Financial Data and Key Metrics Changes - Revenue for Q3 was approximately $62 million, with adjusted gross profit of $36 million and adjusted EBITDA of $9.9 million, each down 4% year over year [5][17] - Marketing revenue came in at $39 million, down 43% year over year and down 28% sequentially [12][16] - Product revenue was $22.5 million, up 8% year over year but down 6% sequentially [17] Business Line Data and Key Metrics Changes - The product segment showed strong year-over-year growth, with revenue increasing 8% from Q3 2024 and adjusted gross profit up 6% year over year [5][7] - Marketing segment profit was $16.6 million, down 14% year over year and down 15% sequentially, driven by lower traffic acquisition costs [12][19] - Sessions increased 23% year over year and 12% sequentially, reflecting strong execution in the product segment [17] Market Data and Key Metrics Changes - The transition away from Google's AdSense for Domains (AFD) product had a significant negative impact on marketing revenue, which previously contributed approximately 39% of marketing platform revenue [18][19] - The company is transitioning to Google's Related Search on Content (RSoC) product, which is expected to provide a more stable revenue stream moving forward [6][13] Company Strategy and Development Direction - The company is focusing on integrating AI across its operations and expanding its product offerings, particularly in the areas of search, shopping, and geolocation [6][11] - There is a strategic emphasis on acquiring direct users to reduce dependency on third-party distribution platforms [11] - The company plans to increase investment in its product segment, which is viewed as having more predictable growth compared to the marketing business [10][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the volatility in the marketing segment but expressed confidence in returning to growth as the transition to RSoC completes [13][21] - The leadership team believes the majority of the volatility tied to Google Marketplace dynamics is behind them and anticipates providing guidance in the near future [21] - The company remains committed to enforcing high standards of traffic quality and is pursuing claims against partners for invalid traffic [14] Other Important Information - The company ended the quarter with $54.6 million of unrestricted cash and an outstanding balance of $265 million of term-loan debt [20][21] - The company is not providing Q4 2025 guidance at this time but expects to stabilize and rebound in the marketing segment [21] Q&A Session Summary Question: Efforts with Microsoft and Bing's market share gains - The company has been working closely with Bing and has seen improved performance, leading to a shift in efforts towards Bing as monetization increases [23][24] Question: Collaboration with OpenAI and Anthropic - The company highlighted its new product Vanish, which focuses on private AI, and mentioned ongoing work with various AI models to enhance its platform [25][26]

Financial Performance - Revenue for the three months ended September 30, 2025, was $61,561, a decrease of 31% compared to $88,832 in the same period in 2024[108] - Revenue for the nine months ended September 30, 2025, was $214,189, a decline of 20% from $268,330 in 2024[109] - Total revenue decreased by 31% to $61.6 million for the three months ended September 30, 2025, compared to $88.8 million in the same period of 2024[113] - Marketing revenue decreased by 43% to $39.1 million for the three months ended September 30, 2025, compared to $68.1 million in the same period of 2024[113] - Products revenue increased by 8% to $22.5 million for the three months ended September 30, 2025, compared to $20.7 million in the same period of 2024[113] Operating Expenses - Operating expenses for the three months ended September 30, 2025, totaled $77,126, down 30% from $110,648 in 2024[108] - Total operating expenses for the nine months ended September 30, 2025, were $258,785, down 25% from $345,028 in 2024[109] - Salaries and benefits for the three months ended September 30, 2025, were $21,354, a decrease of 27% from $29,177 in 2024[108] - Traffic Acquisition Cost (TAC) decreased by $26.8 million to $84.0 million for the three months ended September 30, 2025, from $110.8 million in the prior year[114] Net Loss - The net loss attributable to System1, Inc. for the three months ended September 30, 2025, was $18,516, a reduction of 22% from $23,602 in 2024[108] - The net loss attributable to System1, Inc. for the nine months ended September 30, 2025, was $51,862, a decrease of 14% from $60,512 in 2024[109] Cash Flow and Liquidity - Cash provided by operating activities was $6.5 million for the nine months ended September 30, 2025, compared to cash used of $6.0 million in the same period of 2024[134] - As of September 30, 2025, the company had unrestricted cash and cash equivalents of $54.6 million and $50.0 million available to borrow on its 2022 Revolving Facility[132] - The company expects existing cash and cash equivalents and cash flows from operating and financing activities to be sufficient to fund its operating and cash commitments for at least the next twelve months[130] Business Operations - The company operates approximately 40 websites, including leading search engines and digital media publishing sites[94] - As of September 30, 2025, the company processes daily advertising campaign optimizations across approximately 40 advertising vertical categories[93] Segment Performance - Segment adjusted gross profit for Marketing decreased by 14% to $16.6 million for the three months ended September 30, 2025, compared to $19.4 million in the same period of 2024[120] - Segment adjusted gross profit for Products increased by 6% to $21.2 million for the three months ended September 30, 2025, compared to $20.1 million in the same period of 2024[120] Product Metrics - Products sessions increased by 111.3 million to 584.7 million for the three months ended September 30, 2025, compared to 473.4 million in the same period of 2024[115] Regulatory Classification - The company is classified as a "smaller reporting company" and is not required to provide quantitative and qualitative disclosures about market risk[147]

