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 endedJune 30, 2021 , filed with theSecurities and Exchange Commission ("SEC"). This Quarterly Report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they do not materialize or if they 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," "expect," "can," "continue," "could," "estimate," "expect," "intend," "outlook," "may," "will," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended to identify forward-looking statements. These statements reflect 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 endedJune 30, 2021 , filed with theSEC . 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 are a leader in performance marketplaces and technologies for the financial services and home services industries. We specialize in customer acquisition for clients in high value, information-intensive markets or "verticals," including financial services and home services. Our clients include some of the world's largest companies and brands in those markets. The majority of our operations and revenue are inNorth America . We deliver measurable and cost-effective marketing results to our clients, typically in the form of qualified inquiries such as clicks, leads, calls, applications, or customers. Clicks, leads, calls, and applications can then convert into a customer or sale for clients at a rate that results in an acceptable marketing cost to them. We are typically paid by clients when we deliver qualified inquiries in the form of clicks, leads, calls, applications, or customers, as defined by our agreements with them. References to the delivery of customers means a sale or completed customer transaction (e.g., funded loans, bound insurance policies or customer appointments with clients). Because we bear the costs of media, our programs must result in attractive marketing costs to our clients at media costs and margins that provide sound financial outcomes for us. To deliver clicks, leads, calls, applications, and customers to our clients, generally we:
• own or access targeted media through business arrangements (e.g., revenue
sharing arrangements with online publisher partners, large and small) or by
purchasing media (e.g., clicks from major search engines);
• run advertisements or other forms of marketing messages and programs in that
media that result in consumer or visitor responses, typically in the form of
clicks (by a consumer to further qualification or matching steps, or to
online client applications or offerings), leads (e.g., consumer contact
information), calls (from a consumer or to a consumer by our owned and
operated or contracted call centers or by that of our clients or their
agents), applications (e.g., for enrollment or a financial product), or customers (e.g., funded personal loans); and
• continuously seek to display clients and client offerings to visitors or
consumers that result in the maximum number of consumers finding solutions
that can meet their needs and to which they will take action to respond,
resulting in media buying efficiency (e.g., by segmenting media or traffic
so that the most appropriate clients or client offerings can be displayed or
"matched" to each segment based on fit, response rates or conversion rates);
• through technology and analytics, seek to optimize a combination of
objectives to satisfy the maximum number of shopping or researching visitors
or consumers, deliver on client marketing objectives, effectively compete
for online media, and generate a sound financial outcome for us.
Our primary financial objective has been and remains creating revenue growth from sustainable sources, at target levels of profitability. Our primary financial objective is not to maximize short-term profits, but rather to achieve target levels of profitability 22 --------------------------------------------------------------------------------
while investing in various growth initiatives, as we continue to believe we are in the early stages of a large, long-term market opportunity.
Our business derives its net revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. Through a vertical focus, targeted media presence and our technology platform, we are able to deliver targeted, measurable marketing results to our clients. Our financial services client vertical represented 72% and 73% of net revenue for the three and six months endedDecember 31, 2021 and 77% and 72% of net revenue for the three and six months endedDecember 31, 2020 . Our home services client vertical represented 27% and 26% of net revenue for the three and six months endedDecember 31, 2021 and 22% and 23% of net revenue for the three and six months endedDecember 31, 2020 . Other revenue, which primarily includes performance marketing agency and technology services, represented 1% of net revenue for both the three and six months endedDecember 31, 2021 and 2020. In addition, revenue recognized from our former education client vertical represented 0% and 4% of net revenue for the three and six months endedDecember 31, 2020 . We generated the majority of our revenue from sales to clients inthe United States . One client in our financial services client vertical accounted for 13% and 14% of our net revenue for the three and six months endedDecember 31, 2021 and 24% and 25% of our net revenue for the three and six months endedDecember 31, 2020 . No other client accounted for 10% or more of our net revenue for the three and six months endedDecember 31, 2021 and 2020.
