What changed in this filing

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Item 1. Financial Statements

2025-08-07 compared with 2025-05-06 · 157 added, 91 removed, 348 unchanged (42% of the section changed)

Financial Statements (Unaudited)

Financial Statements

System1, Inc.

2 unchanged sentences

(In thousands, except par value)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Current assets:

21 unchanged sentences

Non-current debt, net 241,795 255,118

Warrant liability 334 302

Deferred tax liability 5,225 6,199

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Class A common stock $ 0.0001 par value;

500,000 shares authorized, 74,855 and 73,653 Class A shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

500,000 shares authorized, 8,011 and 7,365 Class A shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Class C common stock $ 0.0001 par value;

25,000 shares authorized, 18,704 and 18,704 Class C shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

25,000 shares authorized, 1,869 and 1,870 Class C shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Additional paid-in capital 874,008 863,041

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(In thousands, except for per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Revenue $ 78,115 $ 94,581 $ 152,628 $ 179,498

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(In thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Net loss $ ( 21,542 ) $ ( 34,845 ) $ ( 41,398 ) $ ( 48,636 )

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Balance at March 31, 2025 7,485 1 1,870 — 865,840 ( 798,218 ) ( 432 ) 468 67,659

Net loss — — — — — ( 17,463 ) — ( 4,079 ) ( 21,542 )

Issuance of restricted stock, net of forfeitures and shares withheld for taxes 75 — — — 145 — — ( 165 ) ( 20 )

Conversion of Class C shares to Class A shares 1 — ( 1 ) — — — — — —

Issuance of common stock in private placement 450 — — — 3,275 — — ( 1,025 ) 2,250

Class A common stock repurchases — — — — — 1 — — 1

Other comprehensive income — — — — — — 299 70 369

Stock-based compensation — — — — 4,748 — — — 4,748

Distributions to members, net of contributions — — — — — — — ( 21 ) ( 21 )

Balance at June 30, 2025 8,011 $ 1 1,869 $ — $ 874,008 $ ( 815,680 ) $ ( 133 ) $ ( 4,752 ) $ 53,444

System1, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In thousands)

Class A Common Stock

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Balance at March 31, 2024 6,863 1 2,120 — 850,210 ( 718,199 ) ( 271 ) 28,664 160,405

Net loss — — — — — ( 26,373 ) — ( 8,472 ) ( 34,845 )

Issuance of restricted stock, net of forfeitures and shares withheld for taxes 62 — — — 284 — — ( 308 ) ( 24 )

Other comprehensive loss — — — — — — ( 24 ) ( 72 ) ( 96 )

Stock-based compensation — — — — 3,784 — — 87 3,871

Distributions to members — — — — — — — ( 32 ) ( 32 )

Balance at June 30, 2024 6,925 $ 1 2,120 $ — $ 854,278 $ ( 744,572 ) $ ( 295 ) $ 19,867 $ 129,279

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

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Accrued expenses and other current liabilities ( 9,860 ) 15,763

Deferred revenue 100 ( 65 )

Other non-current liabilities ( 518 ) ( 1,146 )

Net cash used in operating activities ( 15,949 ) ( 15,987 )

Net cash provided by (used in) operating activities 8,543 ( 6,022 )

Cash Flows from Investing Activities

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Distributions to members, net of contributions ( 33 ) ( 27 )

Proceeds from private placement of Class A common stock 2,250 —

Net cash used in financing activities ( 8,094 ) ( 53,929 )

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Total cash, cash equivalents and restricted cash $ 65,269 $ 80,275

Supplemental cash flow information:

Stock-based compensation included in capitalized software development costs $ 365 $ 814

Settlement of incentive plan through issuance of common stock $ — $ 1,707

Right-of-use assets obtained in exchange for operating lease obligations $ 1,700 $ —

The accompanying notes are an integral part of these condensed consolidated financial statements.

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RAMP also allows third party advertising platforms and publishers ("Network Partners"), to send user traffic to, and monetize end-user traffic on, our owned and operated websites or through our monetization agreements.

We have two reportable segments:

Owned and Operated Advertising and Partner Network ( see Note 10, Segment Reporting) .

On August 1, 2024, we undertook a corporate reorganization, the result of which was that all of the assets and business operations of the company are now held by System1 Holdings, LLC ("System1 Holdings"), a newly formed intermediate holding company of which we maintain the controlling interest and in which the non-controlling interest is owned by the holders of our Class C common stock.

Following the corporate reorganization, (a) System1 Holdings now owns 100 % of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interests, and 100 % of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our owned and operated products businesses, which include CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our digital advertising businesses, including our proprietary RAMP platform.

Following the corporate reorganization, (a) System1 Holdings now owns 100 % of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interests, and 100 % of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our Products businesses, which include CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our Marketing businesses, including our proprietary RAMP platform.

S1 Holdco and its subsidiaries remain obligors and guarantors under our Term Loan and 2022 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

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In our opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2025 or future operating periods.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2025 or future operating periods.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 that have had a material impact on our condensed consolidated financial statements and related notes.

To conform to the current period’s presentation, (i) warrant liability was combined with other non-current liabilities in the comparative condensed consolidated balance sheet and (ii) depreciation and amortization expense was reclassified to cost of revenue and selling, general, and administrative in the prior periods condensed consolidated statement of operations.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

To conform to the current period’s presentation, depreciation and amortization expense was reclassified to cost of revenue and selling, general, and administrative in the prior period condensed consolidated statement of operations.

On June 10, 2025, we filed a certificate of amendment (the "Reverse Stock Split Amendment") to our Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the Class A and Class C common stock and warrants (the "Reverse Stock Split"), which became effective at 5:01 p.m.

Eastern Time on June 11, 2025.

The Reverse Stock Split Amendment does not reduce the number of authorized shares of Class A and Class C common stock which remains at 500,000,000 and 25,000,000 , respectively, and does not change the par value of the common stock, which remains at $ 0.0001 per share.

Additionally, our outstanding equity-based awards and other outstanding equity rights were proportionately adjusted.

No fractional shares were issued in connection with the Reverse Stock Split.

The Reverse Stock Split was effective for purposes of trading on the New York Stock Exchange as of the opening of business on June 12, 2025.

Accordingly, all share and per share amounts of common stock for all periods presented in these unaudited condensed consolidated financial statements and related notes have been retroactively adjusted to give effect to the Reverse Stock Split.

As of December 31, 2024 , the Company had outstanding warrants classified as a liability.

These warrants were measured at fair value using Level 1 inputs based on quoted market prices in active markets.

During the quarter ended June 30, 2025, the fair value measurement of the warrants changed from Level 1 to Level 3 due to the delisting of the warrants from an exchange and lack of observable inputs.

Use of Estimates

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Concentrations

As of March 31, 2025, we had two paid search advertising partnership agreements with Google, and one paid search advertising partnership agreement with Microsoft.

As of June 30, 2025, we had two paid search advertising partnership agreements with Google, and one paid search advertising partnership agreement with Microsoft.

The Google agreements are in effect through February 28, 2027 and September 30, 2027 .

The agreement with Microsoft (our next largest Advertising Partner by revenue) is in effect through June 30, 2025.

The agreement with Microsoft (our next largest Advertising Partner by revenue) was renewed through December 31, 2026.

Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately, or with minimal notice .

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Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

It also includes certain other amendments to

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

improve the effectiveness of income tax disclosures.

This guidance will be effective for the annual periods beginning with the year ending December 31, 2025.

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We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net

Goodwill was $ 82.4 million as of March 31, 2025 and December 31, 2024, all of which is attributable to the Partner Network reporting unit.

Goodwill was $ 82.4 million as of June 30, 2025 and December 31, 2024, all of which is attributable to the Partner Network reporting unit.

In the second quarter of fiscal year 2025, as a result of organizational restructuring, the Company changed its identified segments and determined there are now two operating and reportable segments, Marketing and Products.

There was no change to the Partner Network reporting unit.

See Note 9, Segment Reporting, for further discussion of the Company’s operating segments.

No impairment of goodwill was recognized in any of the periods presented.

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Internal-use software development costs and intangible assets consisted of the following (in thousands):

March 31, 2025

June 30, 2025

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

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Total $ 440,456 $ ( 255,116 ) $ 185,340

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

December 31, 2024

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Total $ 440,181 $ ( 217,840 ) $ 222,341

The internal-use software development costs include work in progress which is not being amortized of $ 2.9 million and $ 5.0 million as of March 31, 2025 and December 31, 2024 , respectively.

The internal-use software development costs include work in progress which is not being amortized of $ 2.7 million and $ 5.0 million as of June 30, 2025 and December 31, 2024 , respectively.

Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Amortization expense for internal-use software development $ 1,755 $ 1,076 $ 3,374 $ 2,010

Amortization expense for intangible assets $ 18,625 $ 18,665 $ 37,276 $ 37,330

For the three months ended March 31, 2025, $ 13.1 million and $ 7.2 million of amortization were recorded within cost of revenue and selling, general and administrative expenses, respectively.

For the three months ended

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2024, $ 12.6 million and $ 7.0 million of amortization were recorded within cost of revenue and selling, general and administrative expenses, respectively.

Amortization expense was presented as follows in the Statements of Operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Cost of revenue $ 13,091 $ 12,709 $ 26,141 $ 25,329

Selling, general, and administrative $ 7,289 $ 7,032 $ 14,509 $ 14,011

No impairment of internal-use software development cost or intangible assets was recognized for any of the periods presented.

1 unchanged sentence

Accrued expenses and other current liabilities consisted of the following (in thousands):

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Accrued revenue share $ 32,584 $ 27,656

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Accrued expenses and other current liabilities $ 69,117 $ 76,200

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

CouponFollow Incentive Plan

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As a result, the full performance-based award of $ 21.3 million vested or was expected to vest.

Accordingly, we recognized a current share-based compensation liability of $ 17.8 million within accrued expenses and other current liabilities as December 31, 2024 , of which $ 7.8 million was paid in cash in February 2025.

Accordingly, we recognized a current share-based compensation liability of $ 17.8 million within accrued expenses and other current liabilities as of December 31, 2024 , of which $ 7.8 million was paid in cash in February 2025.

The final payment to settle the achievement of all the performance conditions of $ 13.5 million is payable 60 days following December 31, 2025 .

The carrying amount of the share-based liabilities approximates its fair value, which is determined using Level 3 inputs under the fair value hierarchy.

For the three months ended March 31, 2025, we recognized $ 0.8 million in share-based compensation expense within salaries and benefits expenses on the condensed consolidated statements of operations for the performance-based portion of the awards under the CouponFollow Incentive Plan.

As of March 31, 2025, the remaining share-based compensation expense to be recognized in 2025 is $ 2.6 million.

For the three and six months ended June 30, 2025, we recognized $ 0.8 million and $ 1.6 million in share-based compensation expense within salaries and benefits expenses on the condensed consolidated statements of operations for the performance-based portion of the awards under the CouponFollow Incentive Plan, respectively.

As of June 30, 2025, the remaining share-based compensation expense to be recognized in 2025 is $ 1.8 million.

We entered into a term loan ("Term Loan") and revolving facility ("2022 Revolving Facility") with Bank of America, N.A., on January 27, 2022, providing for a 5.5 -year term loan with a principal balance of $ 400.0 million and with the net proceeds of $ 376.0 million .

The 2022 Revolving Facility provided for borrowing availability of up to $ 50.0 million .

As of March 31, 2025 , principal of $ 275.1 million was outstanding on the Term Loan and there was no balance outstanding on the 2022 Revolving Facility.

As of June 30, 2025 , principal of $ 270.1 million was outstanding on the Term Loan and there was no balance outstanding on the 2022 Revolving Facility.

Through December 31, 2025, $ 5.0 million of the Term Loan is payable quarterly.

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The facility also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure.

We were in compliance with the financial covenants under the Term Loan as of March 31, 2025.

We were in compliance with the financial covenants under the Term Loan as of June 30, 2025.

The interest rate on the 2022 Revolving Facility is the adjusted SOFR plus 2.5 % with an adjusted SOFR floor of 0 %.