Financial Performance - Revenue decreased 31% year-over-year to $61.6 million[6] - GAAP gross profit decreased 8% year-over-year to $22.8 million[6] - Adjusted gross profit decreased 4% year-over-year to $36.1 million, with adjusted gross profit margin increasing to 59% from 42% year-over-year[6] - GAAP net loss improved 28% year-over-year to $22.0 million[6] - Adjusted EBITDA decreased 4% year-over-year to $9.9 million[6] - For the three months ended September 30, 2025, the net loss was $22.0 million, an improvement from a net loss of $30.6 million in the same period of 2024[20] - Adjusted EBITDA for Q3 2025 was $9.9 million, slightly down from $10.3 million in Q3 2024[20] - The company incurred $2.0 million in acquisition and restructuring costs in Q3 2025, compared to $8.1 million in Q3 2024, indicating a reduction in restructuring expenses[20] - Interest expense decreased to $7.1 million in Q3 2025 from $8.0 million in Q3 2024, reflecting improved debt management[20] - Depreciation and amortization expenses were $20.8 million in Q3 2025, slightly up from $20.1 million in Q3 2024[20] - Stock-based compensation and distributions to members decreased to $2.8 million in Q3 2025 from $3.8 million in Q3 2024, indicating cost control measures[20] - The income tax benefit for Q3 2025 was $(0.5) million, compared to a benefit of $0.6 million in Q3 2024[20] - Non-cash revaluation of warrant liability resulted in a loss of $(0.1) million in Q3 2025, compared to a gain of $0.3 million in Q3 2024[20] - Other expenses were $(0.2) million in Q3 2025, with no other expenses reported in Q3 2024[20] - The company continues to focus on improving its financial metrics and reducing losses while managing operational costs effectively[20] Market Expansion and Product Development - CouponFollow.com expanded into the European market with localized coupon content in Germany, France, and Poland[7] - MapQuest launched redesigned apps on iOS and Android, enhancing user features[7] - Startpage.com released Vanish Private AI Chat, ensuring user privacy with no logging of IP addresses or queries[7] Future Guidance and Uncertainty - System1 does not plan to provide financial guidance for Q4 2025 due to uncertainty with a key advertising partner[5] Asset Management - Total assets decreased to $385.2 million from $459.1 million as of December 31, 2024[18]

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]

Company Overview - System1 operates an omnichannel marketing platform connecting customers with advertisers in shopping, travel, and search[17] - The company's Responsive Acquisition Marketing Platform (RAMP) identifies, markets to, and monetizes consumers across advertising verticals[20] - System1 monetized 66 billion sessions on its platform in 2023[21] - The platform generates over 1 billion monthly sessions on owned and operated properties and across approximately 220 active network partners[25] Financial Performance - System1's total advertising spend processed by RAMP is over $734 million[21] - The company's adjusted gross profit is $165 million for the twelve months ending June 30, 2025[56] - Adjusted EBITDA is $52 million, representing a 32% margin on gross profit for the twelve months ending June 30, 2025[58] Technology and Operations - System1 processes over 978 million queries per month across owned and operated and partner sites[25] - The platform generates over 16 billion rows of first-party data per day, informing machine learning pipelines[25] - System1 launches over 82,000 quarterly marketing campaigns leveraging AI and automation, a 2x increase from Q1 2025[25] - The company automates 90% of buy-side decisions using AI and machine learning[50]

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