- Revenue Grew 30% Year-Over-Year to $220 Million
- Revenue Grew 7% Year-Over-Year on a Pro Forma Basis
- Gross Profit1 Grew 55% Year-Over-Year to $67
Million
- Adjusted Gross Profit Grew 31% Year-Over-Year to $74 Million
on a Pro Forma Basis
- Net Loss of $34 million
- Adjusted EBITDA increased 20% to $41 million compared to $34
Million in the prior year on a Pro Forma Basis
- Company Announces $25 million Stock and Warrant Repurchase
Program
- Company Updates Full-Year 2022 Guidance: $900 Million to
$930 Million of Pro Forma Revenue, $285 Million to $295 Million of
Pro Forma Adjusted Gross Profit and $155 Million to $165 Million of
Pro Forma Adjusted EBITDA
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an
omnichannel customer acquisition marketing platform, announced its
financial results for the second quarter of 2022.
“System1 made considerable progress in Q2 on our key operating
priorities that will enable us to triple our scale over the next
few years. We launched new subscription products, began rolling out
our next-generation RAMP technology, and integrated our latest
acquisitions,” commented Michael Blend, Co-Founder & Chief
Executive Officer. “Despite macro headwinds in the advertising
environment, we are forecasting substantial growth and increasing
cashflow. We are continuing to invest in our platform and remain
focused on the opportunities that will drive our long-term growth.
Further, our newly authorized stock and warrant repurchase program
demonstrates our confidence in our long-term prospects and the
underlying fundamentals of our business.”
Tridivesh Kidambi, Chief Financial Officer of System1,
commented, “We are pleased with our second quarter financial and
operating results, as we delivered growth in revenue, adjusted
gross profit and adjusted EBITDA. Similar to our peers, we are
seeing softness in the advertising marketplace, which has impacted
our full year outlook. We remain confident in both the power and
efficiency of RAMP and our business model, and we expect the
slowdown in growth to be temporary.”
Explanatory Note of Year-Over-Year Comparisons
For financial reporting purposes, S1 Holdco has been determined
to be the accounting predecessor and therefore its financial
results are presented for all periods prior to the Business
Combination with Trebia. In order to present comparable financial
information, year-over-year comparisons of financial results
against the second quarter of 2021 combine the unaudited financial
results of Protected with the unaudited financial results of S1
Holdco for the second quarter of 2021. The Company believes it is
important to provide these pro forma financial results for
investors and other stakeholders to properly evaluate its
performance in 2022 relative to comparable information provided in
prior periods. Please refer to the tables at the end of this
release for a reconciliation of the pro forma financial results as
presented herein to the individual financial results of S1 Holdco,
Protected and System1, respectively, for the respective successor
and predecessor periods. These pro forma financial results are not
prepared in accordance with Article 11 of Regulation S-X.
Second Quarter 2022 Financial Highlights
- Revenue increased 30% year-over-year to $220 million compared
to $170 million in the prior year.
- Revenue increased 7% year-over-year on a pro forma basis2.
- Gross profit increased 55% year-over-year to $67 million
compared to $43 million in the prior year.
- Adjusted Gross Profit increased 31% year-over-year to $74
million compared to $56 million in the prior year on a pro forma
basis2.
- Net loss of $34 million, compared to $12 million of net income
in the prior year.
- Adjusted EBITDA increased 20% year-over-year to $41 million
compared to $34 million in the prior year on a pro forma
basis2.
- Adjusted Gross Profit and Adjusted EBITDA excludes $6 million
negative impact to gross profit in the second quarter of 2022
caused by a traffic partner advertising network inadvertently
sending fraudulent traffic to the Company.
Full-Year 2022 Guidance
- The Company is updating its full year outlook to reflect
current economic conditions. The Company expects for the full year
2022:
- Pro forma Revenue between $900 million and $930 million
- Pro forma Adjusted Gross Profit between $285 million and $295
million
- Pro forma Adjusted EBITDA between $155 million and $165
million.
Second Quarter 2022 Business Highlights
- On May 4, 2022, the Company completed the acquisition of
Answers.com, one of the largest destinations for higher education
and lifelong learning content, to add to its portfolio of Owned
& Operated publishing sites and search destinations. This is
the Company’s fourth acquisition year to date in 2022.
- In July 2022, the Company renewed its strategic advertising
agreement with Microsoft Bing for an additional 3 years on
substantially similar terms to our prior agreement.
- In August 2022, the Company’s Board of Directors authorized a
$25 million stock and warrant repurchase program covering System1’s
Class A common stock and public warrants.
_________________________ 1 Gross profit is defined as revenue
less cost of revenue (exclusive of depreciation and amortization).
2 Please refer to the tables at the end of this release for a
reconciliation of pro forma financial results to reported S1 Holdco
results in Q2 2021.
About System1, Inc.
System1 combines best-in-class technology & data science to
operate its advanced Responsive Acquisition Marketing Platform
(RAMP). System1’s RAMP is omnichannel and omnivertical, and built
for a privacy-centric world. RAMP enables the building of powerful
brands across multiple consumer verticals, the development &
growth of a suite of privacy-focused products, and the delivery of
high-intent customers to advertising partners. For more
information, visit www.system1.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release includes “forward-looking statements “ within
the meaning of the “safe harbor” provisions of the United States
Private Securities Litigation Reform Act of 1995, particularly any
statements or materials regarding System1’s future results or
“guidance” for fiscal year 2022. Forward-looking statements
include, but are not limited to, statements regarding System1 or
its management team’s expectations, hopes, beliefs, intentions or
strategies regarding the future. In addition, any statements that
refer to projections, forecasts or other characterizations of
future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” “would” and similar expressions may
identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.
These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other
assumptions that may cause System1’s actual financial results or
operating performance to be materially different from those
expressed or implied by these forward-looking statements. Readers
or users of this press release should evaluate the risk factors
summarized below, which summary list is not exclusive. Readers or
users of this press release should also carefully review the “Risk
Factors” and other information included in our registration
statements on Form S-4 (including the related proxy
statement/prospectus) with respect to the Business Combination with
Trebia Acquisition Corp. and on Form S-1, each filed with the
Securities and Exchange Commission (the “SEC ”), as well as
System1’s Form 10-K, Form 8-K and other reports filed with the SEC
from time to time. Please refer to the SEC filings for additional
information regarding the risks and other factors that may impact
System1’s business, prospects, financial results and operating
performance following completion of the Business Combination.
Such risks, uncertainties and assumptions include, but are not
limited to: (1) our ability to grow and manage growth profitably,
and retain its key employees; (2) our ability to acquire businesses
on acceptable terms and to successfully integrate and recognize
anticipated synergies from acquired businesses; (3) use of cash and
other available liquidity to grow and invest in our businesses; (4)
continued growth of our digital media and subscription offerings;
(5) international growth; (6) our ability to develop or introduce
new products, services, features and technologies; (7) our
liquidity and our ability to repay or refinance our outstanding
indebtedness; (8) technology, platform and infrastructure systems
capacity, coverage, reliability and security; (9) changes in or
recent developments related to applicable laws or regulations
(including those concerning data security, consumer privacy and/or
information sharing); (10) the possibility that we may be adversely
affected by other economic, business, and/or competitive factors;
and (11) the impact of Covid-19 and other political or societal
developments. The foregoing list of factors is not exclusive.
Should one or more of these risks or uncertainties materialize,
they could cause our actual results to differ materially from any
forward-looking statements contained in this press release.
System1’s independent auditors have not audited, reviewed, compiled
or performed any procedures with respect to the forward-looking
statements for the purpose of their inclusion in this press
release, and accordingly, do not express an opinion or provide any
other form of assurance with respect thereto for the purpose of
this press release. System1 will not undertake any obligation to
update or revise any forward-looking statements whether as a result
of new information, future events or otherwise. You should not take
any statement regarding past trends or activities as a
representation that such trends or activities will continue in the
future. Accordingly, you should not put undue reliance on these
statements.
Non-GAAP Measures: Adjusted Gross Profit and Adjusted
EBITDA
Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial
measures and represent key metrics used by System1’s management and
board of directors to measure the operational strength and
performance of its business, to establish budgets, and to develop
operational goals for managing its business. Adjusted Gross Profit
is defined as revenue less cost of revenues plus certain discrete
items impacting a particular segment’s results in a particular
period. Adjusted EBITDA is defined as net income (loss) before
interest expense, income taxes, depreciation and amortization
expense, stock-based compensation expenses, deferred compensation,
management fees, minority interest expense, restructuring charges,
impairment and certain discrete items impacting a particular
segment’s results in a particular period.
System1 believes Adjusted Gross Profit and Adjusted EBITDA are
relevant and useful metrics for investors because it allows
investors to view performance in a manner similar to the method
used by management. There are limitations on the use of Adjusted
Gross Profit and Adjusted EBITDA and it may not be comparable to
similarly titled measures of other companies. Other companies,
including companies in System1’s industry, may calculate non-GAAP
financial measures differently than System1 does, limiting the
usefulness of those measures for comparative purposes.
Adjusted Gross Profit should not be considered a substitute for
revenue less cost of revenue. Adjusted EBITDA should not be
considered a substitute for income (loss) from operations, net
income (loss), or net income (loss) attributable to System1 on a
consolidated basis that System1 reports in accordance with GAAP.
Although System1 uses Adjusted Gross Profit and Adjusted EBITDA as
financial measures to assess the performance of its business, such
use is limited because it does not include certain costs necessary
to operate System1’s business. System1’s presentation of Adjusted
Gross Profit and Adjusted EBITDA should not be construed as
indications that its future results will be unaffected by unusual
or nonrecurring items.
The Company is not able to reasonably reconcile Adjusted EBITDA
to net income, its nearest GAAP metric, in its guidance for future
periods due to uncertainties regarding purchase accounting,
stock-based compensation, taxes and other potential
adjustments.
Unaudited Condensed Statements of
Operations
(In thousands)
Successor
Predecessor
Three Months Ended June 30,
2022
Three Months Ended June 30,
2021
Revenue
$
219,797
$
169,579
Operating costs and expenses:
Cost of revenues (excludes depreciation
and amortization)
152,558
126,167
Salaries, commissions, and benefits
45,555
17,698
Selling, general, and administrative
16,167
6,277
Depreciation and amortization
33,397
3,112
Total operating costs and expenses
247,677
153,254
Operating income (loss)
(27,880
)
16,325
Other expense (income):
Interest expense
7,324
4,476
Change in fair value of warrant
liabilities
(4,139
)
—
Total other expense (income), net
3,185
4,476
Income (loss) before income tax
(31,065
)
11,849
Income tax (benefit) provision
3,000
77
Net income (loss)
$
(34,065
)
$
11,772
Net loss attributable to non-controlling
interest
(4,867
)
—
Net income (loss) attributable to System1,
Inc.
$
(29,198
)
$
11,772
Unaudited Condensed Balance
Sheets
(In thousands, except for par
values)
Successor
Predecessor
June 30, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
37,442
$
47,896
Restricted cash, current
5,757
—
Accounts receivable
93,397
90,203
Prepaid expenses and other current
assets
9,671
7,689
Total current assets
146,267
145,788
Restricted cash, non-current
1,532
743
Property and equipment, net
4,330
830
Internal-use software development costs,
net
11,647
11,213
Intangible assets, net
537,913
50,368
Goodwill
907,248
44,820
Operating lease right-of-use assets
7,533
—
Other non-current assets
779
3,149
Total assets
$
1,617,249
$
256,911
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
17,286
72,846
Accrued expenses and other current
liabilities
97,752
31,284
Deferred revenue
68,368
1,971
Operating lease liabilities, current
2,065
—
Notes payable, current
14,888
170,453
Total current liabilities
200,359
276,554
Operating lease liabilities,
non-current
7,073
—
Notes payable, non-current
406,026
—
Warrant liability
13,669
—
Deferred tax liability
137,354
7,789
Protected incentive plan liability
18,163
—
Other liabilities
7,482
969
Total liabilities
790,126
285,312
Commitments and contingencies
EQUITY / MEMBERS' DEFICIT
Class A Common stock - $0.0001 par value;
250,000 shares authorized, 90,587 Class A shares issued and
outstanding as of June 30, 2022
9
—
Class C Common stock - $0.0001 par value;
25,000 shares authorized, 22,077 Class C shares issued and
outstanding as of June 30, 2022
2
—
Additional paid-in capital
761,002
—
Accumulated deficit
(118,373
)
—
Members' deficit
—
(28,829
)
Accumulated other comprehensive income
179
428
Total equity/members' deficit
642,819
(28,401
)
Non-controlling interest
184,304
—
Total equity/members' deficit
827,123
(28,401
)
Total liabilities and equity/members'
deficit
$
1,617,249
$
256,911
The following tables reconcile net income (loss) to Adjusted
EBITDA and Pro Forma Adjusted EBITDA for the periods presented for
System1, Inc, S1 Holdco LLC and Protected.net.
Successor
System1, Inc.
($ in millions)
Three Months Ended
June 30, 2022
Net (Loss)
$
(34.1
)
Plus:
Income Tax (Benefit)
3.0
Interest Expense
7.3
Depreciation & Amortization
33.4
Other Expense
2.1
Stock-Based Compensation &
Distributions To Members
22.4
Non-cash revaluation of warrant
liability
(4.1
)
Acquisition & Restructuring Costs
4.6
One-time Ad Credit Impact
6.3
Acquisition Earnout
0.1
Adjusted EBITDA
$
41.0
Three Months Ended June 30,
2021
Predecessor
Unaudited
Pro Forma
($ in millions)
S1 Holdco LLC
Protected.net
Total
Net Income (Loss)
$
11.8
$
7.5
$
19.3
Plus:
Income Tax Expense
0.1
—
0.1
Interest Expense
4.5
(0.2
)
4.3
Depreciation & Amortization
3.1
0.1
3.2
Other Expense
—
2.7
2.7
Stock-Based Compensation &
Distribution To Members
3.3
—
3.3
Terminated Product Lines
—
—
—
Acquisition & Restructuring Costs
0.9
0.5
1.4
Acquisition Earnout
—
—
—
Adjusted EBITDA
$
23.7
$
10.6
$
34.3
The following tables reconcile Revenue to Pro Forma Revenue,
Adjusted Gross Profit and Pro Forma Gross Profit for the periods
presented for System1, Inc, S1 Holdco LLC and Protected.net.
Three Months Ended June 30,
2022
Successor
($ in millions)
System1, Inc.
Revenue
$
219.8
Less: Cost of Revenue (exclusive of
depreciation and amortization)
(152.6
)
Gross Profit
$
67.2
One-time Ad Credit Impact
6.3
Adjusted Gross Profit
$
73.5
Three Months Ended June 30,
2021
Unaudited
Pro Forma
($ in millions)
S1 Holdco LLC
Protected.net
Total
Revenue
$
169.6
$
36.0
$
205.6
Less: Cost of Revenue (exclusive of
depreciation and amortization)
(126.2
)
(23.4
)
$
(149.6
)
Gross Profit
$
43.4
$
12.6
$
56.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220811005264/en/
Investors:
Brett Milotte ICR, Inc. Brett.milotte@icrinc.com
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