You ought to learn the next dialogue and evaluation of our monetary situation and outcomes of operations along side the consolidated monetary statements and the notes thereto included elsewhere on this report. The following dialogue comprises forward-looking statements that replicate our plans, estimates and beliefs. Our precise outcomes might differ materially from these mentioned within the forward-looking statements. Factors that would trigger or contribute to those variations embrace these mentioned under and elsewhere in this report, significantly within the sections titled "Cautionary Note on Forward-Looking Statements" and "Risk Factors."
Management Overview
We are a frontrunner in efficiency marketplaces and applied sciences for the monetary providers and house providers industries. We concentrate on buyer acquisition for purchasers in excessive worth, information-intensive markets or "verticals," together with monetary providers and house providers. Our purchasers embrace some of the world's largest firms and manufacturers in these markets. The majority of our operations and income are inNorth America . We ship measurable and cost-effective advertising outcomes to our purchasers, usually within the kind of certified inquiries comparable to clicks, leads, calls, functions, or clients. Clicks, leads, calls, and functions can then convert right into a buyer or sale for purchasers at a charge that leads to an acceptable advertising value to them. We are usually paid by purchasers once we ship certified inquiries within the kind of clicks, leads, calls, functions, or clients, as outlined by our agreements with them. References to the supply of clients means a sale or accomplished buyer transaction (e.g., funded loans, sure insurance coverage insurance policies or buyer appointments with purchasers). Because we bear the prices of media, our applications should lead to engaging advertising prices to our purchasers at media prices and margins that present sound monetary outcomes for us. To ship clicks, leads, calls, functions, and clients to our purchasers, typically we:
• personal or entry focused media via enterprise preparations (e.g., income
sharing preparations with on-line writer companions, giant and small) or by
buying media (e.g., clicks from main engines like google);
• run commercials or different kinds of advertising messages and applications in
that media that lead to client or customer responses, usually within the
kind of clicks (by a client to additional qualification or matching steps,
or to on-line shopper functions or choices), leads (e.g., client
contact data), calls (from a client or to a client by our owned
and operated or contracted name facilities or by that of our purchasers or their
brokers), functions (e.g., for enrollment or a monetary product), or clients (e.g., funded private loans); and
• constantly search to show purchasers and shopper choices to guests or
shoppers that end result within the most quantity of shoppers discovering options
that may meet their wants and to which they’ll take motion to reply,
leading to media shopping for effectivity (e.g., by segmenting media or visitors
in order that essentially the most acceptable purchasers or shopper choices could be displayed
or “matched” to every phase based mostly on match, response charges or conversion
charges); • via know-how and analytics, search to optimize mixture of goals to fulfill the utmost quantity of buying or researching
guests or shoppers, ship on shopper advertising goals, successfully
compete for on-line media, and generate a sound monetary final result for us.
Our main monetary goal has been and stays creating income progress from sustainable sources, at goal ranges of profitability. Our main monetary goal is to not maximize short-term income, however moderately to attain goal ranges of profitability whereas investing in numerous progress initiatives, as we proceed to imagine we're within the early phases of a big, long-term market alternative. Our enterprise derives its web income primarily from charges earned via the supply of certified inquiries comparable to clicks, leads, calls, functions, or clients. Through a vertical focus, focused media presence and our know-how platform, we're in a position to ship focused, measurable advertising outcomes to our purchasers. Our monetary providers shopper vertical represented 72%, 74% and 75% of web income in fiscal years 2022, 2021 and 2020. Our house providers shopper vertical represented 27%, 23% and 10% of web income in fiscal years 2022, 2021 and 2020. Other income, which primarily consists of our efficiency advertising company and know-how providers, represented 1% of web income in fiscal years 2022 and 2021. In addition, income acknowledged from our divested companies (together with our former training shopper vertical, business-to-business know-how shopper vertical, mortgage enterprise, andBrazil companies) represented 0%, 2% and 15% of web income for fiscal years 2022, 2021 and 2020. See Note 7, Divestitures, to our consolidated monetary statements for extra data associated to the divestitures. We generated the bulk of our income from gross sales to purchasers inthe United States . 38 --------------------------------------------------------------------------------
Trends Affecting our Business
Client Verticals
Our monetary providers shopper vertical has been challenged by a quantity of components previously, together with the restricted availability of top quality media at acceptable margins attributable to the acquisition of media sources by opponents, elevated competitors for prime quality media and modifications in search engine algorithms. These components might influence our enterprise sooner or later once more. To offset this influence, we have now enhanced our product set to supply better segmentation, matching, transparency and proper pricing of media which have enabled higher monetization to supply better entry to top quality media sources. Moreover, we have now entered into strategic partnerships and acquisitions to extend and diversify our entry to high quality media and shopper budgets. Our monetary providers shopper vertical additionally advantages from extra spending by purchasers in digital media and efficiency advertising as digital advertising continues to evolve. In addition, inside our monetary providers shopper vertical, we derive a vital quantity of income from auto insurance coverage carriers and the monetary outcomes depend upon the efficiency of the auto insurance coverage {industry}. For instance, weather-related and provide chain occasions have led to will increase in insurance coverage {industry} loss ratios, which decreased our purchasers' promoting spending and thereby had a cloth adversarial impact on our enterprise. More lately, the auto insurance coverage {industry} has skilled re-rating and associated challenges, which has affected and might proceed to have an effect on our operations and monetary leads to the auto insurance coverage enterprise. OnJuly 1, 2020 , we accomplished the acquisition of Modernize, a number one house enchancment efficiency advertising firm, to broaden our buyer and media relationships within the house providers shopper vertical. Our house providers shopper vertical has been increasing over the previous a number of years, primarily pushed by profitable execution of progress initiatives and synergies with the Modernize acquisition.
Acquisitions and Divestitures
Acquisitions have traditionally been, and proceed to be, an necessary ingredient of our total company technique and use of capital. We have accomplished a number of strategic acquisitions previously, together with the acquisitions of Modernize,Mayo Labs and FCE accomplished in fiscal yr 2021, and the acquisitions of AmOne, CCM, and MBT accomplished in fiscal yr 2019. Furthermore, because of this of the choice to slim our focus to the most effective performing companies and market alternatives, we accomplished a collection of enterprise divestitures, together with the divestiture of our former training shopper vertical accomplished in fiscal yr 2021, and the divestitures of our former B2B shopper vertical, our companies inBrazil consisting of QSB and VEMM together with its pursuits in EDB, and our mortgage enterprise accomplished in fiscal yr 2020.
For detailed data relating to our acquisitions and divestitures, consult with
Note 6, Acquisitions, and Note 7, Divestitures, respectively, to our
consolidated monetary statements.
Development, Acquisition and Retention of High Quality Targeted Media
One of the first challenges of our enterprise is discovering or creating media that is top quality and focused sufficient to draw prospects for our purchasers at prices that present a sound monetary final result for us. In order to develop our enterprise, we should be capable to discover, develop, or purchase and retain high quality focused media on a cheap foundation. Consolidation of media sources, modifications in search engine algorithms and elevated competitors for out there media has, throughout some durations, restricted and might proceed to restrict our capacity to generate income at acceptable margins. To offset this influence, we have now developed new sources of media, together with coming into into strategic partnerships with different advertising and media firms and acquisitions. Such partnerships embrace takeovers of efficiency advertising capabilities for big net media properties; backend monetization of unmatched visitors for purchasers with giant media buys; and white label merchandise for different efficiency advertising firms. We have additionally targeted on rising our income from name middle, electronic mail, cell and social media visitors sources. Seasonality Our outcomes are topic to vital fluctuation because of this of seasonality. In specific, our quarters endingDecember 31 (our second fiscal quarter) are usually characterised by seasonal weak spot. In our second fiscal quarters, there's typically decrease availability of media through the vacation interval on a value efficient foundation and some of our purchasers have decrease budgets. In our quarters endingMarch 31 (our third fiscal quarter), this development typically reverses with higher media availability and usually new budgets in the beginning of the yr for our purchasers with fiscal years endingDecember 31 . 39 -------------------------------------------------------------------------------- Our outcomes are additionally topic to fluctuation because of this of seasonality in our purchasers' enterprise. For instance, income in our house providers shopper vertical is topic to cyclical and seasonal traits, as the buyer demand for house providers usually rises through the spring and summer season seasons and declines through the fall and winter seasons. Other components affecting our purchasers' companies embrace macro components comparable to credit score availability available in the market, rates of interest, the energy of the financial system and employment.
Regulations
Our income has fluctuated partially because of this of federal, state and industry-based laws and growing requirements with respect to the enforcement of these laws. Our enterprise is affected immediately as a result of we function web sites and conduct telemarketing and electronic mail advertising, and not directly affected as our purchasers modify their operations because of this of regulatory modifications and enforcement exercise that have an effect on their industries. Clients in our monetary providers vertical have been affected by legal guidelines and laws and the elevated enforcement of new and pre-existing legal guidelines and laws. The impact of these laws, or any future laws, might proceed to lead to fluctuations within the quantity and combine of our enterprise with these purchasers. An instance of a regulatory change that will have an effect on our enterprise is the modification of the Telephone Consumer Protection Act (the "TCPA") that impacts telemarketing calls. Our purchasers might make enterprise selections based mostly on their very own experiences with the TCPA regardless of our merchandise and compliance practices. Those selections might negatively have an effect on our income and profitability.
COVID-19
We proceed to observe the impacts from the COVID-19 pandemic that will unfavorably have an effect on our enterprise, comparable to reductions in shopper spending on advertising and promoting, drops in media availability or efficiency, deteriorating client spending, fluctuations in rates of interest, and credit score high quality of our receivables. The COVID-19 pandemic has affected and might proceed to have an effect on our enterprise operations, together with our workers, purchasers, publishers, enterprise companions, and communities, and there's substantial uncertainty within the nature and diploma of its continued results over time. For instance, inside our monetary providers shopper vertical, sure traces of enterprise, comparable to credit score playing cards and banking, have seen and might proceed to see reductions in near-term demand for our providers because of the weakened, or further weakening of, financial and employment situations, and the uncertainty over the size and depth of the financial downturn. The extent to which the COVID-19 pandemic impacts our enterprise going ahead will depend upon quite a few evolving components we can't reliably predict, together with the length and scope of the pandemic; resurgences of the pandemic because of the emergence and persistency of new variants to COVID-19 or in any other case; enterprise and people' actions in response to the pandemic; additional actions taken by governmental authorities to restrict the human and financial influence of the pandemic (e.g., stimulus funds); the continued improvement, efficacy and prevalence of use of vaccines for COVID-19; and the influence of the pandemic on financial exercise together with the size and depth of financial or monetary market instability. These components might adversely influence client, enterprise, and authorities spending in addition to our purchasers' capacity to pay for our providers on an ongoing foundation. Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a dialogue of these components and different dangers. 40 --------------------------------------------------------------------------------
Basis of Presentation Net Revenue Our enterprise generates income primarily from charges earned via the supply of certified inquiries comparable to clicks, leads, calls, functions, or clients. We ship focused and measurable outcomes via a vertical focus, which consists of our monetary providers shopper vertical and our house providers shopper vertical. All remaining companies that aren't vital sufficient for separate reporting are included in different income. Our income acknowledged in fiscal years 2021 and 2020 additionally included the income generated from the divested companies (together with our former training shopper vertical, business-to-business know-how shopper vertical, mortgage enterprise, andBrazil companies). See Note 7, Divestitures, to our consolidated monetary statements for extra data associated to the divestitures.
Cost of Revenue
Cost of income consists primarily of media and advertising prices, personnel prices, amortization of intangible property, depreciation expense and services expense. Media and advertising prices consist primarily of charges paid to third-party publishers, media homeowners or managers, or to strategic companions which might be immediately associated to a revenue-generating occasion and of pay-per-click, or PPC, advert purchases from Internet search firms. We pay these third-party publishers, media homeowners or managers, strategic companions and Internet search firms on a revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, foundation. Personnel prices embrace salaries, stock-based compensation expense, bonuses, commissions and associated taxes, and worker profit prices. Personnel prices are primarily associated to people related to sustaining our servers and web sites, our name middle operations, our editorial workers, shopper administration, artistic group, content material, compliance group and media buying analysts. Costs related to software program incurred within the improvement part or obtained for inner use are capitalized and amortized to value of income over the software program's estimated helpful life.
