities have affected and are expected tocontinue to affect our clients’ businesses and marketing practices, which have and may continue to, result in a decrease in these clients’ spending with us andother vendors and fluctuations in the volume and mix of our business with these clients. To offset the impact these regulatory and investigative activitieshave had on the U.S. for-profit education clients, we have broadened our product set from our traditional lead business with the addition of better qualifiedand matched clicks, leads or inquiries, and calls; we believe these new enhanced products better match U.S. for-profit education client needs in the currentregulatory environment. We have also broadened our markets in education to include not-for-profit schools and international markets in Brazil and India.Moreover, we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets.Development, Acquisition and Retention of High Quality Targeted MediaOne of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clientsat 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 targetedmedia 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 newsources of media, including entering into strategic partnerships with other marketing and media companies and acquisitions. Such partnerships includetakeovers 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 andsocial media traffic sources.SeasonalityOur results are subject to significant fluctuation as a result of seasonality. In particular, our quarters ending December 31 (our second fiscal quarter) aretypically characterized by seasonal weakness. In our second fiscal quarters, there is generally lower availability of media during the holiday period on a costeffective basis and some of our clients have lower budgets. In our quarters ending March 31 (our third fiscal quarter), this trend generally reverses with bettermedia 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 clients’ lending businesses issubject to cyclical and seasonal trends. Home sales typically rise during the spring and summer months and decline during the fall and winter months, whilerefinancing and home equity activity is principally driven by mortgage interest rates as well as real estate values. Other factors affecting our clients’businesses include macro factors such as credit availability in the market, the strength of the economy and employment.RegulationsOur revenue has fluctuated in part as a result of federal, state and industry-based regulations and developing standards with respect to the enforcementof those regulations. Our business is affected directly because we operate websites and conduct telemarketing and email marketing, and indirectly affected asour 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 andregulations. In addition, our education client vertical has been significantly affected by the adoption of regulations affecting U.S. for-profit educationinstitutions over the past several years, and a high level of governmental scrutiny is expected to continue. The effect of these regulations, or any futureregulations, may continue to result in fluctuations in the volume and mix of our business with these clients.34 An example of a regulatory change that may affect our business is the amendment of the Telephone Consumer Protection Act (the “TCPA”) that affectstelemarketing calls. Our clients may make business decisions based on their own experiences with the TCPA regardless of our products and compliancepractices. Those decisions may negatively affect our revenue and profitability.Basis of PresentationNet RevenueOur business generates revenue from fees earned through the delivery of qualified clicks, leads, inquiries, calls, applications, customers and, to a lesserextent, display advertisements, or impressions. We deliver targeted and measurable results through a vertical focus that we classify into the following clientverticals: financial services, education and “other” (which includes home services and business-to-business technology).Cost of RevenueCost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense andamortization of internal software development costs related to revenue-producing technologies. Media and marketing costs consist primarily of fees paid tothird-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 companieson a revenue-share, a cost-per-lead, or CPL, cost-per-click, or CPC, or cost-per-thousand-impressions, or CPM, basis. Personnel costs include salaries, stock-based compensation expense, bonuses, commissions and employee benefit costs. Personnel costs are primarily related to individuals associated withmaintaining our servers and websites, our call center operations, our editorial staff, client management, creative team, content, compliance group and mediapurchasing analysts. Costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost ofrevenue over the software’s estimated useful life.Operating ExpensesWe classify our operating expenses into three categories: product development, sales and marketing, and general and administrative. Our operatingexpenses consist primarily of personnel costs and, to a lesser extent, professional services fees, facilities fees and other costs. Personnel costs for each categoryof 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 thedevelopment 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 areconstraining expenses generally to the extent practicable.General and Administrative. General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits andcompliance, technical support and other administrative personnel, as well as bad debt expense, accounting and legal professional services fees and facilitiesfees. We are constraining expenses generally to the extent practicable.Interest and Other (Expense) Income, NetInterest and other (expense) income, net, consists primarily of interest expense, interest income, and other income and expense. Interest expense isrelated to imputed interest on post-closing payments related to our business acquisitions and revolving loan facility which matured in June 2017. Interestincome represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amountsinvested. Other income and expense includes gains and losses on foreign currency exchange, gains and losses on sales of websites and domain names thatwere not considered to be strategically important to our business, impairment of investment and other non-operating items.35 Benefit from (Provision for) Income TaxesWe 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.Results of OperationsThe following table sets forth our consolidated statements of operations for the periods indicated: Fiscal Year Ended June 30, 2019 2018 2017 (In thousands, except percentages) Net revenue $455,154 100.0% $404,358 100.0% $299,785 100.0%Cost of revenue (1) 393,509 86.5 345,947 85.6 269,409 89.9 Gross profit 61,645 13.5 58,411 14.4 30,376 10.1 Operating expenses: (1) Product development 12,329 2.6 13,805 3.3 13,476 4.4 Sales and marketing 8,755 1.9 10,414 2.6 9,189 3.1 General and administrative 29,834 6.6 18,556 4.6 15,934 5.3 Restructuring charges — — — — 2,441 0.8 Operating income (loss) 10,727 2.4 15,636 3.9 (10,664) (3.5)Interest income 290 — 181 — 138 — Interest expense (367) — — — (346) (0.1)Other income (expense), net 69 — 687 0.2 (2,416) (0.8)Income (loss) before income taxes 10,719 2.4 16,504 4.1 (13,288) (4.4)Benefit from (provision for) income taxes 51,761 11.3 (574) (0.2) 1,080 0.3 Net income (loss) $62,480 13.7% $15,930 3.9% $(12,208) (4.1)% (1)Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue $7,354 1.6% $3,982 1.0% $3,109 1.0%Product development 1,606 0.4 1,949 0.5 1,834 0.6 Sales and marketing 1,358 0.3 1,222 0.3 1,154 0.4 General and administrative 3,810 0.8 3,029 0.7 2,759 0.9 Restructuring charges — — — — 42 —Gross Profit Fiscal Year Ended June 30, 2019 - 2018 2018 - 2017 2019 2018 2017 % Change % Change (In thousands) Net revenue $455,154 $404,358 $299,785 13% 35%Cost of revenue 393,509 345,947 269,409 14% 28%Gross profit $61,645 $58,411 $30,376 6% 92%Net RevenueNet revenue increased by $50.8 million, or 13%, in fiscal year 2019 compared to fiscal year 2018. Revenue from our financial services client verticalincreased by $47.3 million, or 17%, primarily due to our enhanced product set that provides greater segmentation, transparency, and right pricing of mediawhich have enabled access to more media and client budgets. The change in revenue from our financial services client vertical was also driven by increasedrevenue from our personal loans business, primarily as a result of the acquisition of AmOne, and increased revenue from our credit card business driven byexpanding media sources, offset by a decline in revenue from our mortgage business due to lower refinancing activity. Revenue from our education clientvertical revenue decreased by $8.8 million, or 11%, primarily due to the loss of a large not-for-profit education client who entered federal36 receivership, lower availability of high quality media at acceptable margins due to competitor acquisitions of media sources, and decreased client budgetsdue to school closures. Revenues from our other client vertical increased by $12.3 million, or 28%, primarily due to increased client demand in our homeservices and business-to-business technology client verticals.Net revenue increased by $104.6 million, or 35%, in fiscal year 2018 compared to fiscal year 2017. Our financial services client vertical revenueincreased by $98.3 million, or 53%, primarily due to our enhanced product set that provides greater segmentation, matching, transparency, and right pricingof media which have enabled access to more media and client budgets and to additional strategic partnerships that have increased and diversified our accessto quality media and client budgets. Our education client vertical revenue increased by $5.1 million, or 7%, primarily due to increased client demand fromnot-for-profit education clients. Revenue from our other client vertical increased by $1.1 million, or 3%, primarily due to increased client demand in ourhome services client vertical, partially offset by decreased client demand in our business-to-business technology vertical.Cost of Revenue and Gross Profit MarginCost of revenue increased by $47.6 million, or 14%, in fiscal year 2019 compared to fiscal year 2018. This was primarily driven by increased mediaand marketing costs of $34.4 million, increased personnel costs of $7.6 million, increased stock-based compensation expense of $3.4 million, and increasedamortization of intangible assets of $2.1 million. The increase in media and marketing costs was due to higher revenue volumes. The increase in personnelcosts and stock-based compensation is primarily due to higher headcount as a result of the acquisition of AmOne in October 2018. The increase inamortization expense is primarily due to the acquisitions of intangible assets in fiscal year 2019. Gross margin, which is the difference between net revenueand cost of revenue as a percentage of net revenue, was 14% for both fiscal years 2019 and 2018.Cost of revenue increased by $76.5 million, or 28%, in fiscal year 2018 compared to fiscal year 2017. This was primarily driven by increased mediaand marketing costs of $81.1 million due to higher revenue volumes, as well as increased stock-based compensation expense of $0.9 million. This wasprimarily offset by decreased personnel costs of $2.3 million, mainly as a result of decreased average headcount in fiscal year 2018 as compared to fiscal year2017, and decreased depreciation and amortization expense of $3.4 million. The decrease in personnel costs is primarily related to our corporate restructuringannounced in November 2016. The decrease in amortization of intangible assets is attributable to assets from historical acquisitions becoming fullyamortized. Depreciation expense declined due to decreased capital investing in recent periods. Gross profit margin was 14% in fiscal year 2018 compared to10% in fiscal year 2017. The increase in gross profit margin was attributable to decreased personnel costs and decreased amortization of intangible assets as apercentage of revenue, partially offset by a higher proportion of our revenue coming from our financial services client vertical, which tend to have highermedia and marketing costs as a percentage of revenue.Operating Expenses Fiscal Year Ended June 30, 2019 - 2018 2018 - 2017 2019 2018 2017 % Change % Change (In thousands) Product development $12,329 $13,805 $13,476 (11%) 2%Sales and marketing 8,755 10,414 9,189 (16%) 13%General and administrative 29,834 18,556 15,934 61% 16%Restructuring charges — — 2,441 —% (100%)Operating expenses $50,918 $42,775 $41,040 19% 4%Product Development ExpensesProduct development expenses decreased $1.5 million, or 11% in fiscal year 2019 compared to fiscal year 2018 primarily due to decreased personnelcosts of $0.7 million as a result of decreased incentive compensation expense, and decreased stock-based compensation expense of $0.3 million.Product development expenses increased $0.3 million, or 2% in fiscal year 2018 compared to fiscal year 2017 primarily due to increased travelexpense of $0.3 million mainly attributable to travel costs incurred in connection with our foreign operations.37 Sales and Marketing ExpensesSales and marketing expenses decreased $1.7 million, or 16% in fiscal year 2019 compared to fiscal year 2018 primarily due to decreased personnelcosts of $1.5 million as a result of lower headcount and decreased incentive compensation expense.Sales and marketing expenses increased $1.2 million, or 13%, in fiscal year 2018 compared to fiscal year 2017, primarily due to increased personnelcosts associated with higher compensation costs and increased performance incentive compensation associated with the achievement of higher performanceobjectives.General and Administrative ExpensesGeneral and administrative expenses increased $11.3 million, or 61%, in fiscal year 2019 compared to fiscal year 2018, primarily due to a charge of$8.7 million for bad debt expense related to a large former education client, increased personnel costs of $0.8 million related to stock-based compensationexpense, increased professional services fees of $0.7 million associated with our acquisitions during fiscal year 2019, and increased business tax expense of$0.2 million.General and administrative expenses increased $2.6 million, or 16%, in fiscal year 2018 compared to fiscal year 2017, primarily due to increasedpersonnel costs of $0.8 million, increased legal expense of $0.6 million and increased professional fees of $0.6 million. The increase in personnel costs wasrelated to increased performance incentive compensation associated with the higher achievement of performance objectives. The increase in legal expensewas due to higher expenses related to compliance matters. The increase in professional services fees was due to the material weakness identified in fiscal year2017.Restructuring ChargesIn November 2016, we announced a corporate restructuring in order to accelerate margin expansion and grow cash flow. As a result, we recognizedtotal cash and non-cash restructuring costs of $2.4 million related to employee severance and benefits in fiscal year ended June 30, 2017, which representedsubstantially all costs expected to be incurred associated with the corporate restructuring. Benefits from the restructuring began to take effect in the secondquarter of fiscal year 2017, and the restructuring was complete as of June 30, 2017.Interest and Other (Expense) Income, Net Fiscal Year Ended June 30, 2019 - 2018 2018 - 2017 2019 2018 2017 % Change % Change (In thousands) Interest income $290 $181 $138 60% 31%Interest expense (367) — (346) 100% (100%)Other income (expense), net 69 687 (2,416) (90%) 128%Interest and other (expense) income, net $(8) $868 $(2,624) (101%) 133%Interest income relates to interest earned on our cash and cash equivalents in fiscal years 2019, 2018 and 2017.Interest expense increased $0.4 million, or 100%, in fiscal year 2019 compared to fiscal year 2018 due to imputed interest on post-closing paymentsrelated to our business acquisitions during fiscal year 2019. Interest expense decreased by $0.3 million, or 100% in fiscal year 2018 compared to fiscal year2017 primarily due to maturity of the revolving loan facility in June 2017.Other income (expense), net, was immaterial in fiscal year 2019. Other income (expense), net, increased $3.1 million, or 128% in fiscal year 2018compared to fiscal year 2017 primarily due to income from the sale of other assets and domain names that were not considered strategically important to ourbusiness of $0.7 million in fiscal year 2018 and the impairment of our investment in a privately held entity of $2.5 million in fiscal year 2017.38 Benefit from (Provision for) Income Taxes Fiscal Year Ended June 30, 2019 2018 2017 (In thousands) Benefit from (provision for) income taxes $51,761 $(574) $1,080 Effective tax rate (482.9%) 3.5% 8.1%We recorded a valuation allowance against the majority of our deferred tax assets at the end of fiscal year 2014. In the second quarter of fiscal year2019, due to the preponderance of positive evidence, including our cumulative profit before taxes and future forecasts of continued profitability in theUnited States, we determined that sufficient positive evidence existed to conclude that substantially all of our valuation allowance was no longer needed.Accordingly, we recorded a one-time non-cash benefit from income taxes of $49.4 million related to the release of the valuation allowance for the majority ofour federal and states deferred tax assets.We recorded a provision for income taxes of $0.6 million in fiscal year 2018, primarily as a result of current state and foreign income taxes. Werecorded a benefit from income taxes of $1.1 million in fiscal year 2017, primarily as a result of a tax refund from an amended state tax return filing.Our effective tax rate was (482.9%), 3.5% and 8.1% in fiscal years 2019, 2018 and 2017. The change in the effective tax rate in fiscal year 2019 wasprimarily due to the release of the valuation allowance related to the United States federal and state deferred tax assets with the exception of Californiaresearch and development tax credits and the benefit of excess share-based compensation tax deductions.39 Selected Quarterly Financial DataThe following table sets forth our unaudited quarterly condensed consolidated statements of operations for the eight quarters ended June 30, 2019. Wehave prepared the statements of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere inthis report and, in the opinion of management, each statement of operations includes all adjustments, consisting solely of normal recurring adjustments,necessary for the fair statement of the results of operations for these periods. This information should be read in conjunction with the audited consolidatedfinancial statements and related notes included elsewhere in this report. These quarterly operating results are not necessarily indicative of our operatingresults for any future period. Three Months Ended June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, 2019 2019 2018 2018 2018 2018 2017 2017 (In thousands, except per share data) (unaudited) Net revenue $121,964 $116,225 $104,096 $112,869 $111,521 $117,925 $87,494 $87,418 Costs of revenue 107,431 98,350 90,915 96,813 94,786 99,982 75,239 75,940 Gross profit 14,533 17,875 13,181 16,056 16,735 17,943 12,255 11,478 Operating expenses: Product development 3,165 2,864 2,995 3,305 3,430 3,686 3,475 3,214 Sales and marketing 2,409 2,019 2,283 2,044 2,581 2,789 2,597 2,447 General and administrative 5,472 13,919 5,049 5,394 4,696 4,889 4,511 4,460 Operating income (loss) 3,487 (927) 2,854 5,313 6,028 6,579 1,672 1,357 Interest income 75 80 69 66 63 45 36 37 Interest expense (173) (96) (98) — — — — — Other income (expense), net 29 (8) 115 (67) (182) 583 243 43 Income (loss) before income taxes 3,418 (951) 2,940 5,312 5,909 7,207 1,951 1,437 (Provision for) benefit from income taxes (2) 1,892 49,886 (15) (488) (90) (4) 8 Net income $3,416 $941 $52,826 $5,297 $5,421 $7,117 $1,947 $1,445 Net income per share: (1) Basic $0.07 $0.02 $1.07 $0.11 $0.11 $0.15 $0.04 $0.03 Diluted $0.06 $0.02 $1.00 $0.10 $0.10 $0.14 $0.04 $0.03 Other Financial Data: Adjusted EBITDA $10,371 $4,545 $9,316 $10,257 $10,313 $11,214 $6,569 $6,583 (1)Net income per share for the four quarters of each fiscal year may not sum to the total for the fiscal year as a result of the different number of sharesoutstanding during each period.Adjusted EBITDAWe include adjusted EBITDA in this report because (i) we seek to manage our business to a level of adjusted EBITDA as a percentage of net revenue,(ii) is used internally by management for planning purposes, including preparation of internal budgets; to allocate resources; to evaluate the effectiveness ofoperational strategies and capital expenditures as well as the capacity to service debt, (iii) it is a key basis upon which management assesses our operatingperformance, (iv) it is one of the primary metrics investors use in evaluating Internet marketing companies, (v) it is a factor in determining compensation, and(vi) it is an element of certain financial covenants under our historical borrowing arrangements. We define adjusted EBITDA as net income (loss) less (benefitfrom) provision for income taxes, depreciation expense, amortization expense, stock-based compensation expense, interest and other income (expense), net,acquisition related expense, contingent consideration adjustment, shareholder litigation expense, external expenses related to the material weaknessdisclosed in our FY 2017 Annual Report on Form 10-K, and restructuring expense.We use adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period byexcluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effectivetax rates or fluctuations in permanent differences or discrete quarterly items),40 non-recurring charges and certain other items that we do not believe are indicative of our core operating activities (such as acquisition related expense,contingent consideration adjustment, shareholder litigation expense, external expense related to the material weakness disclosed in our FY 2017 AnnualReport on Form 10-K, restructuring expense, and other income (expense), net) and the non-cash impact of depreciation expense, amortization expense andstock-based compensation expense.In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interestedparties in our industry as a measure of financial performance, debt-service capabilities and as a metric for analyzing company valuations. Our use of adjustedEBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.Some of these limitations are: •adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments; •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future,and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements; •adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; •adjusted EBITDA does not consider the potentially dilutive impact of issuing stock-based compensation to our management team andemployees; •should we enter into borrowing arrangements in the future, adjusted EBITDA does not reflect the interest expense or the cash requirements thatmay be necessary to service interest or principal payments on such indebtedness; •adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to us; and •other companies, including companies in our industry, may calculate adjusted EBITDA measures differently, which reduces their usefulness asa comparative measure.Due to these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of ourbusiness. When evaluating our performance, adjusted EBITDA should be considered alongside other financial performance measures, including various cashflow metrics, net income (loss) and our other GAAP results.The following table presents a reconciliation of adjusted EBITDA to net income, the most comparable GAAP measure, for each of the periodsindicated: Three Months Ended June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, 2019 2019 2018 2018 2018 2018 2017 2017 (In thousands) (unaudited) Net income $3,416 $941 $52,826 $5,297 $5,421 $7,117 $1,947 $1,445 Interest and other expense (income),net 69 24 (86) 1 119 (628) (279) (80)Provision for (benefit from) incometaxes 2 (1,892) (49,886) 15 488 90 4 (8)Depreciation and amortization 2,595 2,361 2,371 1,648 1,790 1,906 1,810 2,261 Stock-based compensation expense 4,188 2,950 3,879 3,111 2,565 2,617 2,563 2,437 Acquisition costs 201 161 202 172 31 112 524 — Contingent consideration adjustment (100) — — — (152) — — — Shareholder litigation expense — — 10 13 16 — — — Material weakness related expense — — — — 35 — — 528 Adjusted EBITDA $10,371 $4,545 $9,316 $10,257 $10,313 $11,214 $6,569 $6,583 Adjusted EBITDA as a percentage ofnet revenue 9% 4% 9% 9% 9% 10% 8% 8%41 We seek to manage our business to a level of adjusted EBITDA as a percentage of net revenue. We do so on a fiscal year basis by varying ouroperations to balance revenue growth and costs throughout the fiscal year. We do not seek to manage our business to a level of adjusted EBITDA on aquarterly basis and we expect our adjusted EBITDA margins to vary from quarter to quarter.Liquidity and Capital ResourcesAs of June 30, 2019, our principal sources of liquidity consisted of cash and cash equivalents of $62.5 million and cash we expect to generate fromfuture operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time ofpurchase. 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 softwaredevelopment costs and acquisitions from time to time. Our acquisitions in fiscal year 2019 also have deferred purchase price components and contingentconsideration which requires us to make a series of payments following the acquisition closing date. Our primary operating cash requirements include thepayment of media costs, personnel costs, costs of information technology systems and office facilities. Our ability to fund these requirements will depend onour future cash flows, which are determined, in part, by future operating performance and are, therefore, subject to prevailing global macroeconomicconditions and financial, business and other factors, some of which are beyond our control. Even though we may not need additional funds to fundanticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons.We believe that our principal sources of liquidity will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12months. Fiscal Year Ended June 30, 2019 2018 2017 (In thousands) Net cash provided by operating activities $37,965 $26,979 $18,536 Net cash used in investing activities (36,989) (15,849) (3,371)Net cash (used in) provided by financing activities (4,054) 3,894 (18,505)Net Cash Provided by Operating ActivitiesCash from operating activities are primarily the result of our net income (loss) adjusted for depreciation and amortization, provision for sales returnsand doubtful accounts receivable, stock-based compensation expense, impairment of investment, deferred income taxes and changes in working capitalcomponents.Cash provided by operating activities was $38.0 million in fiscal year 2019 compared to $27.0 million in fiscal year 2018 and $18.5 million in fiscalyear 2017.Cash provided by operating activities in fiscal year 2019 consisted of net income of $62.5 million, adjusted for non-cash adjustments of $19.0 millionand changes in working capital accounts of $5.6 million. The non-cash adjustments primarily consisted of a one-time non-cash benefit of $49.4 millionrelated to our release of the valuation allowance for the majority of our federal and states deferred tax assets, offset by stock-based compensation expense of$14.1 million, depreciation and amortization of $9.0 million, and bad debt expense of $8.7 million related to a large former education client. The changes inworking capital accounts were attributable to an increase in accounts receivable of $8.3 million and a decrease in accrued liabilities of $3.4 million, offset byan increase in accounts payable of $4.5 million. The increase in accounts receivable is primarily due to the increase in revenue, the decrease in accruedliabilities is primarily due to a decrease in accrued performance incentive compensation associated with the lower achievement of performance objectivesand the increase in accounts payable is primarily due to the timing of payments.Cash provided by operating activities in fiscal year 2018 consisted of net income of $15.9 million, adjusted for non-cash adjustments of $17.3million. In addition, there was a net decrease in cash from changes in working capital of $6.3 million. The non-cash adjustments primarily consisted of stock-based compensation expense of $10.2 million and depreciation and amortization of $7.8 million. The changes in working capital accounts were primarilydue to an increase in accounts receivable of $25.0 million primarily due to increased net revenues, offset by an increase in accounts payable and accruedliabilities of $15.8 million, primarily due to an increase in media costs associated with increased revenue, and an increase in accrued performance incentivecompensation associated with the higher achievement of performance objectives. The decrease in prepaid expenses and other assets of $1.9 million wasprimarily due to the timing of payments and the decrease in other assets noncurrent of $1.1 million was primarily due to the amortization expense for theyear.42 Cash provided by operating activities in fiscal year 2017 consisted of a net loss of $12.2 million, which included a restructuring charge of $2.4million, offset by non-cash adjustments of $22.5 million. In addition, there was a net increase in cash from changes in working capital of $8.2 million. Thenon-cash adjustments primarily consisted of depreciation and amortization of $11.4 million, stock-based compensation expense of $8.9 million andimpairment of investment of $2.5 million. The changes in working capital accounts were primarily due to an increase in accounts payable and accruedliabilities of $4.2 million, primarily due to the timing of cash payments, partially offset by a decrease in accrued performance incentive compensation of $2.0million associated with the lower achievement of performance objectives. The decrease in accounts receivable of $2.9 million was primarily due to the timingof cash receipts.Net Cash Used in Investing ActivitiesCash from investing activities generally include capital expenditures, capitalized internal software development costs, and business acquisitions fromtime to time.Cash used in investing activities was $37.0 million in fiscal year 2019 compared to $15.8 million in fiscal year 2018 and $3.4 million in fiscal year2017.Cash used in investing activities in fiscal year 2019 was primarily due to our acquisitions of AmOne, CCM and MBT in fiscal year 2019 for $32.7million, net of cash acquired of $3.1 million and capital expenditures and internal software development costs of $4.3 million.Cash used in investing activities in fiscal year 2018 was primarily due to our acquisition of certain assets of Katch, LLC for $14.0 million, and capitalexpenditures and internal software development costs of $2.8 million, offset by proceeds from sales of other assets and domain names of $1.1 million.Cash used in investing activities in fiscal year 2017 was primarily due to capital expenditures and internal software development costs of $3.3 million.Net Cash (Used in) Provided by Financing ActivitiesCash from financing activities generally include payment of withholding taxes related to the release of restricted stock, net of share settlement,proceeds from the exercise of stock options, post-closing payments related to business acquisitions, repurchases of common stock, and repayments on loanfacilities.Cash used in financing activities was $4.1 million in fiscal year 2019 compared to cash provided by financing activities of $3.9 million in fiscal year2018 and $18.5 million in fiscal year 2017.Cash used in financing activities in fiscal year 2019 was due to the payments of withholding taxes related to the release of restricted stock, net of sharesettlement of $9.9 million and post-closing payments related to acquisitions of $2.0 million, offset by proceeds from the exercise of stock options of $7.8million.Cash provided by financing activities in fiscal year 2018 was due to the proceeds from the exercise of common stock options of $11.0 million, offsetby payments of withholding taxes related to the release of restricted stock, net of share settlement of $6.5 million, and repurchases of common stock of $0.6million.Cash used in financing activities in fiscal year 2017 was due to the repayment of the revolving loan facility of $15.0 million, repurchases of commonstock of $2.5 million, and payment of withholding taxes related to the release of restricted stock, net of share settlement of $1.0 million.Off-Balance Sheet ArrangementsDuring the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred toas structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes.43 Contractual ObligationsThe following table sets forth payments due under our contractual obligations as of June 30, 2019: Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years (In thousands) Operating leases (1) $17,315 $3,529 $8,497 $5,113 $176 Post-closing payment related to acquisitions (2) 16,259 7,638 7,065 1,556 — Contingent consideration related to acquisitions (2) 5,058 1,329 2,954 775 — Total $38,632 $12,496 $18,516 $7,444 $176 (1)We lease various office facilities, including our corporate headquarters in Foster City, California. The terms of certain lease agreements include rentescalation provisions and tenant improvement allowances. We recognize rent expense on a straight-line basis over the lease periods.(2)In accordance with the terms of the business acquisitions of AmOne, CCM and MBT during fiscal year 2019, we are required to make post-closingpayments and contingent consideration payments. See Note 6, Acquisitions, to our consolidated financial statements for more information on thepost-closing payments and contingent consideration payments related to our business acquisitions in fiscal year 2019.The above table does not include approximately $2.3 million of long-term income tax liabilities for uncertainty in income taxes due to the fact thatwe are unable to reasonably estimate the timing of these potential future payments.Critical Accounting Policies and EstimatesWe have prepared our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America(“GAAP”). In doing so, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingentassets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results maydiffer significantly from these estimates. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as theypertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable andappropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.We refer to these estimates and assumptions as critical accounting policies and estimates. We believe that the critical accounting policies listed belowinvolve our more significant judgments, estimates and assumptions and, therefore, could have the greatest potential impact on our consolidated financialstatements. In addition, we believe that a discussion of these policies is necessary to understand and evaluate the consolidated financial statements containedin this report.See Note 2, Summary of Significant Accounting Principles, to our consolidated financial statements for further information on our critical and othersignificant accounting policies.Revenue RecognitionWe generate substantially all of our revenue from fees earned through the delivery of qualified clicks, leads, inquiries, calls, applications, customersand, to a lesser extent, display advertisements, or impressions.Effective July 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective approach. UnderASC 606, we recognize revenue when we transfer control of promised goods or services to our clients in an amount that reflects the consideration to which weexpect to receive in exchange for those goods or services. We recognize revenue pursuant to the five-step framework contained in ASC 606: (i) identify thecontract with a client; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii)determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in thecontract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations.As part of determining whether a contract exists, probability of collection is assessed on a client-by-client basis at the outset of the contract. Clientsare subjected to a credit review process that evaluates the clients’ financial position and the ability and intention to pay. If it is determined from the outset ofan arrangement that the client does not have the ability or intention to pay, we will44 conclude that a contract does not exist and will continuously reassess our evaluation until we are able to conclude that a contract does exist.Generally, our contracts specify the period of time as one month, but in some instances the term may be longer. However, for most of our contracts withclients, either party can terminate the contract at any time without penalty. Consequently, enforceable rights and obligations only exist on a day-to-day basis,resulting in individual daily contracts during the specified term of the contract or until one party terminates the contract prior to the end of the specified term.We have assessed the services promised in our contracts with clients and have identified one performance obligation, which is a series of distinctservices. Depending on the client’s needs, these services consist of a specified number or an unlimited number of clicks, leads, calls, applications, customers,etc. (hereafter collectively referred to as “marketing results”) to be delivered over a period of time. We satisfy these performance obligations over time as theservices are provided. We do not promise to provide any other significant goods or services to our clients.Transaction price is measured based on the consideration that we expect to receive from a contract with a client. Our contracts with clients containvariable consideration as the price for an individual marketing result varies on a day-to-day basis depending on the market-driven amount a client hascommitted to pay. However, because we ensure the stated period of our contracts does not generally span to multiple reporting periods, the contractualamount within a period is based on the number of marketing results delivered within the period. Therefore, the transaction price for any given period is fixedand no estimation of variable consideration is required.If a marketing result delivered to a client does not meet the contractual requirements associated with that marketing result, our contracts allow forclients to return a marketing result generally within 5-10 days of having received the marketing result. Such returns are factored into the amount billed to theclient on a monthly basis and consequently result in a reduction to revenue in the same month the marketing result is delivered. No warranties are offered toour clients.We do not allocate transaction price as we have only one performance obligation and our contracts do not generally span multiple periods. Taxescollected from clients and remitted to governmental authorities are not included in revenue. We elected to use the practical expedient which allows us torecord sales commissions as expense as incurred when the amortization period would have been one year or less.We bill clients monthly in arrears for the marketing results delivered during the preceding month. Our standard payment terms are 30-60 days.Consequently, we do not have significant financing components in our arrangements.Separately from the agreements that we have with clients, we have agreements with Internet search companies, third-party publishers and strategicpartners to generate potential marketing results for our clients. We receive a fee from our clients and separately pay a fee to the Internet search companies,third-party publishers and strategic partners. We are the principal in the transaction. As a result, the fees paid by our clients are recognized as revenue and thefees paid to our Internet search companies, third-party publishers and strategic partners are included in cost of revenue.Stock-Based CompensationWe measure and record the expense related to stock-based transactions based on the fair value of the stock-based payment awards as determined on thedate of grant. The fair value of restricted stock units with a service condition (“service-based RSU”) is determined based on the closing price of our commonstock on the date of grant. For stock options, we have selected and used the Black-Scholes option pricing model to estimate the fair value. The fair value ofrestricted stock units with a service and performance condition (“performance-based RSU”) is determined based on the closing price of our common stock onthe date of grant. Grant date as defined by ASC 718 is determined when the components that comprise the performance targets have been fully established. Ifa grant date has not been established, the compensation expense associated with the performance-based RSU is re-measured at each reporting date based onthe closing price of our common stock at each reporting date until the grant date has been established. For restricted stock units with a service and marketcondition (“market-based RSU”), we have selected and used the Monte Carlo simulation model to estimate the fair value on the date of grant.In applying these models, our determination of fair value is affected by assumptions regarding a number of subjective variables. These variablesinclude, but are not limited to, the expected stock price volatility over the term of the award and the employees’ actual and projected stock option exerciseand pre-vesting employment termination behaviors. We estimate the expected volatility of our common stock based on our historical volatility over theexpected term of the award. We have no history or expectation of paying dividends on our common stock. The risk-free interest rate is based on the U.S.Treasury yield for a term consistent with the expected term of the award.45 We recognize stock-based compensation expense for options and service-based RSUs using the straight-line method, and for performance-based RSUsand market-based RSUs using the graded vesting method, based on awards ultimately expected to vest. We estimate future forfeitures at the date of grant. Onan annual basis, we assess changes in our estimate of expected forfeitures based on recent forfeiture activity. The effect of adjustments made to forfeiture rates,if any, is recognized in the period that the change is made.Business CombinationsWe account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. Under theacquisition method of accounting, the total consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities assumedbased on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets and liabilities isrecorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assetsacquired and liabilities assumed with the corresponding offset to goodwill.In determining the fair value of assets acquired and liabilities assumed in a business combination, we used the income approach to value our mostsignificant acquired assets. Significant assumptions relating to our estimates in the income approach include base revenue, revenue growth rate, net of clientattrition, projected gross margin, discount rates, rates of increase in operating expenses and the future effective income tax rates. The valuations of ouracquired businesses have been performed by a third-party valuation specialist under our management’s supervision. We believe that the estimated fair valueassigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. However,such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in our assumptions or the interrelationship ofthose assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes in discounted cash flow assumptions couldresult in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidated statements of operations and may have amaterial effect on our financial condition and operating results.Acquisition related costs are not considered part of the consideration, and are expensed as operating expenses as incurred. Contingent consideration, ifany, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until settlement at the end of theassessment period. We include the results of operations of the businesses acquired as of the beginning of the acquisition dates.GoodwillWe conduct a test for the impairment of goodwill at the reporting unit level on at least an annual basis and whenever there are events or changes incircumstances that would more likely than not reduce the estimated fair value of a reporting unit below its carrying value. Application of the goodwillimpairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill toreporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units includeestimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premium and other assumptions. Changes inthese estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment.We perform our annual goodwill impairment test on April 30 and conduct a qualitative assessment to determine whether it is necessary to perform atwo-step quantitative goodwill impairment test. In assessing the qualitative factors, we consider the impact of key factors such as changes in industry andcompetitive environment, stock price, actual revenue performance compared to previous years, forecasts and cash flow generation. We had one reporting unitfor purposes of allocating and testing goodwill for fiscal years 2019 and 2018. Based on the results of the qualitative assessment completed as of April 30,2019 and 2018, there were no indicators of impairment.Long-Lived AssetsWe evaluate long-lived assets, such as property and equipment and purchased intangible assets with finite lives, for impairment whenever events orchanges in circumstances indicate that the carrying value of an asset may not be recoverable. If necessary, a quantitative test is performed that requires theapplication of judgment when assessing the fair value of an asset. When we identify an impairment, we reduce the carrying amount of the asset to itsestimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. As of April 30, 2019 and2018, we evaluated our long-lived assets and concluded there were no indicators of impairment.46 Income TaxesWe account for income taxes using an asset and liability approach to record deferred taxes. Our deferred income tax assets represent temporarydifferences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in futureyears, including net operating loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxableincome in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided whennecessary to reduce deferred tax assets to the amount expected to be realized. We regularly assess the realizability of our deferred tax assets. Significantjudgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, if appropriate. We consider allavailable evidence, both positive and negative, to determine, based on the weight of available evidence, whether it is more likely than not that some or all ofthe deferred tax assets will not be realized. In evaluating the need, or continued need, for a valuation allowance we consider, among other things, the nature,frequency and severity of current and cumulative taxable income or losses, forecasts of future profitability, and the duration of statutory carryforward periods.Our judgment regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors.We recognize tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position, that the taxposition will be sustained on examination by the tax authorities. The tax benefits recognized in the financial statements from such positions are thenmeasured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.Recent Accounting PronouncementsSee Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements for information with respect to recent accountingpronouncements and the impact of these pronouncements on our consolidated financial statements. Item 7A.Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign currency exchange raterisks.Interest Rate RiskOur cash equivalents are invested in money market funds. Cash and cash equivalents are held for working capital purposes and acquisition financing.We do not enter into investments for trading or speculative purposes. We believe that we do not have material exposure to changes in the fair value of theseinvestments as a result of changes in interest rates due to the short-term nature of our investments. Declines in interest rates may reduce future investmentincome. A hypothetical decline of 1% in the interest rate on our investments would not have a material effect on our consolidated financial statements.Foreign Currency Exchange RiskTo date, our client agreements have been predominately denominated in U.S. dollars, and accordingly, we have limited exposure to foreign currencyexchange rate fluctuations related to client agreements, and do not currently engage in foreign currency hedging transactions. As the local accounts for someof our foreign operations are maintained in the local currency of the respective country, we are subject to foreign currency exchange rate fluctuationsassociated with the remeasurement to U.S. dollars. A hypothetical change of 10% in foreign currency exchange rates would not have a material effect on ourconsolidated financial statements. 47 Item 8.Financial Statements and Supplementary DataQUINSTREET, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm49Consolidated Balance Sheets52Consolidated Statements of Operations53Consolidated Statements of Comprehensive Income (Loss)54Consolidated Statements of Stockholders’ Equity55Consolidated Statements of Cash Flows56Notes to Consolidated Financial Statements57 The supplementary financial information required by this Item 8 is included in Item 7 under the caption "Selected Quarterly Financial Data.”48 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of QuinStreet, Inc.Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of QuinStreet, Inc. and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, andthe related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in theperiod ended June 30, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period endedJune 30, 2019 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company'sinternal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019 in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCOSO.Basis for OpinionsThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over FinancialReporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company'sinternal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.49 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that werecommunicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidatedfinancial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does notalter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.Acquisition of AmOne Corp. - Valuation of Publisher Relationships intangible assetAs described in Notes 2 and 6 to the consolidated financial statements, the Company completed the acquisition of AmOne Corp. for net consideration ofapproximately $31 million. The acquisition resulted in the recognition of intangible assets amounting to $23 million, including publisher relationships of$19 million, goodwill of $5 million and net tangible assets of $3 million. A multi-period excess earnings model was used to value the publisher relationshipsintangible asset. Management applied significant judgment in estimating the fair value of the publisher relationships intangible asset, which involved theuse of significant estimates and assumptions with respect to base revenue, revenue growth rate, net of client attrition, projected gross margin, and discountrate.The principal considerations for our determination that performing procedures relating to the valuation of the publisher relationships intangible asset as aresult of the acquisition of AmOne Corp. is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying proceduresrelating to the fair value measurement of the publisher relationships intangible asset due to the significant amount of judgment by management whendeveloping this estimate, (ii) significant audit effort was necessary in evaluating the significant assumptions relating to the estimate, such as base revenue,revenue growth rate, net of client attrition, projected gross margin, and discount rate, and (iii) the audit effort involved the use of professionals withspecialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidatedfinancial statements. These procedures included testing of the effectiveness of controls relating to the acquisition accounting, including controls overmanagement’s valuation of the publisher relationships intangible asset, as well as controls over the development of significant assumptions, related to thepublisher relationships intangible asset including base revenue, revenue growth rate, net of client attrition, projected gross margin, and discount rate. Theseprocedures also included, among others, testing management’s process for estimating the fair value of the publisher relationships intangible asset, evaluatingthe appropriateness of the multi-period excess earnings model, testing the completeness, accuracy, and relevance of underlying data used in the model, andevaluating the reasonableness of the significant assumptions used by management, including base revenue, revenue growth rate, net of client attrition,projected gross margin, and discount rate. Evaluating the reasonableness of the assumptions related to base revenue, revenue growth rate, net of clientattrition, and projected gross margin involved considering (i) the current and past performance of the acquired business, (ii) the consistency with externalmarket and industry data, and (iii) whether these assumptions were consistent with other evidence obtained in other areas of the audit. The discount rate wasevaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge wereused to assist in the evaluation of the Company’s multi-period excess earnings model and certain significant management assumptions, including thediscount rate and attrition rate.Realizability of deferred tax assetsAs described in Notes 2 and 9 to the consolidated financial statements, the Company has recorded $52 million in deferred tax assets as of June 30, 2019.Management applied significant judgment in assessing the positive and negative evidence available in the determination of the amount of deferred tax assetsthat were more-likely-than-not to be realized in the future. In evaluating the need, or continued need, for a valuation allowance, management considers theweighting of the positive and negative evidence, which included, among other things, the nature, frequency and severity of current and cumulative taxableincome or losses, forecasts of future profitability, and the duration of statutory carryforward periods.The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are (i)there was significant judgment by management in determining the amount of deferred tax assets that were more-likely-than-not to be realized in the futurewhich in turn led to a high degree of auditor judgment and subjectivity in applying50 procedures relating to assessing the positive and negative evidence, and (ii) significant audit effort was necessary in evaluating the weighting of the positiveand negative evidence.Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidatedfinancial statements. These procedures included testing the effectiveness of controls relating to income taxes, including controls over the assessment ofrealizability of deferred tax assets including assessing the positive and negative evidence. These procedures also included, among others, testingmanagement’s process for assessing the realizability of deferred tax assets, and evaluating management’s weighting of positive and negative evidence. /s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaAugust 29, 2019We have served as the Company’s auditor since 2000. 