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]

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 of $17.9 million, reflecting a 79% year-over-year increase [7][37] - Total owned and operated revenue reached $65 million, a 19% year-over-year decline and a 9% sequential decrease, while adjusted gross profit increased to $32 million, marking a 20% year-over-year increase [14][15] - Advertising spend declined by 26% sequentially due to lower monetization from Google [10][41] 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, while marketing businesses saw a 40% year-over-year revenue decline [39][14] - Partner Network revenue was $11 million, with adjusted gross profit of $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] 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 [12][13] - 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] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing volatility due to changes in Google's Search Partner Network, which has impacted advertising spend and revenue [9][10] - The company remains cautiously optimistic about 2025, expecting to leverage its core products in private search, mapping, and couponing for growth [34][47] Other Important Information - The company ended the quarter 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][66] - Q1 revenue guidance is estimated between $69 million and $71 million, with adjusted gross profit expected to grow 25% year-over-year [45][46] 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 engineers experiencing productivity improvements of two to four times [53][59] 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 and refinancing opportunities [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 for the company [68] Question: Readiness for RSOC shift - The company has invested heavily in RSOC and believes it is well-positioned to lead in this new product area, despite expected short-term revenue bumps [80][81] Question: International market growth potential - Management highlighted the increasing percentage of revenue from international markets and the potential for growth in areas like CouponFollow and MapQuest [92][94] Question: Trajectory for adjusted EBITDA margin - The company expects gross profit growth to translate into expanded adjusted EBITDA margins, driven by disciplined operating expense management [96][98]

Revenue Performance - Revenue for Q4 2024 decreased by 21% year-over-year to $75.6 million, while full-year revenue decreased by 14% to $343.9 million[7]. - Revenue for Q4 2024 was $75.6 million, down 21.0% from $96.1 million in Q4 2023; annual revenue decreased from $402.0 million in 2023 to $343.9 million in 2024, a decline of 14.4%[23]. Profitability Metrics - Adjusted Gross Profit for Q4 2024 increased by 19% year-over-year to $44.7 million, and for the full year, it decreased by 1% to $152.3 million[7]. - Adjusted EBITDA for Q4 2024 increased by 79% year-over-year to $17.9 million, while for the full year, it increased by 32% to $38.6 million[7]. - Adjusted EBITDA improved to $17.9 million in Q4 2024 compared to $10.0 million in Q4 2023, and for the year, it increased from $29.2 million in 2023 to $38.6 million in 2024[22]. - Gross profit for Q4 2024 was $31.8 million, up from $24.9 million in Q4 2023; annual gross profit slightly decreased from $103.4 million in 2023 to $101.3 million in 2024[23]. Net Loss and Financial Position - GAAP Net Loss for Q4 2024 decreased by 29% year-over-year to $18.0 million, and for the full year, it decreased by 13% to $97.3 million[7]. - The company reported a net loss from continuing operations of $18.0 million in Q4 2024, an improvement from a loss of $25.4 million in Q4 2023; annual net loss improved from $111.3 million in 2023 to $97.3 million in 2024[22]. - The accumulated deficit increased from $707,662,000 in 2023 to $782,335,000 in 2024, reflecting a worsening financial position[21]. Asset and Liability Changes - Total assets decreased from $605,470,000 in 2023 to $459,129,000 in 2024, a decline of approximately 24.2%[21]. - Total liabilities decreased from $436,155,000 in 2023 to $374,133,000 in 2024, a reduction of approximately 14.2%[21]. - Cash and cash equivalents dropped significantly from $135,343,000 in 2023 to $63,607,000 in 2024, a decrease of about 53%[21]. Strategic Initiatives and Growth - The company expects Q1 2025 revenue to be between $69 million and $71 million, with Adjusted Gross Profit projected between $38 million and $40 million[6][16]. - The RAMP platform saw a 500%+ increase in campaign launches year-over-year in Q4 2024 due to automation and AI initiatives[8]. - CouponFollow.com experienced a 129% year-over-year increase in organic sessions in Q4 2024, indicating strong user engagement[8]. - The company renewed advertising arrangements with Google in October 2024 and February 2025, with agreements extending to 2027[8]. - The company is focused on optimizing its capital structure and enhancing monetization strategies for long-term growth[4]. - System1's operational efficiency and financial discipline were highlighted as key factors in navigating a volatile market[4]. Shareholder Equity - Class A common stock shares issued and outstanding increased from 65,855 in 2023 to 73,653 in 2024[21]. - Additional paid-in capital rose from $843,112,000 in 2023 to $863,033,000 in 2024, indicating increased investment in the company[21].

Revenue Dependence - 78% of the total revenue for the year ended December 31, 2024, was attributable to agreements with Google[94] - Revenue and operating results depend on the effectiveness of the Responsive Acquisition Marketing Platform (RAMP) to acquire users with commercial intent[92] - Changes in Google's advertising practices could adversely affect the company's revenue and operating results[96] - A decrease in mobile, display, and video advertising usage could harm growth prospects and financial condition[131] - Revenue is significantly affected by third-party website publishers; any decline in available media could lead to revenue loss[163] Operational Risks - The company has a limited operating history since its formation in 2013, which increases investment risks[90] - The company faces risks related to data security breaches, which could lead to reputational harm and financial liabilities[99] - Operational issues with the platform, including potential outages and performance errors, could adversely affect financial results and brand reputation[116] - The company must continuously innovate and invest in research and development to remain competitive in a rapidly changing market[121] - The company faces significant risks related to intellectual property claims, which could lead to substantial monetary liabilities or operational restrictions[175] Marketing and Advertising Challenges - The company relies on large-scale acquisition marketing channels, including Google, Meta, Outbrain, and TikTok, for significant consumer Internet traffic[107] - The company has made significant expenditures for search engine marketing, which may not be cost-effective[108] - Advertising spend remains concentrated in traditional media, and a cultural shift towards online marketing is necessary for growth[126] - The company’s marketing efforts may not be successful due to reliance on performance metrics that are subject to change[111] Financial and Compliance Issues - The company’s credit facilities contain covenants that restrict business and financing activities, potentially limiting operational flexibility[112] - The company must comply with various privacy laws and regulations, which may be costly and complex[104] - The company identified material weaknesses in internal control over financial reporting, which could lead to inaccurate financial results and loss of investor confidence[136] - The management team has limited experience in managing a public company, which may affect compliance with reporting and internal control obligations[166] - The company incurs significant expenses related to compliance with public company regulations, which may divert management's attention from business operations[231] International Operations and Expansion - International expansion may incur significant operating expenses and expose the company to economic and political instability, potentially affecting financial results[153] - The company has a limited operating history outside the U.S., which poses challenges in managing international operations and securing quality ad inventory[152] - International operations expose the company to increased management costs, long payment cycles, and regulatory compliance challenges[154] Cybersecurity and Data Privacy - Cybersecurity risks threaten the integrity and availability of the company's IT systems, which could result in significant operational and reputational damage[145] - Privacy and data protection laws may incur unexpected costs and require changes to the business model, potentially adversely affecting operations[178] - The California Consumer Privacy Act (CCPA) imposes civil penalties of up to $7,500 per violation, which could significantly impact financial results[179] - Concerns about data privacy and security could damage the company's reputation and deter clients from using its services[200] Financial Resources and Capital Structure - The company anticipates continued growth will require substantial financial resources for technology improvements and market expansion[128] - The company may issue additional shares or convertible securities in the future, which could dilute existing shareholders' ownership and negatively affect stock prices[219] - The company does not intend to pay dividends on its common stock for the foreseeable future, retaining all available funds for business development and growth[234] Market and Economic Conditions - The company faces risks from unfavorable global economic conditions, including increasing interest rates and inflation, which could weaken demand for its software products[135] - The company is exposed to market risks including interest rate and foreign currency exchange risk, which could materially affect its financial condition and results of operations[354] Technology and Innovation - The company is investing heavily in AI Tools, including machine learning algorithms, to enhance its advertising services, but there are risks associated with the implementation and data quality[215] - The market for AI Tools is rapidly evolving, and the company faces competition that may develop superior or more cost-effective technologies[217] - The company is dependent on third-party data suppliers for its machine learning algorithms, and any withdrawal of data could adversely impact its service offerings and revenue[218]

Financial Data and Key Metrics Changes - System1 reported Q3 2024 revenue of approximately $89 million, with a gross profit of $38 million and adjusted EBITDA of $10.3 million, exceeding the high end of guidance [6][36] - Adjusted EBITDA grew 28% year-over-year and 4% quarter-over-quarter [36] - Total revenue was $88.8 million, representing a 1% year-over-year increase but a 6% sequential decline [36][37] Business Line Data and Key Metrics Changes - Owned and operated products generated $71 million in revenue, up 7% year-over-year but down 9% sequentially [10][37] - Revenue from marketing-driven business lines decreased due to underperformance in the Google Search Partner Network [8][30] - Partner Network revenue was $18 million, down 17% year-over-year but up 5% sequentially [30][37] Market Data and Key Metrics Changes - International revenue represented 35% of owned and operated revenue, up from 24% in Q3 2023 [12][70] - Total sessions on owned and operated properties exceeded 2 billion, up 125% year-over-year [10] - RPS (Revenue Per Session) and CPS (Cost Per Session) both decreased sequentially, indicating lower monetization rates [11][39] Company Strategy and Development Direction - The company is focused on integrating AI into its RAMP platform to enhance marketing campaign efficiency and effectiveness [9][28] - System1 aims to improve its owned and operated products while navigating the volatility in marketing-driven businesses [18][33] - The company is optimistic about the recovery of its Google-related businesses in 2025 [8][30] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing volatility in the advertising marketplace, leading to the decision not to provide Q4 guidance at this time [34][45] - The company expressed confidence in its ability to capitalize on long-term opportunities despite short-term challenges [46] - Management highlighted the importance of the Google Search Partner Network's recovery for future growth [32][68] Other Important Information - Operating expenses decreased by 5% sequentially, reflecting the company's focus on cost control [9][42] - The company ended the quarter with $69.1 million in unrestricted cash and $285 million in term loan debt, with a net leverage of approximately seven times [44] Q&A Session Summary Question: What has enabled the resurrection of MapQuest? - Management explained that improvements in technology and features, along with a focus on user experience, have revitalized MapQuest [48][50] Question: How does the end of the election cycle affect advertising? - Management indicated that the end of election-related advertising should normalize the marketplace, potentially lowering costs for buying ads [53][54] Question: What adjustments have been made to the RAMP platform? - Management confirmed that significant improvements have been made to RAMP, enhancing its effectiveness in creating engaging ads [57][60] Question: How ready is the company to capitalize on market disruptions? - Management expressed confidence in thriving during market disruptions and welcomed potential advertising spend pullbacks [68]

Revenue Performance - Revenue increased 1% year-over-year to $88.8 million, exceeding guidance[1] - Revenue for the three months ended September 30, 2023, was $88.8 million, compared to $87.8 million for the same period in 2022, representing a year-over-year increase of 1.14%[17] Profitability Metrics - GAAP net loss increased by $4.7 million year-over-year to $30.6 million[1] - Net loss attributable to System1, Inc. was $23.6 million for the quarter, down from $131.5 million in the same quarter last year[13] - Adjusted EBITDA rose 27% year-over-year to $10.3 million[1] - Gross profit for the three months ended September 30, 2023, was $24.8 million, slightly up from $24.7 million in the prior year, indicating a growth of 0.4%[17] - Adjusted Gross Profit for the three months ended September 30, 2023, was $37.6 million, compared to $37.2 million in the same period last year, reflecting an increase of 1.07%[17] Operating Expenses - Total operating expenses for Q3 2024 were $110.6 million, compared to $108.7 million in Q3 2023[13] - Cost of revenue (excluding depreciation and amortization) for the three months ended September 30, 2023, was $51.2 million, up from $50.6 million in the previous year[17] - Depreciation and amortization related to cost of revenue for the three months ended September 30, 2023, was $12.8 million, compared to $12.5 million in the same period last year[17] Cash and Assets - Cash and cash equivalents decreased to $69.1 million from $135.3 million at the end of the previous year[14] - Total assets decreased to $479.3 million from $605.5 million at the end of the previous year[14] User Engagement and Product Development - CouponFollow.com saw over 100% year-over-year increase in organic sessions, with users of savings-focused browser extensions more than doubling[3] - Startpage launched its Private Browser app for Android, achieving over 200,000 downloads across Android and iOS[3] - MapQuest finalized a multi-year deal with HERE for backend mapping technology, improving user experience and offering cost savings[4]

Revenue and Financial Performance - Revenue for the three months ended September 30, 2024, was $88,832,000, representing a 1% increase from $87,818,000 in the same period of 2023[115] - Total revenue for the nine months ended September 30, 2024, was $268,330 million, a decrease of $37,521 million or 12% compared to $305,851 million in the same period of 2023[116] - Owned and Operated Advertising revenue for the three months ended September 30, 2024, was $70,798 million, an increase of $4,611 million or 7% year-over-year[122] - Partner Network revenue for the nine months ended September 30, 2024, was $51,106 million, a decrease of $5,233 million or 9% compared to $56,339 million in the same period of 2023[123] Operating Loss and Expenses - Operating expenses totaled $110,648,000 for the three months ended September 30, 2024, a 2% increase from $108,672,000 in the prior year[115] - The operating loss for the three months ended September 30, 2024, was $21,816,000, compared to an operating loss of $20,854,000 in the same period of 2023[115] - Operating loss for the nine months ended September 30, 2024, was $(76,698) million, an increase in loss of $9,788 million or 15% compared to $(66,910) million in the same period of 2023[116] - Salaries and benefits increased by $5.5 million for the three months ended September 30, 2024, primarily due to share-based liabilities[130] Net Loss - Net loss from continuing operations for the three months ended September 30, 2024, was $30,639,000, an 18% increase from $25,928,000 in the prior year[115] - The company reported a net loss attributable to System1, Inc. of $23,602,000 for the three months ended September 30, 2024, compared to a net loss of $131,490,000 in the same period of 2023, reflecting an 82% improvement[115] - Net loss attributable to System1, Inc. for the nine months ended September 30, 2024, was $(60,512) million, a decrease of $139,080 million or 70% compared to $(199,592) million in the same period of 2023[116] - The company experienced a net loss of $249.1 million for the nine months ended September 30, 2023, adjusted for noncash items[146] Interest Expense - Interest expense, net, decreased by 39% to $7,957,000 for the three months ended September 30, 2024, down from $13,053,000 in the prior year[115] - Interest expense, net decreased by $12,991 million or 35% for the nine months ended September 30, 2024, compared to the same period in 2023[116] Cash Flow and Liquidity - As of September 30, 2024, the company had unrestricted cash and cash equivalents of $69.1 million and $50.0 million available to borrow on its 2022 Revolving Facility[141] - For the nine months ended September 30, 2024, the company reported cash outflows of $69.9 million, primarily due to $56.8 million repayment of its Term Loan[141] - Cash used in operating activities for the nine months ended September 30, 2024 was $6.0 million, influenced by favorable changes in net income and working capital balances[145] - Cash used in investing activities for the nine months ended September 30, 2024 was $5.0 million, primarily for costs capitalized for internally developed software[147] - Cash used in financing activities for the nine months ended September 30, 2024 was $59.0 million, mainly related to the repayment of the 2022 Term Note[148] - The company is focused on improving liquidity by expanding advertising partners and optimizing advertising spend[140] Business Operations - The company ingested over 13 billion rows of data daily across approximately 40 advertising vertical categories during the three months ended September 30, 2024[99] - As of September 30, 2024, the company owned and operated approximately 40 websites, including leading search engines and digital media publishing sites[101] - The company completed the sale of its Protected business on November 30, 2023, with results presented as net loss from discontinued operations[106] - The company operates primarily in the United States, with additional operations in Canada and the Netherlands, facing various geopolitical and economic risks[104] Advertising Performance - Owned and Operated Advertising sessions increased by approximately 2.5 billion to 5.3 billion for the nine months ended September 30, 2024, compared to 2.8 billion in the prior year[124] - Network sessions increased approximately 3.9 billion to 5.9 billion for the nine months ended September 30, 2024, compared to 2.0 billion in the prior year[125] Future Commitments and Risks - The company remains contractually obligated to spend a remaining $8.0 million towards a service agreement commitment through June 2026[151] - Adverse macroeconomic conditions may impact advertising demand, affecting financial condition and operating results[140] - The company does not have any off-balance sheet arrangements that could materially affect its financial statements[150]

Financial Data and Key Metrics Changes - System1 reported Q2 2024 revenue of $95 million and gross profit of $39 million, with adjusted EBITDA at $9.9 million, which was 42% higher than the high end of guidance [5][21] - Total owned and operated revenue was $77 million, flat year-over-year but up 12% from the previous quarter, while adjusted gross profit was $27 million, up 22% quarter-over-quarter [5][21] - Partner Network revenue was $17 million, down 12% year-over-year but up 8% sequentially, with adjusted gross profit decreasing 9% year-over-year but increasing 24% sequentially [9][22] Business Line Data and Key Metrics Changes - Owned and operated products generated over 2 billion sessions, a 145% year-over-year increase and a 66% quarter-over-quarter increase, although revenue per session declined nearly 60% year-over-year [6][22] - Partner Network total sessions were 2 billion, up 203% year-over-year and 33% sequentially, but revenue per session declined 71% year-over-year [10][22] - Organic products, including CouponFollow and MapQuest, saw revenue up 17% year-over-year and gross profit up 18% year-over-year, with a sequential increase of 21% in revenue and 26% in gross profit [23][24] Market Data and Key Metrics Changes - International revenue represented approximately 36% of owned and operated revenue, up from 29% in the first quarter, indicating strong international growth [7][22] - The company noted significant growth in programmatic markets, particularly with partnerships in Asia, South America, and Europe [34][35] Company Strategy and Development Direction - System1 plans to invest in its RAMP platform focusing on AI integration, expanding buy-side capabilities for partners, and launching new products [11][12] - The company aims to enter under-indexed segments such as shopping and subscription products, with plans to partner with large advertising networks for shopping and explore subscription offerings [16][17] - The restructuring of corporate reporting will allow for better visibility into the performance of product businesses, which are less dependent on paid advertising [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the digital advertising market and noted that Q2 performance was in line with expectations [28][37] - The company does not anticipate significant contributions from new initiatives in 2024 but is optimistic about future growth from these efforts [30][31] - Management highlighted the importance of international growth and the positive trends observed in programmatic markets [34][35] Other Important Information - Operating expenses were reduced by 16% year-over-year, contributing to improved adjusted EBITDA of $9.9 million [21][25] - The company ended the quarter with $75.7 million in unrestricted cash and a net leverage of approximately 7.5 times [25] Q&A Session Summary Question: Concerns about marketplace conditions and future contributions from new initiatives - Management indicated no concerns regarding marketplace conditions and confirmed that Q2 performance aligned with expectations [28][29] Question: Impact of Google's decision on third-party cookies on CPMs - Management does not anticipate significant changes in CPMs due to Google's decision, noting that the industry may experience relief but their business outlook remains unchanged [32][33] Question: Success in international markets and future growth contributions - Management expressed optimism about international growth, particularly in programmatic markets, and expects continued contributions to overall revenue [34][35]