##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 001-34628
 QuinStreet, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    77-0512121(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer
Identification No.)950 Tower Lane, 6th FloorFoster City, California
    
    94404(Address of principal executive offices)
    
    (Zip Code)
 650-578-7700
Registrants Telephone Number, Including Area Code
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



QUINSTREET, INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at December 31, 2010 and June 30, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3. Defaults Upon Senior Securities
    
    
    52Item 4. (Removed and Reserved)
    
    
    52Item 5. Other Information
    
    
    52Item 6. Exhibits
    
    
    53SIGNATURES
    
    
    54EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 QUINSTREET, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 December 31,
    
    
    June 30,2010
    
    
    2010AssetsCurrent assetsCash and cash equivalents
    
    $
    106,821
    
    
    $
    155,770Marketable securities
    
    
    18,903
    
    
    
    Accounts receivable, net
    
    
    52,421
    
    
    
    51,466Deferred tax assets
    
    
    8,527
    
    
    
    8,528Prepaid expenses and other assets
    
    
    10,883
    
    
    
    3,123Total current assets
    
    
    197,555
    
    
    
    218,887Property and equipment, net
    
    
    9,370
    
    
    
    5,419Goodwill
    
    
    211,161
    
    
    
    158,582Other intangible assets, net
    
    
    77,182
    
    
    
    47,156Deferred tax assets, noncurrent
    
    
    3,972
    
    
    
    3,972Other assets, noncurrent
    
    
    453
    
    
    
    614Total assets
    
    $
    499,693
    
    
    $
    434,630Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    22,604
    
    
    $
    16,776Accrued liabilities
    
    
    28,597
    
    
    
    30,144Deferred revenue
    
    
    1,809
    
    
    
    1,241Debt
    
    
    15,414
    
    
    
    15,562Total current liabilities
    
    
    68,424
    
    
    
    63,723Deferred revenue, noncurrent
    
    
    177
    
    
    
    305Debt, noncurrent
    
    
    101,607
    
    
    
    78,046Other liabilities, noncurrent
    
    
    2,926
    
    
    
    2,534Total liabilities
    
    
    173,134
    
    
    
    144,608Commitments and contingencies (See Note 8)Stockholders equityCommon stock: $0.001 par value; 100,000,000 shares authorized;
48,683,445 and 47,247,147 shares issued, and 46,505,993 and
45,069,695
shares outstanding at December 31, 2010 and June 30, 2010,
respectively
    
    
    49
    
    
    
    47Additional paid-in capital
    
    
    239,724
    
    
    
    217,581Treasury stock, at cost (2,177,452 shares at December 31, 2010
and June 30, 2010,
respectively)
    
    
    (7,779
    )
    
    
    (7,779
    )Accumulated other comprehensive (loss) income
    
    
    (28
    )
    
    
    9Retained earnings
    
    
    94,593
    
    
    
    80,164Total stockholders equity
    
    
    326,559
    
    
    
    290,022Total liabilities and stockholders equity
    
    $
    499,693
    
    
    $
    434,630
  3




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##### Table of Contents



QUINSTREET, INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    $
    97,582
    
    
    $
    76,963
    
    
    $
    201,198
    
    
    $
    155,515Cost of revenue (1)
    
    
    70,662
    
    
    
    56,557
    
    
    
    144,291
    
    
    
    111,604Gross profit
    
    
    26,920
    
    
    
    20,406
    
    
    
    56,907
    
    
    
    43,911Operating expenses: (1)Product development
    
    
    5,933
    
    
    
    4,739
    
    
    
    11,484
    
    
    
    9,209Sales and marketing
    
    
    4,665
    
    
    
    3,990
    
    
    
    9,410
    
    
    
    7,615General and administrative
    
    
    4,943
    
    
    
    6,203
    
    
    
    9,665
    
    
    
    9,644Operating income
    
    
    11,379
    
    
    
    5,474
    
    
    
    26,348
    
    
    
    17,443Interest income
    
    
    47
    
    
    
    8
    
    
    
    114
    
    
    
    17Interest expense
    
    
    (1,028
    )
    
    
    (881
    )
    
    
    (2,017
    )
    
    
    (1,629
    )Other income (expense), net
    
    
    (79
    )
    
    
    165
    
    
    
    85
    
    
    
    285Income before income taxes
    
    
    10,319
    
    
    
    4,766
    
    
    
    24,530
    
    
    
    16,116Provision for taxes
    
    
    (3,391
    )
    
    
    (2,356
    )
    
    
    (10,101
    )
    
    
    (7,193
    )Net income
    
    $
    6,928
    
    
    $
    2,410
    
    
    $
    14,429
    
    
    $
    8,923Net income attributable to common stockholdersBasic
    
    $
    6,928
    
    
    $
    620
    
    
    $
    14,429
    
    
    $
    2,831Diluted
    
    $
    6,928
    
    
    $
    708
    
    
    $
    14,429
    
    
    $
    3,154Net income per share attributable to common stockholdersBasic
    
    $
    0.15
    
    
    $
    0.05
    
    
    $
    0.32
    
    
    $
    0.21Diluted
    
    $
    0.14
    
    
    $
    0.04
    
    
    $
    0.30
    
    
    $
    0.20Weighted average shares used in computing net income
per share attributable to common stockholdersBasic
    
    
    45,858
    
    
    
    13,521
    
    
    
    45,478
    
    
    
    13,463Diluted
    
    
    49,194
    
    
    
    16,958
    
    
    
    48,153
    
    
    
    16,169
 
 (1)
    
    Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue
    
    $
    1,129
    
    
    $
    762
    
    
    $
    2,273
    
    
    $
    1,490Product development
    
    
    691
    
    
    
    631
    
    
    
    1,415
    
    
    
    884Sales and marketing
    
    
    992
    
    
    
    834
    
    
    
    2,198
    
    
    
    1,341General and administrative
    
    
    804
    
    
    
    2,637
    
    
    
    1,460
    
    
    