51 QUINSTREET, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) June 30, June 30, 2019 2018 Assets Current assets: Cash and cash equivalents $62,522 $64,700 Accounts receivable, net 75,628 68,492 Prepaid expenses and other assets 5,228 4,432 Total current assets 143,378 137,624 Property and equipment, net 5,410 4,211 Goodwill 82,544 62,283 Other intangible assets, net 35,118 8,573 Deferred tax assets, noncurrent 52,149 60 Other assets, noncurrent 6,012 7,545 Total assets $324,611 $220,296 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $37,093 $32,506 Accrued liabilities 36,878 34,811 Deferred revenue 761 715 Other liabilities 8,967 — Total current liabilities 83,699 68,032 Other liabilities, noncurrent 18,083 3,938 Total liabilities 101,782 71,970 Commitments and contingencies (See Note 10) Stockholders' equity: Common stock: $0.001 par value; 100,000,000 shares authorized; 50,518,460 and 48,146,384 shares issued and outstanding at June 30, 2019 and June 30, 2018 50 48 Additional paid-in capital 289,768 277,761 Accumulated other comprehensive loss (366) (380)Accumulated deficit (66,623) (129,103)Total stockholders' equity 222,829 148,326 Total liabilities and stockholders' equity $324,611 $220,296 See notes to consolidated financial statements 52 QUINSTREET, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Fiscal Year Ended June 30, 2019 2018 2017 Net revenue $455,154 $404,358 $299,785 Cost of revenue (1) 393,509 345,947 269,409 Gross profit 61,645 58,411 30,376 Operating expenses: (1) Product development 12,329 13,805 13,476 Sales and marketing 8,755 10,414 9,189 General and administrative 29,834 18,556 15,934 Restructuring charges — — 2,441 Operating income (loss) 10,727 15,636 (10,664)Interest income 290 181 138 Interest expense (367) — (346)Other income (expense), net 69 687 (2,416)Income (loss) before income taxes 10,719 16,504 (13,288)Benefit from (provision for) income taxes 51,761 (574) 1,080 Net income (loss) $62,480 $15,930 $(12,208) Net income (loss) per share: Basic $1.26 $0.34 $(0.27)Diluted $1.18 $0.32 $(0.27) Weighted-average shares used in computing net income (loss) per share: Basic 49,581 46,417 45,594 Diluted 52,754 49,872 45,594 (1)Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue $7,354 $3,982 $3,109 Product development 1,606 1,949 1,834 Sales and marketing 1,358 1,222 1,154 General and administrative 3,810 3,029 2,759 Restructuring charges — — 42 See notes to consolidated financial statements 53 QUINSTREET, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands) Fiscal Year Ended June 30, 2019 2018 2017 Net income (loss) $62,480 $15,930 $(12,208)Other comprehensive income (loss): Foreign currency translation adjustment 14 83 (45)Total other comprehensive income (loss) 14 83 (45)Comprehensive income (loss) $62,494 $16,013 $(12,253) See notes to consolidated financial statements 54 QUINSTREET, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands, except share data) Accumulated Additional Other Total Common Stock Treasury Stock Paid-in Comprehensive Accumulated Shareholders’ Shares Amount Shares Amount Capital Loss Deficit Equity Balance at June 30, 2016 45,557,295 $45 — $— $257,950 $(418) $(132,825) $124,752 Release of restricted stock, net ofshare settlement 597,564 — — — — — — — Stock-based compensation expense — — — — 9,088 — — 9,088 Withholding taxes related to releaseof restricted stock, net of sharesettlement — — — — (1,018) — — (1,018)Repurchase of common stock — — (719,023) (2,487) — — — (2,487)Retirement of treasury stock (719,023) — 719,023 2,487 (2,487) — — — Net loss — — — — — — (12,208) (12,208)Other comprehensive loss — — — — — (45) — (45)Balance at June 30, 2017 45,435,836 $45 — $— $263,533 $(463) $(145,033) $118,082 Issuance of common stock uponexercise of stock options 1,465,265 1 — — 11,114 — — 11,115 Release of restricted stock, net ofshare settlement 1,338,624 2 — — (2) — — — Stock-based compensation expense — — — — 10,250 — — 10,250 Withholding taxes related to releaseof restricted stock, net of sharesettlement — — — — (6,487) — — (6,487)Repurchase of common stock — — (93,341) (647) — — — (647)Retirement of treasury stock (93,341) — 93,341 647 (647) — — — Net income — — — — — — 15,930 15,930 Other comprehensive income — — — — — 83 — 83 Balance at June 30, 2018 48,146,384 $48 — $— $277,761 $(380) $(129,103) $148,326 Issuance of common stock uponexercise of stock options 1,147,124 1 — — 7,701 — — 7,702 Release of restricted stock, net ofshare settlement 1,224,952 1 — — (1) — — — Stock-based compensation expense — — — — 14,198 — — 14,198 Withholding taxes related to releaseof restricted stock, net of sharesettlement — — — — (9,891) — — (9,891)Net income — — — — — — 62,480 62,480 Other comprehensive income — — — — — 14 — 14 Balance at June 30, 2019 50,518,460 $50 — $— $289,768 $(366) $(66,623) $222,829 See notes to consolidated financial statements55 QUINSTREET, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Fiscal Year Ended June 30, 2019 2018 2017 Cash Flows from Operating Activities Net income (loss) $62,480 $15,930 $(12,208)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,975 7,767 11,377 Provision for sales returns and doubtful accounts receivable 9,343 525 291 Stock-based compensation 14,128 10,182 8,898 Deferred income taxes (52,019) (51) (430)Impairment of investment — — 2,500 Other adjustments, net 610 (1,108) (116)Changes in assets and liabilities: Accounts receivable (8,321) (24,958) 2,868 Prepaid expenses and other assets (545) 1,910 830 Other assets, noncurrent 634 1,096 891 Accounts payable 4,534 7,350 5,394 Accrued liabilities (3,368) 8,489 (1,155)Deferred revenue 46 (411) (74)Other liabilities, noncurrent 1,468 258 (530)Net cash provided by operating activities 37,965 26,979 18,536 Cash Flows from Investing Activities Capital expenditures (1,972) (610) (1,160)Business acquisitions (32,737) (14,154) — Internal software development costs (2,336) (2,146) (2,185)Other investing activities 56 1,061 (26)Net cash used in investing activities (36,989) (15,849) (3,371)Cash Flows from Financing Activities Proceeds from exercise of common stock options 7,789 11,028 — Payment of withholding taxes related to release of restricted stock, net of share settlement (9,891) (6,487) (1,018)Post-closing payments related to acquisitions (1,952) — — Repurchases of common stock — (647) (2,487)Repayment of revolving loan facility — — (15,000)Net cash (used in) provided by financing activities (4,054) 3,894 (18,505)Effect of exchange rate changes on cash, cash equivalents and restricted cash 26 105 (33)Net (decrease) increase in cash, cash equivalents and restricted cash (3,052) 15,129 (3,373)Cash, cash equivalents and restricted cash at beginning of period 65,588 50,459 53,832 Cash, cash equivalents and restricted cash at end of period $62,536 $65,588 $50,459 Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets Cash and cash equivalents $62,522 $64,700 $49,571 Restricted cash included in other assets, noncurrent 14 888 888 Total cash, cash equivalents and restricted cash $62,536 $65,588 $50,459 Supplemental Disclosure of Cash Flow Information Cash paid for interest — — 295 Cash paid for income taxes 334 245 390 Supplemental Disclosure of Noncash Investing and Financing Activities Post-closing payments unpaid at acquisition date (See Note 6) 17,893 — — Contingent consideration unpaid at acquisition date (See Note 6) 5,058 — — Purchases of property and equipment included in accrued liabilities 230 215 98 Retirement of treasury stock — (647) (2,487) See notes to consolidated financial statements 56 QUINSTREET, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. The CompanyQuinStreet, Inc. (the “Company”) is a leader in performance marketplace products and technologies. The Company was incorporated in California inApril 1999 and reincorporated in Delaware in December 2009. The Company specializes in customer acquisition for clients in high value, information-intensive markets or “verticals,” including financial services, education, home services and business-to-business technology. The corporate headquarters arelocated in Foster City, California, with additional offices throughout the United States, Brazil and India. While the majority of the Company’s operations andrevenue are in North America, the Company also has emerging businesses in Brazil and India.2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have beeneliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. These estimates are based oninformation available as of the date of the financial statements; therefore, actual results could differ from those estimates.Revenue RecognitionThe Company derives revenue primarily from fees earned through the delivery of qualified clicks, leads, inquiries, calls, applications, customers and,to a lesser extent, display advertisements, or impressions. Effective July 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers(ASC 606) which governs how the Company recognizes revenues in these arrangements. The Company applied the provisions of ASC 606 using themodified retrospective approach effective July 1, 2018. Under ASC 606, the Company recognizes revenue when the Company transfers promised goods orservices to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. TheCompany recognizes revenue pursuant to the five-step framework contained in ASC 606: (i) identify the contract with a client; (ii) identify the performanceobligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint onvariable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Companysatisfies the performance obligations.As part of determining whether a contract exists, probability of collection is assessed on a client-by-client basis at the outset of the contract. Clientsare subjected to a credit review process that evaluates the clients’ financial position and the ability and intention to pay. If it is determined from the outset ofan arrangement that the client does not have the ability or intention to pay, the Company will conclude that a contract does not exist and will continuouslyreassess its evaluation until the Company is able to conclude that a contract does exist.Generally, the Company’s contracts specify the period of time as one month, but in some instances the term may be longer. However, for most of theCompany’s contracts with clients, either party can terminate the contract at any time without penalty. Consequently, enforceable rights and obligations onlyexist on a day-to-day basis, resulting in individual daily contracts during the specified term of the contract or until one party terminates the contract prior tothe end of the specified term.The Company has assessed the services promised in its contracts with clients and has identified one performance obligation, which is a series ofdistinct services. Depending on the client’s needs, these services consist of a specified number or an unlimited number of clicks, leads, calls, applications,customers, etc. (hereafter collectively referred to as “marketing results”) to be delivered57 over a period of time. The Company satisfies these performance obligations over time as the services are provided. The Company does not promise to provideany other significant goods or services to its clients.Transaction price is measured based on the consideration that the Company expects to receive from a contract with a client. The Company’s contractswith clients contain variable consideration as the price for an individual marketing result varies on a day-to-day basis depending on the market-drivenamount a client has committed to pay. However, because the Company ensures the stated period of its contracts does not generally span multiple reportingperiods, the contractual amount within a period is based on the number of marketing results delivered within the period. Therefore, the transaction price forany given period is fixed and no estimation of variable consideration is required.If a marketing result delivered to a client does not meet the contractual requirements associated with that marketing result, the Company’s contractsallow for clients to return a marketing result generally within 5-10 days of having received the marketing result. Such returns are factored into the amountbilled to the client on a monthly basis and consequently result in a reduction to revenue in the same month the marketing result is delivered. No warrantiesare offered to the Company’s clients.The Company does not allocate transaction price as the Company has only one performance obligation and its contracts do not generally spanmultiple periods. Taxes collected from clients and remitted to governmental authorities are not included in revenue. The Company elected to use thepractical expedient which allows the Company to record sales commissions as expense as incurred when the amortization period would have been one year orless.The Company bills clients monthly in arrears for the marketing results delivered during the preceding month. The Company’s standard payment termsare 30-60 days. Consequently, the Company does not have significant financing components in its arrangements.Separately from the agreements the Company has with clients, the Company has agreements with Internet search companies, third-party publishers andstrategic partners to generate potential marketing results for its clients. The Company receives a fee from its clients and separately pays a fee to the Internetsearch companies, third-party publishers and strategic partners. The Company is the principal in the transaction. As a result, the fees paid by its clients arerecognized as revenue and the fees paid to its Internet search companies, third-party publishers and strategic partners are included in cost of revenue.Concentrations of Credit RiskFinancial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalentsand accounts receivable. The Company’s investment portfolio consists of money market funds. Cash is deposited with financial institutions that managementbelieves are creditworthy. To date, the Company has not experienced any material losses on its investment portfolio.The Company maintains contracts with its clients, most of which are cancelable with little or no prior notice. In addition, these contracts do notcontain penalty provisions for cancellation before the end of the contract term. In fiscal years 2019, 2018 and 2017, the Company had one client, TheProgressive Corporation that accounted for 22%, 23% and 17% of net revenue. No other client accounted for 10% or more of net revenue in fiscal years 2019,2018 and 2017.The Company’s accounts receivable are derived from clients located principally in the United States. The Company performs ongoing creditevaluation of its clients, does not require collateral, and maintains allowances for potential credit losses on client accounts when deemed necessary. TheCompany had one client, The Progressive Corporation, that accounted for 11% of net accounts receivable as of June 30, 2019. The Company had two clients,The Progressive Corporation and Dream Center Education Holdings, that each individually accounted for 13% of net accounts receivable as of June 30,2018. No other clients accounted for 10% or more of net accounts receivable as of June 30, 2019 or 2018.Fair Value of Financial InstrumentsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the reporting date. The Company estimates and categorizes the fair value of its financial instruments by applying the following hierarchy:Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to directly access.58 Level 2 — Valuations based on quoted prices for similar assets or liabilities; valuations for interest-bearing securities based on non-daily quotedprices in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable data forsubstantially the full term of the assets or liabilities.Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities.A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.The Company’s financial instruments consist principally of cash equivalents, accounts receivable, accounts payable, post-closing payments and contingentconsideration related to acquisitions. The recorded values of the Company’s accounts receivable and accounts payable approximate their current fair valuesdue to the relatively short-term nature of these accounts. See Note 5, Fair Value Measurements, for additional information regarding fair value measurements.Cash, Cash Equivalents and Restricted CashAll highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents on the Company’sconsolidated balance sheets. As of June 30, 2018, the Company maintained $0.9 million cash restricted as collateral for letters of credit that is reflectedwithin other assets, noncurrent, in the Company’s consolidated balance sheet. In the second quarter of fiscal year 2019, the cash restriction from the issuingfinancial institution was removed.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over theestimated useful lives of the assets, as follows: Computer equipment3 yearsSoftware3 yearsFurniture and fixtures3 to 5 yearsLeasehold improvementsthe shorter of the lease term or the estimated useful lives of theimprovementsInternal Software Development CostsThe Company incurs costs to develop software for internal use. The Company expenses all costs that relate to the planning and post-implementationphases of development as product development expense. Costs incurred in the development phase are capitalized and amortized over the product’s estimateduseful life if the product is expected to have a useful life beyond six months. Costs associated with repair or maintenance of existing sites or the developmentof website content are included within cost of revenue in the Company’s consolidated statements of operations. The Company’s policy is to amortizecapitalized internal software development costs on a product-by-product basis using the straight-line method over the estimated economic life of theapplication, which is generally two years. The Company capitalized internal software development costs of $2.3 million, $2.0 million and $2.1 million infiscal years 2019, 2018 and 2017. Amortization of internal software development costs is reflected within cost of revenue in the Company’s consolidatedstatements of operations.Business CombinationsThe Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations.Under the acquisition method of accounting, the total consideration is allocated to the tangible and identifiable intangible assets acquired and liabilitiesassumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values of these identifiable assets andliabilities is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may recordadjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.In determining the fair value of assets acquired and liabilities assumed in a business combination, the Company used the income approach to value itsmost significant acquired asset. Significant assumptions relating to the Company’s estimates in the income approach include base revenue, revenue growthrate, net of client attrition, projected gross margin, discount rates, rates of increase in operating expenses and the future effective income tax rates. Thevaluations of our acquired businesses have been performed by a third-party valuation specialist under the Company management’s supervision. TheCompany believes that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates thatmarketplace59 participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates. Future changes in ourassumptions or the interrelationship of those assumptions may negatively impact future valuations. In future measurements of fair value, adverse changes indiscounted cash flow assumptions could result in an impairment of goodwill or intangible assets that would require a non-cash charge to the consolidatedstatements of operations and may have a material effect on our financial condition and operating results.Acquisition related costs are not considered part of the consideration, and are expensed as operating expense as incurred. Contingent consideration, ifany, is measured at fair value initially on the acquisition date as well as subsequently at the end of each reporting period until settlement at the end of theassessment period. The Company includes the results of operations of the businesses acquired as of the beginning of the acquisition dates.GoodwillThe Company conducts a test for the impairment of goodwill at the reporting unit level on at least an annual basis and whenever there are events orchanges in circumstances that would more likely than not reduce the estimated fair value of a reporting unit below its carrying value. Application of thegoodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigninggoodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting unitsinclude estimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premium and other assumptions.Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment.The Company performs its annual goodwill impairment test on April 30 and conducts a qualitative assessment to determine whether it is necessary toperform a two-step quantitative goodwill impairment test. In assessing the qualitative factors, the Company considers the impact of key factors such aschanges in industry and competitive environment, stock price, actual revenue performance compared to previous years, forecasts and cash flow generation.The Company had one reporting unit for purposes of allocating and testing goodwill for fiscal years 2019 and 2018. Based on the results of the qualitativeassessment completed as of April 30, 2019 and 2018, there were no indicators of impairment.Long-Lived AssetsThe Company evaluates long-lived assets, such as property and equipment and purchased intangible assets with finite lives, for impairment wheneverevents or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If necessary, a quantitative test is performed thatrequires the application of judgment when assessing the fair value of an asset. When the Company identifies an impairment, it reduces the carrying amount ofthe asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. As of April30, 2019 and 2018, the Company evaluated its long-lived assets and concluded there were no indicators of impairment. The weighted-average useful life ofintangible assets was 6.3 years as of June 30, 2019.Income TaxesThe Company accounts for income taxes using an asset and liability approach to record deferred taxes. The Company’s deferred income tax assetsrepresent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result indeductible amounts in future years, including net loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates thatapply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances areprovided when necessary to reduce deferred tax assets to the amount expected to be realized. The Company regularly assesses the realizability of our deferredtax assets. Significant judgment is required to determine whether a valuation allowance is necessary and the amount of such valuation allowance, ifappropriate. The Company considers all available evidence, both positive and negative to determine, based on the weight of available evidence, whether it ismore likely than not that some or all of the deferred tax assets will not be realized. In evaluating the need, or continued need, for a valuation allowance theCompany considers, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, forecasts of futureprofitability, and the duration of statutory carryforward periods. The Company’s judgments regarding future profitability may change due to future marketconditions, changes in U.S. or international tax laws and other factors.The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not, based on the technical merits of the position,that the tax position will be sustained on examination by the tax authorities. The tax benefits recognized in the60 financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimatesettlement. Interest and penalties related to unrecognized tax benefits are recognized within income tax expense.Foreign Currency TranslationThe Company’s foreign operations are subject to exchange rate fluctuations. The majority of the Company’s sales and expenses are denominated inU.S. dollars. The functional currency for the majority of the Company’s foreign subsidiaries is the U.S. dollar. For these subsidiaries, assets and liabilitiesdenominated in foreign currency are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and historical exchange rates fornonmonetary assets and liabilities. Net revenue, cost of revenue and expenses are generally remeasured at average exchange rates in effect during eachperiod. Gains and losses from foreign currency remeasurement are included in other income (expense), net in the Company’s consolidated statements ofoperations. Certain foreign subsidiaries designate the local currency as their functional currency. For those subsidiaries, the assets and liabilities aretranslated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for theperiod. The foreign currency translation adjustments are included in accumulated other comprehensive loss as a separate component of stockholders’ equity.Foreign currency transaction gains and losses are recorded within other income (expense), net in the Company’s consolidated statements of operations andwere not material for any period presented.Comprehensive Income (Loss)Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income(loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of stockholders’ equity but are excluded from net income(loss). The Company’s comprehensive income (loss) and accumulated other comprehensive loss consists of foreign currency translation adjustments fromthose subsidiaries not using the U.S. dollar as their functional currency. Total accumulated other comprehensive loss is displayed as a separate component ofstockholders’ equity.Loss ContingenciesThe Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. Management considers thelikelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss, in determining losscontingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount ofloss can be reasonably estimated. The Company regularly evaluates current information available to its management to determine whether such accrualsshould be adjusted and whether new accruals are required.From time to time, the Company is involved in disputes, litigation and other legal actions. The Company records a charge equal to at least theminimum estimated liability for a loss contingency only when both of the following conditions are met: (i) information available prior to issuance of thefinancial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements, and(ii) the range of loss can be reasonably estimated. The actual liability in any such matters may be materially different from the Company’s estimates, whichcould result in the need to adjust the liability and record additional expenses.Stock-Based CompensationThe Company measures and records the expense related to stock-based transactions based on the fair values of stock-based payment awards, asdetermined on the date of grant. The fair value of restricted stock units with a service condition (“service-based RSU”) is determined based on the closingprice of the Company’s common stock on the date of grant. To estimate the fair value of stock options, the Company selected the Black-Scholes optionpricing model. The fair value of restricted stock units with a service and performance condition (“performance-based RSU”) is determined based on theclosing price of the Company’s common stock on the date of grant. Grant date as defined by ASC 718 is determined when the components that comprise theperformance targets have been fully established. If a grant date has not been established, the compensation expense associated with the performance-basedRSUs is re-measured at each reporting date based on the closing price of our common stock at each reporting date until the grant date has been established.For restricted stock units with a service and market condition (“market-based RSU”), the Company selected the Monte Carlo simulation model to estimate thefair value on the date of grant. In applying these models, the Company’s determination of the fair value of the award is affected by assumptions regarding anumber of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the award andthe employees’ actual and projected stock option exercise and pre-vesting employment termination behaviors.61 The Company recognizes stock-based compensation expense for options and service-based RSUs using the straight-line method, and for performance-based RSUs and market-based RSUs using the graded vesting method, based on awards ultimately expected to vest. The Company estimates future forfeituresat the date of grant. On an annual basis, the Company assesses changes to its estimate of expected forfeitures based on recent forfeiture activity. The effect ofadjustments made to the forfeiture rates, if any, is recognized in the period that change is made. See Note 11, Stock Benefit Plans, for additional informationregarding stock-based compensation.401(k) Savings PlanThe Company sponsors a 401(k) defined contribution plan covering all U.S. employees. There were no employer contributions under this plan infiscal years 2019, 2018 or 2017.Recent Accounting PronouncementsAccounting Pronouncements AdoptedRevenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard update on revenue fromcontracts with clients. The new guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers inan amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March and April 2016, theFASB amended this standard to clarify implementation guidance on principal versus agent considerations and the identification of performance obligationsand licensing. In May 2016, the FASB amended this standard to address improvements to the guidance on collectability, noncash consideration, andcompleted contracts at transition as well as provide a practical expedient for contract modifications at transition and an accounting policy election related tothe presentation of sales taxes and other similar taxes collected from customers. The Company adopted the new standard effective July 1, 2018 using themodified retrospective approach applied to all contracts which were not completed as of July 1, 2018. The adoption of the standard did not have a materialeffect on any individual line within the Company’s consolidated financial statements nor on the financial statements as a whole. Therefore, the Company hasnot included the impact of adoption by line item in its disclosures.Statement of Cash Flows – Restricted Cash. In November 2016, the FASB issued a new accounting standard update on the disclosure of restricted cashon the statement of cash flows. The new standard requires the statement of cash flows explain the changes during a reporting period of the totals for cash, cashequivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included withcash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. The Company adopted the newstandard effective July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.Business Combination – Definition of a Business. In January 2017, the FASB issued a new accounting standard update, which revises the definition ofa business and provides new guidance in evaluating when a set of transferred assets and activities is a business. The Company adopted the new standardeffective July 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financialstatements.Shared-Based Payment Accounting. In May 2017, the FASB issued a new accounting standard update to amend the scope of modification accountingfor share-based payment arrangements. The amendments in the update provide guidance on the types of changes to the terms or conditions of share-basedpayment awards that would be required to apply modification accounting under ASC 718, Compensation-Stock Compensation. The Company adopted thenew standard effective on July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.Accounting Pronouncements Not Yet AdoptedLeases. In February 2016, the FASB issued a new accounting standard update which replaces ASC 840, “Leases.” The new standard requires lessees torecognize on its balance sheet a right-of-use asset representing its right to use the underlying assets for the lease term and a lease liability representing thelease payment obligations. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over thelease term, generally on a straight-line basis. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods withinthose fiscal years, with early adoption permitted. The standard will be effective for the Company in the first quarter of fiscal year 2020. The new standardrequires that leases be recognized and measured as of the earliest period presented, using a modified retrospective approach, with all periods presented beingadjusted and presented under the new standard. In July 2018, the FASB amended this standard to provide companies an optional adoption method whereby acompany does not have to adjust comparative period financial statements for the new standard. The Company will adopt the new standard using the optionaladoption method and therefore not adjust comparative financial statements.62 The Company is finalizing its implementation related to policies and processes to comply with the guidance. Upon adoption of this standard, theCompany estimates that the right-of-use assets and lease liabilities for the lease portfolio to be recorded on its consolidated balance sheet is within the rangeof $10 million to $20 million, relating to operating leases. No material impact is expected on the Company’s consolidated statements of operations or itsconsolidated statement of cash flows. The Company expects to include additional financial statement disclosures upon adoption.Goodwill Impairment. In January 2017, the FASB issued a new accounting standard update to simplify the measurement of goodwill by eliminatingthe Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carryingamount of that goodwill. The new standard requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize animpairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income taxeffects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The newguidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption ofthis standard is not expected to have an impact on the Company’s consolidated financial statements.3. RevenueDisaggregation of RevenueThe following table shows the Company’s net revenue disaggregated by vertical (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 Net revenue: Financial services $330,384 $283,114 $184,803 Education 68,473 77,261 72,140 Other 56,297 43,983 42,842 Total net revenue $455,154 $404,358 $299,785Contract BalancesThe following table provides information about contract liabilities from the Company’s contracts with its clients (in thousands): June 30, 2019 2018 Deferred revenue $761 $715 Client deposits 661 684The Company’s contract liabilities result from payments received in advance of revenue recognition and advance consideration received from clients,which precede the Company’s satisfaction of the associated performance obligation. Significant changes in the liability balances during fiscal year 2019 wasrelated to advance consideration received from clients, offset by revenue recognized of $8.3 million during the year.4. Net Income (Loss) per ShareBasic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstandingduring the period. Diluted net income (loss) per share is computed by using the weighted-average number of shares of common stock outstanding, includingpotential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and restricted stock units using the treasury stockmethod.63 The following table presents the calculation of basic and diluted net income (loss) per share: Fiscal Year Ended June 30, 2019 2018 2017 (In thousands, except per share data) Numerator: Basic and Diluted: Net income (loss) $62,480 $15,930 $(12,208)Denominator: Basic: Weighted-average shares of common stock used in computing basic net income (loss)per share 49,581 46,417 45,594 Diluted: Weighted average shares of common stock used in computing basic net income (loss)per share 49,581 46,417 45,594 Weighted average effect of dilutive securities: Stock options 1,724 1,334 — Restricted stock units 1,449 2,121 — Weighted average shares of common stock used in computing diluted net income(loss) per share 52,754 49,872 45,594 Net income (loss) per share: Basic $1.26 $0.34 $(0.27)Diluted (1) $1.18 $0.32 $(0.27)Securities excluded from weighted-average shares used in computing diluted net income(loss) per share because the effect would have been anti-dilutive: (2) 118 1,129 7,060 (1)In fiscal year 2017, diluted EPS does not reflect any potential common stock relating to stock options or restricted stock units due to net losses incurredas the assumed issuance of any additional shares would be anti-dilutive.