- Revenue Decreased 33% Year-Over-Year to $147
Million
- Gross Profit Decreased 26% Year-Over-Year to $41
Million
- Adjusted Gross Profit Decreased 21% Year-Over-Year to $53
Million
- GAAP Net Loss of $44 Million
- Adjusted EBITDA of $15 Million
- Company Provides Second Half 2023 Guidance of: $289 Million
to $297 Million of Revenue and $35 Million to $40 Million of
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 2023.
“While we continue to see ongoing challenges in the markets in
which we operate, System1’s overall gross profit grew sequentially
and our team has continued to navigate this difficult environment,”
said Michael Blend, Co-Founder & Chief Executive Officer. “Our
network advertising business is seeing significant traction, and we
added almost 200,000 subscribers quarter-over-quarter, to end the
quarter with almost 2.8 million subscribers.”
Tridivesh Kidambi, Chief Financial Officer, commented, “We are
highly focused on positioning the company to take advantage of the
eventual upturn in the advertising market. Our RAMP platform
continues to maintain a profitable spread for our advertising
business, and we accelerated subscriber growth in our subscription
business. While our quarter was negatively impacted by the
termination of a significant Network Advertising partner, we expect
to narrow our declines in the second half of the year, and
ultimately exit 2023 with accelerated momentum leading into 2024
and beyond.”
Second Quarter 2023 Financial Highlights
- Gross Profit decreased 26% year-over-year to $41 million,
compared to $55 million in the prior year.
- Adjusted Gross Profit decreased 21% year-over-year, and
increased 12% quarter-over-quarter to $53 million compared to $48
million in the prior quarter.
- Net Loss of $44 million, compared to net loss of $34 million in
the prior year.
- Adjusted EBITDA decreased 57% year-over-year to $15 million
compared to $34 million in the prior year.
- Financial results for the quarter were negatively impacted by
the termination in late July of a Network Advertising partner,
resulting in a $3.3 million charge.
Second Half 2023 Guidance
The Company expects for the second half of 2023:
- Revenue between $289 million and $297 million.
- Gross Profit between $75 million and $80 million.
- Adjusted Gross Profit between $100 million and $105
million.
- Adjusted EBITDA between $35 million and $40 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 Gross Profit and Adjusted EBITDA to 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 variability of these items could have an
unpredictable, and potentially significant, impact on the Company’s
future GAAP financial results. For the second half of 2023, the
Company expects interest expense in the range of $21 million to $23
million, depreciation and amortization expense in the range of $57
million to $60 million, and select non-recurring items including
Protected.net acquisition bonus accrual expense in the range of $10
million to $12 million, and acquisition and restructuring costs to
be in the range of $4.0 million to $7.0 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, nor does it take into account the impact of the
Company’s acquisitions, dispositions or financings during 2023.
Business Highlights
- The Company’s RAMP platform acquired over 800 million sessions
to its Owned & Operated properties, and maintained a spread of
$0.03 per session for the fourth quarter in a row.
- Announced the launch of its RAMP Partner Console, a new portal
designed to provide Network Advertising partners with a powerful
set of self-serve tools and reporting capabilities.
- Private search engine Startpage, introduced a new mobile
offering with enhanced product features, including product listing
ads and shopping, and the incorporation of Microsoft Bing
search.
- In June, the Company was selected as the Global Supply Partner
of the year out of the Microsoft Advertising regional winners that
were announced in March.
- Finished the quarter with almost 2.8 million subscribers, up
over 20% year-over-year, reflecting an increase of almost 200,000
subscribers over the end of our prior quarter.
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 Annual Report on
Form 10-K for the fiscal year ending December 31, 2022, as well as
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-Q’s, Form 8-K’s 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 following completion of the Business
Combination.
Such risks, uncertainties and assumptions include, but are not
limited to: (1) the ability to maintain, grow, process, utilize and
protect the data we collect from consumers; (2) the ability to
maintain our relationships with network partners and advertisers;
(3) the performance of our responsive acquisition marketing
platform, or RAMP; (4) changes in client demand for our services
and our ability to adapt to such changes; (5) the ability to
maintain and attract consumers and advertisers in the face of
changing economic or competitive conditions; (6) the ability to
improve and maintain adequate internal control over financial
reporting and remediate identified material weaknesses; (7) the
ability to successfully source and complete acquisitions and to
integrate the operations of companies System1 acquires; (8) the
ability to raise financing in the future as and when needed or on
market terms; (9) the ability to compete with existing competitors
and the entry of new competitors in the market; (10) changes in
applicable laws or regulations and the ability to maintain
compliance with the various laws that our business and operations
are subject to; (11) the ability to protect our intellectual
property rights; and (12) other risks and uncertainties indicated
from time to time in our filings with the SEC. 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)
Successor
Three Months Ended June 30,
2023
Three Months Ended June 30,
2022
Revenue
$
147,238
$
219,797
Operating expenses
Cost of revenue (excluding depreciation
and amortization)
93,882
152,558
Salaries and benefits
43,991
49,511
Selling, general, and administrative
17,735
16,747
Depreciation and amortization
28,052
32,094
Total operating expenses
183,660
250,910
Operating loss
(36,422
)
(31,113
)
Other expense
Interest expense, net
12,342
7,324
Change in fair value of warrant
liabilities
2,018
(4,139
)
Total other expense
14,360
3,185
Loss before income tax
(50,782
)
(34,298
)
Income tax benefit
(6,605
)
(454
)
Net loss
$
(44,177
)
$
(33,844
)
Net loss attributable to non-controlling
interest
(8,947
)
(8,107
)
Net loss attributable to System1, Inc
$
(35,230
)
$
(25,737
)
Unaudited Condensed Balance
Sheets
(In thousands, except for par
values)
Successor
June 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
8,603
$
24,606
Restricted cash, current
11,762
9,074
Accounts receivable, net of allowance for
credit losses
62,789
80,927
Prepaid expenses and other current
assets
11,976
11,901
Total current assets
95,130
126,508
Restricted cash, non-current
5,825
5,395
Property and equipment, net
5,047
4,022
Internal-use software development costs,
net
10,162
6,948
Intangible assets, net
437,323
492,686
Goodwill
515,591
515,591
Operating lease right-of-use assets
5,637
6,484
Other non-current assets
3,498
2,822
Total assets
$
1,078,213
$
1,160,456
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
19,942
$
12,068
Accrued expenses and other current
liabilities
77,466
95,447
Protected incentive plan liability,
current
12,272
15,436
Deferred revenue
80,461
70,164
Operating lease liabilities, current
2,243
2,149
Debt, net
15,138
15,021
Related-party loan fee payable
2,400
—
Total current liabilities
209,922
210,285
Long-term debt, net
391,888
399,504
Related-party loan
5,000
—
Warrant liability
8,406
7,798
Protected incentive plan liability,
non-current
24,298
15,824
Operating lease liabilities,
non-current
4,778
5,875
Deferred tax liability
29,851
43,355
Other liabilities
7,125
5,027
Total liabilities
$
681,268
$
687,668
Stockholders' equity:
Class A common stock - $0.0001 par value;
500,000 shares authorized, 93,602 and 91,674 Class A shares issued
and outstanding as of June 30, 2023 and December 31, 2022,
respectively
$
9
$
9
Class C common stock - $0.0001 par value;
25,000 shares authorized, 21,513 and 21,747 Class C shares issued
and outstanding as of June 30, 2023 and December 31, 2022,
respectively
2
2
Additional paid-in capital
842,350
829,687
Accumulated deficit
(514,809
)
(445,301
)
Accumulated other comprehensive income
(270
)
(417
)
Total shareholders’ equity attributable to
System1, Inc
327,282
383,980
Non-controlling interest
69,663
88,808
Total shareholders’ equity
396,945
472,788
Total liabilities and shareholders’
equity
$
1,078,213
$
1,160,456
The following table reconciles net loss to Adjusted EBITDA for
the periods presented ($ in millions).
Successor
Three months ended June 30,
2023
Three Months Ended June 30,
2022
Net loss
$
(44.2
)
$
(33.8
)
Plus:
Income tax benefit
(6.6
)
(0.5
)
Interest expense
12.3
7.3
Depreciation and amortization
28.1
32.1
Other expense
0.6
2.2
Stock-based compensation &
distributions to members
5.0
7.4
Protected.net acquisition bonus
accrual
12.8
18.2
Non-cash revaluation of warrant
liability
2.0
(4.1
)
Acquisition and restructuring costs
4.7
5.5
Acquisition earnout
—
0.1
Adjusted EBITDA
$
14.7
$
34.4
The following table reconciles Revenue to Gross Profit and
Adjusted Gross Profit for the periods presented ($ in
millions).
Successor
Three months ended June 30,
2023
Three Months Ended June 30,
2022
Revenue
$
147.2
$
219.8
Less: Cost of revenue (excluding
depreciation and amortization)
(93.9
)
(152.6
)
Less: Depreciation and amortization
related to cost of revenue
(12.4
)
(12.3
)
Gross Profit
40.9
54.9
Add: Depreciation and amortization related
to cost of revenue
12.4
12.3
Adjusted Gross Profit
$
53.3
$
67.2
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230809939787/en/
Investors: Brett Milotte ICR, Inc.
Brett.milotte@icrinc.com
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