QUINSTREET, INC

On April 15, 2019, the Company completed the purchase of CloudControlMedia, LLC (“CCM”), a marketing services company. In exchange for all outstanding shares of CCM, the Company paid $8.3 million in cash upon closing (including $0.8 million cash for net assets acquired subject to post-closing adjustments) and will make $7.5 million in post-closing payments and a total earn-out

estimated between $3.1 million and $4.2 million calculated based on a percentage of revenue generated by new and existing CCM clients for the five years following April 15, 2019. The post-closing payments are payable in equal semi-annual installments over a four year period, with the first installment payable six months following April 15, 2019 and the earn-out is calculated every June 30 and December 31 for the preceding six months, payable within 45 days from the semi-annual date. The acquisition will be accounted for as a business combination and the results of operations of CCM will be included in the Company's results of operations beginning April 15, 2019. The Company is currently evaluating the purchase price allocation for this transaction.

Cost of revenue decreased $1.6 million, or 2%, for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, driven by decreased media and marketing costs of $4.3 million, partially offset by increased personnel costs of $1.5 million, increased amortization of intangible assets of $0.7 million and increased stock-based compensation expense of $0.6 million. The decrease in media and marketing costs is primarily due to lower revenue volumes and a one-time reversal of $2.9 million of media and marketing costs that is no longer contractually payable, as a result of the uncollectibility of the accounts receivable balance of a large former education client. The increase in personnel costs is primarily due to higher headcount as a result of the acquisition of AmOne and the increase in amortization expense is due to the acquisition of AmOne intangible assets. Gross margin, which is the difference between net revenue and cost of revenue as a percentage of net revenue, was 15% for both the three months ended March 31, 2019 and 2018.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt or deferred purchase price obligations, contingent liabilities, amortization expense, impairment of goodwill or restructuring charges, any of which could harm our financial condition or results. For example, under our acquisition agreement with CCM, we are required to pay up to $7.5 million in post-closing payments and a total earn-out estimated between $3.1 million and $4.2 million, calculated based on a percentage of managed revenue generated by new and existing CCM clients. The post-closing payments are payable in equal semi-annual installments over a four year period, with the first installment payable six months following the April 15, 2019 and the earn-out is calculated every June 30 and December 31 for the preceding six months, payable within 45 days from the semi-annual date. Under our acquisition agreement of AmOne, we are required to pay up to $8.0 million in additional post-closing payments, payable in equal semi-annual installments over a two year period, with the first installment payable six months following the date of closing, October 1, 2018. Also, the anticipated benefit of many of our acquisitions may not materialize. In connection with a disposition of assets or a business, we may agree to provide indemnification for certain potential liabilities or retain certain liabilities or obligations, which may adversely impact our financial condition or results.

In addition, we have in the past, and may in the future, be subject to legal proceedings and claims that we have infringed the patents or other intellectual property rights of third-parties. These claims sometimes involve patent holding companies or other adverse patent

owners who have no relevant product revenue and against whom our own intellectual property rights, if any, may therefore provide little or no deterrence. For example, in December 2012, Internet Patents Corporation (“IPC”) filed a patent infringement lawsuit against us in the Northern District of California alleging that some of our websites infringe a patent held by IPC. IPC is a non-practicing entity that relies on asserting its patents as its primary source of revenue. In addition, third-parties have asserted and may in the future assert intellectual property infringement claims against our clients, and we have agreed in certain circumstances to indemnify and defend against such claims. Any intellectual property-related infringement claims, whether or not meritorious and regardless of the outcome of the litigation, could result in costly litigation, could divert management resources and attention and could cause us to change our business practices. Should we be found liable for infringement, we may be required to enter into licensing agreements, if available on acceptable terms or at all, pay substantial damages, or limit or curtail our systems and technologies. Moreover, we may need to redesign some of our systems and technologies to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and increase our costs.

Our board of directors has authorized a stock repurchase program allowing us to repurchase up to 966,000 outstanding shares of our common stock. As of March 31, 2019, the number of shares that remains available for repurchase pursuant to our stock repurchase program is 903,636 shares. The timing and actual number of shares repurchased will depend on a variety of factors including the price, cash availability and other market conditions. The stock repurchase program, authorized by our board of directors, does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The stock repurchase program could affect the price of our stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our stock. The existence of our stock repurchase program could also cause the price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Additionally, repurchases under our stock repurchase program will diminish our cash reserves. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness.