System1(SST) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - System1 reported revenue of $85 million and gross profit of$ 31 million for Q1 2024, with adjusted EBITDA at $423,000, reflecting a 30% year-over-year decline in revenue and a 12% sequential decline [2][58] - Owned and operated revenue was$ 69 million, down 35% year-over-year and down 13% from the previous quarter [2][58] - Adjusted EBITDA was $422,000 compared to$ 5.2 million in the same quarter last year, exceeding the high end of the guidance range by $1.4 million [22][58] Business Line Data and Key Metrics Changes - Partner network revenue was$ 16 million, with a gross profit of $11 million, representing a 5% year-over-year increase but a 5% sequential decline due to seasonality [11] - Total sessions processed by RAMP increased to 2.26 million, up 22% sequentially and 53% year-over-year [43] - Average revenue per partner decreased by 9% sequentially due to Q1 seasonality, with total active partners growing by 5% to over 250 [35] Market Data and Key Metrics Changes - International revenue represented approximately 29% of owned and operated revenue, up from 25% in Q4 2023 [31] - The advertising marketplace showed initial weakness in January but improved as the quarter progressed, with March exceeding expectations [9][19] - Partner network revenue per session declined 55% year-over-year and 28% quarter-over-quarter due to marketplace headwinds [34] Company Strategy and Development Direction - The company is focusing on investing in its RAMP platform, expanding its subscription business, and exploring M&A opportunities as the digital market stabilizes [16][17] - System1 aims to enhance its buy-side capabilities and open up its platform to partners primarily using it for sell-side monetization [16][95] - The management expressed confidence in returning to growth mode, driven by improved execution and product enhancements [18][93] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about the digital advertising market stabilizing in 2024, despite ongoing uncertainties [24][41] - The delay in cookie deprecation by Google is viewed as a potential tailwind for the company, as it may enhance the effectiveness of contextual advertising [26] - The company expects Q2 revenue to be between$ 88 million and $90 million, representing an 8% year-over-year decline at the midpoint [45] Other Important Information - The company ended the quarter with$ 69.9 million in unrestricted cash and a term loan balance of $296 million, with a net leverage of approximately 9.19 times [22] - Management emphasized the importance of aligning with long-term shareholders and maintaining a focus on maximizing equity value [40][60] Q&A Session Summary Question: How does the company view the impact of cookie deprecation? - Management believes cookie deprecation will be a tailwind, enhancing contextual advertising effectiveness, and expressed disappointment over the delay to 2025 [26] Question: What opportunities does the company see in international markets? - Management noted that international revenue is under-indexed, particularly in the EU, and sees significant growth potential in these regions [49] Question: How is the company navigating the current consumer spending environment? - Management indicated stability in consumer spending and does not see a significant decline, with a focus on adapting to changing consumer demands [82] Question: What is the company's outlook regarding the upcoming presidential election and its impact on advertising? - Management does not anticipate significant changes in their marketplaces due to the election, focusing instead on stability and growth in the second half of 2024 [83][84]