Trends Affecting our Business
COVID-19
We continue to monitor the impacts from the COVID-19 pandemic that may unfavorably affect our business, such as reductions in client spending on marketing and advertising, drops in media availability or performance, deteriorating consumer spending, fluctuations in interest rates, and credit quality of our receivables. The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, clients, publishers, business partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time. For example, within our financial services client vertical, certain credit-driven lines of business, such as personal loans and credit cards, have seen and may continue to see reductions in near-term demand for our services due to weakening economic and employment conditions, and the uncertainty over the length and depth of the economic downturn. While we experienced growth in our credit-driven businesses, forecasting the timeline for full recovery still remains challenging. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; business and individuals' actions in response to the pandemic; further actions taken by governmental authorities to limit the human and economic impact of the pandemic (e.g., stimulus payments); the development, efficacy and distribution of vaccines for COVID-19; and the impact on economic activity including the length and depth of the economic downturn or financial market instability. These factors may adversely impact consumer, business, and government spending as well as our clients' ability to pay for our services on an ongoing basis. While there is optimism that the pandemic will come to an end with the development and prevalence of vaccines, there are still significant uncertainties. For example, the resurgence of cases due to emergence and persistency of new variants to COVID-19 and the economic impact due to varying levels of restrictions imposed by each state inthe United States . Refer to Risk Factors (Part II, Item 1A of this Form 10-Q) for a discussion of these factors and other risks. Client Verticals Our financial services client vertical has been challenged by a number of factors in the past, including the limited availability of high quality media at acceptable margins caused by the acquisition of media sources by competitors, increased competition for high quality media and changes in search engine algorithms. These factors may impact our business in the future again. To offset this impact, we have enhanced our product set to provide greater segmentation, matching, transparency and right pricing of media that have enabled better monetization to provide greater access to high quality media sources. Moreover, we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets. Our financial services client vertical also benefits from more spending by clients in digital media and performance marketing as digital marketing continues to evolve. OnJuly 1, 2020 , we completed the acquisition of Modernize, a leading home improvement performance marketing company, to broaden our customer and media relationships in the home services client vertical. Our home services client vertical has been expanding over the past several years, primarily driven by successful execution of growth initiatives and ahead-of-schedule integration and synergies with the Modernize acquisition. 23 --------------------------------------------------------------------------------
Acquisitions and Divestitures
Acquisitions have historically been, and continue to be, an important element of our overall corporate strategy and use of capital. We have completed several strategic acquisitions in the past, including the acquisitions of Modernize,Mayo Labs and FCE completed in fiscal year 2021, and the acquisitions ofAmOne Corp. ("AmOne"),CloudControlMedia, LLC ("CCM") andMyBankTracker.com, LLC ("MBT") completed in fiscal year 2019. Furthermore, as a result of the decision to narrow our focus to the best performing businesses and market opportunities, we completed a series of business divestitures in the past two fiscal years, including the divestiture of our former education client vertical completed in fiscal year 2021, and the divestitures of our former B2B client vertical, our businesses inBrazil consisting of QuinStreet Brasil Online Marketing e Midia Ltda ("QSB") andVEMM, LLC ("VEMM") along with its interests in Euro-Demand Do Brasil Serviços de Geração de Leads Ltda ("EDB"), and our mortgage business completed in fiscal year 2020.
Development, Acquisition and Retention of High Quality Targeted Media
One of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us. In order to grow our business, we must be able to find, develop, or acquire and retain quality targeted media on a cost-effective basis. Consolidation of media sources, changes in search engine algorithms and increased competition for available media has, during some periods, limited and may continue to limit our ability to generate revenue at acceptable margins. To offset this impact, we have developed new sources of media, including entering into strategic partnerships with other marketing and media companies and acquisitions. Such partnerships include takeovers of performance marketing functions for large web media properties; backend monetization of unmatched traffic for clients with large media buys; and white label products for other performance marketing companies. We have also focused on growing our revenue from call center, email, mobile and social media traffic sources. Seasonality Our results are subject to significant fluctuation as a result of seasonality. In particular, our quarters endingDecember 31 (our second fiscal quarter) are typically characterized by seasonal weakness. In our second fiscal quarters, there is generally lower availability of media during the holiday period on a cost-effective basis and some of our clients have lower budgets. In our quarters endingMarch 31 (our third fiscal quarter), this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years endingDecember 31 . Our results are also subject to fluctuation as a result of seasonality in our clients' business. For example, revenue in our home services client vertical is subject to cyclical and seasonal trends, as the consumer demand for home services typically rises during the spring and summer seasons and declines during the fall and winter seasons. Other factors affecting our clients' businesses include macro factors such as credit availability in the market, interest rates, the strength of the economy and employment.
