System1(SST) - 2025 Q2 - Quarterly Report

Part I Financial Statements (Unaudited) 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 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 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 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 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][92] - 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][93] - Reportable segments were changed in Q2 2025 to 'Marketing' and 'Products', with prior year information revised accordingly[70] - 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][52][53] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][89] - As of June 30, 2025, the company owns and operates approximately 40 websites, including search engines and digital media properties[90] Results of Operations 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] - Products segment sessions increased to 522.5 million in Q2 2025, with revenue-per-session (RPS) rising to $0.05 from $0.04[112] - 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] - Selling, general, and administrative expense decreased primarily from a $4.3 million reduction in professional and consulting fees in Q2 2025[118] Liquidity and Capital Resources 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] 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][139] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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][147][148] - The remediation plan involves hiring skilled accounting personnel, engaging an advisory firm, and implementing more formal and robust controls and policies[149][151] Part II Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 No other information was reported for the period - None[161]