All Key Financial Results Above the High-End of Guidance
Range
Fourth Quarter Financial
Highlights:
- Revenue Increased 9% Over Prior Quarter to $96.1
million
- Gross Profit Increased 1% Over Prior Quarter to $25
million
- Adjusted Gross Profit Increased 1% Over Prior Quarter to
$37.5 million
- GAAP Net Loss Decreased 2% Over Prior Quarter to $25
million
- Adjusted EBITDA Increased 24% Over Prior Quarter to $10
million
Fiscal Year 2023
Results:
- Revenue of $402.0 million
- Gross Profit of $103.4 million
- Adjusted Gross Profit of $153.3 million
- GAAP Net Loss of $111.3 million
- Adjusted EBITDA of $29.2 million
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an
omnichannel customer acquisition marketing platform, announced its
financial results for the fourth quarter and full year 2023.
Unless otherwise noted, all financial results are reflect the
divestiture of Total Security Limited (“Total Security”), the
Company’s anti-virus subscription business, which was completed on
November 30, 2023.
“We are pleased to report results for Q4 that exceeded our
guidance for Revenue, Adjusted Gross Profit and Adjusted EBITDA,
despite what continued to be a challenging online advertising
environment. I am especially pleased that our core advertising
business was able to execute despite significant management focus
on the sale of Total Security,” commented Michael Blend, System1’s
Co-Founder & Chief Executive Officer. “Looking forward to 2024
and beyond, we expect to benefit from macro tailwinds around
increased advertiser demand and the forthcoming deprecation of
third-party cookies in Chrome. Coupled with our initiatives to
integrate AI within our RAMP platform, a resurgence in our Partner
Network business and a streamlined strategic focus following the
Total Security sale, we are optimistic about both 2024 and the
years ahead.”
Tridivesh Kidambi, Chief Financial Officer of System1,
commented, “We are pleased to close another strong quarter and
finish the year with positive momentum heading into 2024, with
reflecting quarter-over-quarter growth on both top line Revenue and
Adjusted EBITDA. With the sale of our Total Security consumer
subscription business last quarter, we enter 2024 with a
streamlined cost structure, a capital-efficient advertising
business and substantial liquidity available on our balance sheet.
We will continue to be focused on investing for growth in our
business, while also strategically deploying our capital 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.
Fourth Quarter 2023 and Subsequent Business
Highlights
- Sold subscription business segment for $240 million of gross
cash and the retirement of approximately 29.1M Class A shares.
- 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.
- Introduced new enhancements to Owned & Operated product
offerings, including a new "proof of delivery" feature for its
RoadWarrior route-planning app in connection with the launch of a
new marketplace for subscription add-ons.
- Announced a strategic partnership to power the search results
of Ecosia, a leading search engine, representing another
achievement for System1’s resurgent Partner Network business.
First Quarter 2024 Guidance
The Company expects for the first quarter of 2024:
- Revenue between $82 million and $84 million.
- Gross Profit between $15 million and $17 million.
- Adjusted Gross Profit between $28 million and $30 million.
- Adjusted EBITDA between $(2) million and $(1) 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 first quarter of 2024, the
Company expects interest expense in the range of $7.5 million to
$8.0 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 registration
statements on Form S-4 (including the related proxy
statement/prospectus) with respect to the Business Combination with
Trebia Acquisition Corp. each filed with the Securities and
Exchange Commission (the “SEC”), as well as System1’s Form 10-K,
Form 10-Q/As, 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 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
Three Months Ended December
31,
(In thousands)
2023
2022
As Revised
Revenue
$
96,120
$
140,071
Operating costs and expenses:
Cost of revenues (excluding depreciation
and amortization)
58,550
97,146
Salaries, commissions, and benefits
24,608
29,039
Selling, general, and administrative
12,303
13,869
Depreciation and amortization
19,737
19,101
Impairment of goodwill
—
26,636
Total operating costs and expenses
115,198
185,791
Operating income (loss)
(19,078
)
(45,720
)
Other expense (income):
Interest expense
11,956
9,692
Loss on extinguishment of related-party
debt
1,385
—
Change in fair value of warrant
liabilities
1,764
(10,360
)
Total other expense (income), net
15,105
(668
)
Loss before income tax
(34,183
)
(45,052
)
Income tax benefit
(8,757
)
(15,251
)
Net loss from continuing operations
(25,426
)
(29,801
)
Net loss from discontinued operations, net
of tax
(11,105
)
(21,039
)
Net loss
(36,531
)
(50,840
)
Less: Net loss from continuing operations
attributable to non-controlling interest
(6,656
)
(14,082
)
Less: Net loss from discontinued
operations attributable to non-controlling interest
(2,247
)
(4,007
)
Net loss attributable to System1, Inc.
$
(27,628
)
$
(32,751
)
Consolidated Statements of
Operations
Successor
Predecessor
(In thousands)
Year Ended December 31,
2023
Period from January 27, 2022
through December 31, 2022
Period from January 1, 2022
through January 26, 2022
As Revised
Revenue
$
401,971
$
612,229
$
52,712
Operating costs and expenses:
Cost of revenues (excluding depreciation
and amortization)
248,745
438,839
41,507
Salaries, commissions, and benefits
106,505
138,045
31,181
Selling, general, and administrative
54,307
50,831
15,665
Depreciation and amortization
78,403
69,469
1,000
Impairment of goodwill
—
372,728
—
Total operating costs and expenses
487,960
1,069,912
89,353
Operating income (loss)
(85,989
)
(457,683
)
(36,641
)
Other expense (income):
Interest expense
48,745
31,609
1,049
Loss on extinguishment of related-party
debt
2,004
—
—
Change in fair value of warrant
liabilities
(5,109
)
3,751
—
Total other expense, net
45,640
35,360
1,049
Loss before income tax
(131,629
)
(493,043
)
(37,690
)
Income tax benefit
(20,371
)
(108,680
)
(629
)
Net loss from continuing operations
(111,258
)
(384,363
)
(37,061
)
Net loss from discontinued operations, net
of tax
(174,327
)
(56,959
)
—
Net loss
(285,585
)
(441,322
)
(37,061
)
Less: Net loss from continuing operations
attributable to non-controlling interest
(25,185
)
(99,841
)
—
Less: Net loss from discontinued
operations attributable to non-controlling interest
(33,179
)
(11,089
)
—
Net loss attributable to System1, Inc.
$
(227,221
)
$
(330,392
)
$
(37,061
)
Consolidated Balance Sheets
(In thousands, except for par
values)
December 31, 2023
December 31, 2022
As Revised
Assets
Current assets:
Cash and cash equivalents
$
135,343
$
8,905
Restricted cash, current
3,813
5,717
Accounts receivable, net
56,093
80,428
Prepaid expenses and other current
assets
6,754
11,166
Current assets held for sale from
discontinued operations
—
20,292
Total current assets
202,003
126,508
Restricted cash, non-current
4,294
5,395
Property and equipment, net
3,084
3,162
Internal-use software development costs,
net
11,425
6,948
Intangible assets, net
297,001
371,661
Goodwill
82,407
82,407
Operating lease right-of-use assets
4,732
6,484
Other non-current assets
524
2,822
Assets held for sale from discontinued
operations
—
555,069
Total assets
$
605,470
$
1,160,456
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable
9,499
6,707
Accrued expenses and other current
liabilities
59,314
85,780
Operating lease liabilities, current
2,333
2,149
Debt, net
15,271
15,021
Current liabilities held for sale from
discontinued operations
—
101,418
Total current liabilities
86,417
211,075
Operating lease liabilities,
non-current
3,582
5,875
Long-term debt, net
334,232
399,504
Warrant liability
2,688
7,798
Deferred tax liability
8,307
29,396
Other liabilities
929
1,661
Liabilities held for sale from
discontinued operations
—
34,476
Total liabilities
436,155
689,785
Class A common stock - $0.0001 par value;
500,000 shares authorized, 65,855 Class A shares issued and
outstanding as of December 31, 2023 and 2022, respectively
7
9
Class C common stock - $0.0001 par value;
25,000 shares authorized, 21,513 Class C shares issued and
outstanding as of December 31, 2023 and 2022, respectively
2
2
Additional paid-in capital
843,112
831,566
Accumulated deficit
(707,662
)
(439,296
)
Accumulated other comprehensive loss
(181
)
(260
)
Total equity/members' deficit
135,278
392,021
Non-controlling interest
34,037
78,650
Total stockholders' equity
169,315
470,671
Total liabilities and stockholders'
equity
$
605,470
$
1,160,456
The following tables reconcile net loss to Adjusted EBITDA for
the periods presented.
Three Months Ended December
31,
($ in millions)
2023
2022
As Revised
Net loss
$
(25.4
)
$
(29.8
)
Plus:
Income tax benefit
(8.8
)
(15.3
)
Interest expense
12.0
9.7
Depreciation and amortization
19.7
19.1
Impairment of goodwill
—
26.6
Other expense
0.2
1.3
Stock-based compensation &
distributions to members
5.8
6.9
Non-cash revaluation of warrant
liability
1.8
(10.4
)
Loss on extinguishment of related-party
debt
1.4
—
Acquisition and restructuring costs
3.3
6.2
Adjusted EBITDA
$
10.0
$
14.3
Successor
Predecessor
System1, Inc.
S1 Holdco LLC
($ in millions)
Year Ended December 31,
2023
Period from January 27, 2022
through December 31, 2022
Period from January 1, 2022
through January 26, 2022
As Revised
Net loss
$
(111.3
)
$
(384.4
)
$
(37.1
)
Plus:
Income tax benefit
(20.4
)
(108.7
)
(0.6
)
Interest expense
48.7
31.6
1.0
Depreciation and amortization
78.4
69.5
1.0
Impairment of goodwill
—
372.7
—
Other expense
1.0
1.0
(0.1
)
Stock-based compensation &
distributions to members
21.2
55.9
23.4
Non-cash revaluation of warrant
liability
(5.1
)
3.8
—
Loss on extinguishment of related-party
debt
2.0
—
—
Acquisition and restructuring costs
14.7
26.6
13.2
Acquisition earnout
—
0.4
—
Adjusted EBITDA
$
29.2
$
68.4
$
0.8
The following table reconciles Revenue to Gross Profit and
Adjusted Gross Profit for the periods presented.
($ in millions)
Three months ended December
31, 2023
Three months ended December
31, 2022
As Revised
Revenue
$
96.1
$
140.1
Less: Cost of revenues (excluding
depreciation and amortization)
(58.6
)
(97.1
)
Less: Depreciation and amortization
related to cost of revenues
(12.6
)
(12.4
)
Gross profit
24.9
30.6
Add: Depreciation and amortization related
to cost of revenues
12.6
12.4
Adjusted Gross Profit
$
37.5
$
43.0
Successor
Predecessor
System1, Inc.
S1 Holdco LLC
($ in millions)
Year Ended December 31,
2023
Period from January 27, 2022
through December 31, 2022
Period from January 1, 2022
through January 26, 2022
As Revised
Revenue
$
402.0
$
612.2
$
52.7
Less: Cost of revenues (excluding
depreciation and amortization)
(248.7
)
(438.8
)
(41.5
)
Less: Depreciation and amortization
related to cost of revenues
(49.9
)
(45.6
)
(5.0
)
Gross profit
103.4
127.8
6.2
Add: Depreciation and amortization related
to cost of revenues
49.9
45.6
5.0
Adjusted Gross Profit
$
153.3
$
173.4
$
11.2
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240318357683/en/
Investors:
Brett Milotte ICR, Inc. Brett.milotte@icrinc.com
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