What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-05 compared with 2025-08-07 · 63 added, 58 removed, 195 unchanged (38% of the section changed)

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Company Overview

We operate an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers .

We operates several flagship brands across multiple consumer verticals, including shopping, travel and search, and a best-in-class customer acquisition and marketing platform powered by AI and machine learning.

The Company's platform is omnichannel and omnivertical, delivering high-intent customers to its advertising partners to maximize their reach and effectiveness.

We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform ("RAMP").

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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 June 30, 2025 .

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

As of September 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 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.

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 CouponFollow, Startpage and MapQuest, and (c) S1 Holdco holds our assets related to our Marketing businesses.

System1 Holdings holds our remaining assets and business operations.

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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We earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our RAMP platform and additional services to monetize end-users for our Advertising Partners.

For this revenue stream, we are the principal in the transaction and report revenue on a gross basis for the amounts received from Advertising Partners.

For this revenue stream, we have a single performance obligation and have determined that we are the principal in the transaction and report revenue on a gross basis for the amounts received from Advertising Partners.

We have determined that we are the principal since we direct the use of our owned and operating websites, and as such have risk of loss on the user-traffic that we are acquiring for monetization with our Advertising Partners.

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The mark to market of our liability-classified Warrants.

Income tax benefit

Income tax (benefit) expense

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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Results of Operations

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 June 30, Change

The following tables set forth our condensed consolidated results of operations and condensed consolidated results of operations as a percentage of revenue and comparative period changes for the periods presented (in thousands):

Three Months Ended September 30, Change

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

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Interest expense, net 7,052 11 % 7,957 9 % (905) -11 %

Gain on extinguishment of debt — — % (433) — % 433 (100) %

Change in fair value of warrant liabilities (71) — % 281 — % (352) -125 %

Total other expense (income), net 7,184 9 % 5,937 6 % 1,247 21 %

Total other expense, net 6,981 11 % 8,238 9 % (1,257) -15 %

Loss before income tax (22,546) -37 % (30,054) -34 % 7,508 -25 %

Income tax benefit (1,547) (2) % (178) — % (1,369) 769 %

Income tax (benefit) expense (543) -1 % 585 1 % (1,128) -193 %

Net loss (22,003) -36 % (30,639) -34 % 8,636 -28 %

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* Percentages may not sum due to rounding

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

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

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Change in fair value of warrant liabilities 29 — % (1,471) -1 % 1,500 -102 %

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

Total other expense, net 21,282 10 % 2,218 1 % 19,064 860 %

Loss before income tax (65,878) -31 % (78,916) -29 % 13,038 -17 %

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

Income tax (benefit) expense (2,477) -1 % 359 — % (2,836) -790 %

Net loss (63,401) -30 % (79,275) -30 % 15,874 -20 %

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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.

We define RTAC as platform revenue divided by traffic acquisition cost.

Platform revenue is Revenue plus Network Partner revenue share.

Traffic Acquisition Cost ("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.

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2025 2024 ($) (%)

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Total revenue $ 61,561 $ 88,832 $ (27,271) -31%

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2025 2024 ($) (%)

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Total revenue $ 214,189 $ 268,330 $ (54,141) -20%

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.

Marketing revenue decreased for the three and nine months ended September 30, 2025 as compared to the comparative periods.

This was driven by a decrease in TAC, where for the three months ended September 30, 2025, compared to the prior year comparative period, TAC decreased by $26.8 million to $84.0 million from $110.8 million.

This was slightly offset by an increase in RTAC of 2% to 120% from 118%.

Similarly, for the nine months ended September 30, 2025, compared to the prior year comparative period, TAC decreased by $53.3 million to $284.8 million from $338.1 million, which was slightly offset by an increase in RTAC of 1% to 120% from 119%.

Products revenue increased for the three and nine months ended September 30, 2025 as compared to the comparative periods.

The increase was driven by an increase in Products sessions, where for the three months ended September 30, 2025, compared to the prior year comparative period, Products sessions increased by 111.3 million to 584.7 million from 473.4 million while Products RPS remained flat at $0.04.