Operating Expenses
We classify our working bills into three classes: product improvement,
gross sales and advertising, and basic and administrative. Our working bills
consist primarily of personnel prices and, to a lesser extent, skilled
providers charges, services charges and different prices. Personnel prices for every
class of working bills typically embrace salaries, stock-based
compensation expense, bonuses, commissions and associated taxes, and worker
profit prices.
Product Development. Product improvement bills consist primarily of personnel prices, services charges and skilled providers charges associated to the event and upkeep of our merchandise and media administration platform. We are constraining bills typically to the extent practicable.
Sales and Marketing. Sales and advertising bills consist primarily of personnel
prices, services charges and skilled providers charges. We are constraining
bills typically to the extent practicable.
General and Administrative. General and administrative bills consist primarily of personnel prices of our finance, authorized, worker advantages and compliance, technical assist and different administrative personnel, accounting and authorized skilled providers charges, services charges and unhealthy debt expense. We are constraining bills typically to the extent practicable.
Interest and Other Income, Net
Interest and different revenue, web, consists primarily of curiosity expense, curiosity revenue, and different revenue and expense. Interest expense is expounded to imputed curiosity on post-closing funds associated to our acquisitions. We haven't any borrowing agreements excellent as ofJune 30, 2022 ; nonetheless curiosity expense might improve if, amongst different issues, we enter into a brand new borrowing settlement to handle liquidity or make further acquisitions via debt financing. Interest revenue represents curiosity earned on our money and money equivalents, which can improve or lower relying on market rates of interest and the quantities invested. Other revenue and expense consists of beneficial properties and losses on international forex alternate, beneficial properties and losses on divestitures of subsidiaries, shopper verticals and property that weren't thought of to be strategically necessary to our enterprise, and different non-operating objects.
Benefit from (Provision for) Income Taxes
We are topic to tax inthe United States in addition to different tax jurisdictions or international locations wherein we conduct enterprise. Earnings from our restricted non-U.S. actions are topic to native nation revenue tax and could also be topic toU.S. revenue tax. 41 --------------------------------------------------------------------------------
Results of Operations
The following desk units forth our consolidated statements of operations for the durations indicated: Fiscal Year Ended June 30, 2022 2021 2020 (In hundreds, besides percentages) Net income$ 582,099 100.0 %$ 578,487 100.0 %$ 490,339 100.0 % Cost of income (1) 528,368 90.8 507,956 87.8 437,864 89.3 Gross revenue 53,731 9.2 70,531 12.2 52,475 10.7 Operating bills: (1) Product improvement 21,906 3.7 19,344 3.3 14,206 2.9 Sales and advertising 11,042 1.9 10,991 1.9 8,876 1.8 General and administrative 25,501 4.4 26,270 4.6 23,188 4.7 Operating (loss) revenue (4,718 ) (0.8 ) 13,926 2.4 6,205 1.3 Interest revenue 10 - 39 - 230 - Interest expense (1,075 ) (0.2 ) (1,296 ) (0.2 ) (696 ) (0.1 ) Other revenue, web 21 - 16,660 2.9 12,947 2.6 (Loss) revenue earlier than revenue taxes (5,762 ) (1.0 ) 29,329 5.1 18,686 3.8 Benefit from (provision for) revenue taxes 514 0.1 (5,774 ) (1.0 ) (584 ) (0.1 ) Net (loss) revenue$ (5,248 ) (0.9 )%$ 23,555 4.1 %$ 18,102 3.7 %
(1) Cost of income and working bills embrace stock-based compensation
expense as follows: Cost of income$ 7,475 1.3 %$ 8,997 1.6 %$ 8,569 1.7 % Product improvement 2,575 0.4 2,339 0.4 1,819 0.4 Sales and advertising 2,378 0.4 2,459 0.4 1,701 0.3 General and administrative 6,078 1.0 5,838 1.0 4,628 0.9 Gross Profit Fiscal Year Ended June 30, 2022 - 2021 2021 - 2020 2022 2021 2020 % Change % Change (In hundreds) Net income$ 582,099 $ 578,487 $ 490,339 1 % 18 % Cost of income 528,368 507,956 437,864 4 % 16 % Gross revenue$ 53,731 $ 70,531 $ 52,475 (24 %) 34 % Net Revenue Net income elevated by$3.6 million , or 1%, in fiscal yr 2022 in comparison with fiscal yr 2021. Revenue from our house providers shopper vertical elevated by$24.3 million , or 18%, primarily because of this of elevated shopper budgets and the profitable integration of the Modernize acquisition. Revenue from our monetary providers shopper vertical decreased by$9.7 million , or 2%, primarily resulting from a lower in income in our insurance coverage enterprise related to decreased spending by insurance coverage carriers to deal with profitability considerations attributable to greater incident charges, weather-related catastrophes, inflation, and greater prices to restore and exchange autos. This is offset by a rise in income in our credit-driven companies resulting from some financial restoration from the influence of the COVID-19 pandemic. Other income, which primarily consists of efficiency advertising company and know-how providers, contributed$6.2 million of income for fiscal yr 2022, as in comparison with$5.5 million of income for fiscal yr 2021. The divestiture of our former training shopper vertical, accomplished in fiscal yr 2021, resulted in a lower in income by$11.6 million for fiscal yr 2022, as in comparison with fiscal yr 2021. Net income elevated by$88.1 million , or 18%, in fiscal yr 2021 in comparison with fiscal yr 2020. Revenue from our house providers shopper vertical elevated by$84.6 million , or 169%, primarily because of this of inorganic and natural (synergy) income results from the acquisition of Modernize accomplished in fiscal yr 2021. Revenue from our monetary providers shopper vertical elevated by$60.5 million , or 17%, primarily resulting from our enhanced product set and information analytics that enabled entry to extra media and a rise 42 -------------------------------------------------------------------------------- in shopper budgets in our insurance coverage enterprise, offset by a decline in income in the credit-driven companies resulting from weakening financial and employment situations attributable to COVID-19. Other income, which primarily consists of efficiency advertising company and know-how providers, contributed$5.5 million of income for fiscal yr 2021. The enterprise divestitures accomplished in fiscal years 2021 and 2020 decreased income by$62.5 million for fiscal yr 2021.
Cost of Revenue and Gross Profit Margin
Cost of income elevated by$20.4 million , or 4%, in fiscal yr 2022 in contrast to fiscal yr 2021. This was primarily pushed by elevated media and advertising prices of$15.4 million , elevated personnel prices of$3.3 million and elevated amortization of intangible property of$0.5 million . The improve in media and advertising prices was related to greater income volumes. The improve in personnel prices was primarily attributable to the next headcount. The improve in amortization expense was primarily because of the acquisitions of intangible property in fiscal yr 2022. Gross revenue margin, which is the distinction between web income and value of income as a proportion of web income, was 9% in fiscal yr 2022 in comparison with 12% in fiscal yr 2021. The lower in gross revenue margin was primarily attributable to elevated media and advertising prices as a proportion of income. Cost of income elevated by$70.1 million , or 16%, in fiscal yr 2021 in contrast to fiscal yr 2020. This was primarily pushed by elevated media and advertising prices of$58.0 million , elevated personnel prices together with stock-based compensation expense of$6.0 million , and elevated amortization of intangible property of$4.7 million . The improve in media and advertising prices was related with greater income volumes. The improve in personnel prices was primarily due to greater headcount related to the Modernize acquisition, elevated incentive compensation related to the achievement of efficiency goals for fiscal yr 2021 and elevated stock-based compensation expense. The improve in amortization expense was primarily because of the acquisitions of intangible property in fiscal yr 2021. Gross revenue margin was 12% in fiscal yr 2021 in comparison with 11% in fiscal yr 2020. The improve in gross revenue margin was primarily attributable to decreased media and advertising prices as a proportion of income. Operating Expenses Fiscal Year Ended June 30, 2022 - 2021 2021 - 2020 2022 2021 2020 % Change % Change (In hundreds) Product improvement$ 21,906 $ 19,344 $ 14,206 13 % 36 % Sales and advertising 11,042 10,991 8,876 - % 24 % General and administrative 25,501 26,270 23,188 (3 %) 13 % Operating bills$ 58,449 $ 56,605 $ 46,270 3 % 22 %
Product Development Expenses
Product improvement bills elevated by$2.6 million , or 13%, in fiscal yr 2022 in comparison with fiscal yr 2021. This was primarily resulting from elevated personnel prices of$1.5 million because of this of greater headcount, and elevated skilled providers prices of$0.7 million . Product improvement bills elevated by$5.1 million , or 36%, in fiscal yr 2021 in comparison with fiscal yr 2020. This was primarily resulting from elevated personnel prices of$4.5 million because of this of greater headcount related to the Modernize acquisition, elevated incentive compensation related to the achievement of efficiency goals for fiscal yr 2021 and elevated stock-based compensation expense.
Sales and Marketing Expenses
Sales and advertising bills have been roughly flat in fiscal yr 2022
in comparison with fiscal yr 2021.
Sales and advertising bills elevated by$2.1 million , or 24%, in fiscal yr 2021 in comparison with fiscal yr 2020. This was primarily resulting from elevated personnel prices of$2.2 million because of this of elevated incentive compensation related with the achievement of efficiency goals for fiscal yr 2021 and elevated stock-based compensation expense. 43 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative bills decreased by$0.8 million , or 3%, in fiscal yr 2022 in comparison with fiscal yr 2021. This was primarily resulting from an adjustment to contingent consideration of$0.9 million recorded in fiscal yr 2022. General and administrative bills elevated by$3.1 million , or 13%, in fiscal yr 2021 in comparison with fiscal yr 2020. This was primarily resulting from elevated personnel prices of$2.0 million because of this of elevated stock-based compensation expense and elevated incentive compensation related to the achievement of efficiency goals for fiscal yr 2021.
Interest and Other Income, Net
Fiscal Year Ended June 30, 2022 - 2021 2021 - 2020 2022 2021 2020 % Change % Change (In hundreds) Interest revenue$ 10 $ 39 $ 230 (74 %) (83 %) Interest expense (1,075 ) (1,296 ) (696 ) (17 %) 86 % Other revenue, web 21 16,660 12,947 (100 %) 29 %
Interest and different revenue, web
(107 %) 23 %
Interest revenue pertains to curiosity earned on our money and money equivalents in
fiscal years 2022, 2021 and 2020.
Interest expense decreased by$0.2 million , or 17%, in fiscal yr 2022 in contrast to fiscal yr 2021 primarily resulting from decreased imputed curiosity on a decrease common excellent stability of the post-closing funds associated to our enterprise acquisitions. Interest expense elevated by$0.6 million , or 86%, in fiscal yr 2021 in comparison with fiscal yr 2020 primarily resulting from elevated imputed curiosity on the next common excellent stability of the post-closing funds associated to our enterprise acquisitions accomplished in fiscal yr 2021. Other revenue, web, was immaterial in fiscal yr 2022. Other revenue, web, was$16.7 million in fiscal yr 2021 primarily resulting from a achieve of$16.6 million acknowledged from the divestiture of our training shopper vertical. Other revenue, web, was$12.9 million in fiscal yr 2020 primarily resulting from a web disposition achieve of$13.6 million acknowledged from the enterprise divestitures accomplished throughout the fiscal yr.
Benefit from (Provision for) Income Taxes
Fiscal Year Ended June 30, 2022 2021 2020 (In hundreds) Benefit from (provision for) revenue taxes$ 514 $ (5,774 ) $ (584 ) Effective tax charge 8.9 % 19.7 % 3.1 % We recorded a profit from revenue taxes of$0.5 million in fiscal yr 2022, primarily because of this of a web profit for deferred federal and state revenue taxes of$0.9 million offset by present state and international taxes of$0.4 million . We recorded a provision for revenue taxes of$5.8 million in fiscal yr 2021, primarily because of this of deferred federal and state revenue taxes of$5.3 million and present state and international taxes of$0.4 million . We recorded a provision for revenue taxes of$0.6 million in fiscal yr 2020, primarily because of this of deferred federal and state revenue taxes of$3.5 million , offset by an anticipated tax refund of$3.1 million to be obtained from the California Franchise Tax Board, based mostly on a settlement reached within the third quarter of fiscal yr 2020.