Regulations
Our revenue has fluctuated in part as a result of federal, state and industry-based regulations and developing standards with respect to the enforcement of those regulations. Our business is affected directly because we operate websites and conduct telemarketing and email marketing, and indirectly affected as our clients adjust their operations as a result of regulatory changes and enforcement activity that affect their industries. Clients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations. The effect of these regulations, or any future regulations, may continue to result in fluctuations in the volume and mix of our business with these clients. An example of a regulatory change that may affect our business is the amendment of the Telephone Consumer Protection Act (the "TCPA") that affects telemarketing calls. Our clients may make business decisions based on their own experiences with the TCPA regardless of our products and compliance practices. Those decisions may negatively affect our revenue and profitability. 24 --------------------------------------------------------------------------------
Basis of Presentation Net Revenue Our business generates revenue primarily from fees earned through the delivery of qualified inquiries such as clicks, leads, calls, applications, or customers. We deliver targeted and measurable results through a vertical focus, which includes our financial services client vertical and our home services client vertical. All remaining businesses that are not significant enough for separate reporting are included in other revenue. Our revenue recognized during the six months endedDecember 31, 2020 also included the revenue generated from our former education client vertical, which was divested in the first quarter of fiscal year 2021. Cost of Revenue Cost of revenue consists primarily of media and marketing costs, personnel costs, amortization of intangible assets, depreciation expense and facilities expense. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to strategic partners that are directly related to a revenue-generating event and of pay-per-click, or PPC, ad purchases from Internet search companies. We pay these third-party publishers, media owners or managers, strategic partners and Internet search companies on a revenue-share, a cost-per-lead, or CPL, or cost-per-click, or CPC, basis. Personnel costs include salaries, stock-based compensation expense, bonuses, commissions and employee benefit costs. Personnel costs are primarily related to individuals associated with maintaining our servers and websites, our call center operations, our editorial staff, client management, creative team, content, compliance group and media purchasing analysts. Costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software's estimated useful life.
Operating Expenses
We classify our operating expenses into three categories: product development, sales and marketing and general and administrative. Our operating expenses consist primarily of personnel costs and, to a lesser extent, professional services fees, facilities fees and other costs. Personnel costs for each category of operating expenses generally include salaries, stock-based compensation expense, bonuses, commissions and related taxes and employee benefit costs.
Product Development. Product development expenses consist primarily of personnel costs, facilities fees and professional services fees related to the development and maintenance of our products and media management platform. We are constraining expenses generally to the extent practicable.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, facilities fees and professional services fees. We are constraining expenses generally to the extent practicable.
General and Administrative. General and administrative expenses consist primarily of personnel costs of our finance, legal, employee benefits and compliance, technical support and other administrative personnel, accounting and legal professional services fees, facilities fees and bad debt expense. We are constraining expenses generally to the extent practicable.
Interest and Other Income, Net
Interest and other income, net, consists primarily of interest expense, interest income, and other income and expense. Interest expense is related to imputed interest on post-closing payments related to our acquisitions. We have no borrowing agreements outstanding as ofDecember 31, 2021 ; however interest expense could increase if, among other things, we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing. Interest income represents interest earned on our cash and cash equivalents, which may increase or decrease depending on market interest rates and the amounts invested. Other income and expense includes gains and losses on foreign currency exchange, gains and losses on divestitures of subsidiaries, client verticals and assets that were not considered to be strategically important to our business, and other non-operating items.
Benefit from (Provision for) Income Taxes
We are subject to tax inthe United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our limited non-U.S. activities are subject to local country income tax and may be subject toU.S. income tax. 25
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Critical Accounting Policies, Estimates and Judgments
In presenting our consolidated financial statements in conformity withU.S. generally accepted accounting principles, or GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Actual results may differ significantly from these estimates. We believe that the critical accounting policies listed below involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements. • Revenue recognition; • Valuation of goodwill and intangible assets; • Stock-based compensation; • Business combination; • Income taxes; and • Valuation of long-lived assets.
For further information on our critical and other significant accounting
policies and estimates, see Part II, Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our Annual Report
on Form 10-K for the year ended
Recently Issued Accounting Standards
See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements.
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Results of Operations
The following table sets forth our condensed consolidated statements of operations for the periods indicated:
Three Months Ended December 31, Six Months Ended December 31, 2021 2020 2021 2020 (In thousands, except percentages) (In thousands, except percentages) Net revenue$ 125,331 100.0 %$ 134,968 100.0 %
257,059 90.2 242,668 88.5 Gross profit 9,777 7.8 14,531 10.8 27,880 9.8 31,569 11.5 Operating expenses: (1) Product development 4,861 3.8 4,980 3.7 9,486 3.4 9,871 3.6 Sales and marketing 2,834 2.3 2,892 2.1 5,740 2.0 5,535 2.0 General and administrative 9,635 7.7 6,890 5.2 16,269 5.7 13,471 4.9 Operating (loss) income (7,553 ) (6.0 ) (231 ) (0.2 ) (3,615 ) (1.3 ) 2,692 1.0 Interest income - - 12 - - - 34 - Interest expense (267 ) (0.2 ) (307 ) (0.2 ) (540 ) (0.2 ) (646 ) (0.2 ) Other income, net 2 - 34 - 6 - 16,723 6.1 (Loss) income before income taxes (7,818 ) (6.2 ) (492 ) (0.4 ) (4,149 ) (1.5 ) 18,803 6.9 Benefit from (provision for) income taxes 2,190 1.7 958 0.7
1,614 0.6 (3,656 ) (1.4 )
Net (loss) income
(1) Cost of revenue and operating expenses include stock-based compensation expense as follows: Cost of revenue$ 2,267 1.8 %$ 2,544 1.9 %$ 4,088 1.4 %$ 4,745 1.7 % Product development 688 0.5 643 0.5 1,294 0.5 1,192 0.4 Sales and marketing 727 0.6 765 0.6 1,459 0.5 1,312 0.5 General and administrative 1,891 1.5 1,603 1.2 3,638 1.3 3,086 1.1 Gross Profit Three Months Ended Six Months Ended Three Six December 31, December 31, Months Months 2021 2020 2021 2020 % Change % Change (In thousands) Net revenue$ 125,331 $ 134,968 $ 284,939 $ 274,237 (7 %) 4 % Cost of revenue 115,554 120,437 257,059 242,668 (4 %) 6 % Gross profit$ 9,777 $ 14,531 $ 27,880 $ 31,569 (33 %) (12 %) Net Revenue Net revenue decreased by$9.6 million , or 7%, for the three months endedDecember 31, 2021 compared to the three months endedDecember 31, 2020 . Revenue from our financial services client vertical decreased by$14.0 million , or 13%, primarily due to a decrease in revenue in our insurance business associated with decreased spending by certain insurance carriers to address profitability concerns caused by higher incident rates and weather-related catastrophes. This is offset by an increase in revenue in our credit-driven businesses due to some economic recovery from the impact of the COVID-19 pandemic. Revenue from our home services client vertical increased by$4.6 million , or 16%, primarily as a result of increased client budgets and successful integration of the Modernize acquisition. Other revenue, which primarily includes performance marketing agency and technology services, contributed$1.4 million of revenue for the three months endedDecember 31, 2021 , as compared to$1.6 million of revenue for the three months endedDecember 31, 2020 . 27 -------------------------------------------------------------------------------- Net revenue increased by$10.7 million , or 4%, for the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 . Revenue from our home services client vertical increased by$11.2 million , or 18%, primarily as a result of increased client budgets and successful integration of the Modernize acquisition. Revenue from our financial services client vertical increased by$9.7 million , or 5%, primarily due to an increase in revenue in our credit-driven businesses due to some economic recovery from the impact of the COVID-19 pandemic. This is offset by a decrease in revenue in our insurance business associated with decreased spending by certain insurance carriers to address profitability concerns caused by higher incident rates and weather-related catastrophes. Other revenue, which primarily includes performance marketing agency and technology services, contributed$3.1 million of revenue for the six months endedDecember 31, 2021 , as compared to$1.7 million of revenue for the six months endedDecember 31, 2020 . The divestiture of our former education client vertical, completed in the first quarter of fiscal year 2021, resulted in a decrease in revenue by$11.6 million for the six months endedDecember 31, 2021 , as compared to the six months endedDecember 31, 2020 .