As of March 31, 2025 and December 31, 2024, respectively, we had $ 50.0 million available on the 2022 Revolving Facility.

As of June 30, 2025 and December 31, 2024, respectively, we had $ 50.0 million available on the 2022 Revolving Facility.

During 2024, we completed the repurchase of $ 64.9 million in principal amount of our Term Loan for an aggregate purchase price of $ 41.6 million (at an average discount of 64.1 % of its par value) pursuant to a Dutch auction tender offer and a privately negotiated repurchase transaction.

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Our aggregate gain on the repurchase during 2024 was $ 20.1 million before fees and expenses incurred to negotiate, document and consummate the repurchase.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands):

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Term Loan 1, 2

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_______________

1 Includes unamortized discount of $ 7.3 million and $ 8.1 million and unamortized loan fees of $ 0.4 million and $ 0.4 million, as of March 31, 2025 and December 31, 2024, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method.

2 Estimated fair value of the Term Loan was $ 163.0 million as of March 31, 2025.

1 Includes unamortized discount of $ 6.4 million and $ 8.1 million and unamortized loan fees of $ 0.4 million and $ 0.4 million, as of June 30, 2025 and December 31, 2024, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method.

2 Estimated fair value of the Term Loan was $ 139.1 million as of June 30, 2025.

During 2023 and through July 31, 2024, we were the sole managing member of S1 Holdco and, as a result, consolidated the financial results of S1 Holdco .

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federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.

We recorded an income tax benefit of $ 0.4 million for the three months ended March 31, 2025 and an immaterial income tax benefit for the three months ended March 31, 2024 , respectively .

The effective tax rate for the three months ended March 31, 2025 and 2024, was 2.0 % and 0.4 %, respectively.

We recorded an income tax benefit of $ 1.5 million and $ 1.9 million for the three and six months ended June 30, 2025, respectively and a $ 0.2 million and $ 0.2 million income tax benefit for the three and six months ended June 30, 2024.

The effective tax rate was 6.7 % and 4.5 % for the three and six months ended June 30, 2025, respectively and 0.5 % and 0.4 % three and six months ended June 30, 2024, respectively.

The provision for income taxes differs from the amount of income tax computed by applying the U.S.

statutory federal tax rate of 21% to the loss before income taxes due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, increase to the valuation allowance related to unrealizable deferred tax assets, and outside basis

As of June 30, 2025 , we had a full valuation allowance on our U.S.

federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.

During the three and six months ended June 30, 2025 and 2024 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

The total amount of Tax Receivable Agreement Payments due under the Tax Receivable Agreement was $ 5.3 million as of June 30, 2025 and December 31, 2024 .

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA").

The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation.

We are currently assessing its impact on our consolidated financial statements.

System1, Inc.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2025 , we had a full valuation allowance on our U.S.

federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.

During the three months ended March 31, 2025 and 2024 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

The total amount of Tax Receivable Agreement Payments due under the Tax Receivable Agreement was $ 5.3 million as of March 31, 2025 and December 31, 2024 .

Commitments and Contingencies

In June 2023, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $ 5.0 million in each annual period between July 2023 and June 2026.

As of March 31, 2025, we remain contractually obligated to spend $ 5.0 million towards this commitment.

As of March 31, 2025, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

As of June 30, 2025, we remain contractually obligated to spend $ 5.0 million towards this commitment.

As of June 30, 2025, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

We are subject to various legal proceedings and claims that arise in the ordinary course of business.

We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the condensed consolidated financial statements as of March 31, 2025.

There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows.

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As a result, we believe the estimated fair value of these agreements was immaterial.

Accordingly, we have no liabilities recorded for these agreements as of March 31, 2025 or December 31, 2024, respectively .

Fair Value Measurement

Financial Liabilities Measured at Fair Value on a Recurring Basis

Level 1 liabilities measured at fair value on a recurring basis are summarized below (in thousands):

March 31, 2025 December 31, 2024

Warrants $ 334 $ 302

There were no transfers in or out of levels during the periods presented.