Our efficient tax charge was 8.9%, 19.7%, and 3.1% in fiscal years 2022, 2021 and
2020.
44 -------------------------------------------------------------------------------- A provision of the Tax Cuts and Jobs Act (TCJA) is efficient for us for the fiscal yr endingJune 30, 2023 , creating a big change to the therapy of analysis and experimental (R&E) expenditures below Section 174 of the IRC (Sec. 174 bills). Historically, companies have had the choice of deducting Sec. 174 bills within the yr incurred or capitalizing and amortizing the prices over 5 years. The new TCJA provision, nonetheless, eliminates this feature and requires Sec. 174 bills related to analysis carried out within theU.S. to be capitalized and amortized over a 5-year interval. For bills related to analysis outdoors ofthe United States , Sec. 174 bills are required to be capitalized and amortized over a 15-year interval. We are presently assessing the influence of the supply, nonetheless a cloth influence to money taxes isn't anticipated resulting from out there web working losses and tax credit.
Liquidity and Capital Resources
As ofJune 30, 2022 , our principal sources of liquidity consisted of money and money equivalents of$96.4 million and money we count on to generate from future operations. Our money and money equivalents are maintained in extremely liquid investments with remaining maturities of 90 days or much less on the time of buy. We imagine our money equivalents are liquid and accessible. Our short-term and long-term liquidity necessities primarily come up from our working capital necessities, capital expenditures, inner software program improvement prices, repurchases of our frequent inventory, and acquisitions from time to time. Our acquisitions additionally might have deferred buy worth parts and contingent consideration which requires us to make a collection of funds following the acquisition time limit. Our main working money necessities embrace the fee of media prices, personnel prices, prices of data know-how techniques and workplace services. Our capacity to fund these necessities will depend upon our future money flows, that are decided, partially, by future working efficiency and are, subsequently, topic to prevailing world macroeconomic situations together with the influence of COVID-19, and monetary, enterprise and different components, some of that are past our management. Even although we might not want further funds to fund anticipated liquidity necessities, we might nonetheless elect to acquire debt financing or situation further fairness securities for different causes. We imagine that our principal sources of liquidity will probably be ample to fulfill our presently anticipated money necessities via a minimum of the subsequent 12 months and thereafter for the foreseeable future.
The following desk summarizes our money flows for the durations indicated:
Fiscal Year Ended June 30, 2022 2021 2020 (In hundreds) Net money offered by working actions$ 28,672 $ 50,615 $ 47,608 Net money (utilized in) offered by investing actions (9,225 ) (36,457 ) 8,868 Net money utilized in financing actions (33,315 ) (11,312 ) (11,632 )
Net Cash Provided by Operating Activities
Cash flows from working actions are primarily the end result of our web (loss) revenue adjusted for depreciation and amortization, provision for or profit from gross sales returns and uncertain accounts receivable, stock-based compensation expense, change within the truthful worth of contingent consideration, non-cash lease expense, beneficial properties and losses on divestitures of companies, deferred revenue taxes and modifications in working capital parts.
Cash offered by working actions was
in comparison with
2020.
Cash offered by working actions in fiscal yr 2022 consisted of web loss of$5.2 million , adjusted for non-cash changes of$33.8 million and modifications in working capital accounts of$0.1 million . The non-cash changes primarily consisted of depreciation and amortization of$17.0 million and stock-based compensation expense of$18.5 million . The modifications in working capital accounts have been primarily attributable to a lower in accrued liabilities of$5.0 million and a lower in accounts payable of$2.9 million , offset by a lower in accounts receivable of$5.5 million and a lower in pay as you go bills and different property of$3.0 million . The decreases in accounts receivable, accrued liabilities and accounts payable have been primarily resulting from decrease income ranges in the 2 months endedJune 30, 2022 as in comparison with the 2 months endedJune 30, 2021 , and the timing of receipts and funds. The lower in pay as you go bills and different property was primarily because of the state tax refund of$3.3 million . Cash offered by working actions in fiscal yr 2021 consisted of web revenue of$23.6 million , adjusted for non-cash changes of$24.2 million and modifications in working capital accounts of$2.8 million . The non-cash changes primarily consisted 45 -------------------------------------------------------------------------------- of stock-based compensation expense of$19.6 million , depreciation and amortization of$16.2 million , and a lower in deferred tax property of$5.4 million primarily resulting from provision for revenue taxes recorded in fiscal yr 2021, offset by a achieve of$16.6 million acknowledged from the divestiture of our training shopper vertical. The modifications in working capital accounts have been primarily attributable to a rise in accrued liabilities of$10.6 million , a rise in accounts payable of$6.6 million , and a lower in pay as you go bills and different property of$6.0 million , offset by a rise in accounts receivable of$20.1 million . The will increase in accounts payable and accrued liabilities have been because of the timing of funds. The lower in pay as you go bills and different property was primarily because of the refund of an unamortized pay as you go expense of$5.3 million . The improve in accounts receivable was because of the timing of receipts. Cash offered by working actions in fiscal yr 2020 consisted of web revenue of$18.1 million , adjusted for non-cash changes of$19.4 million and modifications in working capital accounts of$10.1 million . The non-cash changes primarily consisted of stock-based compensation expense of$16.7 million and depreciation and amortization of$11.5 million , offset by a web disposition achieve of$13.6 million acknowledged from the enterprise divestitures accomplished in fiscal yr 2020. The modifications in working capital accounts have been primarily attributable to a lower in accounts receivable of$11.4 million and a lower in different property, noncurrent of$5.5 million , offset by a rise in pay as you go bills and different property of$8.1 million . The lower in accounts receivable was resulting from the timing of receipts. The lower in different property, noncurrent, was primarily resulting from a reclassification of unamortized pay as you go expense of$4.3 million from long-term to short-term as we anticipated to obtain fee inside the subsequent 12 months. The improve in pay as you go bills and different property was primarily resulting from the reclassification of$4.3 million as mentioned above, in addition to an anticipated tax refund of$3.1 million to be obtained from the California Franchise Tax Board, based mostly on a settlement reached within the third quarter of fiscal yr 2020.