    3,378
  4




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QUINSTREET, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedDecember 31,2010
    
    
    2009Cash Flows from Operating ActivitiesNet income
    
    $
    14,429
    
    
    $
    8,923Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    12,620
    
    
    
    8,603Provision for sales returns and doubtful accounts receivable
    
    
    (468
    )
    
    
    (124
    )Stock-based compensation
    
    
    7,346
    
    
    
    7,093Excess tax benefits from stock-based compensation
    
    
    (5,312
    )
    
    
    (1,372
    )Other non-cash adjustments, net
    
    
    85
    
    
    
    309Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    123
    
    
    
    (4,076
    )Prepaid expenses and other assets
    
    
    (2,705
    )
    
    
    (4,352
    )Other assets, noncurrent
    
    
    167
    
    
    
    (796
    )Accounts payable
    
    
    5,255
    
    
    
    1,946Accrued liabilities
    
    
    (2,654
    )
    
    
    752Deferred revenue
    
    
    440
    
    
    
    (828
    )Other liabilities, noncurrent
    
    
    392
    
    
    
    (1
    )Net cash provided by operating activities
    
    
    29,718
    
    
    
    16,077Cash Flows from Investing ActivitiesRestricted cash
    
    
    (6
    )
    
    
    15Proceeds from sales of property and equipment
    
    
    
    
    
    
    43Capital expenditures
    
    
    (2,947
    )
    
    
    (1,035
    )Business acquisitions, net of notes payable and cash acquired
    
    
    (86,628
    )
    
    
    (45,952
    )Internal software development costs
    
    
    (880
    )
    
    
    (647
    )Purchases of marketable securities
    
    
    (18,916
    )
    
    
    Net cash used in investing activities
    
    
    (109,377
    )
    
    
    (47,576
    )Cash Flows from Financing ActivitiesPayments for issuance of common stock
    
    
    (106
    )
    
    
    (402
    )Proceeds from exercise of common stock options
    
    
    9,614
    
    
    
    1,252Proceeds from bank debt
    
    
    24,800
    
    
    
    43,300Principal payments on bank debt
    
    
    (1,775
    )
    
    
    (1,500
    )Principal payments on acquisition-related notes payable
    
    
    (7,111
    )
    
    
    (2,843
    )Excess tax benefits from stock-based compensation
    
    
    5,312
    
    
    
    1,372Repurchases of common stock
    
    
    
    
    
    
    (715
    )Net cash provided by financing activities
    
    
    30,734
    
    
    
    40,464Effect of exchange rate changes on cash and cash equivalents
    
    
    (24
    )
    
    
    (8
    )Net (decrease) increase in cash and cash equivalents
    
    
    (48,949
    )
    
    
    8,957Cash and cash equivalents at beginning of period
    
    
    155,770
    
    
    
    25,182Cash and cash equivalents at end of period
    
    $
    106,821
    
    
    $
    34,139Supplemental Disclosure of Cash Flow InformationCash paid for interest
    
    
    1,940
    
    
    
    1,142Cash paid for taxes
    
    
    12,974
    
    
    
    11,029Supplemental Disclosure of Noncash Investing and Financing
ActivitiesNotes payable issued in connection with business acquisitions
    
    
    2,956
    
    
    
    10,484
  5




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QUINSTREET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)  Unaudited)
 1. The Company
  2. Summary of Significant Accounting Policies
 Basis of Presentation
 Principles of Consolidation
  Unaudited Interim Financial Information
   Use of Estimates
  Revenue Recognition
  6




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
        Concentrations of Credit Risk
    7




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Fair Value of Financial Instruments
  Goodwill
   Long-Lived Assets
  Income Taxes
   8




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Stock-Based Compensation
    Recent Accounting Pronouncements
  
    
    provide updated guidance on whether multiple deliverables exist, how the deliverables in
an arrangement should be separated, and how the consideration should be allocated;
    
    require an entity to allocate revenue in an arrangement using the estimated selling price
(ESP) of deliverables if a vendor does not have vendor-specific objective evidence
(VSOE) of selling price or third-party evidence (TPE) of selling price;
    
    and eliminate the use of the residual method and require an entity to allocate revenue
using the relative selling price method.
   3. Net Income Attributable to Common Stockholders and Net Income per Share
   9




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009(2 )
    
    
    2010
    
    
    2009(2 )(In thousands, except per share data)Numerator:Basic:Net income
    
    $
    6,928
    
    
    $
    2,410
    
    
    $
    14,429
    
    
    $
    8,9238% non-cumulative dividends on convertible preferred stock
    
    
    
    
    
    
    (819
    )
    
    
    
    
    
    
    (1,638
    )Undistributed earnings allocated to convertible preferred stock
    
    
    
    
    
    
    (971
    )
    
    
    
    
    
    
    (4,454
    )Net income attributable to common stockholders  basic
    
    $
    6,928
    
    
    $
    620
    
    
    $
    14,429
    
    
    $
    2,831Diluted:Net income attributable to common stockholders  basic
    
    $
    6,928
    
    
    $
    620
    
    
    $
    14,429
    
    
    $
    2,831Undistributed earnings re-allocated to common stock
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    323Net income attributable to common stockholders  diluted
    
    $
    6,928
    
    
    $
    708
    
    
    $
    14,429
    
    
    $
    3,154Denominator:Basic:Weighted average shares of common stock used in
computing basic net income per share
    
    
    45,858
    
    
    
    13,521
    
    
    
    45,478
    
    
    
    13,463Diluted:Weighted average shares of common stock used in
computing basic net income per share
    
    
    45,858
    
    
    
    13,521
    
    
    
    45,478
    
    
    
    13,463Add weighted average effect of dilutive securities:Stock options
    
    
    3,264
    
    
    
    3,437
    
    
    
    2,639
    
    
    
    2,706Restricted stock units
    
    
    72
    
    
    
    
    
    
    
    36
    
    
    
    Weighted average shares of common stock
used in computing diluted net income per share
    
    
    49,194
    
    
    
    16,958
    
    
    
    48,153
    
    
    
    16,169Net income per share attributable to common stockholdersBasic
    
    $
    0.15
    
    
    $
    0.05
    
    
    $
    0.32
    
    
    $
    0.21Diluted
    
    $
    0.14
    
    
    $
    0.04
    
    
    $
    0.30
    
    
    $
    0.20Securities excluded from weighted average shares used in computing diluted
net income per share because the effect would have been anti-dilutive: (1)
    
    
    1,918
    
    
    
    1,735
    
    
    
    3,633
    
    
    
    2,955
 
 (1)
    
    These weighted shares relate to anti-dilutive stock options and restricted stock units as calculated using the treasury stock method and could be dilutive in the future.(2)
    
    Earnings per share for the three and six months ended December 31, 2009 are presented before the conversion of the convertible preferred stock in connection with the IPO under the two-class method. 4. Marketable Securities and Fair Value Measurements
 Marketable Securities
  10




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
  As of December 31, 2010Gross
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS government securities
    
    $
    28,996
    
    
    $
    
    
    
    $
    
    
    
    $
    28,996Time deposits
    
    
    12,542
    
    
    
    
    
    
    
    13
    
    
    
    12,529Money market funds
    
    
    972
    
    
    
    
    
    
    
    
    
    
    
    972$
    42,510
    
    
    $
    
    
    
    $
    13
    
    
    $
    42,497
 As of June 30, 2010Gross
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMoney market funds
    
    $
    133,128
    
    
    $
    
    
    
    $
    
    
    
    $
    133,128$
    133,128
    
    
    $
    
    
    
    $
    
    
    
    $
    133,128
  Fair Value Measurements
   Level 1
    
    Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities.Level 2
    
    Inputs are quoted prices for similar assets and liabilities in active markets or
inputs that are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument.Level 3
    
    Inputs are unobservable inputs based on the Companys assumptions.
  Quoted Prices in
    
    
    Significant OtherActive Markets
    
    
    Observablefor Identical Assets
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)Assets:US government securities
    
    $
    28,996
    
    
    $
    28,996
    
    
    $
    Time deposits
    
    
    12,529
    
    
    
    
    
    
    
    12,529Money market funds
    
    
    972
    
    
    
    972
    
    
    
    Total at December 31, 2010
    
    $
    42,497
    
    
    $
    29,968
    
    
    $
    12,529Assets:Money market funds
    
    $
    133,128
    
    
    $
    133,128
    
    
    $
    Total at June 30, 2010
    
    $
    133,128
    
    
    $
    133,128
    
    
    $
    
 11




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 5. Acquisitions
 Acquisitions in Fiscal Year 2011
 Acquisition of CarInsurance.com
  AmountCash
    
    $
    49,655$
    49,655
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    660Liabilities assumed
    
    
    (807
    )Content
    
    
    16,130
    
    
    7 yearsAdvertiser relationships
    
    
    260
    
    
    6-7 yearsWebsite/trade/domain names
    
    
    4,350
    
    
    10 yearsAcquired technology and others
    
    
    3,000
    
    
    2-4 yearsNoncompete agreements
    
    
    40
    
    
    4 yearsGoodwill
    
    
    26,022
    
    
    Indefinite$
    49,655
 Acquisition of Insurance.com
  AmountCash
    
    $
    33,000Fair value of debt (net of $157 of imputed interest)
    
    
    2,483$
    35,483
  12




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    1,204Content
    
    
    4,290
    
    
    4 yearsAdvertiser relationships
    
    
    2,120
    
    
    7 yearsWebsite/trade/domain names
    
    
    2,940
    
    
    10 yearsAcquired technology and others
    
    
    5,530
    
    
    2-4 yearsNoncompete agreements
    
    
    60
    
    
    5 yearsGoodwill
    
    
    19,339
    
    
    Indefinite$
    35,483
 Other Acquisitions in Fiscal Year 2011
  AmountCash
    
    $
    4,003Fair value of debt (net of $27 of imputed interest)
    
    
    4,973$
    8,976
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeContent
    
    $
    1,052
    
    
    3-5 yearsCustomer/publisher relationships
    
    
    197
    
    
    5 yearsWebsite/trade/domain names
    
    
    447
    
    
    4-5 yearsNoncompete agreements
    
    
    62
    
    
    1-3 yearsGoodwill
    
    
    7,218
    
    
    Indefinite$
    8,976
 Acquisitions in Fiscal Year 2010
 Acquisition of Internet.com
  13




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 AmountCash
    
    $
    15,943Fair value of debt (net of $46 of imputed interest)
    
    
    1,654$
    17,597
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    3,136Liabilities assumed
    
    
    (503
    )Advertiser relationships
    
    
    1,300
    
    
    5-7 yearsWebsite/trade/domain names
    
    
    2,500
    
    
    5 yearsContent
    
    
    2,400
    
    
    4 yearsNoncompete agreements
    
    
    200
    
    
    2 yearsGoodwill
    
    
    8,564
    
    
    Indefinite$
    17,597
 Acquisition of Insure.com
  AmountCash
    
    $
    15,000Fair value of debt (net of $24 of imputed interest)
    
    
    976$
    15,976
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeAdvertiser relationships
    
    $
    900
    
    
    3 yearsWebsite/trade/domain names
    
    
    1,250
    
    
    8 yearsContent
    
    
    3,900
    
    
    8 yearsGoodwill
    
    
    9,926
    
    
    Indefinite$
    15,976
 14




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Acquisition of Payler Corp. D/B/A HSH Associates Financial Publishers (HSH)
  AmountCash
    
    $
    6,000Fair value of debt (net of $241 of imputed interest)
    
    
    3,759$
    9,759
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    50Liabilities assumed
    
