What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-06 · 98 added, 64 removed, 155 unchanged (51% of the section changed)

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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.

Through RAMP, we process daily advertising campaign optimizations across approximately 40 advertising vertical categories as of March 31, 2025 .

Through RAMP, we process daily advertising campaign optimizations across approximately 40 advertising vertical categories as of June 30, 2025 .

We are able to efficiently monetize user intent by linking data on consumer engagement, such as first party search data like traffic sources, device type and search queries, with data on monetization rates and advertising spend.

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Since launching, this business has expanded to support additional advertising formats across multiple advertising platforms, and has acquired several leading websites, enabling it to control the entire flow of the user acquisition experience, while monetizing user traffic through our network of owned and operated websites.

As of March 31, 2025 , we own and operate approximately 40 websites, including leading search engines like info.com and Startpage.com , and digital media publishing websites and internet utilities, such as HowStuffWorks , MapQuest , CouponFollow and ActiveBeat .

As of June 30, 2025 , we own and operate approximately 40 websites, including leading search engines like info.com and Startpage.com , and digital media publishing websites and internet utilities, such as HowStuffWorks , MapQuest , CouponFollow and ActiveBeat .

Our primary operations are in the United States, and we also have operations in Canada and the Netherlands.

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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, 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 NextGen Shopping, Inc.

("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, 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 NextGen Shopping, Inc., Startpage and Mapquest, and (c) S1 Holdco held 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.

On June 12, 2025, we effected a 1-for-10 reverse stock split of our issued and outstanding common stock.

The reverse stock split did not change the authorized number of shares or the par value of our common stock, but did effect a proportional adjustment to the number of shares of common stock outstanding and the number of shares of common stock issuable upon the vesting of restricted stock awards and stock appreciation rights, the conversion rate of our outstanding warrants into common stock and the number of shares of common stock eligible for issuance under our 2022 Incentive Award Plan.

See Item 1, "Financial Statements —Note 2, Significant Accounting Policies" for additional information.

regarding the reverse stock split.

Components of Our Results of Operations

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We have two reportable segments:

• Owned and Operated Advertising ("O&O");

• Partner Network

Operating Expenses

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The following table sets forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented (in thousands).

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2025 % of Revenue 2024 % of Revenue ($) (%)*

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* Percentages may not sum due to rounding

Revenue and Cost Metrics

The key non-financial performance metrics we use to evaluate our business, track the effectiveness of our operations and measure our performance are total advertising spend, number of Owned & Operated Advertising sessions ("O&O sessions"), number of Partner Network sessions ("Network sessions"), Owned & Operated Advertising revenue-per-session ("O&O RPS"), Owned & Operated Advertising cost-per-session ("O&O CPS") and Partner Network revenue-per-session ("Network RPS") to track our operations.

We define total advertising spend as the amount of advertising that is spent by us to acquire traffic to our owned and operated websites.

We believe total advertising spend is a relevant measure to gauge the effectiveness of our Company to deploy capital to acquire monetizable traffic to our Owned & Operated websites, which is a key driver of our Owned & Operated Advertising reportable segment.

We define O&O sessions as the total number of monetizable user visits to our Owned & Operated Advertising websites.

We define Network sessions as the number of monetizable user visits delivered by our Network Partners to RAMP.

Monetizable visits exclude those visits identified by our Advertising Partners as spam, bot, or other invalid traffic.

We define O&O RPS as O&O revenue divided by O&O sessions.

We define Network RPS as Network Partner revenue divided by Network sessions.

We believe both O&O RPS and Network RPS are key measures to evaluate our effectiveness in converting monetizable traffic into revenue.

We define O&O CPS as advertising spend divided by O&O sessions.

We believe O&O CPS is a relevant measure to gauge the efficiency of operations and processes in deploying advertising spend, especially when evaluated in combination with total advertising spend.

The following table presents our revenue by reportable segment (in thousands):

Three Months Ended March 31, Change

Six Months Ended June 30, Change

2025 % of Revenue 2024 % of Revenue ($) (%)*

Revenue $ 152,628 100 % $ 179,498 100 % $ (26,870) (15) %

Operating expenses:

Cost of revenue 96,289 63 % 134,825 75 % (38,536) (29) %

Salaries and benefits 51,285 34 % 58,420 33 % (7,135) (12) %

Selling, general, and administrative 34,085 22 % 41,135 23 % (7,050) (17) %

Total operating expenses 181,659 119 % 234,380 131 % (52,721) (22) %

Operating loss (29,031) (19) % (54,882) (31) % 25,851 (47) %

Other expense (income):

Interest expense, net 14,201 9 % 15,841 9 % (1,640) (10) %

Gain on extinguishment of debt — — % (20,109) (11) % 20,109 (100) %

Change in fair value of warrant liabilities 100 — % (1,752) (1) % 1,852 (106) %

Total other expense (income), net 14,301 9 % (6,020) (3) % 20,321 (338) %

Loss before income tax (43,332) (28) % (48,862) (27) % 5,530 (11) %

Income tax benefit (1,934) (1) % (226) — % (1,708) 756 %

Net loss (41,398) (27) % (48,636) (27) % 7,238 (15) %

Net loss attributable to non-controlling interest (8,052) (5) % (11,726) (7) % 3,674 (31) %

Net loss attributable to System1, Inc.

$ (33,346) (22) % $ (36,910) (21) % $ 3,564 (10) %

Owned and Operated Advertising $ 57,921 $ 69,030 $ (11,109) (16)%

Partner Network 16,592 15,887 705 4%

* Percentages may not sum due to rounding

Revenue Metrics

The key non-financial performance metrics we use to evaluate our business, track the effectiveness of our operations and measure our performance are return on traffic acquisition cost ("RTAC"), the number of Products sessions and Products revenue-per-session ("Products RPS").

We define RTAC as platform revenue divided by traffic acquisition cost (“TAC”).

Platform revenue is GAAP revenue plus Network Partner revenue share.

TAC is defined as the sum of total advertising spend, agency fees and Network Partner revenue share.

Advertising spend is the amount of advertising that is spent to acquire traffic.

Agency fees are the amount of costs for agencies acquiring traffic to Owned and Operated websites.

We believe RTAC is a relevant measure to evaluate our effectiveness and efficiency in deploying capital to acquire monetizable traffic to our Marketing segment.

We define Products sessions as the total number of monetizable user visits to our Products websites.

Monetizable visits exclude those visits identified as spam, bot, or other invalid traffic.

We define Products RPS as Products revenue divided by Products sessions.

We believe Product sessions and RPS are relevant measures to evaluate our effectiveness and efficiency in converting monetizable traffic into revenue, which are key drivers of our Products reportable segment.

The following tables presents our revenue by reportable segment (in thousands):

Three Months Ended June 30, Change

2025 2024 ($) (%)

Marketing $ 54,142 $ 76,654 $ (22,512) (29)%

Products 23,973 17,927 6,046 34%

Total revenue $ 78,115 $ 94,581 $ (16,466) (17)%

Owned and Operated Advertising

Owned and Operated Advertising revenue decreased by $11.1 million, or 16%, compared to the prior comparative period, primarily due to a mix shift towards traffic with a lower RPS, slightly offset by an increase in the number of acquired sessions.

For the three months ended March 31, 2025, compared to the prior year comparative period, O&O sessions increased by approximately 0.1 billion to 1.3 billion from 1.2 billion and O&O RPS decreased by approximately $0.01 to $0.05 from $0.06.

Partner Network

Partner Network revenue increased $0.7 million, or 4%, compared to the prior comparative period, primarily due to the reversal of the majority of a contra revenue liability related to previously withheld payments to certain Network Partners related to validity of traffic those partners had sent to the Company’s platform last year.

It was determined that at least a portion of this traffic was invalid.

A comprehensive review of the remaining traffic remains ongoing.

For the three months ended March 31, 2025, compared to prior year comparative period, sessions increased by approximately 0.2 billion to 1.7 billion from 1.5 billion, and Network RPS was $0.01, a decline of 6% compared to the prior year comparative period.

Six Months Ended June 30, Change

2025 2024 ($) (%)

Marketing $ 106,392 $ 146,784 $ (40,392) (28)%

Products 46,236 32,714 13,522 41%

Total revenue $ 152,628 $ 179,498 $ (26,870) (15)%

Marketing revenue decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods.

For the three months ended June 30, 2025, compared to the prior year comparative period, traffic acquisition cost decreased by approximately $5.3 million to $114.9 million from $120.2 million and RTAC decreased by approximately 3% to 117% from 120%.

For the six months ended June 30, 2025, compared to the prior year comparative period, TAC decreased by approximately $26.5 million to $200.9 million from $227.3 million and RTAC increased by approximately 2% to 121% from 119%.

Products revenue increased for the three and six months ended June 30, 2025 as compared to the prior comparative periods.

For the three months ended June 30, 2025, compared to the prior year comparative period, Products sessions increased by approximately 57.6 million to 522.5 million from 464.9 million and Products RPS increased by approximately $0.01 to $0.05 from $0.04.

For the six months ended June 30, 2025, compared to the prior year comparative period, Products sessions increased by approximately 97.4 million to 998.2 million from 900.8 million and Products RPS increased by approximately $0.01 to $0.05 from $0.04.

Cost of revenue

Cost of revenue decreased $20.2 million, or 31%, pri marily due to our Owned & Operated advertising spend decreasing $16.4 million and our Partner Network agency fees decreasing $3.3 million, which was directionally consistent with the decrease in revenue.

For the three months ended March 31, 2025, compared to prior year, our O&O CPS decreased $0.02 to $0.02 from $0.04, due to a mix shift towards lower CPS traffic, which corresponds to the lower RPS realized in our revenue.

Amortization expense for our RAMP platform increased $0.4 million, or 3% compared to the prior comparative period primarily due to increased am ortization for our continued investment in developed technology and internally developed software.

Cost of revenue decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods.

The decrease in advertising spend and agency fees is correlated with the decrease in revenue.

Amortization expense for our RAMP platform increased $0.4 million and $0.8 million for the three and six months ended June 30, 2025, respectively compared to the prior comparative periods primarily due to increased am ortization for our continued investment in developed technology and internally developed software.

Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenue and segment adjusted gross profit.

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other cost of revenue (total cost of revenue excluding traffic acquisition cost), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments.

The following table presents our segment adjusted gross profit by reportable segment (in thousands):

Three Months Ended March 31, Change

The following tables presents our segment adjusted gross profit by reportable segment (in thousands):

Three Months Ended June 30, Change

2025 2024 ($) (%)

Owned and Operated Advertising $ 27,778 $ 22,462 $ 5,316 24 %

Partner Network 14,963 10,919 4,044 37 %

See the Revenue and Cost of revenue discussions above.

Marketing $ 19,633 $ 23,622 $ (3,989) (17) %

Products $ 22,697 $ 17,246 $ 5,451 32 %

Six Months Ended June 30, Change

2025 2024 ($) (%)

Marketing $ 41,420 $ 43,278 $ (1,858) (4) %

Products $ 43,652 $ 30,971 $ 12,681 41 %

See the Revenue and Cost of revenue discussions above for changes to adjusted gross profit.

Salaries and benefits

Salaries and benefits expense increased $0.5 million, or 2.0% compared to the prior comparative period.

The increase was primarily due to $0.8 million in severance related expenses due to a reduction in workforce in the period and $0.6 million in bonus incentive related expenses.

This was partially offset by a $1.3 million decrease in stock-based compensation primarily due to Replacement Award vesting between the comparative periods.

Salaries and benefits expense decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods.

The decrease was primarily related to $11.1 million and $11.2 million reduction in CouponFollow share-based liability accruals and an approximate ten percent reduction in headcount, for the three and six months ended June 30, 2025, respectively.

For the three months ended June 30, 2025 this was offset by $2.2 million recognized for employee benefits and a net increase in stock based compensation of $1.1 million of which $3.5 million related to expense recognized for the vesting of certain stock appreciation right awards offset by $2.3 million reduction in restricted stock unit awards that had vested.

For the six months ended June 30, 2025, this was offset by $3.5 million related to vesting of certain stock appreciation right awards.

Selling, general, and administrative

Selling, general, and administrative expense decreased $3.3 million, or 17.0% compared to the prior comparative period.

The decrease was primarily due to a $2.7 million decrease in professional and consulting fees and receipt of a $0.5 million legal settlement.

Selling, general, and administrative expense decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods.

The decrease was primarily related to the $4.3 million and $7.3 million reduction in professional services and consulting fees for the three and six months ended June 30, 2025, respectively.

Other expense (income):

Interest expense, net

Interest expense, net decreased $0.9 million, or 11.0% compared to the prior comparative period primarily due to a lower outstanding debt balance.

Interest expense, net decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods primarily due to a lower outstanding debt balance.

Gain on extinguishment of debt

Gain on extinguishment of debt decreased $19.7 million compared to the prior comparative period due to the repurchase of our principal debt balances via a Dutch auction in the first quarter of 2024.

There was no repurchase in the first quarter of 2025.

Gain on extinguishment of debt decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods due to the repurchase of our principal debt balances via a Dutch auction in the first quarter and repurchase of debt in the second quarter of 2024.

There was no repurchase of debt in the first or second quarter of 2025.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities decreased $0.3 million compared to the prior comparative period.

Change in fair value of warrant liabilities decreased for the three and six months ended June 30, 2025 as compared to the prior comparative periods due to the fair value remeasurement of Warrants which have been delisted from the New York Stock Exchange.

Income tax benefit

The difference between the effective tax rates for the periods presented above and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling income (loss), nondeductible expenses, valuation allowance and outside basis adjustments.

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.

Liquidity and Capital Resources

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We continue to develop and implement plans to improve our liquidity.

Our main focus is executing on our operational strategy, which includes continued focus on expanding the number of advertising partners that are utilizing or integrated with RAMP by continuing to attract and monetize users with commercial intent on our owned and operated web properties and on behalf of our Network Partners as well as optimizing bids and driving higher returns on advertising spend.

and operated web properties and on behalf of our Network Partners as well as optimizing bids and driving higher returns on advertising spend.

Additionally, we are focused on our current cost structure by reducing our cash operating expenses and debt service obligations.

Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could have a negative impact on our financial condition and operating results.

As of March 31, 2025, we had unrestricted cash and cash equivalents of $43.9 million and $50.0 million available to borrow on our 2022 Revolving Facility.

For the three months ended March 31, 2025, we had cash outflows of $22.8 million.

The principal drivers of our cash outflows were $15.9 million related to net change in operations, which included $13.2 million in outflows related to the payment of an earnout obligation for the CouponFollow acquisition, $5.0 million principal repayment of our Term Loan, $1.2 million of capitalized software development costs, and $0.3 million of other items.

As of June 30, 2025, we had unrestricted cash and cash equivalents of $63.6 million and $50.0 million available to borrow on our 2022 Revolving Facility.

For the six months ended June 30, 2025, we had cash outflows of $2.7 million.

The principal drivers of our cash outflows were $8.5 million net inflows for changes in operations, which included $13.2 million in outflows related to the payment of an earnout obligation for the CouponFollow acquisition and $19.9 million in inflows related to timing of payments to revenue share partners, $10.0 million principal repayment of our Term Loan and $2.8 million of capitalized software development costs.

Our revenue is dependent on two key Advertising Partners, Google and Microsoft.

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The following table summarizes our cash flows for the periods presented (in thousands):

Three Months Ended March 31,

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

Six Months Ended June 30,

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

Net cash used in investing activities $ (3,107) $ (3,218)

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Our cash flows from operating activities are primarily impacted by growth in our operations, timing of collections from our partners and related payments to our suppliers for advertising inventory and data.

We typically pay suppliers in advance of collections from our clients and our collection and payment cycles can vary from period

We typically pay suppliers in advance of collections from our clients and our collection and payment cycles can vary from period to period.

In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.

In the three months ended March 31, 2025, cash used in operating activities of $15.9 million.

The principal drivers of our cash outflow from operations were $13.2 million in outflows related to the payment of earnout obligations for the CouponFollow acquisition, and $4.3 million in net interest paid on our Term Loan.

In the three months ended March 31, 2024, cash used in operating activities were $16.0 million.

The principal driv ers of our cash outflow from operations were cash bonus payments of $7.2 million primarily related to 2023 annual employee performance bonuses, $1.8 million of audit fees, $2.4 million of consulting fees, and interest paid on our Term Loan of $8.2 million.

In the six months ended June 30, 2025, cash provided by operating activities was $8.5 million.

The principal drivers of our cash inflow from operations were related to timing of revenue share payments to our partners.

In the six months ended June 30, 2024, cash used in operating activities was $6.0 million resulted primarily from favorable changes in net income, excluding the impact of non-cash items offset by favorable changes in working capital balances.

The favorable changes in working capital balances included an increase in accrued expenses and other current liabilities offset by an increase in account receivable balances.

Investing Activities

Our primary investing activities consisted of costs capitalized for internally developed software.

In the three months ended March 31, 2025 and 2024, cash used in investing activities of $1.5 million and $1.6 million resulted primarily from costs capitalized for internally developed software, respectively.

In the six months ended June 30, 2025 and 2024, cash used in investing activities was $3.1 million and $3.2 million resulted primarily from costs capitalized for internally developed software, respectively.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of our indebtedness under our credit facilities.

In the three months ended March 31, 2025, cash used in financing activities of $5.3 million was primarily related to the repayment of the 2022 Term Loan.

In the three months ended March 31, 2024, cash used in financing activities of $48.2 million was primarily related to the repurchase of the 2022 Term Note via a Dutch auction in the amount of $46.1 million.

In the six months ended June 30, 2025, cash used in financing activities was $8.1 million of which $10.0 million was related to the repayment of the 2022 Term Loan, offset by $2.3 million of cash received from the private placement with our founders family foundation.

In the six months ended June 30, 2024, cash used in financing activities was $53.9 million was primarily related to the repurchase of the 2022 Term Note via a Dutch auction in the amount of $51.8 million.

Off-Balance Sheet Arrangements

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

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

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

Contingencies

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Recently Issued Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Item 1, "Financial Statements - Note 2, Summary of Significant Accounting Policies .

For information regarding recent accounting pronouncements, see Item 1, "Financial Statements - Note 2, Summary of Significant Accounting Policies .

Quantitative and Qualitative Disclosure about Market Risk

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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 2. Management’s Discussion and Analysis