Cash flows from investing actions typically embrace capital expenditures, capitalized inner software program improvement prices, acquisitions infrequently, enterprise divestitures, and funding in fairness securities. Cash utilized in investing actions was$9.2 million in fiscal yr 2022, in contrast to money utilized in investing actions of$36.5 million in fiscal yr 2021 and money offered by investing actions of$8.9 million in fiscal yr 2020.
Cash utilized in investing actions in fiscal yr 2022 was primarily resulting from
capital expenditures and inner software program improvement prices of
and
accomplished in fiscal yr 2022.
Cash utilized in investing actions in fiscal yr 2021 was primarily resulting from funds for the acquisitions of Modernize,Mayo Labs and FCE, web of money acquired, of$49.3 million , capital expenditures and inner software program improvement prices of$5.1 million , and funding in fairness securities of$4.0 million , offset by$21.9 million of money obtained from the divestitures of our training shopper vertical and B2B shopper vertical. Cash offered by investing actions in fiscal yr 2020 was primarily resulting from$15.4 million money obtained from the enterprise divestitures accomplished in fiscal yr 2020, web of money divested of$0.3 million , offset by capital expenditures and inner software program improvement prices of$4.3 million , and a money fee of$2.0 million related to an insignificant enterprise acquisition accomplished in fiscal yr 2020.
Cash flows from financing actions typically embrace repurchases of frequent inventory, fee of withholding taxes associated to the discharge of restricted inventory, web of share settlement, proceeds from the train of inventory choices, and post-closing funds associated to enterprise acquisitions.
Cash utilized in financing actions was
in comparison with money utilized in financing actions of
2021 and
Cash utilized in financing actions in fiscal yr 2022 was resulting from repurchases of frequent inventory of$15.3 million , fee of post-closing funds and contingent consideration associated to acquisitions of$12.6 million , and the fee of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$7.3 million , offset by proceeds from the train of inventory choices of$1.9 million . Cash utilized in financing actions in fiscal yr 2021 was because of the fee of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$8.0 million , and fee of post-closing funds and contingent consideration associated to acquisitions of$7.7 million , offset by proceeds from the train of inventory choices of$4.4 million . 46 -------------------------------------------------------------------------------- Cash utilized in financing actions in fiscal yr 2020 was because of the post-closing funds and contingent consideration associated to acquisitions of$9.3 million , and funds of withholding taxes associated to the discharge of restricted inventory, web of share settlement of$6.4 million , offset by proceeds from the train of inventory choices of$4.1 million .
Off-Balance Sheet Arrangements
During the durations offered, we didn't have any materials relationships with unconsolidated entities or monetary partnerships, comparable to entities usually known as structured finance or particular function entities, which might have been established for the aim of facilitating off-balance sheet preparations or different contractually slim or restricted functions.
Contractual Obligations
The following desk units forth funds due below our contractual obligations as ofJune 30, 2022 : Total Less than 1 Year 1-3 Years 3-5 Years (In hundreds) Operating leases (1)$ 10,865 $ 6,084$ 4,708 $ 73 Post-closing fee associated to acquisitions (2) 28,437 11,673 11,816 4,948 Contingent consideration associated to acquisitions (2) 1,787 1,102 685 - Total$ 41,089 $ 18,859$ 17,209 $ 5,021
(1) We lease numerous workplace services, together with our company headquarters in
escalation provisions and tenant enchancment allowances.
InFebruary 2010 , we entered right into a lease settlement for our company headquarters situated at950 Tower Lane ,Foster City, California with an expiration date inOctober 2018 and an choice to increase the time period of the lease twice by one further yr. InApril 2018 , the lease settlement was amended to prolong the lease time period viaOctober 31, 2023 . Under the amended lease settlement, through the first yr of the prolonged lease time period, the month-to-month base hire was abated for the primary eight months and elevated to$0.2 million for the remaining 4 months. During the second yr of the prolonged lease time period, the month-to-month base hire was abated for the primary 5 months and elevated to$0.3 million for the remaining seven months. Subsequently, after every 12-month anniversary, the month-to-month base hire will increase by roughly 3%. We have an choice to increase the time period of the lease for a further 5 years followingOctober 31, 2023 . (2) In accordance with the phrases of the acquisitions accomplished in fiscal years
2022, 2021 and 2019, we’re required to make post-closing funds and
contingent consideration funds. See Note 6, Acquisitions, to our
consolidated monetary statements for extra data on the post-closing
funds and contingent consideration funds associated to our enterprise
acquisitions.
The above desk doesn’t embrace roughly
tax liabilities for uncertainty in revenue taxes resulting from the truth that we’re
unable to moderately estimate the timing of these potential future funds.
Critical Accounting Policies and Estimates
We have ready our consolidated monetary statements in conformity with accounting rules typically accepted inthe United States of America ("GAAP"). In doing so, we're required to make estimates and assumptions that have an effect on the reported quantities of property and liabilities, disclosure of contingent property and liabilities on the date of the monetary statements and reported quantities of income and bills through the reporting interval. Actual outcomes might differ considerably from these estimates. Some of the estimates and assumptions we're required to make relate to issues which might be inherently unsure as they pertain to future occasions. We base these estimates and assumptions on historic expertise or on numerous different components that we imagine to be cheap and acceptable below the circumstances. On an ongoing foundation, we rethink and consider our estimates and assumptions. We refer to those estimates and assumptions as crucial accounting insurance policies and estimates. We imagine that the crucial accounting insurance policies listed under contain our extra vital judgments, estimates and assumptions and, subsequently, might have the best potential influence on our consolidated monetary statements. In addition, we imagine {that a} dialogue of these insurance policies is important to perceive and consider the consolidated monetary statements contained on this report.