Similarly, for the nine months ended September 30, 2025, compared to the prior year comparative period, Products sessions increased by 208.6 million to 1,582.8 million from 1,374.2 million and Products RPS remained flat at $0.04.

Cost of revenue

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

Cost of revenue decreased for the three and nine months ended September 30, 2025 as compared to the 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.

Amortization expense for our marketing platforms increased $0.5 million and $1.3 million for the three and nine months ended September 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.

We define and calculate segment adjusted gross profit as revenue less traffic acquisition costs incurred to acquire users.

The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties, fees and amortization related to our RAMP platform.

The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties, fees and amortization related to our marketing platforms.

We exclude the following items from segment adjusted gross profit:

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.

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2025 2024 ($) (%)

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Products $ 21,218 $ 20,069 $ 1,149 6 %

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2025 2024 ($) (%)

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Salaries and benefits

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.

Salaries and benefits expense decreased for the three and nine months ended September 30, 2025 compared to the comparative periods.

For the three months ended September 30, 2025, the $7.8 million decrease is primarily related to recognition of $7.2 million CouponFollow shared-based liability expense in the comparative period when all tier targets were determined to be probable of being achieved and a $1.4 million reduction in stock-based compensation related to reduced restricted stock unit issuances.

This was offset by an increase of $0.8 million in stock-based compensation expense related to the vesting of Tranche I stock appreciation right awards issued in the current period and the expense of Tranche II stock appreciation right awards.

For the nine months ended September 30, 2025, the $15.0 million decrease is primarily related to recognition of $17.6 million reduction in CouponFollow share-based liability expense in the comparative period when all tier targets were determined to be probable of being achieved and a $6.2 million reduction in stock-based compensation related to reduced restricted stock units issuances.

This was offset by an increase of $4.4 million in stock-based compensation expense related to the vesting of Tranche I stock appreciation right awards and continued accrual of Tranche II stock appreciation right awards, a $3.0 million increase in retention bonus expense, and a $1.3 million increase in severance expense.

Selling, general, and administrative

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.

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

The decrease was primarily related to a $0.5 million and $7.9 million reduction in professional services and consulting fees for the three and nine months ended September 30, 2025, respectively.

Other expense (income):

Interest expense, net

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.

Interest expense, net decreased for the three and nine months ended September 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 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.

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

There was no repurchase of debt during the third quarter of 2024 or during 2025.

Change in fair value of warrant liabilities

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

Change in fair value of warrant liabilities increased for the three months ended September 30, 2025 and decreased for the nine months ended September 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) expense

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.

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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.

The Company does not expect these tax law changes to have a material impact on the Company's financial statements;

however, the Company will continue to evaluate their impact as further information becomes available.

Liquidity and Capital Resources

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

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

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.

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 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.

As of September 30, 2025, we had unrestricted cash and cash equivalents of $54.6 million and $50.0 million available to borrow on our 2022 Revolving Facility.

For the nine months ended September 30, 2025, we had cash outflows of $11.7 million.

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):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by (used in) operating activities

$ 6,491 $ (6,027)

Net cash used in investing activities $ (5,096) $ (4,962)

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Operating Activities

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 to period.

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

Payment and collection 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 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.

In the nine months ended September 30, 2025, cash provided by operating activities was $6.5 million.

The principal drivers of our cash inflow from operations primarily from favorable changes in net income, excluding the impact of non-cash items offset by unfavorable changes in working capital balances.

The unfavorable changes in working capital balances included $13.2 million in outflows related to the payment of an earnout obligation for the CouponFollow acquisition offset by an decrease in account receivable balances.

In the nine months ended September 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.

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

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.

In the nine months ended September 30, 2025 and 2024, cash used in investing activities was $5.1 million and $5.0 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 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.

In the nine months ended September 30, 2025, cash used in financing activities was $13.1 million of which $15.0 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 nine months ended September 30, 2024, cash used in financing activities was $59.0 million was primarily related to the repayment of the 2022 Term Note in the amount of $56.8 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 June 30, 2025 , we remain contractually obligated to spend a remaining $5.0 million towards this commitment.

As of September 30, 2025 , we remain contractually obligated to spend a remaining $3.4 million towards this commitment.

Contingencies

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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