(2)These weighted shares relate to anti-dilutive stock options and restricted stock units as calculated using the treasury stock method and could be dilutivein the future.5. Fair Value MeasurementsThe following tables present the fair value of our financial instruments: June 30, 2019 Level 1 Level 2 Level 3 Total Assets: Money market funds $11,206 $— $— $11,206 Total $11,206 $— $— $11,206 Liabilities: Post-closing payments related to acquisitions $— $16,259 $— $16,259 Contingent consideration related to acquisitions — — 5,058 5,058 Total $— $16,259 $5,058 $21,317 June 30, 2018 Level 1 Level 2 Level 3 Total Assets: Money market funds $10,949 $— $— $10,949 Total $10,949 $— $— $10,949There were no transfers between Level 1 and Level 2 during the periods presented.64 The following table represents the change in the contingent consideration (in thousands): Level 3 Balance as of June 30, 2018 $— Additions 5,058 Balance as of June 30, 2019 $5,058 Cash EquivalentsThe valuation technique used to measure the fair value of money market funds included using quoted prices in active markets for identical assets.Post-Closing Payments Related to AcquisitionsThe post-closing payments are future payments related to the Company’s acquisitions of AmOne Corp (“AmOne”), CloudControlMedia, LLC(“CCM”) and MyBankTracker.com, LLC (“MBT”). As the fair value of the Company’s post-closing payments was determined based on installmentsstipulated in the terms of the acquisition agreements and discount rates observable in the market, the post-closing payments are classified as Level 2 withinthe fair value hierarchy. See Note 6, Acquisitions, for further details related to the acquisitions.Contingent Consideration Related to AcquisitionsThe contingent consideration consists of estimated future payments related to the Company’s acquisition of CCM and MBT. The fair value of thecontingent consideration is determined using the real options technique which incorporates various estimates, including projected net revenue and grossmargin that is subject to the contingent consideration payment, a volatility factor applied to net revenue and gross margin based on year-on-year growth innet revenue and gross margin of comparable companies and discount rates. As certain of these inputs are not observable in the market, the contingentconsideration is classified as a Level 3 instrument. See Note 6, Acquisitions, for further details related to the acquisitions.6. AcquisitionsFiscal Year 2019 AcquisitionsAmOne Corp.On October 1, 2018, the Company completed the purchase of AmOne, an online performance marketing company in the financial services clientvertical, to broaden its publisher and customer relationships. In exchange for all the outstanding shares of AmOne, the Company paid $23.0 million in cashupon closing (including $2.7 million cash for net assets acquired subject to post-closing adjustments) and will make $8.0 million in post-closing payments,payable in cash in equal semi-annual installments over a two year period, with the first installment payable six months following the date of closing.CloudControlMedia, LLCOn April 15, 2019, the Company completed the purchase of CCM, a marketing services company in the education client vertical, to broaden itscustomer relationships. In exchange for all the outstanding shares of CCM, the Company paid $8.3 million in cash upon closing (including $0.8 million cashfor net assets acquired subject to post-closing adjustments) and will make a series of future payments following the acquisition date. The $7.5 million post-closing payments are payable in cash in equal semi-annual installments over a four year period, with the first installment payable six months following thedate of closing. The contingent consideration is payable for five years following the date of closing and is calculated every June 30 and December 31 for thepreceding six months.65 MyBankTracker.com, LLCOn May 14, 2019, the Company completed the purchase of MBT, a leading personal finance website to broaden its customer relationships. Inexchange for all the outstanding shares of MBT, the Company paid $4.5 million in cash upon closing (including $1.5 million cash for net assets acquired)and will make a series of future payments following the acquisition date. The $4.0 million post-closing payments are payable in cash in equal semi-annualinstallments over a two year period, with the first installment payable twelve months following the date of closing. The contingent consideration iscalculated semi-annually for the preceding six months beginning on December 31, 2019 and ending on June 30, 2023.The following table summarizes the total consideration for each acquisition as of the acquisition dates (in thousands): AmOne CCM MBT Cash $23,032 $8,281 $4,511 Post-closing adjustments for net assets acquired 138 (72) — Post-closing payments, net of imputed interest(1) 7,514 6,671 3,708 Contingent consideration — 3,553 1,505 Total $30,684 $18,433 $9,724 (1)The post-closing payment is net of imputed interest of $486 thousand for AmOne, $829 thousand for CCM and $292 thousand for MBT.As of June 30, 2019, the following table summarizes the liabilities recorded in the Company’s consolidated balance sheet related to the fiscal year2019 acquisitions (in thousands): Post-closingPayments ContingentConsideration Other liabilities, current $7,638 $1,329 Other liabilities, noncurrent 8,621 3,729 Total $16,259 $5,058The acquisitions were accounted for as business combinations and the results of operations of the acquired businesses have been included in theCompany’s results of operations as of the acquisition date. The Company expensed all transaction costs in the period in which they were incurred. TheCompany allocated the purchase price to identifiable assets acquired based on their estimated fair values. The fair value of the consideration transferred andthe assets acquired and liabilities assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to assistwith the measurement of the fair value of identifiable intangible assets and obligations related to post-closing payments and contingent consideration. Theestimated fair value of the identifiable assets acquired and liabilities assumed in the relevant acquisition is based on management’s best estimates. The fairvalue of the publisher and advertiser relationships was determined using the multi-period excess earnings income approach or cost approach. The fair valueof trade names was determined using the relief-from-royalty method. The fair value of acquired technology was determined using the cost approach. Theexcess of the purchase price over the aggregate fair value of the identifiable assets acquired was recorded as goodwill and is primarily attributable tosynergies the Company expects to achieve related to the acquisition. The goodwill is deductible for tax purposes. The fair value of the contingentconsideration was determined using the real options technique. See Note 5, Fair Value Measurements, for additional information regarding the valuation ofthe contingent consideration.The following table summarizes the preliminary allocation of purchase price and the estimated useful lives of the identifiable assets acquired as of thedate of the acquisition (in thousands): AmOne EstimatedUseful Life CCM EstimatedUseful Life MBT EstimatedUseful LifeCustomer/publisher/advertiserrelationships $21,300 7 years $4,500 3-4 years $3,400 3-12 yearsWebsite/trade/domain names 900 15 years 300 5 years 1,100 15 yearsAcquired technology and others 500 3 years — n/a — n/aNet assets 2,838 n/a 2,071 n/a 1,671 n/aGoodwill 5,146 Indefinite 11,562 Indefinite 3,553 IndefiniteTotal $30,684 $18,433 $9,724 66 The Company’s most significant asset acquired is related to the AmOne publisher relationships with an estimated fair value of $19.4 million. TheCompany is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, these preliminary estimates are subject tochange during the measurement period, which is the period subsequent to the acquisition date during which the acquirer may adjust the provisional amountsrecognized for a business combination, not to exceed one year from the acquisition date. The final purchase price allocation, which may include changes inthe allocations within intangible assets and between intangible assets and goodwill, as well as changes in the estimated useful lives of the intangible assets,will be determined when the Company has completed the detailed review of underlying inputs and assumptions used in its preliminary purchase priceallocation.The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and the acquiredbusinesses as though these acquisitions occurred as of the beginning of fiscal year 2018. The unaudited pro-forma financial information is presented forillustrative purposes only and do not necessarily reflect what the combined company’s results of operations would have been had the acquisitions occurred asof the beginning of fiscal year 2018, nor is it necessarily indicative of the future results of operations of the combined Company. Fiscal Year Ended June 30, 2019 2018 (In thousands) Net revenue 474,378 440,419 Net income 65,445 20,813The pro forma financial information for fiscal year 2019 included the elimination of $0.4 million of nonrecurring acquisition costs incurred by theCompany that were directly related to the acquisitions.Fiscal Year 2018 AcquisitionKatch, LLCIn November 2017, the Company acquired certain assets relating to the auto insurance, home insurance and mortgage verticals of Katch, LLC,(“Katch”) an online performance marketing company, for $14.0 million in cash to broaden its customer and publisher relationships. The acquisition wasaccounted for as a business combination. The results of the acquired assets of Katch have been included in the Company’s consolidated financial statementssince the acquisition date. The Company allocated the purchase price to identifiable intangible assets acquired based on their estimated fair values. Theexcess of the purchase price over the aggregate fair value of the identifiable intangible assets acquired was recorded as goodwill and is primarily attributableto synergies the Company expects to achieve related to the acquisition. The goodwill is deductible for tax purposes.The following table summarizes the allocation of the purchase price and the estimated useful lives of the identifiable assets acquired as of the date ofthe acquisition (in thousands): EstimatedFair Value EstimatedUseful LifeCustomer/publisher/advertiser relationships $4,200 4-7 yearsAcquired technology and others 3,700 3 yearsGoodwill 6,100 IndefiniteTotal $14,000 The financial results of the acquisition of Katch were considered immaterial for purposes of pro forma financial disclosures.67 7. Balance Sheet ComponentsAccounts Receivable, NetAccounts receivable, net was comprised of the following (in thousands): June 30, 2019 2018 Accounts receivable $85,926 $70,317 Less: Allowance for doubtful accounts (10,298) (1,825)Total $75,628 $68,492Prepaid Expenses and Other AssetsPrepaid expenses and other assets were comprised of the following (in thousands): June 30, 2019 2018 Prepaid expenses $3,504 $3,030 Income tax receivable 1,043 909 Other assets 681 493 Total $5,228 $4,432In fiscal year 2016, the Company entered into a 10-year partnership agreement with a large online customer acquisition marketing company focusedon the U.S. insurance industry to be its exclusive click monetization partner for the majority of its insurance categories. The agreement included a one-timeupfront cash payment of $10.0 million. The payment is being amortized on a straight-line basis over the life of the contract and is assessed for impairmentannually. As of June 30, 2019, the Company had recorded $1.0 million within prepaid expenses and other assets and $5.3 million within other assets,noncurrent on the Company’s consolidated balance sheet. As of June 30, 2018, the Company had recorded $1.0 million within prepaid expenses and otherassets and $6.3 million within other assets, noncurrent on the Company’s consolidated balance sheet. Amortization expense was $1.0 million, $1.0 millionand $1.0 million for fiscal years 2019, 2018 and 2017.Property and Equipment, NetProperty and equipment, net was comprised of the following (in thousands): June 30, 2019 2018 Computer equipment $12,328 $12,266 Software 11,605 11,513 Furniture and fixtures 3,156 3,060 Leasehold improvements 2,838 1,937 Internal software development costs 35,941 33,654 Total property plant and equipment, gross 65,868 62,430 Less: Accumulated depreciation and amortization (60,458) (58,219)Total property plant and equipment, net $5,410 $4,211Depreciation expense was $1.1 million, $1.5 million and $2.3 million for fiscal years 2019, 2018 and 2017. Amortization expense related to internalsoftware development costs was $2.3 million, $2.8 million and $2.9 million for fiscal years 2019, 2018 and 2017.68 Accrued liabilitiesAccrued liabilities were comprised of the following (in thousands): June 30, 2019 2018 Accrued media costs $30,429 $25,612 Accrued professional service and other business expenses 4,916 3,867 Accrued compensation and related expenses 1,533 5,332 Total $36,878 $34,811 8. Intangible Assets, Net and GoodwillIntangible Assets, NetIntangible assets, net consisted of the following (in thousands): June 30, 2019 June 30, 2018 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Customer/publisher/advertiserrelationships $70,300 $(40,663) $29,637 $41,101 $(37,286) $3,815 Content 60,964 (60,940) 24 60,969 (60,930) 39 Website/trade/domain names 33,546 (30,218) 3,328 31,098 (29,369) 1,729 Acquired technology and others 39,400 (37,271) 2,129 38,900 (35,910) 2,990 Total $204,210 $(169,092) $35,118 $172,068 $(163,495) $8,573Amortization of intangible assets was $5.6 million, $3.5 million and $6.2 million for fiscal years 2019, 2018 and 2017.Future amortization expense for the Company’s intangible assets as of June 30, 2019 was as follows (in thousands): Fiscal Year Ending June 30, Amortization 2020 $7,727 2021 6,414 2022 5,297 2023 4,698 2024 3,855 Thereafter 7,127 Total $35,118GoodwillThe changes in the carrying amount of goodwill for fiscal years 2019 and 2018 were as follows (in thousands): Goodwill Balance at June 30, 2017 $56,118 Additions 6,165 Balance at June 30, 2018 62,283 Additions 20,261 Balance at June 30, 2019 $82,544 69 9. Income TaxesThe components of income (loss) before income taxes were as follows (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 US $10,316 $17,218 $(12,286)Foreign 403 (714) (1,002)Total $10,719 $16,504 $(13,288)The components of the (benefit from) provision for income taxes were as follows (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 Current Federal $— $(2) $(16)State 193 479 (1,270)Foreign 255 210 191 Total current (benefit from) provision for income taxes 448 687 (1,095)Deferred Federal (45,201) (113) 15 State (7,008) — — Foreign — — — Total deferred (benefit from) provision for income taxes (52,209) (113) 15 Total (benefit from) provision for income taxes $(51,761) $574 $(1,080)The reconciliation between the statutory federal income tax and the Company’s effective tax rates as a percentage of income (loss) before incometaxes was as follows: Fiscal Year Ended June 30, 2019 2018 2017 Federal tax rate 21.0% 27.6% 34.0%States taxes, net of federal benefit (69.3)% (1.4)% 14.5%Foreign rate differential 0.3% 0.3% (0.3)%Stock-based compensation expense (48.9)% (20.8)% (23.9)%Change in valuation allowance (397.8)% (151.3)% (18.7)%Research and development credits (8.5)% (4.8)% 2.5%Federal tax rate change impact — 146.3% — Disqualified compensation expense 16.5% 5.7% — Uncertain tax position 2.8% 1.4% (0.8)%Other 1.0% 0.5% 0.8%Effective income tax rate (482.9)% 3.5% 8.1%70 The components of the long-term deferred tax assets and liabilities, net were as follows (in thousands): June 30, 2019 2018 Noncurrent: Reserves and accruals $3,695 $2,072 Stock-based compensation expense 3,319 2,590 Intangible assets 18,085 22,716 Net operating loss 27,818 22,791 Fixed assets 47 188 Tax credits 7,474 6,320 Other 57 580 Total noncurrent deferred tax assets 60,495 57,257 Valuation allowance - long-term (8,346) (57,197)Noncurrent deferred tax assets, net $52,149 $60The Company recorded a valuation allowance against the majority of the Company’s deferred tax assets at the end of fiscal year 2014. In the secondquarter of fiscal year 2019, due to the preponderance of positive evidence, including the Company’s cumulative profit before taxes and future forecasts ofcontinued profitability in the United States, the Company determined that sufficient positive evidence existed to conclude that substantially all of itsvaluation allowance was no longer needed. Accordingly, the Company released the valuation allowance for the majority of its federal and state deferred taxassets. The Company continues to maintain a valuation allowance related to its deferred tax assets for its foreign entities and California research anddevelopment tax credits. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it ismore likely than not that such deferred tax assets may not be realizable.As of June 30, 2019 and 2018, the Company had a federal operating loss carryforward of approximately $102.0 million and $82.4 million. As of June30, 2019 and 2018, the Company’s state operating loss carryforward was approximately $64.0 million and $47.1 million. With the exception of $32.2million of federal net operating losses which can be carried forward indefinitely, the federal and state net operating losses, if not used, will begin to expire onJune 30, 2035 and June 30, 2034. The operating loss carryforward in Brazil was approximately $2.5 million and does not have an expiration date. Theoperating loss carryforward in the India jurisdiction was approximately $5.6 million which will begin to expire on June 30, 2021. The Company has federaland California research and development tax credit carry-forwards of approximately $4.0 million and $7.3 million to offset future taxable income. The federalresearch and development tax credits, if not used, will begin to expire on June 30, 2034, while the state tax credit carry-forwards do not have an expirationdate and may be carried forward indefinitely.Utilization of the operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitationsprovided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of operatingloss carryforwards and credits before utilization.The Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted on December 22, 2017. The Tax Reform Act significantly impacts the future ongoingU.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates from 35% to 21%, providing for unlimited net operating losscarry-forward periods, and implementing a territorial tax system. The reduction of the U.S. corporate tax rate required the Company to revalue its U.S. deferredtax assets and liabilities to the recently enacted federal rate of 21%, however due to the Company’s valuation allowance on domestic deferred tax assets as ofthe effective date of the Tax Reform Act, there was no material impact to the Company’s condensed consolidated financial statements as a result of the federaltax rate reduction. The guidance provides a measurement period that should not extend beyond one year from the Tax Reform Act enactment date forcompanies to complete the accounting. In accordance with the guidance, a company must reflect the income tax effects of those aspects of the Tax ReformAct for which the accounting is complete. In the second quarter of fiscal year 2019, the Company completed its analysis to determine the effect of the TaxReform Act and recorded no adjustments.71 A reconciliation of the beginning and ending amounts of unrecognized tax benefits was as follows (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 Balance at the beginning of the year $3,256 $2,838 $3,175 Gross increases - current period tax positions 467 429 295 Gross increases - prior period tax positions 10 70 51 Gross decreases - prior period tax positions — — (429)Reductions as a result of lapsed statute of limitations (6) (81) (254)Balance at the end of the year $3,727 $3,256 $2,838The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s benefit from (provision for)income taxes. As of June 30, 2019, the Company has accrued $1.2 million for interest and penalties related to the unrecognized tax benefits. The balance ofinterest and penalties is recorded as a noncurrent liability in the Company’s consolidated balance sheet.As of June 30, 2019, unrecognized tax benefits of $2.1 million, if recognized, would affect the Company’s effective tax rate. The Company does notanticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions and is no longer subject to U.S. federal,state and local, or non-U.S., income tax examinations by tax authorities for years before 2013. As of June 30, 2019, the tax years 2014 through 2018 remainopen in the U.S., the tax years 2013 through 2018 remain open in the various state jurisdictions, and the tax years 2015 through 2018 remain open in variousforeign jurisdictions. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from our openexaminations.10. Commitments and ContingenciesLeasesThe Company leases office space under non-cancelable operating leases with various expiration dates through fiscal year 2026. Rent expense forfiscal years 2019, 2018 and 2017 was $3.9 million, $3.4 million and $3.4 million. The Company recognizes rent expense on a straight-line basis over thelease period and accrues for rent expense incurred but not paid.Future annual minimum lease payments under noncancelable operating leases as of June 30, 2019 were as follows (in thousands): Operating Fiscal Year Ending June 30, Leases 2020 $3,529 2021 4,263 2022 4,234 2023 3,801 2024 1,312 Thereafter 176 Total $17,315In February 2010, the Company entered into a lease agreement for its corporate headquarters located at 950 Tower Lane, Foster City, California withan expiration date in October 2018 and an option to extend the term of the lease twice by one additional year. In April 2018, the lease agreement wasamended to extend the lease term through October 31, 2023. Under the amended lease agreement, the monthly base rent was abated for the first eight monthsand increases to $0.2 million for the remaining four months. During the second year of the extended lease term, the monthly base rent will be abated for thefirst four months, increase to $0.2 million for the fifth month, and increase to $0.3 million for the remaining seven months. Subsequently, after each 12-monthanniversary, the monthly base rent will increase by approximately 3%. The Company has one remaining option to extend the term of the lease for anadditional five years following October 31, 2023.72 Guarantor ArrangementsThe Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was,serving at the Company’s request in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potentialamount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has adirector and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts under certain circumstancesand subject to deductibles and exclusions. As a result of its insurance policy coverage, the Company believes the estimated fair value of theseindemnification agreements is not material. Accordingly, the Company had no liabilities recorded for these agreements as of June 30, 2019 and June 30,2018.In the ordinary course of its business, the Company from time to time enters into standard indemnification provisions in its agreements with its clients.Pursuant to these provisions, the Company may be obligated to indemnify its clients for certain losses suffered or incurred, including losses arising fromviolations of applicable law by the Company or by its third-party publishers, losses arising from actions or omissions of the Company or its third-partypublishers, and for third-party claims that a Company product infringed upon any United States patent, copyright, or other intellectual property rights. Wherepracticable, the Company limits its liabilities under such indemnities. Subject to these limitations, the term of such indemnification provisions is generallycoterminous with the corresponding agreements and survives for the duration of the applicable statute of limitations after termination of the agreement. Thepotential amount of future payments to defend lawsuits or settle indemnified claims under these indemnification provisions is generally limited and theCompany believes the estimated fair value of these indemnity provisions is not material. Accordingly, the Company had no liabilities recorded for theseagreements as of June 30, 2019 and 2018.Letters of CreditThe Company has a $0.4 million letter of credit agreement with a financial institution that is used as collateral for fidelity bonds placed with aninsurance company and a $0.5 million letter of credit agreement with a financial institution that is used as collateral for the Company’s corporateheadquarters’ operating lease. The letters of credit automatically renew annually without amendment unless cancelled by the financial institutions within30 days of the annual expiration date.11. Stockholders’ EquityStock RepurchasesIn November 2016, the Board of Directors authorized a stock repurchase program to repurchase up to 750,000 outstanding shares of its common stock.Under this program, in fiscal year 2018, the Company repurchased and retired 30,977 shares of its common stock at a weighted-average price of $3.99 pershare, excluding a broker commission of $0.03 per share, at a total cost of $0.1 million. Repurchases under this program took place in the open market andwere made under a Rule 10b5-1 plan. This program was completed in July 2017.In July 2017, the Board of Directors authorized a stock repurchase program to repurchase up to 905,000 outstanding shares of its common stock. InOctober 2017, the Board of Directors increased the number of outstanding shares that may be repurchased to 966,000 shares. Under this program, norepurchases were made during fiscal year 2019. During fiscal year 2018, the Company repurchased and retired 62,364 shares of its common stock at aweighted-average price of $8.36 per share, excluding a broker commission of $0.03 per share, at a total cost of $0.5 million. Repurchases under this programtook place in the open market and were made under a Rule 10b5-1 plan. As of June 30, 2019, the number of shares that remains available for repurchase is903,636 shares.Retirement of Treasury StockThere were no shares that were retired in fiscal year 2019. In fiscal year 2018, the Company retired 93,341 shares of its common stock with a carryingvalue of $0.6 million. The Company’s accounting policy upon the retirement of treasury stock is to deduct its par value from common stock and reduceadditional paid-in capital by the amount recorded in additional paid-in capital when the stock was originally issued.73 12. Stock Benefit PlansStock-Based CompensationIn fiscal years 2019, 2018 and 2017, the Company recorded stock-based compensation expense of $14.1 million, $10.2 million and $8.9 million. Infiscal year 2019, the Company recognized tax benefits related to stock-based compensation of $5.2 million, which is reflected in the Company’s benefit fromincome taxes. There were no tax benefits realized in fiscal years 2018 and 2017 due to the Company’s full valuation allowance.Stock Incentive PlansIn November 2009, the Company’s board of directors adopted the 2010 Equity Incentive Plan (the “2010 Incentive Plan”) and the Company’sstockholders approved the 2010 Incentive Plan in January 2010. The 2010 Incentive Plan became effective upon the completion of the IPO of the Company’scommon stock in February 2010. Awards granted after January 2008 but before the adoption of the 2010 Incentive Plan continue to be governed by the termsof the 2008 Equity Incentive Plan. All outstanding stock awards granted before January 2008 continue to be governed by the terms of the Company’samended and restated 1999 Equity Incentive Plan.The 2010 Incentive Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options (“NQSOs”), restricted stock, restrictedstock units (“RSUs”), stock appreciation rights, performance-based stock awards and other forms of equity compensation, as well as for the grant ofperformance cash awards. The Company may issue ISOs only to its employees. NQSOs and all other awards may be granted to employees, including officers,nonemployee directors and consultants.Prior to fiscal year 2016, the Company granted service-based RSUs. In fiscal year 2016, the Company also began granting market-based RSUs thatrequires the Company’s stock price achieve a specified price above the grant date stock price before it can be eligible for service vesting conditions. In fiscalyear 2019, the Company began granting to employees performance-based RSUs that vest variably subject to the achievement of fiscal year 2019 revenuegrowth and adjusted EBITDA targets (“performance targets”). The Company evaluates the portion of the awards that are probable to vest quarterly until theperformance criteria are met. To date, the Company has issued ISOs, NQSOs, service-based RSUs, market-based RSUs, and performance-based RSUs under the2010 Incentive Plan. ISOs and NQSOs are generally granted to employees with an exercise price equal to the market price of the Company’s common stock atthe date of grant. Stock options granted to employees generally have a contractual term of seven years and vest over four years of continuous service, with25 percent of the stock options vesting on the one-year anniversary of the date of grant and the remaining 75 percent vesting in equal monthly installmentsover the three year period thereafter. RSUs generally vest over four years of continuous service, with 25 percent of the RSUs vesting on the one-yearanniversary of the date of grant and 6.25% vesting quarterly thereafter for the next 12 quarters, subject to any performance or stock price targets.An aggregate of 20,599,689 shares of the Company’s common stock were reserved for issuance under the 2010 Incentive Plan as of June 30, 2019, andthis amount will be increased by any outstanding stock awards that expire or terminate for any reason prior to their exercise or settlement. The number ofshares of the Company’s common stock reserved for issuance is increased annually through July 1, 2019 by up to five percent of the total number of shares ofthe Company’s common stock outstanding on the last day of the preceding fiscal year. The maximum number of shares that may be issued under the 2010Incentive Plan is 30,000,000. There were 14,690,557 shares available for issuance under the 2010 Incentive Plan as of June 30, 2019.In November 2009, the Company’s board of directors adopted the 2010 Non-Employee Directors’ Stock Award Plan (the “Directors’ Plan”) and thestockholders approved the Directors’ Plan in January 2010. The Directors’ Plan became effective upon the completion of the Company’s IPO. The Directors’Plan provides for the automatic grant of NQSOs and RSUs to non-employee directors and also provides for the discretionary grant of NQSOs and RSUs. Stockoptions granted to new non-employee directors vest in equal monthly installments over four years and annual stock option grants to existing directors vest inequal monthly installments over one year. Prior to fiscal year 2015, initial service-based RSU grants vested quarterly over a period of four years and annualservice-based RSU grants vested quarterly over a period of one year. Beginning in fiscal year 2015, initial service-based RSU grants vest daily over a periodof four years and annual service-based RSU grants vest daily over a period of one year.An aggregate of 4,333,939 shares of the Company’s common stock were reserved for issuance under the Directors’ Plan as of June 30, 2019. Thisamount is increased annually, by the sum of 200,000 shares and the aggregate number of shares of the Company’s common stock subject to awards grantedunder the Directors’ Plan during the immediately preceding fiscal year. There were 2,274,098 shares available for issuance under the Directors’ Plan as ofJune 30, 2019.74 Valuation AssumptionsThe Company uses the Black-Scholes option-pricing model to fair value its stock options and Monte Carlo simulation model to fair value its market-based RSUs. Options are granted with an exercise price equal to the fair value of the common stock at the date of grant. The Company calculates theweighted-average expected life of options using the simplified method pursuant to the accounting guidance for share-based payments as its historicalexercise experience does not provide a reasonable basis upon which to estimate expected term. The Company estimates the expected volatility of its commonstock based on its historical volatility over the expected term of the stock option and market-based RSU. The Company has no history or expectation ofpaying dividends on its common stock. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected term of the stockoption and market-based RSU.The weighted-average Black-Scholes model assumptions and the weighted-average grant date fair value of stock options in fiscal years 2019, 2018and 2017 were as follows: Fiscal Year Ended June 30, 2019 2018 2017 Expected term (in years) 4.4 4.6 4.5 Expected volatility 56% 48% 45%Expected dividend yield — — — Risk-free interest rate 2.5% 1.9% 1.3%Grant date fair value $6.86 $2.09 $1.41There were no market-based RSU grants during fiscal year 2019. The weighted-average Monte Carlo simulation model assumptions in fiscal years2018 and 2017 were as follows: Fiscal Year Ended June 30, 2018 2017 Expected term (in years) 4.0 4.0 Expected volatility 50% 45%Expected dividend yield — — Risk-free interest rate 2.4% 1.1%Grant date fair value $7.66 $3.01Stock Option Award ActivityThe following table summarizes the stock option award activity under the plans in fiscal years 2019 and 2018: Shares Weighted AverageExercise Price Weighted AverageRemainingContractual Life(In years) Aggregate IntrinsicValue(In thousands) Outstanding at June 30, 2017 4,221,579 $6.50 4.17 $996 Granted 802,080 4.98 Exercised (1,465,265) 7.59 Forfeited (6,700) 4.01 Expired (37,731) 11.73 Outstanding at June 30, 2018 3,513,963 $5.65 4.18 $24,989 Granted 81,029 14.52 Exercised (1,147,124) 6.71 Forfeited (28,349) 4.64 Expired (7,797) 11.17 Outstanding at June 30, 2019 2,411,722 $5.44 3.64 $25,123 Vested and expected-to-vest at June 30, 2019 (1) 2,347,050 $5.43 3.60 $24,479 Vested and exercisable at June 30, 2019 1,449,768 $5.72 2.90 $14,690 (1)The expected-to-vest options are the result of applying the pre-vesting forfeiture assumption to total outstanding options.75 The following table summarizes outstanding and exercisable stock options by range of exercise price as of June 30, 2019: Options Outstanding Options Exercisable Range or Exercise Prices Number of Shares Weighted AverageRemainingContractual Term Weighted AverageExercise Price Number of Shares Weighted AverageExercise Price $3.40 - $3.40 50,000 4.59 $3.40 29,166 $3.40 $3.59 - $3.59 360,417 4.42 $3.59 219,271 $3.59 $3.63 - $3.63 580,941 4.00 $3.63 277,649 $3.63 $3.91 - $3.91 75,000 2.34 $3.91 75,000 $3.91 $4.01 - $4.01 447,269 4.99 $4.01 131,087 $4.01 $4.31 - $5.79 244,816 2.10 $4.88 221,899 $4.93 $5.80 - $7.20 259,573 1.84 $6.42 240,410 $6.36 $8.26 - $13.77 286,203 3.44 $10.20 164,518 $9.39 $14.06 - $15.72 98,268 1.82 $15.42 90,768 $15.51 $18.35 - $18.35 9,235 6.27 $18.35 — $— $3.40 - $18.35 2,411,722 3.64 $5.44 1,449,768 $5.72The following table summarizes the total intrinsic value, the cash received and the actual tax benefit of all options exercised in fiscal years 2019, 2018and 2017 (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 Intrinsic value $9,749 $6,440 $— Cash received 7,702 11,115 — Tax benefit 1,399 — — As of June 30, 2019, there was $1.8 million of total unrecognized compensation expense related to unvested stock options which are expected to berecognized over a weighted-average period of 1.8 years.Service-Based Restricted Stock Unit ActivityThe following table summarizes the service-based RSU activity under the plans in fiscal years 2019 and 2018: Shares Weighted AverageGrant Date FairValue Weighted AverageRemainingContractual Life(In years) Aggregate IntrinsicValue(In thousands) Outstanding at June 30, 2017 2,549,663 $4.12 1.11 $10,632 Granted 1,622,672 4.63 Vested (1,408,386) 4.33 Forfeited (96,422) 4.57 Outstanding at June 30, 2018 2,667,527 $4.33 0.86 $33,878 Granted 1,042,354 13.96 Vested (1,638,840) 4.35 Forfeited (69,035) 8.68 Outstanding at June 30, 2019 2,002,006 $9.06 1.10 $31,732As of June 30, 2019, there was $12.1 million of total unrecognized compensation expense related to service-based RSUs.76 Market-Based Restricted Stock Unit ActivityThe following table summarizes the market-based RSU activity under the 2010 Incentive Plan in fiscal years 2019 and 2018: Shares Weighted AverageGrant Date FairValue Weighted AverageRemainingContractual Life(In years) Aggregate IntrinsicValue(In thousands) Outstanding at June 30, 2017 1,093,289 $4.57 1.22 $4,559 Granted 68,840 7.66 Vested (617,435) 4.75 Forfeited (46,426) 3.84 Outstanding at June 30, 2018 498,268 $4.89 0.96 $6,328 Granted — — Vested (273,941) 4.86 Forfeited (28,229) 4.61 Outstanding at June 30, 2019 196,098 $5.00 0.68 $3,108As of June 30, 2019, there was $0.2 million of total unrecognized compensation expense related to market-based RSUs.Performance-Based Restricted Stock Unit ActivityThe following table summarizes the performance-based RSU activity under the 2010 Incentive Plan in fiscal year 2019: Shares Weighted AverageGrant Date FairValue Weighted AverageRemainingContractual Life(In years) Aggregate IntrinsicValue(In thousands) Outstanding at June 30, 2018 — $— — $— Granted 742,547 15.85 Vested — — Forfeited (25,935) 15.85 Outstanding at June 30, 2019 716,612 $15.85 1.36 $11,358As of June 30, 2019, there was $4.9 million of total unrecognized compensation expense related to performance-based RSUs.At the time of vesting, a portion of RSUs are withheld by the Company to provide for federal and state tax withholding obligations resulting from therelease of the RSUs.13. Segment InformationOperating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly bythe chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chiefoperating decision maker, its chief executive officer, reviews financial information presented on a consolidated basis, and no expense or operating income isevaluated at a segment level. Given the consolidated level of review by the Company’s chief executive officer, the Company operates as one reportablesegment.The following tables set forth net revenue and long-lived assets by geographic area (in thousands): Fiscal Year Ended June 30, 2019 2018 2017 Net revenue: United States $445,957 $395,880 $292,370 International 9,197 8,478 7,415 Total net revenue $455,154 $404,358 $299,78577 June 30, 2019 2018 Property and equipment, net: United States $5,149 $3,875 International 261 336 Total property and equipment, net $5,410 $4,211 June 30, 2019 2018 Other intangible assets, net: United States $35,044 $8,441 International 74 132 Total other intangible assets, net $35,118 $8,573 14. Restructuring CostsIn November 2016, the Company announced a corporate restructuring in order to accelerate margin expansion and grow cash flow. The followingtable summarizes the restructuring charges for fiscal year 2017 (in thousands): Fiscal Year Ended June 30, 2017 Employee severance and benefits $2,399 Non-cash employee severance and benefits - stock-based compensation 42 Total restructuring charges $2,441The restructuring costs were paid in cash in fiscal year 2017. The corporate restructuring was complete as of June 30, 2017. There were no restructuringcharges for fiscal years 2019 and 2018.78 Item 9.Changes In and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated andcommunicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and ChiefFinancial Officer concluded that, as of such date, our disclosures and procedures were effective at the reasonable assurance level.