All Key Financial Results Above the High-End of Guidance
Range
- Revenue Decreased $11.2 Million Over Prior Quarter to $84.9
Million
- Gross Profit Decreased 25% Over Prior Quarter to $18.6
Million
- Adjusted Gross Profit Decreased 17% Over Prior Quarter to $31.2
Million
- GAAP Net Loss Decreased 46% Over Prior Quarter to $14
Million
- Adjusted EBITDA Decreased $9.6 million Over Prior Quarter to
$0.4 Million
- Company Provides Second Quarter Guidance of: $88 Million to $90
Million of Revenue and $5 Million to $7 Million of Adjusted
EBITDA
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an
omnichannel customer acquisition marketing platform, announced its
financial results for the first quarter of 2024.
“We are pleased to report a strong start to the year, with our
headline Q1 results exceeding the top end of our guidance ranges
for Revenue, Adjusted Gross Profit and Adjusted EBITDA. We had a
strong quarter of execution across our core initiatives and I am
pleased we were able to deliver these results,” commented Michael
Blend, System1’s Co-Founder & Chief Executive Officer. “Looking
towards the remainder of 2024, we remain optimistic about increased
advertiser demand, and we are confident the investments in our RAMP
platform leave System1 well positioned to take advantage of these
trends.”
Tridivesh Kidambi, Chief Financial Officer of System1,
commented, “We delivered first quarter financial results that
exceeded our guidance, which was the result of some
better-than-expected trends at the end of the quarter. We currently
are expecting the favorable trends to continue and coupled with our
cost reductions in the second half of last year, we expect to
deliver year-over-year improvement in net loss and growth in
Adjusted EBITDA for the remainder of the year. We significantly
deleveraged last quarter, and we will continue to aggressively take
advantage of opportunities to increase equity value going forward,
while continuing to reduce our overall leverage.”
Note: Adjusted Gross Profit and Adjusted EBITDA are
non-GAAP metrics that are defined and reconciled at the end of this
release.
First Quarter 2024
- Successfully completed a modified “Dutch auction” tender offer
in January of 2024, repurchasing $63.7 million of term debt for a
purchase price of $40.9 million, exclusive of fees and expenses.
This brought the total debt repaid between November 2023 and
January 2024 to $155 million.
- Significant enhancements to RAMP released throughout the
quarter focused on automation, with more than 90% of Owned &
Operated customer acquisition advertising decisions now
automated.
- Released several improvements to RAMP Partner Portal, including
enhanced reporting and self-serve functionality for Network
Partners.
Second Quarter 2024 Guidance
The Company expects for the second quarter of 2024:
- Revenue between $88 million and $90 million.
- Gross Profit between $20 million and $22 million.
- Adjusted Gross Profit between $33 million and $35 million.
- Adjusted EBITDA between $5 million and $7 million.
In reliance on the unreasonable efforts exception for
forward-looking information provided under Regulation S-K, the
Company is not reasonably able to provide a quantitative
reconciliation of Adjusted EBITDA to net loss, the most directly
comparable GAAP financial measures without unreasonable effort due
to uncertainties regarding purchase accounting, stock-based
compensation, taxes and other potential adjustments. The difference
between Gross Profit and Adjusted Gross Profit is primarily
depreciation and amortization related to the cost of revenues,
which are estimated to be approximately $13 million. The
variability of these items could have an unpredictable, and
potentially significant, impact on the Company’s future GAAP
financial results. For the first quarter of 2024, the Company
expects interest expense in the range of $7.0 million to $7.5
million, depreciation and amortization expense in the range of $20
million to $21 million, and acquisition and restructuring costs to
be in the range of $2.0 million to $2.5 million.
The Company’s achievement of the anticipated results is subject
to risks and uncertainties, including those disclosed in its
filings with the U.S. Securities and Exchange Commission. The
outlook does not take into account the impact of any unanticipated
developments in the business or changes in the operating
environment.
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.
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 Annual Report on
Form 10-K and our Post-Effective Amendment to our Registration
Statement on Form S-1 each filed with the Securities and Exchange
Commission (the “SEC”), as well as System1’s Form 10-Qs, Form 8-Ks
and other reports filed with the SEC from time to time. Please
refer to these SEC filings for additional information regarding the
risks and other factors that may impact System1’s business,
prospects, financial results and operating performance.
Such risks, uncertainties and assumptions include, but are not
limited to: (1) our ability to maintain our key relationships with
network partners and advertisers, including our monetization
arrangements; (2) our ability to collect, process, effectively
utilize and safely store the first party data that we obtain
through our services; (3) The performance of our responsive
acquisition marketing platform, or RAMP; (4) changes in customer
demand for our services and our ability to incorporate to such
changes; (5) our ability to maintain and attract consumers and
advertisers in the face of changing economic or competitive
conditions; (6) our ability to improve and maintain adequate
internal control over financial reporting and remediate identified
material weaknesses; (7) our ability to successfully source and
complete acquisitions and to integrate the operations of companies
System1 acquires; (8) our ability to raise financing in the future
as and when needed or on market terms; (9) our ability to compete
with existing competitors and the entry of new competitors in the
market; (10) changes in applicable laws or regulations impacting
the business which we operate and our ability to maintain
compliance with the various laws that our business and operations
are subject to; and (11) our ability to protect our intellectual
property rights. 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
(Loss) is defined as gross profit plus depreciation and
amortization related to cost of revenues. 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. 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.
Unaudited Condensed Statements of Operations (In
thousands)
Three Months Ended March
31,
2024
2023
Revenue
$
84,917
$
121,118
Operating expenses:
Cost of revenue (excluding depreciation
and amortization)
53,698
82,953
Salaries and benefits
24,483
28,147
Selling, general, and administrative
12,728
14,855
Depreciation and amortization
19,804
19,392
Impairment of goodwill
—
—
Total operating expenses
110,713
145,347
Operating loss
(25,796
)
(24,229
)
Other expense (income):
Interest expense, net
7,970
11,402
Gain from debt extinguishment
(19,676
)
—
Change in fair value of warrant
liabilities
(251
)
(1,409
)
Total other (income) expense, net
(11,957
)
9,993
Loss before income tax
(13,839
)
(34,222
)
Income tax benefit
(48
)
(3,829
)
Net loss from continuing operations
(13,791
)
(30,393
)
Net loss from discontinued operations, net
of tax
—
(12,533
)
Net loss
(13,791
)
(42,926
)
Less: Net loss from continuing operations
attributable to non-controlling interest
(3,254
)
(6,757
)
Less: Net loss from discontinued
operations attributable to non-controlling interest
—
(2,367
)
Net loss attributable to System1, Inc.
$
(10,537
)
$
(33,802
)
Unaudited Condensed Balance Sheets (In thousands,
except for par values)
March 31, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
69,920
$
135,343
Restricted cash, current
7,231
3,813
Accounts receivable, net
52,735
56,093
Prepaid expenses and other current
assets
9,791
6,754
Total current assets
139,677
202,003
Restricted cash, non-current
533
4,294
Property and equipment, net
2,836
3,084
Internal-use software development costs,
net
12,545
11,425
Intangible assets, net
278,336
297,001
Goodwill
82,407
82,407
Operating lease right-of-use assets
4,241
4,732
Other non-current assets
484
524
Total assets
521,059
605,470
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
7,055
9,499
Accrued expenses and other current
liabilities
52,351
59,314
Operating lease liabilities, current
2,375
2,333
Debt, net
16,190
15,271
Total current liabilities
77,971
86,417
Operating lease liabilities,
non-current
2,938
3,582
Long-term debt, net
268,597
334,232
Warrant liability
2,438
2,688
Deferred tax liability
7,649
8,307
Other liabilities
1,061
929
Total liabilities
360,654
436,155
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock - $0.0001 par value;
500,000 shares authorized, 68,632 and 65,855 Class A shares issued
and outstanding as of March 31, 2024 and December 31, 2023,
respectively
7
7
Class C common stock - $0.0001 par value;
25,000 shares authorized, 21,204 and 21,513 Class C shares issued
and outstanding as of March 31, 2024 and December 31, 2023,
respectively
2
2
Additional paid-in capital
850,202
843,112
Accumulated deficit
(718,199
)
(707,662
)
Accumulated other comprehensive loss
(271
)
(181
)
Total stockholders' equity attributable to
System1, Inc.
131,741
135,278
Non-controlling interest
28,664
34,037
Total stockholders' equity
160,405
169,315
Total liabilities and stockholders'
equity
$
521,059
$
605,470
The following table reconciles net loss to Adjusted EBITDA for
the periods presented ($ in millions).
Three Months Ended March
31,
2024
2023
Net loss from continuing operations
$
(13.8
)
$
(30.4
)
Plus:
Income tax benefit
—
$
(3.8
)
Interest expense
8.0
$
11.4
Depreciation and amortization
19.8
$
19.4
Other expense
(0.1
)
$
—
Stock-based compensation &
distributions to members
4.0
$
(0.1
)
Impairment of goodwill
—
$
5.8
Loss on extinguishment of related-party
debt
(19.7
)
$
(1.4
)
Non-cash revaluation of warrant
liability
(0.3
)
$
—
Acquisition and restructuring costs
2.5
$
4.2
Adjusted EBITDA
$
0.4
$
5.1
The following table reconciles Revenue to Gross Profit and
Adjusted Gross Profit for the periods presented ($ in
millions).
Three Months Ended March
31,
2024
2023
Revenue
$
84.9
$
121.1
Less: Cost of revenue (excluding
depreciation and amortization)
(53.7
)
(83.0
)
Less: Depreciation and amortization
related to cost of revenue
(12.6
)
(12.4
)
Gross Profit
18.6
25.8
Add: Depreciation and amortization related
to cost of revenue
12.6
12.4
Adjusted Gross Profit
$
31.2
$
38.2
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version on businesswire.com: https://www.businesswire.com/news/home/20240509798032/en/
Investors: Brett Milotte ICR, Inc.
Brett.Milotte@icrinc.com
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