- Revenue decreased 23% Year-Over-Year to $168
Million
- Gross Profit decreased 19% Year-Over-Year to $35
Million
- Adjusted Gross Profit decreased 17% Year-Over-Year to $48
Million
- GAAP Net Loss of $43 Million
- Adjusted EBITDA of $10.3 Million
- Company Provides Second Quarter 2023 guidance of: $146
Million to $149 Million of Revenue and $17 Million to $19 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 2023.
“We continued to see a declining digital advertising market in
Q1, but I am pleased our team successfully navigated through a
particularly challenging environment,” said Michael Blend,
Co-Founder & Chief Executive Officer. “While revenue and
profitability were down year-over-year and sequentially, as
expected, our RAMP platform upgrade in 2022 continues to bear
fruit. On the subscription side, we increased our customer
acquisition spend 23% over the fourth quarter to $32.6 million and
ended the quarter with over 2.6 million subscribers. We exited Q1
with regained momentum in our advertising business, and we expect
to sustain the growth in our subscription business. Overall, we
remain bullish on the remainder of 2023.”
Tridivesh Kidambi, Chief Financial Officer, commented, “Our
results highlighted the ability of our platform to generate gross
profit dollars no matter the environment. As indicated by our
guidance for Q2, our platform continues to prove its ability to
scale, and deliver incremental gross profit dollars with an
extremely high flow-through rate to our bottom line. Further, we
believe that our proven track record to optimally deploy resources
and capital against nascent opportunities will remain a competitive
advantage both in the near and long-term.”
Explanatory Note of Year-Over-Year Comparisons
For financial reporting purposes, S1 Holdco, LLC 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 Acquisition Corp. (subsequently
renamed System1) on January 26, 2022. All year-over-year
comparisons for the first quarter of 2023 combine results from
January 27, 2022 through March 31, 2022 (Successor period) and
January 1, 2022 through January 26, 2002 (Predecessor period) in
the prior period. Please refer to the tables at the end of this
release for further details on financial results for each of the
Successor and Predecessor periods in Q1 of 2022.
First Quarter 2023 Financial Highlights
- Revenue decreased 23% year-over-year to $168 million compared
to $219 million in the prior year.
- Gross Profit decreased 19% year-over-year to $35 million.
- Adjusted Gross Profit decreased 17% year-over-year to $48
million compared to $57 million in the prior year.
- Net loss of $43 million, compared to $81 million of net loss in
the prior year.
- Adjusted EBITDA decreased 63% year-over-year to $10.3 million
compared to $27.6 million in the prior year.
Second Quarter 2023 Guidance
The Company expects for the second quarter of 2023:
- Revenue between $146 million and $149 million.
- Gross Profit between $41.5 million and $43.5 million
- Adjusted Gross Profit between $53 million and $55 million.
- Adjusted EBITDA between $17 million and $19 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 quarter of 2023, the
Company expects interest expense in the range of $12 million to $13
million, depreciation and amortization expense in the range of $27
million to $29 million, and select non-recurring items including
Protected.net acquisition bonus accrual expense in the range of $13
million to $14 million, and acquisition and restructuring costs to
be in the range of $2.5 million to $4.5 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, nor does it take into account the impact of the
Company’s acquisitions, dispositions or financings during 2023.
Business Highlights
- Even in a challenged environment, the Company’s RAMP platform
acquired one billion sessions to its Owned & Operated
properties and increased its margin per session to 39% versus 28%
during the same period of last year.
- In March 2023, the Company renewed one of its advertising
relationships with Google. The new agreement was renewed under
substantially the same terms and has a termination date of March
2025.
- Also in March 2023, the Company won Microsoft Advertising’s
Supply Partner of the Year Award for the second consecutive
year.
- Added over 300,000 new subscribers to its suite of subscription
products year over year, with total paying subscribers as of March
31, 2023 at over 2.6 million.
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 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) 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
(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
Predecessor
Three Months Ended March 31,
2023
Period from January 27, 2022
through March 31, 2022
Period from January 1, 2022
through January 26, 2022
Revenue
$
167,854
$
166,108
$
52,712
Operating expenses:
Cost of revenue (excluding depreciation
and amortization)
120,402
120,384
41,507
Salaries and benefits
38,398
48,198
31,181
Selling, general, and administrative
17,172
15,088
15,665
Depreciation and amortization
29,374
21,928
1,000
Total operating expenses
205,346
205,598
89,353
Operating loss
(37,492
)
(39,490
)
(36,641
)
Other expense
Interest expense, net
11,451
4,776
1,049
Change in fair value of warrant
liabilities
(1,409
)
13,761
—
Total other expense
10,042
18,537
1,049
Loss before income tax
(47,534
)
(58,027
)
(37,690
)
Income tax benefit
(4,408
)
(14,649
)
(629
)
Net loss
$
(43,126
)
$
(43,378
)
$
(37,061
)
Net loss attributable to non-controlling
interest
(9,174
)
(7,309
)
—
Net loss attributable to System1, Inc.
$
(33,952
)
$
(36,069
)
$
(37,061
)
Unaudited Condensed Balance
Sheets
(In thousands, except for par
values)
Successor
Successor
March 31, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
8,267
$
24,606
Restricted cash, current
7,862
9,074
Accounts receivable
69,319
80,927
Prepaid expenses and other current
assets
12,061
11,901
Total current assets
97,509
126,508
Restricted cash, non-current
5,577
5,395
Property and equipment, net
4,469
4,022
Internal-use software development costs,
net
8,630
6,948
Intangible assets, net
464,145
492,686
Goodwill
515,591
515,591
Operating lease assets
6,050
6,484
Other non-current assets
2,826
2,822
Total assets
$
1,104,797
$
1,160,456
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
11,258
$
12,068
Accrued expenses and other current
liabilities
85,727
95,447
Protected.net incentive plan liability,
current
8,755
15,436
Deferred revenue
76,346
70,164
Operating lease liabilities, current
2,195
2,149
Debt, net
15,073
15,021
Total current liabilities
199,354
210,285
Operating lease liabilities,
non-current
5,314
5,875
Long-term debt, net
395,704
399,504
Warrant liability
6,389
7,798
Deferred tax liability
35,995
43,355
Protected.net incentive plan liability,
non-current
20,037
15,824
Other liabilities
6,326
5,027
Total liabilities
$
669,119
$
687,668
Stockholders' equity:
Class A common stock - $0.0001 par value;
500,000 shares authorized, 93,147 Class A shares issued and
outstanding as of March 31, 2023
$
9
$
9
Class C common stock - $0.0001 par value;
25,000 shares authorized, 21,513 Class C shares issued and
outstanding as of March 31, 2023
2
2
Additional paid-in capital
837,093
829,687
Accumulated deficit.
(479,579
)
(445,301
)
Accumulated other comprehensive income
(479
)
(417
)
Total shareholders’ equity attributable to
System1, Inc.
357,046
383,980
Non-controlling interest
78,632
88,808
Total shareholders’ equity
435,678
472,788
Total liabilities and shareholders’
equity
$
1,104,797
$
1,160,456
The following table reconciles net loss to Adjusted EBITDA for
the periods presented ($ in millions).
Successor
Predecessor
Three months ended March 31,
2023
Period from January 27, 2022
through March 31, 2022
Period from January 1, 2022
through January 26, 2022
Net loss
$
(43.1
)
$
(43.4
)
$
(37.1
)
Plus:
Income tax benefit
(4.4
)
(14.6
)
(0.6
)
Interest expense
11.5
4.8
1.0
Depreciation and amortization
29.4
21.9
1.0
Other expense (benefit)
0.2
1.8
(0.1
)
Stock-based compensation &
distributions to members
6.4
32.3
23.4
Protected.net acquisition bonus
accrual
7.5
—
—
Non-cash revaluation of warrant
liability
(1.4
)
13.8
—
Acquisition and restructuring costs
4.2
9.9
13.2
Acquisition earnout
—
0.3
—
Adjusted EBITDA
$
10.3
$
26.8
$
0.8
The following table reconciles Revenue to Gross Profit and
Adjusted Gross Profit for the periods presented ($ in
millions).
Successor
Predecessor
Three months ended March 31,
2023
Period from January 27, 2022
through March 31, 2022
Period from January 1, 2022
through January 26, 2022
Revenue
$
167.9
$
166.1
$
52.7
Less: Cost of revenue (excluding
depreciation and amortization)
(120.4
)
(120.4
)
(41.5
)
Less: Depreciation and amortization
related to cost of revenue
(12.4
)
(8.6
)
(5.0
)
Gross Profit
35.1
37.1
6.2
Add: Depreciation and amortization related
to cost of revenue
12.4
8.6
5.0
Adjusted Gross Profit
$
47.5
$
45.7
$
11.2
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230630762382/en/
Investors: Brett Milotte ICR, Inc.
Brett.milotte@icrinc.com
System1 (NYSE:SST)
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