Cost of Revenue and Gross Profit Margin
Cost of revenue decreased by$4.9 million , or 4%, for the three months endedDecember 31, 2021 compared to the three months endedDecember 31, 2020 , primarily driven by decreased media and marketing costs of$5.5 million associated with lower revenue volumes, offset by increased personnel costs of$0.3 million and increased amortization of intangible assets of$0.2 million . Gross profit margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 8% and 11% for the three months endedDecember 31, 2021 and 2020. The decrease in gross profit margin was primarily attributable to increased media and marketing costs, personnel costs, and depreciation and amortization expense as a percentage of revenue. Cost of revenue increased by$14.4 million , or 6%, for the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 , primarily driven by increased media and marketing costs of$14.2 million associated with higher revenue volumes. Gross profit margin was 10% and 12% for the six months endedDecember 31, 2021 and 2020. The decrease in gross profit margin was primarily attributable to increased media and marketing costs, personnel costs, and depreciation and amortization expense as a percentage of revenue. Operating Expenses Three Months Ended Six Months Ended Three Six December 31, December 31, Months Months 2021 2020 2021 2020 % Change % Change (In thousands) Product development$ 4,861 $ 4,980 $ 9,486 $ 9,871 (2 %) (4 %) Sales and marketing 2,834 2,892 5,740 5,535 (2 %) 4 % General and administrative 9,635 6,890 16,269 13,471 40 % 21 % Operating expenses$ 17,330 $ 14,762 $ 31,495 $ 28,877 17 % 9 %
Product Development Expenses
Product development expenses were approximately flat for the three months ended
Product development expenses decreased by
Sales and Marketing Expenses
Sales and marketing expenses were approximately flat for the three months ended
Sales and marketing expenses were approximately flat for the six months ended
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General and Administrative Expenses
General and administrative expenses increased by$2.7 million , or 40%, for the three months endedDecember 31, 2021 compared to the three months endedDecember 31, 2020 , primarily due to an adjustment to contingent consideration of$2.7 million recorded in the second quarter of fiscal year 2022. General and administrative expenses increased by$2.8 million , or 21%, for the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 , primarily due to an adjustment to contingent consideration of$2.7 million recorded in the second quarter of fiscal year 2022.
Benefit from (Provision for) Income Taxes
Three Months Ended Six Months Ended December 31, December 31, 2021 2020 2021 2020 (In thousands)
Benefit from (provision for) income taxes
As ofDecember 31, 2021 , we have not recorded any significant valuation allowance adjustments based on the information and evidence available at the time. However, if there are unfavorable changes to actual operating results or to projections of future income, we may determine that it is more likely than not that such deferred tax assets may not be realizable. We recorded a benefit from income taxes of$2.2 million and$1.6 million for the three and six months endedDecember 31, 2021 and a benefit from income taxes of$1.0 million and a provision for income taxes of$3.7 million for the three and six months endedDecember 31, 2020 . The change from an income tax provision to an income tax benefit was primarily due to the changes in the amount of pre-tax income or loss and the Company's estimated annual effective tax rate.
Liquidity and Capital Resources
As ofDecember 31, 2021 , our principal sources of liquidity consisted of cash and cash equivalents of$115.0 million and cash we expect to generate from future operations. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible. Our short-term and long-term liquidity requirements primarily arise from our working capital requirements, capital expenditures, internal software development costs and acquisitions from time to time. Our acquisitions also may have deferred purchase price components and contingent consideration which requires us to make a series of payments following the acquisition closing date. Our primary operating cash requirements include the payment of media costs, personnel costs, costs of information technology systems and office facilities. Our ability to fund these requirements will depend on our future cash flows, which are determined, in part, by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions including the impact of COVID-19, and financial, business and other factors, some of which are beyond our control. Even though we may not need additional funds to fund anticipated liquidity requirements, we may still elect to obtain debt financing or issue additional equity securities for other reasons.
We believe that our principal sources of liquidity will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months.
The following table summarizes our cash flows for the periods indicated:
Six Months EndedDecember 31, 2021 2020 (In thousands)
Net cash provided by operating activities
Operating Activities
Cash flows from operating activities are primarily the result of our net (loss) income adjusted for depreciation and amortization, stock-based compensation expense, gains and losses on divestitures of businesses, and changes in working capital components. 29
-------------------------------------------------------------------------------- Cash provided by operating activities was$19.7 million for the six months endedDecember 31, 2021 , compared to cash provided by operating activities of$23.1 million for the six months endedDecember 31, 2020 . Cash provided by operating activities for the six months endedDecember 31, 2021 consisted of a net loss of$2.5 million , offset by non-cash adjustments of$20.1 million and a net increase in cash from changes in working capital of$2.1 million . The non-cash adjustments primarily consisted of stock-based compensation expense of$10.5 million , depreciation and amortization expense of$8.4 million , an adjustment to contingent consideration of$2.7 million , and an increase in deferred tax assets of$1.6 million due to benefit from income taxes recorded for the first two quarters of fiscal year 2022. The changes in working capital accounts were primarily attributable to a decrease in accounts receivable of$23.3 million , offset by a decrease in accrued liabilities of$15.5 million and a decrease in accounts payable of$6.9 million . The decreases in accounts receivable, accrued liabilities and accounts payable were primarily due to lower revenue levels in the two months endedDecember 31, 2021 as compared to the two months endedDecember 31, 2020 , and the timing of receipts and payments. Cash provided by operating activities for the six months endedDecember 31, 2020 consisted of a net income of$15.1 million , non-cash adjustments of$5.3 million and a net increase in cash from changes in working capital of$2.7 million . The non-cash adjustments primarily consisted of stock-based compensation expense of$10.3 million , depreciation and amortization of$8.1 million , and a decrease in deferred tax assets of$3.5 million due to provision for income taxes recorded for the first two quarters of fiscal year 2021, offset by a net disposition gain of$16.6 million recognized from the divestiture of our former education client vertical completed in the first quarter of fiscal year 2021. The changes in working capital accounts were primarily attributable to a decrease in prepaid expenses and other assets of$6.1 million , offset by an increase in accounts receivable of$3.2 million and a decrease in accounts payable of$1.0 million . The decrease in prepaid expenses and other assets was due to the refund of an unamortized prepaid expense of$5.3 million . The increase in accounts receivable was due to the timing of receipts. The decreases in accounts payable was due to the timing of payments. Investing Activities Cash flows from investing activities generally include capital expenditures, capitalized internal software development costs, acquisitions from time to time, business divestitures, and investment in equity securities.
Cash used in investing activities was
Cash used in investing activities in the six months endedDecember 31, 2021 was due to capital expenditures and internal software development costs of$3.0 million , and$1.0 million cash paid at the closing of an immaterial acquisition completed in the second quarter of fiscal year 2022. Cash used in investing activities in the six months endedDecember 31, 2020 was primarily due to$43.9 million cash paid at the closing of the Modernize acquisition, net of cash acquired of$3.6 million , capital expenditures and internal software development costs of$2.4 million , and investment in equity securities of a privately held company of$2.0 million , offset by$20.0 million of cash received from the divestiture of our former education client vertical completed in the first quarter of fiscal year 2021, and$1.5 million of cash received from the divestiture of our former B2B client vertical completed in the third quarter of fiscal year 2020.
Financing Activities
Cash flows from financing activities generally include post-closing payments related to our acquisitions, withholding taxes related to the release of restricted stock, net of share settlement, and proceeds from the exercise of stock options. Cash used in financing activities was$11.0 million for the six months endedDecember 31, 2021 , compared to cash used in financing activities of$4.6 million for the six months endedDecember 31, 2020 . Cash used in financing activities in the six months endedDecember 31, 2021 was due to payment of post-closing payments and contingent consideration related to acquisitions of$6.5 million , payment of withholding taxes related to the release of restricted stock, net of share settlement of$5.5 million , offset by proceeds from the exercise of stock options of$1.0 million . Cash used in financing activities in the six months endedDecember 31, 2020 was due to the payment of withholding taxes related to the release of restricted stock, net of share settlement of$4.6 million , and payment of post-closing payments and contingent consideration related to acquisitions of$3.0 million , offset by proceeds from the exercise of stock options of$3.0 million . 30 --------------------------------------------------------------------------------
Off-Balance Sheet Arrangements
During the periods presented, we did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations
Our contractual obligations primarily consist of operating leases, post-closing payments and contingent consideration payments recognized from our acquisitions. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations as presented in Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for our fiscal year endedJune 30, 2021 . 31
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