Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2025 was $11.7 million, an 18% increase year over year [4][30] - Total revenue for Q2 2025 was approximately $78.1 million, reflecting a 17% year over year decrease but a 5% sequential increase [30] - Adjusted gross profit was $41 million, representing a 6% year over year increase [4][30] Business Line Data and Key Metrics Changes - Products revenue increased by 34% year over year to $24 million, with an 8% sequential increase [9][30] - Marketing segment revenue was $54.1 million, down 29% year over year but up 4% sequentially [18][30] - Adjusted gross profit for the marketing segment was $20 million, down 17% year over year [18][30] Market Data and Key Metrics Changes - The owned and operated products segment showed strong performance, with revenue increasing 34% year over year [5][30] - The partner marketing business saw a 29% sequential increase in average revenue per partner [20][30] Company Strategy and Development Direction - The company is focusing on leveraging its expertise in agentic coding to modernize legacy technology platforms for other companies [7][8] - There is a strong belief that the product segment alone is undervalued compared to the overall company valuation [17][23] - The company plans to pursue strategic M&A opportunities to enhance its product offerings and market position [46][49] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about the second half of 2025, anticipating stabilization in the Google advertising market [22][34] - The company is confident in the resilience of its business fundamentals and is focused on operational efficiencies [34][35] - Management acknowledges the current volatility in the marketing segment but believes it will stabilize, allowing for growth [22][34] Other Important Information - The company ended the quarter with $63.6 million in unrestricted cash, an increase of approximately $20 million compared to Q1 [33] - There is no guidance provided for 2025 due to ongoing market volatility [34] Q&A Session Summary Question: What KPIs should investors focus on for the product side? - Management emphasized traffic and monetization rates as key metrics, specifically sessions and revenue per session [40][41] Question: Can you provide high-level comments on the second half of the year? - Management indicated that as political spending decreases, they expect to see lower pricing in the advertising market, which could benefit the company [42][44] Question: What are the thoughts on strategic M&A and capital access? - Management expressed confidence in their ability to access capital for strategic acquisitions and highlighted their historical success in M&A [46][49]

2021 York Mountain Syrah - $78 Investor Deck August 2025 The forward-looking statements contained in this presentation are based on System1's current expectations and beliefs concerning future developments, and their potential effects on System1 taking into account information currently available. All information in this presentation speaks as of June 30, 2025, unless otherwise noted, and any redistribution or rebroadcast of this presentation after such date is not intended and will not be construed as upda ...

Part I [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) The company significantly improved its financial performance, narrowing net losses and achieving positive operating cash flow, despite a decrease in total assets [Condensed Consolidated Balance Sheets](index=4&type=page&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $429.2 million, primarily due to intangible asset reduction, while stockholders' equity significantly declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$429,249** | **$459,129** | | Cash and cash equivalents | $63,648 | $63,607 | | Intangible assets, net | $185,340 | $222,341 | | Goodwill | $82,407 | $82,407 | | **Total Liabilities** | **$375,805** | **$374,133** | | Current debt, net | $21,544 | $16,405 | | Non-current debt, net | $241,795 | $255,118 | | **Total Stockholders' Equity** | **$53,444** | **$84,996** | [Condensed Consolidated Statements of Operations](index=6&type=page&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenue decreased by 17.4% to $78.1 million, but operating and net losses significantly narrowed year-over-year Q2 and Six-Month Performance Comparison (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $78,115 | $94,581 | $152,628 | $179,498 | | Operating Loss | $(15,905) | $(29,086) | $(29,031) | $(54,882) | | Net Loss Attributable to System1, Inc. | $(17,463) | $(26,373) | $(33,346) | $(36,910) | | Basic and Diluted Net Loss Per Share | $(2.23) | $(3.80) | $(4.37) | $(5.38) | [Condensed Consolidated Statements of Cash Flows](index=10&type=page&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive at $8.5 million for H1 2025, a significant improvement from the prior year's cash usage Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8,543 | $(6,022) | | Net cash used in investing activities | $(3,107) | $(3,218) | | Net cash used in financing activities | $(8,094) | $(53,929) | | **Net decrease in cash** | **$(2,679)** | **$(63,175)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=page&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Key notes include a corporate reorganization, a 1-for-10 reverse stock split, segment reporting changes, and details on debt and related party transactions - A corporate reorganization on August 1, 2024, established System1 Holdings, LLC as an intermediate holding company for the 'Products' and 'Marketing' businesses[27](index=27&type=chunk)[92](index=92&type=chunk) - A **1-for-10 reverse stock split** of Class A and Class C common stock was effective on June 11, 2025, with retroactive adjustments to all share and per-share amounts[32](index=32&type=chunk)[93](index=93&type=chunk) - Reportable segments were changed in Q2 2025 to 'Marketing' and 'Products', with prior year information revised accordingly[70](index=70&type=chunk) - The Term Loan had **$270.1 million** principal outstanding as of June 30, 2025, with **$50.0 million** available on the Revolving Facility, and the company was in compliance with covenants[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - The company sold **450,000 shares** of Class A common stock for **$2.3 million** in a private placement to a founder's family foundation on April 28, 2025[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 15% revenue decline driven by Marketing, offset by Products growth, alongside significant cost reductions, improved liquidity, and positive operating cash flow [Company Overview](index=25&type=page&id=Company%20Overview) System1 utilizes its proprietary RAMP platform to monetize traffic from its 40 owned and operated websites, following recent corporate reorganization and stock split - The core technology is the proprietary Responsive Acquisition Marketing Platform (RAMP), matching consumer demand with advertisers without third-party cookies[88](index=88&type=chunk)[89](index=89&type=chunk) - As of June 30, 2025, the company owns and operates approximately **40 websites**, including search engines and digital media properties[90](index=90&type=chunk) [Results of Operations](index=28&type=page&id=Results%20of%20Operations) Q2 2025 revenue declined 17% to $78.1 million due to Marketing segment weakness, but operating loss significantly improved due to cost reductions Revenue by Reportable Segment (in thousands) | Segment | Q2 2025 | Q2 2024 | Change (%) | YTD 2025 | YTD 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Marketing | $54,142 | $76,654 | (29)% | $106,392 | $146,784 | (28)% | | Products | $23,973 | $17,927 | 34% | $46,236 | $32,714 | 41% | | **Total Revenue** | **$78,115** | **$94,581** | **(17)%** | **$152,628** | **$179,498** | **(15)%** | - Marketing segment RTAC decreased to **117%** in Q2 2025 from 120% YoY, while the six-month RTAC increased to **121%** from 119%[111](index=111&type=chunk) - Products segment sessions increased to **522.5 million** in Q2 2025, with revenue-per-session (RPS) rising to **$0.05** from $0.04[112](index=112&type=chunk) - Salaries and benefits expense decreased due to an **$11.1 million** reduction in CouponFollow share-based liability accruals and a **10% headcount reduction** in Q2 2025[117](index=117&type=chunk) - Selling, general, and administrative expense decreased primarily from a **$4.3 million** reduction in professional and consulting fees in Q2 2025[118](index=118&type=chunk) [Liquidity and Capital Resources](index=33&type=page&id=Liquidity%20and%20Capital%20Resources) The company maintains **$63.6 million** in cash and **$50.0 million** available on its revolving facility, with positive operating cash flow of **$8.5 million** for H1 2025, supporting liquidity for the next twelve months - The company held **$63.6 million** in unrestricted cash and cash equivalents and **$50.0 million** available on its 2022 Revolving Facility as of June 30, 2025[127](index=127&type=chunk) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8,543 | $(6,022) | | Net cash used in investing activities | $(3,107) | $(3,218) | | Net cash used in financing activities | $(8,094) | $(53,929) | - A contractual obligation requires spending **$5.0 million** with a service provider between July 2025 and June 2026[63](index=63&type=chunk)[139](index=139&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a 'smaller reporting company', the company is exempt from providing quantitative and qualitative disclosures about market risk - As a 'smaller reporting company', the company is not required to provide quantitative and qualitative disclosures about market risk[143](index=143&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective as of June 30, 2025, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Disclosure controls and procedures were deemed **not effective** as of June 30, 2025, due to identified material weaknesses in internal control over financial reporting[144](index=144&type=chunk) - Identified material weaknesses include insufficient accounting professionals, ineffective controls for complex transactions, and a lack of formal accounting policies impacting segregation of duties and reporting accuracy[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - The remediation plan involves hiring skilled accounting personnel, engaging an advisory firm, and implementing more formal and robust controls and policies[149](index=149&type=chunk)[151](index=151&type=chunk) Part II [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal proceedings are not expected to materially affect the company's financial position or results of operations - The company states that ongoing legal proceedings are not expected to materially affect its financial statements[153](index=153&type=chunk) [Risk Factors](index=38&type=page&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[155](index=155&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company sold **$2.25 million** in unregistered securities in Q2 2025 and has **$23.9 million** remaining in its share repurchase program - In Q2 2025, the company sold **$2.25 million** of unregistered securities for general corporate expenses[156](index=156&type=chunk) Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Value Remaining in Program (millions) | | :--- | :--- | :--- | :--- | | June 1 - 30 | 144 | $4.35 | $23.9 | [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - None[161](index=161&type=chunk)

[Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) System1's Q2 2025 revenue decreased 17% to $78.1 million, yet profitability improved with GAAP Gross Profit up 7% and Adjusted EBITDA up 18%, driven by Products segment growth Q2 2025 Financial Highlights (YoY) | Metric | Q2 2025 | YoY Change | | :--- | :--- | :--- | | Revenue | $78.1 million | -17% | | GAAP Gross Profit | $27.9 million | +7% | | Adjusted Gross Profit | $41.0 million | +6% | | GAAP Net Loss | $21.5 million | 38% Improvement | | Adjusted EBITDA | $11.7 million | +18% | - The Products segment demonstrated strong growth, with revenue increasing **34% year-over-year** to **$24.0 million** and adjusted gross profit growing **32%** to **$22.7 million**[9](index=9&type=chunk) - Operational momentum continued with CouponFollow.com seeing a **44% YoY increase** in organic sessions and Startpage.com achieving a **25% increase** in daily active users in June 2025 versus the prior year[9](index=9&type=chunk) - The company launched 1.org, a new charitable-focused search engine, and a white-label consumer mapping solution in collaboration with Startpage and Mapquest[9](index=9&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributes strong performance to company-wide AI adoption, driving accelerating growth and margin expansion in organic products and an 18% Adjusted EBITDA increase - CEO Michael Blend stated that the strong quarterly performance reflects a continued turnaround driven by company-wide AI adoption, with organic products showing accelerating revenue growth and margin expansion[3](index=3&type=chunk) - CFO Tridivesh Kidambi highlighted the **6%** and **18% year-over-year increases** in adjusted gross profit and adjusted EBITDA, respectively, as evidence of the business's resilience and ability to innovate[3](index=3&type=chunk) [Financial Statements](index=3&type=section&id=Financial%20Statements) Unaudited Q2 2025 financial statements show decreased revenue but improved net loss, with total assets slightly down from year-end 2024 [Consolidated Statements of Operations](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenue was $78.1 million, down from $94.6 million, with operating loss narrowing and net loss improving year-over-year Q2 Statement of Operations (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenue | $78,115 | $94,581 | | Operating Loss | $(15,905) | $(29,086) | | Net Loss | $(21,542) | $(34,845) | | Net Loss Attributable to System1, Inc. | $(17,463) | $(26,373) | [Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $429.2 million, down from $459.1 million at year-end 2024, with liabilities stable and cash at $63.6 million Balance Sheet Summary (in thousands) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $63,648 | $63,607 | | Total Assets | $429,249 | $459,129 | | Total Liabilities | $375,805 | $374,133 | | Total Stockholders' Equity | $53,444 | $84,996 | [Non-GAAP Financial Measures & Reconciliations](index=2&type=section&id=Non-GAAP%20Financial%20Measures%20%26%20Reconciliations) System1 uses non-GAAP metrics like Adjusted Gross Profit and Adjusted EBITDA to assess core performance, with Q2 2025 figures increasing to $41.0 million and $11.7 million respectively - Adjusted Gross Profit and Adjusted EBITDA are key non-GAAP metrics used by management to measure operational strength and performance[14](index=14&type=chunk) [Reconciliation of Revenue to Adjusted Gross Profit](index=6&type=section&id=Reconciliation%20of%20Revenue%20to%20Adjusted%20Gross%20Profit) Q2 2025 Adjusted Gross Profit was $41.0 million, up from $38.8 million, derived by adding back amortization to GAAP Gross Profit Reconciliation to Adjusted Gross Profit (in millions) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Revenue | $78.1 | $94.6 | | Gross profit | $27.9 | $26.1 | | Add: amortization | $13.1 | $12.7 | | **Adjusted Gross Profit** | **$41.0** | **$38.8** | [Reconciliation of Net Loss to Adjusted EBITDA](index=7&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20EBITDA) System1's Q2 2025 Adjusted EBITDA increased 18% to $11.7 million, derived from GAAP Net Loss by adjusting for various non-operating items Reconciliation to Adjusted EBITDA (in millions) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net loss | $(21.5) | $(34.8) | | Depreciation and amortization | $20.6 | $19.9 | | Interest expense | $7.1 | $7.9 | | Acquisition and restructuring costs | $2.3 | $15.6 | | **Adjusted EBITDA** | **$11.7** | **$9.9** | [Business Outlook](index=1&type=section&id=Business%20Outlook) System1 will not provide Q3 2025 financial guidance due to market uncertainties, including advertising partner issues, online ad demand volatility, and evolving tariff policies - The company is not providing financial guidance for Q3 2025[5](index=5&type=chunk) - Reasons for withholding guidance include uncertainty with a key advertising partner, volatility in online ad demand, and evolving tariff policies[5](index=5&type=chunk) [Forward-Looking Statements & Risk Factors](index=1&type=section&id=Forward-Looking%20Statements%20%26%20Risk%20Factors) This section warns that forward-looking statements carry significant risks and uncertainties, directing investors to SEC filings for comprehensive risk factors - The press release contains forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties[7](index=7&type=chunk)[10](index=10&type=chunk) - Key risks include the ability to maintain relationships with network partners, effectively use first-party data, adapt to changing customer demand, and integrate new technologies like AI[12](index=12&type=chunk)

Financial Data and Key Metrics Changes - First quarter revenue was approximately $75 million, with adjusted gross profit of $41.5 million, reflecting a 33% year-over-year increase [4][21] - Adjusted EBITDA reached $12.1 million, a significant increase from $400,000 in the prior year quarter [5][27] - Overall revenue decreased by 12% year-over-year and 1% sequentially, with owned and operated advertising revenue down 16% year-over-year [22][27] Business Line Data and Key Metrics Changes - Owned and operated products revenue increased by 51% year-over-year, while total owned and operated revenue was $58 million, reflecting a 16% year-over-year decline [5][9] - Marketing-driven businesses experienced a 34% annual revenue decrease, primarily due to a decline in a noncore low gross margin business segment [9][10] - Partner network revenue was $17 million, up 4% year-over-year, with adjusted gross profit of $15 million, a 37% increase year-over-year [14][22] Market Data and Key Metrics Changes - International revenue represented 30% of total owned and operated revenue, up from 29% in Q1 of 2024 [10] - Total sessions across owned and operated properties totaled 1.3 billion, down 32% from Q4 but up 6% year-over-year [9][25] - Network partner sessions were 1.7 billion, up 11% year-over-year and down 8% sequentially [26] Company Strategy and Development Direction - The company is focusing on AI-powered automation through AgenTek coding to increase scale and streamline operations [6][8] - There is a strong emphasis on expanding the reach of couponing, mapping, and private search services [11][12] - The company is cautiously optimistic about the future, despite ongoing volatility with Google, its largest revenue partner [16][18] Management's Comments on Operating Environment and Future Outlook - Management noted that they have not yet seen material impacts from Google's policy changes, but anticipate continued volatility [17][18] - The transition to an AI-first product and engineering organization is expected to enhance productivity and execution speed [18][63] - The company is currently not providing financial guidance for Q2 due to uncertainties in the advertising market and regulatory changes [28][29] Other Important Information - The company ended the quarter with $43.9 million in unrestricted cash and $275 million in term loan debt [27][28] - The leadership team remains aligned with shareholders, with significant personal investments in the company [19] Q&A Session Summary Question: Thoughts on digital advertising resilience - Management noted that they have not seen any significant issues in their numbers and believe performance marketing may be less affected by macro downturns [34][35] Question: Impact of tariffs on advertising verticals - Management indicated that they have not observed major effects from tariffs in their verticals and are waiting for further clarity on economic conditions [36][37] Question: Regulatory issues with Google - Management expressed that potential regulatory changes could lead to increased competition and opportunities for the company, particularly if Google loses market share [42][44] Question: Opportunities in domestic and international markets - Management highlighted that lower pricing on the buy side due to reduced competition could benefit the company both domestically and internationally [50][52] Question: Productivity gains from agentic coding - Management reported significant productivity increases in product development due to the adoption of agentic coding, allowing for faster execution and innovation [59][63]

Financial Data and Key Metrics Changes - First quarter revenue was approximately $75 million, with adjusted gross profit at $41.5 million, reflecting a 33% year-over-year increase [4][20] - Adjusted EBITDA reached $12.1 million, a significant increase from $400,000 in the prior year quarter [5][25] - Overall revenue decreased by 12% year-over-year and 1% sequentially, with owned and operated advertising revenue down 16% year-over-year [21][22] Business Line Data and Key Metrics Changes - Owned and operated products revenue increased by 51% year-over-year, while marketing-driven businesses saw a 34% annual revenue decrease [5][8] - Total owned and operated revenue was $58 million, reflecting a 16% year-over-year decline [7] - Partner network revenue was $17 million, up 4% year-over-year, with adjusted gross profit at $15 million, a 37% increase [13][20] Market Data and Key Metrics Changes - International revenue represented 30% of total owned and operated revenue, up from 29% in Q1 2024 [9] - Sessions across owned and operated properties totaled 1.3 billion, down 32% sequentially but up 6% year-over-year [8][23] - Network partner sessions were 1.7 billion, up 11% year-over-year [24] Company Strategy and Development Direction - The company is focusing on AI-powered automation through AgenTek coding to enhance productivity and streamline operations [6][18] - There is a strong emphasis on expanding the reach of couponing, mapping, and private search services [10][12] - The company is cautiously optimistic about the future, despite ongoing volatility related to Google and broader market uncertainties [14][17] Management's Comments on Operating Environment and Future Outlook - Management noted that they have not yet seen material impacts from Google's policy changes, but anticipate continued volatility [15][16] - The transition to an AI-first product and engineering organization is expected to yield faster execution and improved financial performance [18][19] - The company is currently not providing financial guidance for Q2 2025 due to evolving dynamics in the advertising market [26][27] Other Important Information - The company ended the quarter with $43.9 million in unrestricted cash and a net consolidated leverage of approximately 4.6 times [25][26] - The management team remains aligned with shareholders, with significant personal investments in the company [19] Q&A Session Summary Question: Thoughts on digital advertising resilience - Management noted that they are not seeing any significant issues in their numbers and believe performance marketing may be less affected by macro downturns [31][33] Question: Impact of tariffs on advertising verticals - Management indicated that they have not observed significant effects from tariffs on their advertising verticals, as they are not heavily involved in those markets [34][35] Question: Regulatory issues with Google - Management expressed that potential regulatory changes could lead to increased competition and opportunities for the company, particularly if Google loses market share [41][43] Question: Opportunities in domestic and international markets - Management highlighted that the exit of certain advertisers could create opportunities for market share growth both domestically and internationally [46][49] Question: Productivity gains from agentic coding - Management emphasized significant productivity increases from adopting agentic coding, allowing for faster product development and innovation [55][59]

Part I [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) System1 reported a Q1 2025 revenue decline to $74.5 million, an increased net loss of $19.9 million, and reduced total assets and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $43,913 | $63,607 | | Total current assets | $114,182 | $134,477 | | Total assets | $419,154 | $459,129 | | Total current liabilities | $89,682 | $105,095 | | Total liabilities | $351,495 | $374,133 | | Total stockholders' equity | $67,659 | $84,996 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $74,513 | $84,917 | | Operating loss | $(13,126) | $(25,796) | | Net loss | $(19,856) | $(13,791) | | Net loss attributable to System1, Inc. | $(15,883) | $(10,537) | | Basic and diluted net loss per share | $(0.21) | $(0.16) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,949) | $(15,987) | | Net cash used in investing activities | $(1,548) | $(1,622) | | Net cash used in financing activities | $(5,304) | $(48,158) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail System1's two segments, reliance on major ad partners, **$82.4 million** goodwill, **$275.1 million** Term Loan, and a **$2.25 million** May 2025 stock placement - The company operates through two reportable segments: Owned and Operated Advertising and Partner Network[26](index=26&type=chunk)[67](index=67&type=chunk) - The company has significant concentration risk with two paid search advertising partnership agreements with Google and one with Microsoft, with the Microsoft agreement in effect through June 30, 2025[36](index=36&type=chunk) - As of March 31, 2025, Goodwill was **$82.4 million**, all attributable to the Partner Network reporting unit, with no impairment recognized[40](index=40&type=chunk) - As of March 31, 2025, the outstanding principal on the Term Loan was **$275.1 million**, requiring quarterly principal payments of **$5.0 million** through December 31, 2025[48](index=48&type=chunk) Segment Revenue and Adjusted Gross Profit (in thousands) | Segment | Revenue Q1 2025 | Revenue Q1 2024 | Segment Adjusted Gross Profit Q1 2025 | Segment Adjusted Gross Profit Q1 2024 | | :--- | :--- | :--- | :--- | :--- | | Owned and Operated Advertising | $57,921 | $69,030 | $27,778 | $22,462 | | Partner Network | $16,592 | $15,887 | $14,963 | $10,919 | | **Total** | **$74,513** | **$84,917** | **$42,741** | **$33,381** | - Subsequent to the quarter end, on May 2, 2025, the company completed a private placement of **4.5 million shares** of Class A common stock at **$0.50 per share**, raising aggregate proceeds of **$2.25 million**[75](index=75&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 12% revenue decline to a strategic shift in O&O Advertising, leading to a narrowed operating loss of **$13.1 million**, while maintaining **$43.9 million** in cash and **$50.0 million** revolving facility availability [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q1 2025 revenue decreased 12% to **$74.5 million** due to a strategic shift in O&O Advertising, while cost of revenue fell 31%, leading to a narrowed operating loss despite a wider net loss from a prior-year non-recurring gain Key Operational Metrics Changes (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | O&O Sessions (billions) | 1.3 | 1.2 | +0.1B | | O&O RPS | $0.05 | $0.06 | -$0.01 | | O&O CPS | $0.02 | $0.04 | -$0.02 | | Network Sessions (billions) | 1.7 | 1.5 | +0.2B | | Network RPS | $0.01 | $0.01 | -6% | - The decrease in O&O Advertising revenue was primarily due to a mix shift towards traffic with a lower RPS[103](index=103&type=chunk) - Cost of revenue decreased by **$20.2 million** (**31%**), mainly due to a **$16.4 million** decrease in O&O advertising spend, which was directionally consistent with the revenue decrease and a shift to lower CPS traffic[105](index=105&type=chunk) - The gain on extinguishment of debt decreased by **$19.7 million**, as there was no debt repurchase in Q1 2025, unlike the Dutch auction in Q1 2024[112](index=112&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, System1 held **$43.9 million** in cash and **$50.0 million** available on its revolving facility, with management focused on operational execution and debt service reduction to maintain liquidity - As of March 31, 2025, the company had **$43.9 million** in unrestricted cash and cash equivalents and **$50.0 million** available to borrow on its 2022 Revolving Facility[117](index=117&type=chunk) - Principal drivers of cash outflows in Q1 2025 were **$15.9 million** from operations, which included a **$13.2 million** payment for the CouponFollow earnout obligation, and a **$5.0 million** principal repayment of the Term Loan[117](index=117&type=chunk)[122](index=122&type=chunk) - The company's main focus to improve liquidity is executing its operational strategy, which includes expanding advertising partners and optimizing advertising spend, alongside reducing cash operating expenses and debt service obligations[116](index=116&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is not required to provide this information as it qualifies as a "smaller reporting company" - As a "smaller reporting company," System1 is not required to provide quantitative and qualitative disclosures about market risk[131](index=131&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of March 31, 2025, disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, with a remediation plan underway - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[132](index=132&type=chunk) - Identified material weaknesses include: - Lack of sufficient accounting professionals and proper segregation of duties - Ineffective controls to respond to risks of material misstatement - Ineffective controls over complex, non-routine transactions like acquisitions and dispositions - Lack of formal accounting policies, procedures, and controls for timely and accurate financial reporting[135](index=135&type=chunk) - The company is implementing a remediation plan that includes hiring skilled personnel, engaging an advisory firm, and designing new controls, but these material weaknesses have not yet been remediated[135](index=135&type=chunk)[137](index=137&type=chunk) Part II - Other Information [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business, but management does not expect a material impact on financial position or results - The company accrues for losses when litigation is deemed probable and the liability can be reasonably estimated, but does not currently believe any ongoing proceedings will have a material adverse effect[141](index=141&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors were reported for the period[143](index=143&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company made no equity repurchases in Q1 2025, with **$23.9 million** remaining available under its share repurchase authorization - No share repurchases were made during the quarter ended March 31, 2025[144](index=144&type=chunk) - As of March 31, 2025, **$23.9 million** was still available under the company's share repurchase program[144](index=144&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the principal executive and financial officers, and XBRL data files

Company Overview - System1 operates an omnichannel marketing platform connecting customers with advertisers[19] - The company's platform, RAMP, identifies, markets to, and monetizes consumers across advertising verticals[21] - System1 processes over $754 million in advertising demand[22] - The company generates over 1 billion monthly sessions on owned and operated properties and across 260+ network partners[25] - System1 processes over 920 million queries per month[25] Financial Performance - System1's revenue is $334 million for the twelve months ending March 31, 2025[53] - The company's adjusted gross profit is $163 million[56] - System1's adjusted EBITDA is $50 million, representing a 30% margin on gross profit[58] Business Segments - O&O Marketing revenue less advertising expense is $84 million[28] - O&O Products revenue is $30 million[28] - Partner Network revenue is $56 million[28]

[Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management expressed satisfaction with Q1 2025 results, which exceeded guidance, highlighting strong execution, particularly in Owned and Operated products, and the positive impact of AI investments, with the company returning to year-over-year growth in several key metrics and remaining focused on expense reduction and long-term growth - The CEO noted that key financial metrics were above the high end of guidance, attributing the success to strong team execution and investments in AI[2](index=2&type=chunk) - The CFO highlighted the return to year-over-year growth across several key financial metrics and the continued focus on operating expense reduction initiatives[2](index=2&type=chunk) [Q1 2025 Financial Highlights](index=1&type=section&id=Q1%202025%20Financial%20Highlights) In Q1 2025, System1 reported a **12% year-over-year decrease** in revenue to **$74.5 million**, while profitability metrics showed significant improvement: GAAP Gross Profit increased by **53%**, Adjusted Gross Profit rose by **33%**, and Adjusted EBITDA surged by **2754%** to **$12.1 million**, though the GAAP Net Loss widened by **44%** to **$19.9 million** Q1 2025 Key Financial Metrics (Year-over-Year) | Metric | Q1 2025 Value | YoY Change | | :--- | :--- | :--- | | Revenue | $74.5 Million | -12% | | GAAP Gross Profit | $28.4 Million | +53% | | Adjusted Gross Profit | $41.5 Million | +33% | | GAAP Net Loss | $19.9 Million | +44% | | Adjusted EBITDA | $12.1 Million | +2754% | [Q1 2025 Operational Highlights](index=1&type=section&id=Q1%202025%20Operational%20Highlights) The company enhanced its RAMP platform with generative AI, leading to faster development cycles and improved monetization efficiency, with CouponFollow.com achieving a **162% year-over-year increase** in organic sessions, and a successful marketing campaign for MapQuest driving approximately **280,000 active users** and **180,000 new mobile app downloads** - The RAMP platform was updated with agentic coding and generative AI, accelerating development cycles and improving monetization efficiency[7](index=7&type=chunk) - CouponFollow.com posted a **162% year-over-year increase** in organic sessions in Q1 2025[7](index=7&type=chunk) - MapQuest's "Gulf of Mexico/America Naming Generator" campaign attracted **280,000 active users** and drove **180,000 mobile app downloads**[7](index=7&type=chunk) [Business Outlook](index=1&type=section&id=Business%20Outlook) System1 will not provide financial guidance for the second quarter of 2025, a decision attributed to uncertainty related to a key advertising partner's marketplace, potential volatility in online advertising demand, and evolving tariff policies - The company declined to provide financial guidance for Q2 2025 due to uncertainties with a key advertising partner, online advertising demand, and tariff policies[4](index=4&type=chunk) [Financial Statements](index=3&type=section&id=Financial%20Statements) [Consolidated Statements of Operations](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2025, System1's revenue decreased to **$74.5 million** from **$84.9 million** in the prior year, significantly narrowing its operating loss to **$13.1 million** from **$25.8 million** in Q1 2024 primarily due to a reduction in the cost of revenue, though the net loss attributable to System1, Inc. increased to **$15.9 million** compared to a **$10.5 million** loss in the same period last year Q1 2025 vs Q1 2024 Statement of Operations (In thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $74,513 | $84,917 | | Cost of revenue | $46,077 | $66,318 | | Operating loss | $(13,126) | $(25,796) | | Net loss | $(19,856) | $(13,791) | | Net loss attributable to System1, Inc. | $(15,883) | $(10,537) | [Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, System1 held total assets of **$419.2 million**, down from **$459.1 million** at year-end 2024, with total liabilities decreasing to **$351.5 million** from **$374.1 million**, cash and cash equivalents standing at **$43.9 million** (a decrease from **$63.6 million**), and total stockholders' equity declining to **$67.7 million** from **$85.0 million** over the same period Balance Sheet Comparison (In thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $43,913 | $63,607 | | Total current assets | $114,182 | $134,477 | | Total assets | $419,154 | $459,129 | | Total current liabilities | $89,682 | $105,095 | | Total liabilities | $351,495 | $374,133 | | Total stockholders' equity | $67,659 | $84,996 | [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) [Definition of Non-GAAP Measures](index=2&type=section&id=Definition%20of%20Non-GAAP%20Measures) The company utilizes Adjusted Gross Profit and Adjusted EBITDA as key non-GAAP metrics to evaluate the operational strength of its core business, with Adjusted Gross Profit defined as gross profit plus depreciation and amortization from cost of revenues, and Adjusted EBITDA as net income (loss) adjusted for items like interest, taxes, D&A, stock-based compensation, and other specific non-recurring costs, while acknowledging these measures have limitations and may not be comparable to those of other companies - Adjusted Gross Profit is defined as gross profit plus depreciation and amortization related to cost of revenues[12](index=12&type=chunk) - Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization, stock-based compensation, and other specified costs[12](index=12&type=chunk) - System1 acknowledges that these non-GAAP measures have limitations and may not be comparable to similarly titled measures from other companies[13](index=13&type=chunk) [Reconciliation of Revenue to Adjusted Gross Profit](index=6&type=section&id=Reconciliation%20of%20Revenue%20to%20Adjusted%20Gross%20Profit) For Q1 2025, the company reconciled its **$74.5 million** in revenue to a GAAP Gross Profit of **$28.4 million** and an Adjusted Gross Profit of **$41.5 million**, representing a **33% year-over-year increase** in Adjusted Gross Profit from **$31.2 million** in Q1 2024 Reconciliation to Adjusted Gross Profit (In millions) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $74.5 | $84.9 | | Gross profit | $28.4 | $18.6 | | Adjusted Gross Profit | $41.5 | $31.2 | [Reconciliation of Net Loss to Adjusted EBITDA](index=7&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20EBITDA) The company reconciled its Q1 2025 Net Loss of **$19.9 million** to an Adjusted EBITDA of **$12.1 million**, marking a substantial improvement from Q1 2024, where a Net Loss of **$13.8 million** was reconciled to an Adjusted EBITDA of only **$0.4 million** Reconciliation to Adjusted EBITDA (In millions) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net loss | $(19.9) | $(13.8) | | Adjustments (Interest, D&A, etc.) | $32.0 | $14.2 | | Adjusted EBITDA | $12.1 | $0.4 | [Forward-Looking Statements and Risk Factors](index=1&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section provides a standard "safe harbor" disclaimer for forward-looking statements, which are subject to various risks and uncertainties, directing readers to the company's SEC filings (10-K, 10-Q, 8-K) for a detailed discussion of risk factors, including maintaining relationships with partners and advertisers, managing first-party data, RAMP platform performance, and changes in market demand and competition - The press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, which are not guarantees of future performance[6](index=6&type=chunk)[8](index=8&type=chunk) - Readers are advised to review the "Risk Factors" in the company's SEC filings for a comprehensive understanding of potential risks[9](index=9&type=chunk) - Key risks include maintaining relationships with network partners, effective use of first-party data, RAMP performance, changing customer demand, competition, and regulatory changes[10](index=10&type=chunk)

Financial Data and Key Metrics Changes - For Q4 2024, the company reported revenue of $76 million and gross profit of $45 million, with adjusted EBITDA at $17.9 million, reflecting a 79% year-over-year increase [7][37] - Total owned and operated revenue reached $65 million, marking a 19% year-over-year decline and a 9% sequential decrease [14] - Adjusted gross profit increased to $32 million, a 20% year-over-year increase and a 21% sequential rise from Q3 [15] Business Line Data and Key Metrics Changes - Owned and operated products generated $27.1 million in revenue, up 60% year-over-year and 30% sequentially [39] - Marketing-driven businesses experienced a 40% year-over-year revenue decline, while owned and operated products saw a 60% increase [14] - Partner Network revenue was $11 million, with adjusted gross profit at $14 million, both up 10% year-over-year and sequentially [31] Market Data and Key Metrics Changes - International revenue represented 36% of total owned and operated revenue, up from 26% in Q4 2023 [16] - Total sessions across owned and operated properties totaled 1.9 billion, down 8% from Q3 but up 79% year-over-year [15][41] - The company launched over 22,000 marketing campaigns in Q4, a fivefold year-over-year increase [16] Company Strategy and Development Direction - The company is focusing on AI integrations across all facets of its operations, particularly within the RAMP platform, to enhance efficiency and scale [13][48] - A strategic shift is underway from Google's AdSense for Domains (AFD) to the newer Related Search on Content (RSOC) product, with the company well-positioned to navigate this transition [20][81] - The company aims to scale marketing campaign launches to $130,000 per quarter, targeting a new campaign every minute [17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing volatility due to changes in Google's Search Partner Network, impacting advertising spend and revenue [9][10] - The company remains cautiously optimistic about 2025, with strong fundamentals in owned and operated products and a focus on AI-driven optimizations [34][47] - Management expects the transition to RSOC to create medium to long-term benefits despite short-term disruptions [19][81] Other Important Information - The company ended Q4 with $63.6 million in unrestricted cash and $280 million in term loan debt, with a net consolidated leverage of approximately 5.6 times [44] - Q1 revenue guidance is estimated between $69 million and $71 million, reflecting an 18% year-over-year decline at the midpoint [45] Q&A Session Summary Question: Thoughts on AI and investment in RAMP - Management noted that advancements in AI are significantly reducing costs and improving operational efficiency, with notable productivity gains from AI tools [51][56][61] Question: Balance sheet and capital structure management - The company is focused on improving its capital structure, with a net leverage of 5.6 times, which is higher than desired, but management is optimistic about future growth [62][66] Question: Impact of political advertising on business model - Management indicated that the end of the political advertising season is favorable, as it typically leads to lower advertising costs [67][68] Question: Readiness for RSOC shift - The company has invested heavily in RSOC and believes it is well-positioned to lead in this transition, despite expected short-term revenue bumps [75][81] Question: International market opportunities - Management highlighted the increasing percentage of revenue from international markets and the potential for growth in areas like CouponFollow and MapQuest [90][94] Question: Trajectory for adjusted EBITDA margin - Management expects gross profit growth to translate into improved adjusted EBITDA margins, driven by operational efficiencies [96][98]