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accountingprinciples. Our internal control over financial reporting includes those policies and procedures that: •pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets, •provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance withauthorizations of our management and directors, and •provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the consolidated financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.Our management has assessed the effectiveness of the internal control over financial reporting as of June 30, 2019. In making this assessment, ourmanagement used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control —Integrated Framework (2013 Framework). Based on this evaluation, our management has concluded that our internal control over financial reporting waseffective as of June 30, 2019.The effectiveness of our internal control over financial reporting as of June 30, 2019 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report which appears in this annual report on Form 10-K.79 Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting.Item 9B.Other InformationNone. 80 PART IIIItem 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item concerning directors and executive officers is incorporated herein by reference from the sections to be titled“Election of Class III Directors,” “Board of Directors” and “Directors and Executive Officers” in our definitive proxy statement to be filed with the Securitiesand Exchange Commission in connection with our 2019 annual meeting of stockholders (the “Proxy Statement”). The Proxy Statement is expected to befiled no later than 120 days after the end of our fiscal year ended June 30, 2019.The information required by this item with respect to Section 16(a) of the Exchange Act is incorporated herein by reference from the section to betitled “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement.Code of EthicsWe have adopted a Code of Conduct and Ethics that applies to all of our employees, officers (including our principal executive officer, principalfinancial officer, principal accounting officer or controller, or persons performing similar functions), agents and representatives, including directors andconsultants. We will make any required disclosure of future amendments to our Code of Conduct and Ethics, or waivers of such provisions, applicable to anyprincipal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors onthe investor relations page of our corporate website (www.quinstreet.com).Item 11.Executive CompensationThe information required by this item will be set forth in the sections to be titled “Report of the Compensation Committee,” “Board of Directors” and“Executive Compensation” in our Proxy Statement and is incorporated herein by reference.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item will be set forth in the sections to be titled “Executive Compensation” and “Stock Ownership of CertainBeneficial Owners and Management” in our Proxy Statement and is incorporated herein by reference.Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item will be included in the section to be titled “Stock Ownership of Certain Beneficial Owners and Management”and “Board of Directors” in the Proxy Statement and is incorporated herein by reference.Item 14.Principal Accountant Fees and ServicesThe information required by this item will be set forth in the section to be titled “Ratification of the Selection of PricewaterhouseCoopers LLP as ourIndependent Registered Public Accounting Firm” in our Proxy Statement and is incorporated herein by reference.81 PART IVItem 15.Exhibits, Financial Statement Schedules(a) We have filed the following documents as part of this Annual Report on Form 10-K:1. Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm49Consolidated Balance Sheets52Consolidated Statements of Operations53Consolidated Statements of Comprehensive Income (Loss)54Consolidated Statements of Stockholders’ Equity55Consolidated Statements of Cash Flows56Notes to Consolidated Financial Statements57 2. Financial Statement SchedulesThe following financial statement schedule is filed as a part of this report:Schedule II: Valuation and Qualifying AccountsThe activity in the allowance for doubtful accounts and the deferred tax asset valuation allowance are as follows (in thousands): Balance at thebeginning of theyear Charged toexpenses/againstrevenue (1) Write-offsnet of recoveries Balance at the endof the year Allowance for doubtful accounts Fiscal year 2017 $2,285 $291 $(626) $1,950 Fiscal year 2018 $1,950 $525 $(650) $1,825 Fiscal year 2019 (2) $1,625 $9,342 $(669) $10,298 Deferred tax asset valuation allowance Fiscal year 2017 $79,868 $2,096 $— $81,964 Fiscal year 2018 $81,964 $(24,767) $— $57,197 Fiscal year 2019 $57,197 $571 $(49,422) $8,346 (1)Additions to the allowance for doubtful accounts and the valuation allowance are charged to expense. Additions to the allowance for sales returns arecharged against revenue. (2)In fiscal year 2019, the Company adopted ASC 606 which requires allowance for sales returns to be classified as a liability. Accordingly, the balance as ofJuly 1, 2018 excludes an allowance for sales returns of $0.2 million.All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.(b) Exhibits ExhibitNumberDescription of ExhibitFormFile NumberExhibitFiling Date 82 2.1Stock Purchase Agreement, dated November 5, 2010, by andamong QuinStreet, Inc., Car Insurance.com, Inc., Car InsuranceAgency, Inc., Car Insurance Holdings, Inc., CarInsurance.com, Inc.,Lloyd Register IV, LloydRegister III, David Fitzgerald, Timothy Register, Randy Horowitzand Erick Pace.8-K001-346282.1November 8, 2010 3.1Amended and Restated Certificate of Incorporation.S-1/A333-1632283.2December 22, 2009 3.2Bylaws.S-1/A333-1632283.4December 22, 2009 4.1Form of QuinStreet, Inc.’s Common Stock Certificate.S-1/A333-1632284.1January 14, 2010 10.1+QuinStreet, Inc. 2008 Equity Incentive Plan.S-1333-16322810.1November 19, 2009 10.2+Forms of Option Agreement and Option Grant Notice under 2008Equity Incentive Plan (for non-executive officer employees).S-1333-16322810.2November 19, 2009 10.3+Forms of Option Agreement and Option Grant Notice under 2008Equity Incentive Plan (for executive officers).S-1333-16322810.3November 19, 2009 10.4+Forms of Option Agreement and Option Grant Notice under 2008Equity Incentive Plan (for non-employee directors).S-1333-16322810.4November 19, 2009 10.5+QuinStreet, Inc. 2010 Equity Incentive Plan.S-8333-16553499.9March 17, 2010 10.6+Forms of Option Agreement and Option Grant Notice under 2010Equity Incentive Plan (for non-executive officer employees).S-8333-16553499.10March 17, 2010 10.7+Forms of Option Agreement and Option Grant Notice under 2010Equity Incentive Plan (for executive officers).S-8333-16553499.11March 17, 2010 10.8+Forms of Senior Management Restricted Stock Unit (RSU) GrantNotice and Agreement under 2010 Equity Incentive Plan (forexecutive officers).10-K001-3462810.8August 23, 2012 10.9+Forms of Restricted Stock Unit (RSU) Grant Notice and Agreementunder 2010 Equity Incentive Plan (for non-executive officeremployees).10-K001-3462810.9August 23, 2012 10.10+Form of Restricted Stock Unit Agreement under 2010 EquityIncentive Plan (for non-employee directors).10-K001-3462810.10August 20, 2013 10.11+QuinStreet, Inc. 2010 Non-Employee Directors’ Stock Award Plan.S-8333-16553499.12March 17, 2010 10.12+Forms of Option Agreement and Option Grant Notice for InitialGrants under the 2010 Non-Employee Directors’ Stock Award Plan.S-8333-16553499.13March 17, 2010 10.13+Forms of Option Agreement and Option Grant Notice for AnnualGrants under the 2010 Non-Employee Directors’ Stock Award Plan.S-8333-16553499.14March 17, 2010 10.15+Annual Incentive Plan.S-1/A333-16322810.12January 14, 2010 10.16Second Amended and Restated Revolving Credit and Term LoanAgreement, by and among QuinStreet, Inc., the lenders thereto andComerica Bank as Administrative Agent Sole Lead Arranger andSole Bookrunner, Bank of America N.A. as Syndication Agent, andUnion Bank, N.A. as Documentation Agent dated as ofNovember 4, 2011.10-Q001-3462810.1November 8, 2011 83 10.17First Amendment to Second Amended and Restated RevolvingCredit and Term Loan Agreement andAmendment to Guaranty dated as of February 15, 2013.10-Q001-3462810.1February 15, 2013 10.18Office Lease Metro Center, dated as of February 25, 2010, betweenthe registrant and CA-Metro Center Limited Partnership.10-Q001-3462810.1May 12, 2010 10.19+Form of Indemnification Agreement made by and betweenQuinStreet, Inc. and each of its directors and executive officers.S-1/A333-16322810.19January 26, 2010 10.20Assurance of Voluntary Compliance dated June 26, 2012 by andamong QuinStreet, Inc. and the Attorneys General of the States ofAlabama, Arizona, Arkansas, Delaware, Florida, Idaho, Illinois,Iowa, Kentucky, Massachusetts, Mississippi, Missouri, Nevada,New York, North Carolina, Ohio, Oregon, South Carolina,Tennessee and West Virginia.8-K001-3462810.1June 27, 2012 10.21License and Investment Agreement by and among QuinStreet, Inc.,Bronwyn Syiek and TownB Corporation dated August 23, 2012.10-K001-3462810.19August 23, 2012 10.23Transition Agreement dated September 18, 2013 between theCompany and Scott Mackley.8-K001-3462810.1September 19, 2013 10.24Transition Agreement dated September 18, 2013 between theCompany and Bronwyn Syiek.8-K001-3462810.2September 19, 2013 10.26Second Amendment to the Second Amended and RestatedRevolving Credit and Term Loan Agreement, as amended fromtime to time, dated as of July 17, 2014, by and among QuinStreet,Inc., Comerica Bank, as administrative agent, and certain lendersparty thereto.8-K001-3462810.1July 22, 2014 10.27+Forms of Senior Management Performance-Based Restricted StockUnit (RSU) Grant Notice and Agreement under 2010 EquityIncentive Plan (for executive officers).10-K001-3462810.27September 12, 2014 10.28+Form of Deferred Restricted Stock Unit Agreement under 2010Non-Employee Directors’ Stock Award Plan.10-Q001-3462810.1February 6, 2015 10.29Third Amendment, to the Second Amended and RestatedRevolving Credit and Term Loan Agreement, as amended fromtime to time, dated as of June 11, 2015, by and among QuinStreet,Inc., Comerica Bank, as administrative agent, and certain lendersparty thereto.8-K001-3462810.1June 12, 2015 10.30+Forms of Performance-Based Restricted Stock Unit (RSU) GrantNotice and Agreement under 2010 Equity Incentive Plan (for non-executive officer employees).10-K001-3462810.30August 19, 2015 10.31Counselor Agreement dated December 31, 2015 between theCompany and William Bradley.10-Q001-3462810.1February 9, 2016 10.32Form of Change in Control Severance Agreement.10-Q001-3462810.1November 9, 2016 10.33+Forms of Restricted Stock Unit (RSU) Grant Notice and Agreementunder 2010 Equity Incentive Plan (for employees with a Change inControl Severance Agreement).10-K001-3462810.33September 8, 2017 10.34+Forms of Option Agreement and Option Grant Notice under 2010Equity Incentive Plan (for employees with a Change in ControlSeverance Agreement).10-K001-3462810.34September 8, 201784 10.35Amended Office Lease Metro Center, dated February 25, 2010between the registrant and CA-Metro Center Limited Partnership10-K001-3462810.35September 12, 2018 10.36#Share Purchase Agreement between QuinStreet, Inc., AmOne Corp.,and Rod Romero dated October 1, 2018.8-K001-346282.1October 5, 2018 10.37+Forms of Performance-Based Restricted Stock Unit (RSU) GrantNotice and Agreement under 2010 Equity Incentive Plan withRevenue and Adjusted EBITDA Performance Metrics (for non-executive officer employees).10-Q001-3462810.36November 9, 2018 10.38+Forms of Performance-Based Restricted Stock Unit (RSU) GrantNotice and Agreement under 2010 Equity Incentive Plan withRevenue and Adjusted EBITDA Performance Metrics (forexecutive officer).10-Q001-3462810.37November 9, 2018 10.39+Forms of Performance-Based Restricted Stock Unit (RSU) GrantNotice and Agreement under 2010 Equity Incentive Plan withRevenue and Adjusted EBITDA Performance Metrics (foremployees with a Change in Control Severance Agreement).10-Q001-3462810.38November 9, 2018 23.1*Consent of Independent Registered Public Accounting Firm. 24.1*Power of Attorney (incorporated by reference to the signature pageof this Annual Report on Form 10-K). 31.1*Certification of the Chief Executive Officer of QuinStreet, Inc.pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2*Certification of the Chief Financial Officer of QuinStreet, Inc.pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1**Section 1350 Certifications of Chief Executive Officer and ChiefFinancial Officer. 101.INS*XBRL Instance Document 101.SCH*XBRL Taxonomy Extension Schema Document 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document 101. LAB*XBRL Taxonomy Extension Label Linkbase Document 101. PRE*XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.**Furnished herewith.+Indicates management contract or compensatory plan.85 #The schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. QuinStreet, Inc. will furnish copies of such schedules tothe SEC upon its request; provided, however, that QuinStreet, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for anyschedule so furnished.Item 16.Form 10-K SummaryNone. 86 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on August 29, 2019. QuinStreet, Inc. By:/s/ Douglas Valenti Douglas Valenti Chairman and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas Valenti andGregory Wong, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him in any and allcapacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents inconnection therewith, with the Securities and Exchange Commission hereby ratifying and confirming that each of said attorneys-in-fact and agents, or hissubstitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. SignatureTitleDate /s/ Douglas ValentiChairman of the Board andAugust 29, 2019Douglas ValentiChief Executive Officer(Principal Executive Officer) /s/ Gregory WongChief Financial OfficerAugust 29, 2019Gregory Wong(Principal Financial andAccounting Officer) /s/ Matthew GlickmanDirectorAugust 29, 2019Matthew Glickman /s/ Stuart HuizingaDirectorAugust 29, 2019Stuart Huizinga /s/ Robin JosephsDirectorAugust 29, 2019Robin Josephs /s/ David PauldineDirectorAugust 29, 2019David Pauldine /s/ Gregory SandsDirectorAugust 29, 2019Gregory Sands /s/ Andrew SheehanDirectorAugust 29, 2019Andrew Sheehan /s/ James SimonsDirectorAugust 29, 2019James Simons 87 Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S‑8 (Nos. 333-227296, 333-220397, 333-213220, 333-206472,333-198714, 333-190735, 333-183517, 333-176272, 333-168322, 333-165534) of QuinStreet, Inc. of our report dated August 29, 2019 relating to thefinancial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K. /s/ PricewaterhouseCoopers LLP San Jose, CaliforniaAugust 29, 2019  Exhibit 31.1CERTIFICATION PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACTI, Douglas Valenti, certify that: 1. I have reviewed this annual report on Form 10-K of QuinStreet, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: August 29, 2019 /s/ Douglas ValentiDouglas ValentiChairman and Chief Executive Officer(Principal Executive Officer)  Exhibit 31.2CERTIFICATION PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACTI, Gregory Wong, certify that: 1. I have reviewed this annual report on Form 10-K of QuinStreet, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: August 29, 2019 /s/ Gregory WongGregory WongChief Financial Officer(Principal Financial and Accounting Officer) Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEFFINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002The certification set forth below is being submitted in connection with the report on Form 10-K of QuinStreet, Inc. (the “Report”) for the purpose ofcomplying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18of the United States Code.Douglas Valenti, the Chief Executive Officer and Gregory Wong, the Chief Financial Officer of QuinStreet, Inc., each certifies that, to the best of hisknowledge:1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofQuinStreet, Inc.Date: August 29, 2019 /s/ Douglas ValentiName: Douglas ValentiChairman and Chief Executive Officer(Principal Executive Officer) /s/ Gregory WongName: Gregory WongChief Financial Officer(Principal Financial and Accounting Officer) 

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