    
    (1,695
    )Advertiser relationships
    
    
    1,100
    
    
    3 yearsWebsite/trade/domain names
    
    
    800
    
    
    6 yearsContent
    
    
    1,400
    
    
    6 yearsGoodwill
    
    
    8,104
    
    
    Indefinite$
    9,759
 Other Acquisitions in Fiscal Year 2010
  AmountCash
    
    $
    29,882Fair value of debt (net of $531 of imputed interest)
    
    
    8,112$
    37,994
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    45Content
    
    
    8,384
    
    
    1-6 yearsCustomer/publisher relationships
    
    
    1,150
    
    
    1-7 yearsWebsite/trade/domain names
    
    
    2,748
    
    
    5 yearsNoncompete agreements
    
    
    224
    
    
    2-3 yearsAcquired technology
    
    
    199
    
    
    3 yearsGoodwill
    
    
    25,244
    
    
    Indefinite$
    37,994
 15




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Pro Forma Financial Information
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2010
    
    2009
    
    2010
    
    2009Net revenue
    
    $
    98,636
    
    
    $
    78,970
    
    
    $
    202,732
    
    
    $
    159,310Net income
    
    
    6,917
    
    
    
    2,036
    
    
    
    14,391
    
    
    
    8,605Basic net income per share
    
    $
    0.15
    
    
    $
    0.04
    
    
    $
    0.32
    
    
    $
    0.20Diluted net income per share
    
    $
    0.14
    
    
    $
    0.03
    
    
    $
    0.30
    
    
    $
    0.19
 6. Intangible Assets, Net and Goodwill
  December 31, 2010
    
    
    June 30, 2010Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer/publisher/advertiser relationships
    
    $
    29,233
    
    
    $
    (14,180
    )
    
    $
    15,053
    
    
    $
    26,656
    
    
    $
    (11,455
    )
    
    $
    15,201Content
    
    
    56,441
    
    
    
    (20,504
    )
    
    
    35,937
    
    
    
    34,969
    
    
    
    (16,454
    )
    
    
    18,515Website/trade/domain names
    
    
    23,438
    
    
    
    (6,779
    )
    
    
    16,659
    
    
    
    15,701
    
    
    
    (5,198
    )
    
    
    10,503Acquired technology and others
    
    
    20,168
    
    
    
    (10,635
    )
    
    
    9,533
    
    
    
    11,477
    
    
    
    (8,540
    )
    
    
    2,937$
    129,280
    
    
    $
    (52,098
    )
    
    $
    77,182
    
    
    $
    88,803
    
    
    $
    (41,647
    )
    
    $
    47,156
   Year Ending June 30,2011 (remaining six months)
    
    $
    11,6422012
    
    
    20,7952013
    
    
    15,2142014
    
    
    10,5142015
    
    
    6,7112016 and thereafter
    
    
    12,306$
    77,182
  DMS
    
    
    DSS
    
    
    TotalBalance at June 30, 2010
    
    $
    157,351
    
    
    $
    1,231
    
    
    $
    158,582Additions
    
    
    52,579
    
    
    
    
    
    
    
    52,579Balance at December 31, 2010
    
    $
    209,930
    
    
    $
    1,231
    
    
    $
    211,161
 16




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
  7. Debt
 Promissory Notes
  Credit Facility
        17




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 Debt Maturities
  Promissory
    
    
    CreditYear Ending June 30,
    
    Notes
    
    
    Facility2011 (remaining six months)
    
    $
    9,163
    
    
    $
    2,1872012
    
    
    3,409
    
    
    
    7,0002013
    
    
    4,846
    
    
    
    12,6882014
    
    
    1,624
    
    
    
    77,0532015
    
    
    560
    
    
    
    2016 and thereafter
    
    
    50
    
    
    
    19,652
    
    
    
    98,928Less: imputed interest and unamortized discounts
    
    
    (466
    )
    
    
    (1,093
    )Less: current portion
    
    
    (10,961
    )
    
    
    (4,453
    )Noncurrent portion of debt
    
    $
    8,225
    
    
    $
    93,382
 Letters of Credit
  8. Commitments and Contingencies
 Leases
   OperatingYear Ending June 30,
    
    Leases2011 (remaining six months)
    
    $
    4082012
    
    
    1,2342013
    
    
    2,1622014
    
    
    2,4212015
    
    
    2,4682016
    
    
    2,482Thereafter
    
    
    5,875$
    17,050
   18




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
   Guarantor Arrangements
    Litigation
  9. Stock Benefit Plans
 Stock Incentive Plans
   19




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
      Stock-Based Compensation
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2010
    
    2009
    
    2010
    
    2009Expected term (in years)
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6Expected volatility
    
    
    55
    %
    
    
    61
    %
    
    
    54
    %
    
    
    68
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    1.5
    %
    
    
    2.3
    %
    
    
    1.5
    %
    
    
    2.4
    %Grant date fair value
    
    $
    7.17
    
    
    $
    9.74
    
    
    $
    6.31
    
    
    $
    9.55
   20




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##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
 10. Stockholders Equity
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    6,928
    
    
    $
    2,410
    
    
    $
    14,429
    
    
    $
    8,923Other comprehensive income (loss)Unrealized loss on investments
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )
    
    
    Foreign currency translation adjustment
    
    
    (5
    )
    
    
    10
    
    
    
    (24
    )
    
    
    (8
    )Comprehensive income
    
    $
    6,910
    
    
    $
    2,420
    
    
    $
    14,392
    
    
    $
    8,915
 11. Segment Information
   21




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QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)  (Unaudited)
    Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue by segment:DMS
    
    $
    97,228
    
    
    $
    76,173
    
    
    $
    200,534
    
    
    $
    154,330DSS
    
    
    354
    
    
    
    790
    
    
    
    664
    
    
    
    1,185Total net revenue
    
    
    97,582
    
    
    
    76,963
    
    
    
    201,198
    
    
    
    155,515Segment
operating income before depreciation, amortization, and stock-based compensation expense:DMS
    
    
    21,479
    
    
    
    14,426
    
    
    
    45,911
    
    
    
    32,428DSS
    
    
    239
    
    
    
    563
    
    
    
    403
    
    
    
    711Total
segment operating income before depreciation, amortization, and stock-based compensation expense
    
    
    21,718
    
    
    
    14,989
    
    
    
    46,314
    
    
    
    33,139Depreciation and amortization
    
    
    (6,723
    )
    
    
    (4,651
    )
    
    
    (12,620
    )
    
    
    (8,603
    )Stock-based compensation expense
    
    
    (3,616
    )
    
    
    (4,864
    )
    
    
    (7,346
    )
    
    
    (7,093
    )Total operating income
    
    $
    11,379
    
    
    $
    5,474
    
    
    $
    26,348
    
    
    $
    17,443
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue:United States
    
    $
    97,098
    
    
    $
    76,408
    
    
    $
    200,493
    
    
    $
    154,858International
    
    
    484
    
    
    
    555
    
    
    
    705
    
    
    
    657Total net revenue
    
    $
    97,582
    
    
    $
    76,963
    
    
    $
    201,198
    
    
    $
    155,515
 December 31,
    
    
    June 30,2010
    
    
    2010Long-lived assets:United States
    
    $
    9,164
    
    
    $
    5,193International
    
    
    206
    
    
    
    226Total long-lived assets
    
    $
    9,370
    
    
    $
    5,419
 12. Subsequent Events
  22




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our condensed consolidated financial statements and related
notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K
for the fiscal year ended June 30, 2010, as filed with the Securities and Exchange Commission
(SEC) on September 13, 2010.
 This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are often identified by the use of words such as, but not limited to,
anticipate, believe, can, continue, could, estimate, expect, intend, may, will,
plan, project, seek, should, target, will, would, and similar expressions or
variations intended to identify forward-looking statements. These statements are based on the
beliefs and assumptions of our management based on information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and other important factors
that could cause actual results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified in Part II Item
1A. Risk Factors below, and those discussed in the sections titled Special Note Regarding
Forward-Looking Statements and Risk Factors included in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2010, as filed with the SEC on September 13, 2010. Furthermore, such
forward-looking statements speak only as of the date of this report. Except as required by law, we
undertake no obligation to update any forward-looking statements to reflect events or circumstances
after the date of such statements.
 Management Overview
   
    
    We own or access targeted media;
    
    We run advertisements or other forms of marketing messages and programs in that media to
create visitor responses or clicks through to client offerings;
    
    We match these responses or clicks to client offerings that meet visitor interests or
needs, converting visitors into qualified leads or clicks; and
    
    We optimize client matches and media yield such that we achieve desired results for
clients and a sound financial outcome for us.
  23




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##### Table of Contents



Trends Affecting our Business
 Client Verticals
  Acquisitions
 Acquisitions in Fiscal Year 2011
  Acquisitions in Fiscal Year 2010
  24




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##### Table of Contents



Development and Acquisition of Targeted Media
  Seasonality
  Basis of Presentation
 General
  Net Revenue
 DMS.
 DSS.
 Cost of Revenue
  25




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##### Table of Contents



Operating Expenses
  Product Development.
 Sales and Marketing.
 General and Administrative
 Interest and Other Income (Expense), Net
   Income Tax Expense
    26




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##### Table of Contents



Critical Accounting Policies, Estimates and Judgments
    
    
    Revenue recognition;
    
    Stock-based compensation;
    
    Goodwill;
    
    Long-lived assets; and
    
    Income taxes.
  Recently Issued Accounting Standards
  27




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##### Table of Contents



Results of Operations
  Three Months Ended December 31,
    
    
    Six Months Ended December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net revenue
    
    $
    97,582
    
    
    
    100.0
    %
    
    $
    76,963
    
    
    
    100.0
    %
    
    $
    201,198
    
    
    
    100.0
    %
    
    $
    155,515
    
    
    
    100.0
    %Cost of revenue (1)
    
    
    70,662
    
    
    
    72.4
    
    
    
    56,557
    
    
    
    73.5
    
    
    
    144,291
    
    
    
    71.7
    
    
    
    111,604
    
    
    
    71.8Gross profit
    
    
    26,920
    
    
    
    27.6
    
    
    
    20,406
    
    
    
    26.5
    
    
    
    56,907
    
    
    
    28.3
    
    
    
    43,911
    
    
    
    28.2Operating expenses: (1)Product development
    
    
    5,933
    
    
    
    6.1
    
    
    
    4,739
    
    
    
    6.1
    
    
    
    11,484
    
    
    
    5.7
    
    
    
    9,209
    
    
    
    5.9Sales and marketing
    
    
    4,665
    
    
    
    4.8
    
    
    
    3,990
    
    
    
    5.2
    
    
    
    9,410
    
    
    
    4.7
    
    
    
    7,615
    
    
    
    4.9General and administrative
    
    
    4,943
    
    
    
    5.0
    
    
    
    6,203
    
    
    
    8.1
    
    
    
    9,665
    
    
    
    4.8
    
    
    
    9,644
    
    
    
    6.2Operating income
    
    
    11,379
    
    
    
    11.7
    
    
    
    5,474
    
    
    
    7.1
    
    
    
    26,348
    
    
    
    13.1
    
    
    
    17,443
    
    
    
    11.2Interest income
    
    
    47
    
    
    
    0.1
    
    
    
    8
    
    
    
    0.0
    
    
    
    114
    
    
    
    0.1
    
    
    
    17
    
    
    
    0.0Interest expense
    
    
    (1,028
    )
    
    
    (1.1
    )
    
    
    (881
    )
    
    
    (1.1
    )
    
    
    (2,017
    )
    
    
    (1.0
    )
    
    
    (1,629
    )
    
    
    (1.0
    )Other income (expense), net
    
    
    (79
    )
    
    
    (0.1
    )
    
    
    165
    
    
    
    0.2
    
    
    
    85
    
    
    
    0.0
    
    
    
    285
    
    
    
    0.2Income before income taxes
    
    
    10,319
    
    
    
    10.6
    
    
    
    4,766
    
    
    
    6.2
    
    
    
    24,530
    
    
    
    12.2
    
    
    
    16,116
    
    
    
    10.4Provision for taxes
    
    
    (3,391
    )
    
    
    (3.5
    )
    
    
    (2,356
    )
    
    
    (3.1
    )
    
    
    (10,101
    )
    
    
    (5.0
    )
    
    
    (7,193
    )
    
    
    (4.7
    )Net income
    
    $
    6,928
    
    
    
    7.1
    %
    
    $
    2,410
    
    
    
    3.1
    %
    
    $
    14,429
    
    
    
    7.2
    %
    
    $
    8,923
    
    
    
    5.7
    %
 
 (1)
    
    Cost of revenue and operating expenses include stock-based compensation expense as
follows: Cost of revenue
    
    $
    1,129
    
    
    
    1.2
    %
    
    $
    762
    
    
    
    1.0
    %
    
    $
    2,273
    
    
    
    1.1
    %
    
    $
    1,490
    
    
    
    1.0
    %Product development
    
    
    691
    
    
    
    0.7
    
    
    
    631
    
    
    
    0.8
    
    
    
    1,415
    
    
    
    0.7
    
    
    
    884
    
    
    
    0.6Sales and marketing
    
    
    992
    
    
    
    1.0
    
    
    
    834
    
    
    
    1.1
    
    
    
    2,198
    
    
    
    1.1
    
    
    
    1,341
    
    
    
    0.9General and administrative
    
    
    804
    
    
    
    0.8
    
    
    
    2,637
    
    
    
    3.4
    
    
    
    1,460
    
    
    
    0.7
    
    
    
    3,378
    
    
    
    2.2
 Net Revenue
 Three Months Ended
    
    
    Six Months Ended
    
    
    Three
    
    
    SixDecember 31,
    
    
    December 31,
    
    
    Months
    
    
    Months2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(in thousands)Net revenue
    
    $
    97,582
    
    
    $
    76,963
    
    
    $
    201,198
    
    
    $
    155,515
    
    
    
    27
    %
    
    
    29
    %Cost of revenue
    
    
    70,662
    
    
    
    56,557
    
    
    
    144,291
    
    
    
    111,604
    
    
    
    25
    %
    
    
    29
    %Gross profit
    
    $
    26,920
    
    
    $
    20,406
    
    
    $
    56,907
    
    
    $
    43,911
    
    
    
    32
    %
    
    
    30
    %
   28




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##### Table of Contents



Cost of Revenue
   Operating Expenses
 Three Months Ended
    
    
    Six Months Ended
    
    
    Three
    
    
    SixDecember 31,
    
    
    December 31,
    
    
    Months
    
    
    Months2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(in thousands)Product development
    
    $
    5,933
    
    
    $
    4,739
    
    
    $
    11,484
    
    
    $
    9,209
    
    
    
    25
    %
    
    
    25
    %Sales and marketing
    
    
    4,665
    
    
    
    3,990
    
    
    
    9,410
    
    
    
    7,615
    
    
    
    17
    %
    
    
    24
    %General and administrative
    
    
    4,943
    
    
    
    6,203
    
    
    
    9,665
    
    
    
    9,644
    
    
    
    -20
    %
    
    
    0
    %Operating expenses
    
    $
    15,541
    
    
    $
    14,932
    
    
    $
    30,559
    
    
    $
    26,468
    
    
    
    4
    %
    
    
    15
    %
 Product Development Expenses
   29




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##### Table of Contents



Sales and Marketing Expenses
   General and Administrative Expenses
   Interest and Other Income (Expense), Net
 Three Months Ended
    
    
    Six Months Ended
    
    
    Three
    
    
    SixDecember 31,
    
    
    December 31,
    
    
    Months
    
    
    Months2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(in thousands)Interest income
    
    $
    47
    
    
    $
    8
    
    
    $
    114
    
    
    $
    17
    
    
    
    488
    %
    
    
    571
    %Interest expense
    
    
    (1,028
    )
    
    
    (881
    )
    
    
    (2,017
    )
    
    
    (1,629
    )
    
    
    17
    %
    
    
    24
    %Other income (expense), net
    
    
    (79
    )
    
    
    165
    
    
    
    85
    
    
    
    285
    
    
    
    -148
    %
    
    
    -70
    %Interest and other income (expense), net
    
    $
    (1,060
    )
    
    $
    (708
    )
    
    $
    (1,818
    )
    
    $
    (1,327
    )
    
    
    50
    %
    
    
    37
    %
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Provision for Taxes
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Provision for taxes
    
    $
    3,391
    
    
    $
    2,356
    
    
    $
    10,101
    
    
    $
    7,193Effective tax rate
    
    
    32.9
    %
    
    
    49.4
    %
    
    
    41.2
    %
    
    
    44.6
    %
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Liquidity and Capital Resources
   Six Months EndedDecember 31,2010
    
    
    2009(in thousands)Cash flows from operating activities
    
    $
    29,718
    
    
    $
    16,077Cash flows from investing activities
    
    
    (109,377
    )
    
    
    (47,576
    )Cash flows from financing activities
    
    
    30,734
    
    
    
    40,464
 Net Cash Provided by Operating Activities
    Net Cash Used in Investing Activities
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Net Cash Provided by Financing Activities
   Off-Balance Sheet Arrangements
  33




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Contractual Obligations
  Credit Facility
      New Lease
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  34




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Foreign Currency Exchange Risk
  Interest Rate Risk
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
 Investing in our common stock involves a high degree of risk. You should carefully consider
the risks described below and the other information in this Quarterly Report on Form 10-Q . If any
of such risks actually occur, our business, operating results or financial condition could be
adversely affected. In those cases, the trading price of our common stock could decline and you may
lose all or part of your investment.
 Risks Related to Our Business and Industry
 We operate in an immature industry and have a relatively new business model, which makes it
difficult to evaluate our business and prospects.
  