See Note 2, Summary of Significant Accounting Principles, to our consolidated
monetary statements for additional data on our crucial and different
vital accounting insurance policies.
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Revenue Recognition
We generate our income primarily from charges earned via the supply of certified inquiries comparable to clicks, leads, calls, functions, or clients. We acknowledge income once we switch management of promised items or providers to our purchasers in an quantity that displays the consideration to which we count on to be entitled in alternate for these items or providers. We acknowledge income pursuant to the five-step framework contained in ASC 606, Revenue from Contracts with Customers: (i) determine the contract with a shopper; (ii) determine the efficiency obligations within the contract, together with whether or not they're distinct in the context of the contract; (iii) decide the transaction worth, together with the constraint on variable consideration; (iv) allocate the transaction worth to the efficiency obligations within the contract; and (v) acknowledge income when (or as) the Company satisfies the efficiency obligations. As half of figuring out whether or not a contract exists, likelihood of assortment is assessed on a client-by-client foundation on the outset of the contract. Clients are subjected to a credit score evaluate course of that evaluates the purchasers' monetary place and the flexibility and intention to pay. If it's decided from the outset of an association that the shopper doesn't have the flexibility or intention to pay, we are going to conclude {that a} contract doesn't exist and will constantly reassess our analysis till we're in a position to conclude {that a} contract does exist. Generally, our contracts specify the interval of time as one month, however in some situations the time period could also be longer. However, for many of our contracts with purchasers, both get together can terminate the contract at any time with out penalty. Consequently, enforceable rights and obligations solely exist on a day-to-day foundation, leading to particular person every day contracts through the specified time period of the contract or till one get together terminates the contract previous to the top of the specified time period. We have assessed the providers promised in our contracts with purchasers and have recognized one efficiency obligation, which is a collection of distinct providers. Depending on the shopper's wants, these providers consist of a specified or an limitless quantity of clicks, leads, calls, functions, clients, and many others. (hereafter collectively known as "marketing results") to be delivered over a interval of time. We fulfill these efficiency obligations over time because the providers are offered. We don't promise to supply another vital items or providers to our purchasers. Transaction worth is measured based mostly on the consideration that we count on to obtain from a contract with a shopper. Our contracts with purchasers include variable consideration as the value for a person advertising end result varies on a day-to-day foundation relying on the market-driven quantity a shopper has dedicated to pay. However, as a result of we make sure the acknowledged interval of our contracts doesn't typically span a number of reporting durations, the contractual quantity inside a interval is predicated on the quantity of advertising outcomes delivered inside the interval. Therefore, the transaction worth for any given interval is fastened and no estimation of variable consideration is required. If a advertising end result delivered to a shopper doesn't meet the contractual necessities related to that advertising end result, our contracts permit for purchasers to return a advertising end result typically inside 5-10 days of having obtained the advertising end result. Such returns are factored into the quantity billed to the shopper on a month-to-month foundation and consequently lead to a discount to income in the identical month the advertising result's delivered. No warranties are supplied to our purchasers. We don't allocate transaction worth as we have now just one efficiency obligation and our contracts don't typically span a number of durations. Taxes collected from purchasers and remitted to governmental authorities should not included in income. We elected to make use of the sensible expedient which permits us to document gross sales commissions as expense as incurred when the amortization interval would have been one yr or much less. We invoice purchasers month-to-month in arrears for the advertising outcomes delivered throughout the previous month. Our commonplace fee phrases are 30-60 days. Consequently, we don't have vital financing parts in our preparations. Separately from the agreements that we have now with purchasers, we have now agreements with Internet search firms, third-party publishers and strategic companions that we have interaction with to generate focused advertising outcomes for our purchasers. We obtain a price from our purchasers and individually pay a price to the Internet search firms, third-party publishers and strategic companions. We consider whether or not we are the principal (i.e., report income on a gross foundation) or agent (i.e., report income on a web foundation). In doing so, we first consider whether or not we management the items or providers earlier than they're transferred to the purchasers. If we management the items or providers earlier than they're transferred to the purchasers, we're the principal within the transaction. As a end result, the charges paid by our purchasers are acknowledged as income and the charges paid to our Internet search firms, third-party publishers and strategic companions are included in value of income. If we don't management the products or providers earlier than they're transferred to the purchasers, we're the agent within the transaction and acknowledge income on a web foundation. We have one subsidiary, CCM, which gives efficiency advertising company and know-how providers to purchasers in monetary providers, training and different markets, recognizing income on a web foundation. Determining whether or not we management the items or providers earlier than they're transferred to the purchasers might require judgment. 48 --------------------------------------------------------------------------------
Stock-Based Compensation
We measure and document the expense associated to stock-based transactions based mostly on the truthful values of stock-based fee awards, as decided on the date of grant. The truthful worth of restricted inventory models with a service situation ("service-based RSU") is set based mostly on the closing worth of our frequent inventory on the date of grant. To estimate the truthful worth of inventory choices and buy rights granted below the worker inventory buy plan ("ESPP"), we chosen the Black-Scholes choice pricing mannequin. The truthful worth of restricted inventory models with a service and efficiency situation ("performance-based RSU") is set based mostly on the closing worth of our frequent inventory on the date of grant. Grant date as outlined by ASC 718 is set when the parts that comprise the efficiency targets have been absolutely established. If a grant date has not been established, the compensation expense related to the performance-based RSUs is re-measured at every reporting date based mostly on the closing worth of our frequent inventory at every reporting date till the grant date has been established. For restricted inventory models with a service and market situation ("market-based RSU"), we chosen the Monte Carlo simulation mannequin to estimate the truthful worth on the date of grant. In making use of these fashions, our dedication of the truthful worth of the award is affected by assumptions relating to a quantity of subjective variables. These variables embrace, however should not restricted to, the anticipated inventory worth volatility over the time period of the award and the staff' precise and projected inventory choice train and pre-vesting employment termination behaviors. We estimate the anticipated volatility of our frequent inventory based mostly on our historic volatility over the anticipated time period of the award. We haven't any historical past or expectation of paying dividends on our frequent inventory. The risk-free rate of interest is predicated on theU.S. Treasury yield for a time period per the anticipated time period of the award. We acknowledge stock-based compensation expense for choices and service-based RSUs utilizing the straight-line technique, and for performance-based RSUs and market-based RSUs utilizing the graded vesting technique, based mostly on awards in the end anticipated to vest. We acknowledge stock-based compensation expense for the acquisition rights granted below the ESPP utilizing the straight-line technique over the providing interval. We estimate future forfeitures on the date of grant. On an annual foundation, we assess modifications to our estimate of anticipated forfeitures based mostly on current forfeiture exercise. The impact of changes made to the forfeiture charges, if any, is acknowledged within the interval that change is made.
Business Combinations
We account for enterprise combos utilizing the acquisition technique, which requires that the whole consideration for every of the acquired enterprise be allotted to the property acquired and liabilities assumed based mostly on their estimated truthful values on the acquisition date. The extra of the acquisition worth over the truthful values of these identifiable property and liabilities is recorded as goodwill. During the measurement interval, which can be as much as one yr from the acquisition date, we might document changes to the property acquired and liabilities assumed with the corresponding offset to goodwill. In figuring out the truthful worth of property acquired and liabilities assumed in a enterprise mixture, we used the revenue strategy to worth our most important acquired property. Significant assumptions referring to our estimates within the revenue strategy embrace base income, income progress charge web of shopper attrition, projected gross margin, low cost charges, projected working bills and the future efficient revenue tax charges. The valuations of our acquired companies have been carried out by a third-party valuation specialist below our administration's supervision. We imagine that the estimated truthful worth assigned to the property acquired and liabilities assumed are based mostly on cheap assumptions and estimates that market members would use. However, such assumptions are inherently unsure and precise outcomes might differ from these estimates. Future modifications in our assumptions or the interrelationship of these assumptions might negatively influence future valuations. In future measurements of truthful worth, adversarial modifications in discounted money movement assumptions might lead to an impairment of goodwill or intangible property that might require a non-cash cost to the consolidated statements of operations and might have a cloth impact on our monetary situation and working outcomes. Acquisition associated prices should not thought of half of the consideration, and are expensed as working bills as incurred. Contingent consideration, if any, is measured at truthful worth initially on the acquisition date in addition to subsequently on the finish of every reporting interval till settlement on the finish of the evaluation interval. We embrace the outcomes of operations of the companies acquired as of the start of the acquisition dates.
We conduct a check for the impairment of goodwill on the reporting unit degree on a minimum of an annual foundation and every time there are occasions or modifications in circumstances that might extra seemingly than not cut back the estimated truthful worth of a reporting unit under its carrying worth. Application of the goodwill impairment check requires judgment, together with the identification of reporting models, assigning property and liabilities to reporting models, assigning goodwill to reporting models, and figuring out the truthful worth of every reporting unit. Significant judgments required to estimate the truthful worth of reporting models embrace estimating future money flows and figuring out acceptable low cost charges, progress charges, an acceptable management premium and different assumptions. Changes in these 49 --------------------------------------------------------------------------------
estimates and assumptions might materially have an effect on the dedication of truthful
worth for every reporting unit which might set off impairment.
We carry out our annual goodwill impairment check onApril 30 and conduct a qualitative evaluation to find out whether or not it's essential to carry out a quantitative goodwill impairment check. In assessing the qualitative components, we contemplate the influence of key components comparable to modifications within the basic financial situations together with the influence of COVID-19, modifications in {industry} and aggressive setting, inventory worth, precise income efficiency in comparison with earlier years, forecasts and money movement era. We had one reporting unit for functions of allocating and testing goodwill for fiscal years 2022 and 2021. Based on the outcomes of the qualitative evaluation accomplished as ofApril 30, 2022 and 2021, there have been no indicators of impairment.
Long-Lived Assets
We consider long-lived property, comparable to property and gear and bought intangible property with finite lives, for impairment every time occasions or modifications in circumstances point out that the carrying worth of an asset might not be recoverable. If vital, a quantitative check is carried out that requires the software of judgment when assessing the truthful worth of an asset. When we determine an impairment, we cut back the carrying quantity of the asset to its estimated truthful worth based mostly on a reduced money movement strategy or, when out there and acceptable, to comparable market values. As ofApril 30, 2022 and 2021, we evaluated our long-lived property and concluded there have been no indicators of impairment.
Income Taxes
We account for revenue taxes utilizing an asset and legal responsibility strategy to document deferred taxes. Our deferred revenue tax property characterize short-term variations between the monetary assertion carrying quantity and the tax foundation of current property and liabilities that can lead to deductible quantities in future years, together with web working loss carry forwards. Deferred tax property and liabilities are measured utilizing the presently enacted tax charges that apply to taxable revenue in impact for the years wherein these tax property and liabilities are anticipated to be realized or settled. Valuation allowances are offered when essential to cut back deferred tax property to the quantity anticipated to be realized. We usually assess the realizability of our deferred tax property. Judgment is required to decide whether or not a valuation allowance is important and the quantity of such valuation allowance, if acceptable. We contemplate all out there proof, each constructive and unfavorable, to find out, based mostly on the burden of out there proof, whether or not it's extra seemingly than not that some or all of the deferred tax property is not going to be realized. In evaluating the necessity, or continued want, for a valuation allowance we contemplate, amongst different issues, the character, frequency and severity of present and cumulative taxable revenue or losses, forecasts of future profitability, and the length of statutory carryforward durations. Our judgment relating to future profitability might change resulting from future market situations together with the influence of COVID-19, modifications inU.S. or worldwide tax legal guidelines and different components. We acknowledge tax advantages from an unsure tax place solely whether it is extra seemingly than not, based mostly on the technical deserves of the place, that the tax place will probably be sustained on examination by the tax authorities. The tax advantages acknowledged within the monetary statements from such positions are then measured based mostly on the most important profit that has a better than 50% probability of being realized upon final settlement.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our consolidated
monetary statements for data with respect to current accounting
pronouncements and the influence of these pronouncements on our consolidated
monetary statements.