On May 5, 2025, the New York Stock Exchange ("NYSE" or the "Exchange") completed the removal from listing and registration of the Warrants from the Exchange.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accordingly, we have no liabilities recorded for these agreements as of June 30, 2025 or December 31, 2024, respectively .

Net Loss Per Share

For the three months ended March 31, 2025 and 2024, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

For the three and six months ended June 30, 2025 and 2024, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

Basic and diluted net loss per share was calculated as follows (in thousands, except per share data) :

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Basic and diluted net loss per share

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Weighted-average common shares outstanding used in computing basic and diluted net loss per share 7,820 6,938 7,631 6,858

Shares of Class C common stock, restricted stock units and Warrants outstanding for the three months ended March 31, 2025 and 2024, are considered potentially dilutive to the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive.

For the periods presented in the table above, a total of 16.8 million Warrants were excluded from the computation of net loss per share as the impact was anti-dilutive.

In addition, for the three months ended March 31, 2025, we excluded 20.8 million Stock Appreciation Rights ("SARs") as they are contingently issuable based on certain performance conditions, which were not achieved.

Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and warrants outstanding for the three and six months ended June 30, 2025 and 2024, are considered potentially dilutive to the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive.

For the periods presented in the table above, a total of 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of diluted net loss per share as the impact was anti-

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

In addition, for the three and six months ended June 30, 2025, we excluded 1.5 million SARs as they are contingently issuable based on performance conditions which were not achieved.

See Note 10, Stock-Based Compensation for additional details.

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Segment Reporting

We have two operating and reportable segments:

Owned and Operated Advertising and Partner Network.

We previously managed our business across two operating and reportable segments:

the monetization of end-users acquired directly by the Company to its websites and products ("Owned & Operated Advertising"), and the monetization of end-users acquired by our Network Partners ("Partner Network").

In the second quarter of 2025, we had an internal organizational change that resulted in a change in how we manage our businesses.

We combined the management of our Partner Network business with the portion of our Owned and Operated Advertising activities related to paid traffic acquisition via advertising costs and direct agency fees ("Marketing") and separately manage our CouponFollow, Startpage and Mapquest businesses which primarily acquire end-users organically ("Products").

This resulted in a change to our operating and reportable segments.

We now have two operating and reportable segments:

Marketing and Products.

All prior year information in the tables below have been revised retrospectively to reflect the change to our reportable segments.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance.

Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

The CODM measures and evaluates reportable segments based on segment adjusted gross profit.

The CODM measures and evaluates operating and reportable segments based on segment adjusted gross profit.

The CODM evaluates both potential future, as well as historical budget to actual variances, segment adjusted gross profit by segment on a quarterly basis to determine the allocation of capital for acquisition marketing, as well as technical and personnel resources.

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The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported condensed consolidated net loss before income tax and are included in the reconciliation that follows.

The following table summarizes revenue, segment cost of revenue and segment adjusted gross profit by reportable segment (in thousands):

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes revenue, segment cost of revenue and segment adjusted gross profit by reportable segments (in thousands):

Three Months Ended March 31, 2025

Owned and Operated Advertising Partner Network Total

Three Months Ended June 30, 2025 Three Months Ended June 30, 2024

Marketing Products

Products Total

Revenue $ 54,142 $ 23,973 $ 78,115 $ 76,654 $ 17,927 $ 94,581

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Loss before income tax $ ( 23,089 ) $ ( 35,023 )

Three Months Ended March 31, 2024

Owned and Operated Advertising Partner Network Total

Six Months Ended June 30, 2025 Six Months Ended June 30, 2024

Marketing Products Total

Revenue $ 106,392 $ 46,236 $ 152,628 $ 146,784 $ 32,714 $ 179,498

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The following table summarizes revenue by geographic region (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

United States $ 75,207 $ 91,215 $ 146,894 $ 172,897

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Stock-Based Compensation

We are authorized to issue and/or grant stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents or other stock-based and cash-based awards under our 2022 Incentive Award Plan.

We are authorized to issue and/or grant stock options, SARs, restricted stock, restricted stock units, dividend equivalents or other stock-based and cash-based awards under our 2022 Incentive Award Plan.