    
    maintain and expand client relationships;
    
    sustain and increase the number of visitors to our websites;
    
    sustain and grow relationships with third-party website publishers and other sources of
web visitors;
    
    manage our expanding operations and implement and improve our operational, financial and
management controls;
    
    raise capital at attractive costs, or at all;
    
    acquire and integrate websites and other businesses;
    
    successfully expand our footprint in our existing client verticals and enter new client
verticals;
    
    respond effectively to competition and potential negative effects of competition on
profit margins;
    
    attract and retain qualified management, employees and independent service providers;
    
    successfully introduce new processes and technologies and upgrade our existing
technologies and services;
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
    
    protect our proprietary technology and intellectual property rights; and
    
    respond to government regulations relating to the Internet, marketing in our client
verticals, personal data protection, email, software technologies and other aspects of our
business.
  We depend upon Internet search companies to attract a significant portion of the visitors to our
websites, and any change in the search companies search algorithms or perception of us or our
industry could result in our websites being listed less prominently in either paid or algorithmic
search result listings, in which case the number of visitors to our websites and our revenue could
decline.
   A substantial portion of our revenue is generated from a limited number of clients and, if we lose
a major client, our revenue will decrease and our business and prospects would be adversely
impacted.
  There is significant activity and uncertainty in the regulatory and legislative environment for
the for-profit education sector. These regulatory or legislative changes could negatively affect
our clients businesses, marketing practices and budgets and could impact demand, pricing or form
of our services, any or all of which could have a material adverse impact on our financial
results.
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We are dependent on two market verticals for a majority of our revenue. Negative changes in the
economic condition, market dynamics or regulatory environment in one or both of these verticals could cause our
revenue to decline and our business and growth could suffer.
   Any acquisitions that we complete will involve a number of risks. If we are unable to address and
resolve these risks successfully, such acquisitions could harm our business, results of operations
and financial condition.
  
    
    diversion of management time and potential business disruptions;
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
    
    difficulties integrating and supporting acquired products or technologies;
    
    disruptions or reductions in client revenues associated with
changes to the business models of acquired businesses;
    
    expenses, distractions and potential claims resulting from acquisitions, whether or not
they are completed;
    
    retaining and integrating employees from any businesses we may acquire;
    
    issuance of dilutive equity securities, incurrence of debt or reduction in cash balances;
    
    integrating various accounting, management, information, human resource and other systems
to permit effective management;
    
    incurring possible impairment charges, contingent liabilities, amortization expense or
write-offs of goodwill;
    
    unexpected capital expenditure requirements;
    
    insufficient revenue to offset increased expenses associated with acquisitions;
    
    underperformance problems associated with acquisitions; and
    
    becoming involved in acquisition-related litigation.
  If we are unable to retain the members of our management team or attract and retain qualified
management team members in the future, our business and growth could suffer.
  We need to hire and retain additional qualified personnel to grow and manage our business. If we
are unable to attract and retain qualified personnel, our business and growth could be seriously
harmed.
  We depend on third-party website publishers for a significant portion of our visitors, and any
decline in the supply of media available through these websites or increase in the price of this
media could cause our revenue to decline or our cost to reach visitors to increase.
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If we do not effectively manage our growth, our operating performance will suffer and we may lose
clients.
  
    
    successfully scale our technology to accommodate a larger business and integrate
acquisitions;
    
    maintain our standing with key vendors, including Internet search companies and
third-party website publishers;
    
    maintain our client service standards; and
    
    develop and improve our operational, financial and management controls and maintain
adequate reporting systems and procedures.
  Our future growth depends in part on our ability to identify and complete acquisitions.
  We may need additional capital in the future to meet our financial obligations and to pursue our
business objectives. Additional capital may not be available or may not be available on favorable
terms and our business and financial condition could therefore be adversely affected.
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We have incurred a significant amount of debt, which may limit our ability to fund general
corporate requirements and obtain additional financing, limit our flexibility in responding to
business opportunities and competitive developments and increase our vulnerability to adverse
economic and industry conditions.
  
    
    we may not have sufficient liquidity to respond to business opportunities, competitive
developments and adverse economic conditions;
    
    we may not have sufficient liquidity to fund all of these costs if our revenue declines
or costs increase; and
    
    we may not have sufficient funds to repay the principal balance of our debt when due.
  The severe economic downturn in the United States poses additional risks to our business,
financial condition and results of operations.
  Poor perception of our business or industry as a result of the actions of third parties could harm
our reputation and adversely affect our business, financial condition and results of operations.
  Our operating results have fluctuated in the past and may do so in the future, which makes our
results of operations difficult to predict and could cause our operating results to fall short of
analysts and investors expectations.
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
    
    changes in demand and pricing for our services;
    
    changes in our pricing policies, the pricing policies of our competitors, or the pricing
of Internet advertising or media;
    
    the addition of new clients or the loss of existing clients;
    
    changes in our clients advertising agencies or the marketing strategies our clients or
their advertising agencies employ;
    
    changes in the regulatory environment for us or our clients;
    
    changes in the economic prospects of our clients or the economy generally, which could
alter current or prospective clients spending priorities, or could increase the time or
costs required to complete sales with clients;
    
    changes in the availability of Internet advertising or the cost to reach Internet
visitors;
    
    changes in the placement of our websites on search engines;
    
    the introduction of new product or service offerings by our competitors; and
    
    costs related to acquisitions of businesses or technologies.
 Our quarterly revenue and operating results may fluctuate significantly from quarter to quarter
due to seasonal fluctuations in advertising spending.
  If we fail to compete effectively against other online marketing and media companies and other
competitors, we could lose clients and our revenue may decline.
   
    
    online marketing or media services providers such as Monster Worldwide in the education
client vertical and BankRate in the financial services client vertical;
    
    offline and online advertising agencies;
    
    major Internet portals and search engine companies with advertising networks such as
Google, Yahoo!, MSN, and AOL;
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
    
    other online marketing service providers, including online affiliate advertising networks
and industry-specific portals or lead generation companies;
    
    website publishers with their own sales forces that sell their online marketing services
directly to clients;
    
    in-house marketing groups at current or potential clients;
    
    offline direct marketing agencies; and
    
    television, radio and print companies.
  If the market for online marketing services fails to continue to develop, our future growth may be
limited and our revenue may decrease.
  Third-party website publishers can engage in unauthorized or unlawful acts that could subject us
to significant liability or cause us to lose clients.
  Because many of our client contracts can be cancelled by the client with little prior notice or
penalty, the cancellation of one or more contracts could result in an immediate decline in our
revenue.
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Unauthorized access to or accidental disclosure of consumer personally-identifiable
information that we collect may cause us to incur significant expenses and may negatively affect
our credibility and business.
  If we do not adequately protect our intellectual property rights, our competitive position and
business may suffer.
    Confidentiality agreements with employees, consultants and others may not adequately prevent
disclosure of trade secrets and other proprietary information.
  Third parties may sue us for intellectual property infringement which, if successful, could
require us to pay significant damages or curtail our offerings.
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Our proprietary technologies may include design or performance defects and may not achieve their
intended results, either of which could impair our future revenue growth.
  If we fail to keep pace with rapidly-changing technologies and industry standards, we could lose
clients or advertising inventory and our results of operations may suffer.
  Changes in government regulation and industry standards applicable to the Internet and our
business could decrease demand for our technologies and services or increase our costs.
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Increased taxation of companies engaged in Internet commerce may adversely affect the commercial
use of our marketing services and our financial results.
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Limitations on our ability to collect and use data derived from user activities could
significantly diminish the value of our services and cause us to lose clients and revenue.
  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 the materials that we create or distribute. If we
are required to pay damages or expenses in connection with these legal claims, our operating
results and business may be harmed.
  Wireless devices and mobile phones are increasingly being used to access the Internet, and our
online marketing services may not be as effective when accessed through these devices, which could
cause harm to our business.
  We may not succeed in expanding our businesses outside the United States, which may limit our
future growth.
  
    
    the adaptation of technologies and services to foreign clients preferences and customs;
    
    application of foreign laws and regulations to us, including marketing and privacy
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;
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
    
    reduced or limited protection for intellectual property rights in foreign jurisdictions;
    
    difficulties and costs in staffing, managing or overseeing foreign operations; and
    
    education of potential clients who may not be familiar with online marketing.
  We rely on Internet bandwidth and data center providers and other third parties for key aspects of
the process of providing services to our clients, and any failure or interruption in the services
and products provided by these third parties could harm our business.
   Interruption or failure of our information technology and communications systems could impair our
ability to effectively deliver our services, which could cause us to lose clients and harm our
operating results.
    Any constraints on the capacity of our technology infrastructure could delay the effectiveness of
our operations or result in system failures, which would result in the loss of clients and harm
our business and results of operations.
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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 incur significant costs as a result of operating as a public company, which may adversely
affect our operating results and financial condition.
   If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements on a timely basis could be impaired, which would adversely affect our ability
to operate our business.
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Risks Related to the Ownership of Our Common Stock
 Our stock price may be volatile, and you may not be able to resell shares of our common stock at
or above the price you paid.
  
    
    changes in earnings estimates or recommendations by securities analysts;
    
    announcements about our revenues, earnings or growth rates that are not
in line with analyst expectations, the risk of which is heightened
because it is our policy not to give quarterly guidance on revenue,
earnings, or growth rates.
    
    changes in governmental regulations;
    
    announcements by us or our competitors of new services, significant contracts, commercial
relationships, acquisitions or capital commitments;
    
    changes in the search engine rankings of our sites or our ability to access PPC
advertising;
    
    developments with respect to intellectual property rights;
    
    our ability to develop and market new and enhanced products on a timely basis;
    
    our commencement of, or involvement in, litigation;
    
    negative publicity about us, our industry, our clients or our clients industries; and
    
    a slowdown in our industry or the general economy.
  If securities or industry analysts do not publish research or reports about our business, or if
they issue an adverse opinion regarding our stock, our stock price and trading volume could
decline.
  Our directors, executive officers and principal stockholders and their respective affiliates have
substantial control over us and could delay or prevent a change in corporate control.
  
    
    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.
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Future sales of shares by existing stockholders could cause our stock price to decline.
  We have broad discretion to determine how to use the funds raised in our initial public offering
and may use them in ways that may not enhance our operating results or the price of our common
stock.
  Provisions in our charter documents under Delaware law and in contractual obligations, could
discourage a takeover that stockholders may consider favorable and may lead to entrenchment of
management.
  
    
    a classified board of directors with three-year staggered terms, which may delay the
ability of stockholders to change the membership of a majority 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 the resignation, 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 determine to issue shares of preferred stock and
to determine the price and other terms of those shares, including preferences 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 our stockholders;
    
    the requirement that a special meeting of stockholders may be called only by the chairman
of the board of directors, the chief executive officer or the board of directors, which may
delay the ability of our stockholders to force consideration of a proposal or to take
action, including the removal of directors; and
    
    advance notice procedures that stockholders must comply with in order to nominate
candidates to our board of directors or to propose matters to be acted upon at a
stockholders meeting, which may discourage or deter a potential acquiror from conducting a
solicitation of proxies to elect the acquirors own slate of directors or otherwise
attempting to obtain control of us.
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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 on appreciation in the price of our common stock.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Unregistered Sales of Equity Securities
  Use of Proceeds
    
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Document31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.
    
    Furnished herewith. 53




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##### Table of Contents



SIGNATURES
  QUINSTREET, INC./s/ Kenneth HahnKenneth HahnChief Financial Officer
(Principal Financial Officer and duly authorized signatory)
Date: February 11, 2011 54




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##### Table of Contents



ExhibitNumber
    
    Description of Document31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.
    
    Furnished herewith. 55