We recorded the following stock-based compensation expense for equity-classified awards included within salaries and benefits in the condensed consolidated statement of operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Stock-based compensation expense $ 4,542 $ 3,442 $ 7,193 $ 7,412

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

We recorded the following stock-based compensation expense for equity-classified awards included within salaries and benefits in the condensed consolidated statement of operations (in thousands):

Three Months Ended March 31,

Stock-based compensation expense $ 2,651 $ 3,970

Stock Appreciation Rights

As of March 31, 2025, there has been no change to our conclusion at December 31, 2024 for achieving the performance conditions of the Tranche I awards of the 2024 Stock Appreciation Rights Plan ("2024 SAR Plan"), before the fourth anniversary date of the award.

Accordingly, we recognized $ 0.4 million in stock-based compensation expense within equity for the three months ended March 31, 2025 .

The 2024 SAR Plan was not adopted as of March 31, 2024.

As of March 31, 2025, the total unrecognized compensation cost related to unvested Tranche I SARs was $ 2.9 million, expected to be recognized in the second quarter of 2025 upon plan administrator certification of achievement of the performance conditions for the Tranche I awards.

No SARs vested or were exercised for the three months ended March 31, 2025.

Subsequent Events

On April 28, 2025, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with The Blend Family Foundation (the "Purchaser"), pursuant to which the Company agreed to sell to the Purchaser 4,500,000 shares (the "Shares") of the Company’s Class A common stock, par value $ 0.0001 per share, at a price of $ 0.50 per share (the "Private Placement").

The aggregate proceeds to the Company from the Private Placement, which occurred on May 2, 2025 was $ 2.25 million.

On May 30, 2025 the SARs plan administrator certified that the trailing twelve month ("TTM") adjusted EBITDA exceeded the Tranche I performance threshold and the Tranche I awards vested ("Vested SARs").

On June 10, 2025 our stockholders approved an amendment to the System1, Inc.

2024 Stock Appreciation Rights Plan, (as amended, the "2024 SARs Plan") and the repricing ("Repricing") of certain outstanding SARs previously granted to our employees and consultants under the SARs Plan (collectively, the "SARs Plan Amendment and Repricing").

The strike price of the SARs granted changed from $ 1.44 to $ 0.44 and the adjusted EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $ 60 million (“Tranche II”), (ii) $ 70 million (“Tranche III”) and (iii) $ 80 million (“Tranche IV”) to (i) $ 55 million, (ii) $ 60 million and (iii) $ 65 million, respectively ("the Modification").

There were no changes to the other terms of the SARs Plan.

At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the SARs option fair value.

The following table sets forth the key assumptions used to determine the modified fair value:

Risk-free interest rate 3.87 % - 4.11 %

Term (in years) 3.06 - 6.06

Volatility factor 84.27 % - 97.65 %

Dividend yield 0.00 %

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The expected term is equal to the remaining contractual term.

Volatility is based on a blend of the historical volatility of our common stock and the peer-leveraged volatility.

As of June 30, 2025, we recognized compensation cost for the Vested SARs and determined it is probable we would achieve the performance conditions of Tranche II before the fifth anniversary grant date of the awards.

Accordingly, we recognized $ 3.2 million and $ 3.5 million of stock-based compensation expense, including $ 0.3 million of incremental expense as a result of the Modification, within equity for the three and six months ended June 30, 2025, respectively.

The 2024 SARs Plan was not adopted as of June 30, 2024.

As of June 30, 2025, the total unrecognized compensation cost related to unvested Tranche II SARs was $ 1.1 million.

No SARs were exercised during the three and six months ended June 30, 2025 .

Restricted Stock Units

In July 2025, we granted 2.0 million restricted stock unit awards in accordance with the 2022 Incentive Award Plan.

Related Party Transaction

On April 28, 2025, we entered into a Securities Purchase Agreement with one of our Founder's family foundation, pursuant to which we agreed to sell 450,000 shares of our Class A common stock at a price of $ 5.00 per share.

The aggregate proceeds, which were received on May 2, 2025, was $ 2.3 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements