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Item 7. Management’s Discussion and Analysis

2026-03-11 compared with 2025-03-10 · 210 added, 207 removed, 140 unchanged (75% 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 provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform ("RAMP").

Operating seamlessly across major advertising networks and advertising category verticals to acquire end-users, RAMP allows us to monetize these acquired end users through our relationships with third party advertisers and advertising networks ("Advertising Partners").

RAMP operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Meta, Outbrain, and TikTok.

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 and ingest over 12 billion rows of data daily across approximately 40 advertising vertical categories as of December 31, 2024.

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.

This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising category verticals.

We focus on monetizing user traffic acquired by our Network Partners.

Since launching, it 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 December 31, 2024, 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 .

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

Our platform is omnichannel and omnivertical, delivering high-intent customers to our advertising partners to maximize their reach and effectiveness.

Our platform operates across our network of flagship owned and operated websites ("Products"), allowing us to monetize user traffic that we source from various acquisition marketing channels.

Our marketing platform allows us to operate seamlessly across major advertising networks and advertising category verticals to acquire and monetize end-users through our relationships with third party advertisers and advertising networks ("Advertising Partners").

The platform also allows third party advertising platforms and publishers ("Network Partners") to send user traffic to, and monetize user traffic on, our Products or through our monetization agreements.

We monetize user traffic we acquire directly from various marketing channels, across multiple advertising platforms, and have acquired several leading websites, enabling us to control user acquisition and experience, and monetize user traffic on our behalf via our network of products.

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

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

Operations outside the United States are subject to risks inherent in operating under different legal systems as well as various political and economic environments.

Among the risks are changes in existing tax laws, changes in the regulatory framework in foreign jurisdictions, data privacy laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, exposure to currency exchange fluctuations and employment laws impacting foreign employees.

We do not engage in hedging activities to mitigate our exposure to fluctuations in foreign currency exchange rates.

As a result of the current uncertainty in economic activity, including geopolitical developments and other macroeconomic factors such as rising interest rates, inflation and the impact of earlier supply chain disruptions, we are unable to predict the size and duration of the impact on our revenue and our results of operations.

The Trebia Merger

On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), ("Business Combination Agreement") by and among us, S1 Holdco, LLC ("S1 Holdco") and Total Security Limited, formerly known as Protected.net Group Limited ("Protected") .

On January 26, 2022 ("Closing Date"), we consummated the business combination ("Merger") pursuant to the Business Combination Agreement.

Following the consummation of the Merger, the combined company was organized via an "Up-C" structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco.

Following the Merger, Trebia’s ordinary shares and Public Warrants ("Warrants") ceased trading on the New York Stock Exchange ("NYSE"), and System1, Inc.'s Class A common stock and the public warrants began trading on the NYSE on January 28, 2022 under the symbols "SST" and "SST.WS," respectively.

Sale of Protected

On September 6, 2023, we announced that we had received a non-binding indication of intent from Just Develop It Limited ("JDI"), one of our significant shareholders, which is principally owned and managed by certain members of Protected's management team ("Purchasing Parties"), related to the potential acquisition of Protected, which operated our subscription business.

Subsequently, on November 30, 2023, we completed the sale of Protected, pursuant to the terms of a share purchase agreement ("Share Purchase Agreement").

Pursuant to the Share Purchase Agreement, the Purchasing Parties acquired all of the outstanding preference and ordinary shares of Protected ("Protected Disposition") for total consideration comprised of:

(a) $240.0 million in cash, subject to certain adjustments, (b) the return and subsequent cancellation of approximately 29.1 million shares of our Class A common stock, par value $0.0001 per share, owned by JDI and other entities and individuals affiliated with the Purchasing Parties and (c) confirmation from JDI, Protected and the Protected CEO that the financial performance benchmarks related to certain contingent earnout payments based on the future performance of Protected’s business in an aggregate amount of up to $60.0 million included in the Business Combination Agreement will, as a result of the Protected Disposition, no longer be achievable.

The results of operations of our Protected business are presented as net loss from discontinued operations in our consolidated statements of operations for the comparative period presented.

Unless otherwise noted, the information contained in this Management Discussion and Analysis relates solely to our continuing operations and does not include the operations of our Protected business (see Item 8, "Financial Statements and Supplementary Data — Note 17, Discontinued Operations").

Reorganization

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, 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 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 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures.

The key indicators of the financial condition and operating performance of the business is Gross profit.

To help assess performance with this key indicator, revenue metrics we use are return on traffic acquisition cost ("RTAC"), Products sessions and Products revenue-per-session ("Products RPS"), In addition we also use Adjusted Gross Profit and Adjusted EBITDA as non-GAAP financial measures.

We believe these non-GAAP measures provide useful supplemental information to investors to be able to better evaluate ongoing business performance.

This measure is not, and should not be viewed as, a substitute for accounting principles generally accepted in the United States of America ("GAAP") financial measures.

Refer to the "Revenue Metrics", "Adjusted Gross Profit" and "Adjusted EBITDA" sections below.

Components of Our Results of Operations

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.

We earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our 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.

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.

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

Additionally, we maintain the website, provide the content and bear the cost and risk of loss associated with the digital online inventory available on our website.

Revenue is also earned from revenue-sharing arrangements with our Network Partners related to the use of our RAMP platform and additional services provided to them in order to direct advertising by our Advertising Partners to their digital online inventory.

Revenue is also earned from revenue-sharing arrangements with our Network Partners related to the use of our platform and additional services provided to them in order to direct advertising by our Advertising Partners to their digital online inventory.

We have determined that we are the agent in these transactions and therefore report revenue on a net basis, because our network partner runs the campaign to acquire user-traffic including managing traffic acquisition cost.

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We have two reportable segments:

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

• Partner Network

Operating Expenses

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 consolidated statements of operations.

We classify our operating expenses into the following categories:

Cost of revenue (excluding depreciation and amortization) .

Cost of revenue (excluding depreciation and amortization) primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, as well as domain name registration costs and licensing costs to provide mapping services to Mapquest.com.

Cost of revenue .

Cost of revenue primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, domain name registration costs, licensing costs to provide mapping services to Mapquest.com and amortization related to our platform.

We do not pre-pay any traffic acquisition costs, and therefore, such costs are expensed as incurred.

Amortization related to our platform is recognized over the estimated useful life of the intangible asset.

Salaries and benefits .

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Selling, general, and administrative .

Selling, general, and administrative expenses consist of fees for software services, professional services, occupancy costs and travel and entertainment.

These costs are expensed as incurred.

Depreciation and amortization .

Depreciation and amortization expenses are primarily attributable to our capital investment(s) and consist of property and equipment depreciation and amortization of intangible assets with finite lives.

Other Expenses

Other expenses consist of the following:

Selling, general, and administrative expenses consist of depreciation, general intangibles amortization, fees for software services, professional services, occupancy costs and travel and entertainment.

Depreciation and general intangibles amortization expense are primarily attributable to our capital investment(s) and consist of property and equipment depreciation and amortization of intangible assets with finite lives .

Other Expenses or Incomes:

Other expenses or incomes consist of the following:

Interest expense, net .

Interest expense consists of interest on our debt and the amortization of deferred financing costs and debt discount.

Interest income consists of interest earned on our cash deposits.

Gain on extinguishment of tax receivable agreement liability .

The recognition of the reversal of amounts recognized under the tax receivable agreement.

Gain on extinguishment of debt .

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See Item 8, "Financial Statements and Supplementary Data —Note 9, Debt, Net" for additional information.

Loss on extinguishment of related-party debt .

The recognition of the unamortized portion of the loan fees upon settlement of our related party debt and restructuring of a portion of the cash consideration held back in connection with our CouponFollow acquisition which was converted into a Promissory Note.

Change in fair value of warrant liabilities .

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federal and most applicable state and local income tax purposes.

As a partnership, S1 Holdco is not subject to U.S.

As a partnership, S1 Holdco was not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by S1 Holdco is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We are subject to U.S.

Any taxable income or loss generated by S1 Holdco was passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We were subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of S1 Holdco, as well as any stand-alone income or loss generated by us.

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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).

December 31, 2024 Percentage of Revenue

December 31, 2023 Percentage of Revenue

Revenue $ 343,925 100% $ 401,971 100%

December 31, 2025

Percentage of Revenue

December 31, 2024

Percentage of Revenue

Operating expenses:

Cost of revenue (excluding depreciation and amortization) 191,561 56% 248,745 62%

Cost of revenue

Salaries and benefits

Selling, general, and administrative

Depreciation and amortization 80,107 23% 78,403 20%

Total operating expenses

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Interest expense, net

Gain on extinguishment of tax receivable agreement liability

Gain on extinguishment of debt

Loss on extinguishment of related-party debt — —% 2,004 —%

Change in fair value of warrant liabilities

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Income tax benefit

Net loss from continuing operations (97,298) (28)% (111,258) (28)%

Net loss from discontinued operations, net of tax — —% (174,327) (43)%

Net loss (97,298) (28)% (285,585) (71)%

Net loss from continuing operations attributable to non-controlling interest (22,625) (7)% (25,531) (6)%

Net loss from discontinued operations attributable to non-controlling interest — —% (32,833) (8)%

Net loss attributable to non-controlling interest

Net loss attributable to System1, Inc.

$ (74,673) (22)% $ (227,221) (57)%

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 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.

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.

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.

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

For The Year Ended December 31, Change

2024 2023 ($) (%)

Owned and Operated Advertising $ 281,930 $ 328,934 $ (47,004) (14)%

Partner Network 61,995 73,037 (11,042) (15)%

For The Year Ended December 31,

Total revenue

Owned and Operated Advertising

Owned and Operated Advertising revenue decreased by $47.0 million, or 14% compared to the prior comparative period, primarily due to a decreased supply of consumer sessions available to be acquired on certain marketing channels.

For the year ended December 31, 2024, compared to the prior comparative period, O&O sessions increased 3,355 million to 7,183 million from 3,828 million and O&O RPS decreased by approximately $0.05 from $0.09 to $0.04.

The declines in O&O RPS were primarily related to a mix shift to lower revenue per share ("RPS") traffic.

Partner Network

Partner Network revenue decreased $11.0 million, or 15%, compared to the prior comparative period impacted by instability experienced in the Advertising Partner ecosystem generally starting in the fourth quarter of 2023.

For the year ended December 31, 2024, compared to prior year, sessions increased 4,487 million to 7,777 million from 3,290 million, and Network RPS decreased by approximately $0.01 to $0.01 from $0.02.

The declines in Network RPS are primarily due to a mix shift to lower RPS traffic.

Cost of revenue (excluding depreciation and amortization)

Cost of revenue (excluding depreciation and amortization) decreased $57.2 million, or 23%, pri marily due to a decrease of $47.5 million in our Owned & Operated reportable segment, which was directionally consistent with the decrease in revenue.

For the year ended December 31, 2024, compared to prior year, our O&O CPS decreased $0.04 to $0.02 from $0.06.

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

We define and calculate adjusted gross profit as revenue less advertising expense incurred to acquire users.

The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties and fees.

Marketing revenue decreased by $90.5 million, or -34% for the year ended December 31, 2025 as compared to 2024, primarily due to a decrease in TAC.

For the year ended December 31, 2025, compared to 2024, TAC decreased by approximately $85.8 million to $351.5 million from $437.3 million, primarily due to a decrease in advertising spend.

The decrease in advertising spend was due to constrained availability of consumer traffic at cost-effective pricing.

RTAC increased by approximately 1% to 120% from 119%.

Products revenue increased $12.7 million, or 16%, for the year ended December 31, 2025 as compared to 2024, primarily due to an increase in product sessions.

For the year ended December 31, 2025, compared to 2024, Products sessions increased by approximately 278.9 million to 2.2 billion from 1.9 billion while Products RPS remained flat at $0.04.

Cost of revenue

Cost of revenue decreased $76.9 million, or -32% , for the year ended December 31, 2025 as compared to 2024 pri marily due to a decrease in advertising spend and agency fees which is correlated with the decrease in revenue.

Amortization expense for our platform recorded in cost of revenue increased $2.0 million or 4% for the year ended December 31, 2025 compared to 2024 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 platform.

We exclude the following items from segment adjusted gross profit:

depreciation and

amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments.

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

For The Year Ended December 31, Change

2024 2023 ($) (%)

Owned and Operated Advertising $ 108,209 $ 107,696 $ 513 —%

Partner Network 51,859 53,420 (1,561) (3)%

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):

For The Year Ended December 31,

Total adjusted gross profit

See the Revenue and Cost of revenue (excluding depreciation and amortization) discussions above.

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

Salaries and benefits

Salaries and benefits expense increased $7.0 million, or 7% compared to the prior comparative period .

The increase was primarily due to $17.8 million in CouponFollow share-based compensation expense and $0.9 million in Stock Appreciation Rights ("SARs") Tranche I awards.

This was partially offset by a $7.8 million decrease in stock-based compensation due to Replacement Awards fully vesting and a $3.5 million decrease in payroll-related expenses due to a reduction in workforce between the comparative periods.

Salaries and benefits expense decreased $20.8 million, or -18% compared to 2024.

The decrease was primarily driven by the accelerated recognition of $19.8 million in CouponFollow share-based liability expense in the comparative period, when all tier targets were determined to be probable of achievement, and a $7.7 million reduction in stock-based compensation related to reduced restricted stock units issuances during the year.

This was offset by an increase of $2.7 million in stock-based compensation related to the vesting of Tranche I stock appreciation rights, a $2.7 million increase in retention bonus expense, and a $1.5 million increase in severance expense.

Selling, general, and administrative

Selling, general, and administrative expense decreased $7.0 million, or 13% compared to the prior comparative period.

The decrease was primarily due to a $6.8 million decrease in advisory and consulting fees and a decline in bad debt expense of $2.3 million.

This decrease was partially offset by a $2.5 million increase due to a class action complaint settlement.

See Item 8, "Financial Statements and Supplementary Data — N ote 8, Commitments and Contingencies" for additional information regarding the class action complaint settlement.

Depreciation and amortization

Depreciation and amortization expense increased $1.7 million, or 2% compared to the prior comparative period primarily due to increased amortization for our continued investment in internally developed software.

Selling, general, and administrative expense decreased $6.7 million, or -9% compared to 2024.

The decrease was primarily driven by a $4.7 million reduction in professional and consulting fees, and a $3.8 million reduction in legal settlement expenses compared to the comparative period which recognized a $2.5 million class action complaint settlement.

This was offset by an increase of $1.3 million in software and subscription expense.

See Item 8, "Financial Statements and Supplementary Data — Note 8, Commitments and Contingencies" for additional information regarding the class action complaint settlement.

Other expense (income):

Interest expense, net

Interest expense, net decreased $17.2 million, or 35%, compared to the prior comparative period primarily due to a lower outstanding debt balance as we repurchased and repaid a portion of our Term loan balance.

Interest expense, net decreased $4.0 million, or -13% , compared to 2024 primarily due to lower average interest rates in 2025 as compared to 2024.

Gain on extinguishment of tax receivable agreement liability

Gain on extinguishment of tax receivable agreement liability increased $5.3 million compared to 2024 due to the reversal of the non-current tax receivable agreement liability.

See Item 8, "Financial Statements and Supplementary Data — Note 7, Income Taxes" for additional information.

Gain on extinguishment of debt

Gain on extinguishment of debt increased $20.1 million compared to the prior comparative period due to the repurchase of our principal debt balances via a Dutch auction and direct buy backs.

Loss on extinguishment of related-party debt

Loss on extinguishment of related-party debt decreased $2.0 million compared to the prior comparative period due to the recognition of the unamortized portion of the loan fees upon settlement of our related party debt and restructuring of a portion of the cash consideration held back in connection with our CouponFollow acquisition which was converted into a Promissory Note, in the prior period.

Gain on extinguishment of debt decreased $20.1 million compared to 2024 due to the repurchase of our principal debt balances via a Dutch auction and direct buy backs in 2024.

There were no repurchases of our debt in 2025.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities decreased $2.7 million, or 53% compared to the prior comparative period.

The decrease is due to the $2.4 million fair value remeasurement of our warrant liabilities during the current period.

Fair value fluctuations are driven by the market value of our public warrants.

Change in fair value of warrant liabilities decreased $2.1 million, or -88% compared to 2024 due to the fair value remeasurement of our Warrants which have been delisted from the NYSE.

Income tax benefit

The difference between the effective tax rates for the periods presented and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling income (loss), effects of predecessor flow through income allocations, changes in unrecognized tax benefits, valuation allowance and outside basis adjustments.

Net loss from discontinued operations, net of tax

Net loss from discontinued operations, net of tax is comprised of the net loss from discontinued operations, net of tax and only includes direct operating expenses incurred that:

(1) are clearly identifiable as costs being disposed of upon completion of the sale, and (2) will not be continued by us on an ongoing basis, goodwill impairment charge, final loss on sale and the results of operations of our subscription business segment, which was sold on November 30, 2023.

Indirect expenses which supported our subscription business, and which remained as part of the continuing operations following the sale are not reflected in loss from discontinued operations, net of tax.

On July 4, 2025, Public Law 119-21 was signed into law.

Public Law 119-21 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 do not expect these tax law changes to have a material impact on our financial statements however, we will continue to evaluate their impact as further information becomes available.

Non-GAAP Financial Measures

In addition to our results being determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance.

We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.

Adjusted Gross Profit

Adjusted Gross Profit is defined as gross profit plus depreciation and amortization recorded in cost of revenues.

The following table reconciles Revenue to Gross Profit and Adjusted Gross Profit for the periods presented (in millions):

For The Three Months Ended December 31,

For The Year Ended December 31,

Cost of revenue

amortization related to cost of revenue

Adjusted Gross Profit

The decrease in adjusted gross profit for the three months ended December 31, 2025 is primarily related to our decrease in revenue.

See "Management’s Discussion and Analysis of Financial Condition and Results of Operations, — Revenue Metrics" for additional information for explanations of our changes in revenue.

Adjusted EBITDA

Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, and other cash and non-cash based income or expenses that we do not consider indicative of our core operating performance, including, but not limited to deferred compensation, gain (loss) on extinguishment of debt, non-cash revaluation of warrant liability and acquisition and restructuring costs.

We believe that the use of Adjusted Gross Profit and Adjusted EBITDA provides an additional

tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.

However, investors should be aware that when evaluating Adjusted Gross Profit and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures.

In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because not all companies may calculate Adjusted EBITDA in the same fashion.

We adjust for nonoperating expenses and income, such as nonrecurring special projects, including for related consultant expenses, nonrecurring gain on the sale of assets, expenses associated with financing activities, and reorganization and severance expenses that result from the elimination or rightsizing of specific business activities or operations.

Because of the limitations described above, Adjusted Gross Profit and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Gross Profit and Adjusted EBITDA on a supplemental basis.

Investors should review the reconciliation of Gross profit to Adjusted Gross Profit and net income (loss) to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net loss to Adjusted EBITDA for the periods presented (in millions):

For The Three Months Ended December 31,

For The Year Ended December 31,

Income tax benefit

Interest expense

Depreciation and amortization

Other expense

Stock-based compensation and distributions to members

Gain on extinguishment of debt

Non-cash revaluation of warrant liability

Acquisition and restructuring costs

Realized tax benefit

Adjusted EBITDA

Liquidity and Capital Resources

We expect existing cash and cash equivalents and cash flows from operating and financing activities to continue to be sufficient to fund our operating and cash commitments for investing and financing activities for at least the next twelve months.

Our principal sources of liquidity have historically been from cash received in the Merger, indebtedness available under our credit facilities, other indebtedness, sale of our Protected business segment, and cash flows from operations.

Our principal sources of liquidity are expected to be from cash on hand and cash flows from operating and financing activities.

To date, our principal sources of liquidity have historically been from the sale of Total Security Limited (formerly known as Protected.

net Group Limited), indebtedness available under our credit facilities, other indebtedness, and cash flows from operations.

We have experienced declining cash flows and financial performance primarily as a result of reductions in Advertising Partner and overall consumer demand for our marketing services.

As of December 31, 2025, we had unrestricted cash and cash equivalents of $86.9 million, total net working capital, which we define as current assets less current liabilities, of $3.0 million.

We had an aggregate principal amount outstanding of $50.0 million under our revolving facility with a maturity date of January 27, 2027, and $260.1 million of term debt outstanding on our term loan which matures in July 2027.

For the year ended December 31, 2025, we had cash inflows of $20.6 million,

attributable to the draw down of our revolver facility.

Without the draw down of our revolver facility, we would have had cash outflows for the year ended December 31, 2025.

Management determined, as a result of this evaluation, that our current cash and cash equivalents, net working capital position, and the upcoming maturity date of our revolving facility raise substantial doubt about our ability to continue as a going concern for the twelve-month period following the date of this filing.

Our plan is to continue exploring options of refinancing all of our debt obligations.

Management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented.

There can be no assurance that we will be able to obtain financing that will provide us with sufficient liquidity to satisfy our revolving facility in January 2027.

Our principal sources of liquidity are expected to be from cash on hand and cash flows from financing activities.

Our ability to fund future operating expenses and capital expenditures, and our ability to meet our future debt service obligations, will depend on our ability to execute on our operational strategy and may be affected by our profitability, as well as general economic, financial and other factors which are beyond our control.

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.

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

See our concentration with customers discussion at Item 8, "Financial Statements and Supplementary Data — Note 11, Segment Reporting" for additional information.

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 our platform 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 December 31, 2024 , 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 year ended December 31, 2024 , we had cash outflows of $75.5 million.

The principal drivers of our cash outflows were $61.8 million repayment of our Term Loan, $6.2 million of capitalized software development costs and $5.3 million related to net change in operations and working capital.

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

See our concentration with customers discussion at Item 8 "Financi al Statements and supplementary data — Note 14, Segment Reporting" for additional information.

Credit Facilities

In connection with the Merger, we entered into a new loan ("Term Loan") and revolving facility ("2022 Revolving Facility" and, together with the Term Loan "Credit Agreement") with Bank of America, N.A.

as administrative agent, on January 27, 2022, providing for a 5.5 year Term Loan with an initial principal balance of $400.0 million.

A portion of the net proceeds of $376.0 million were used by us to settle the outstanding debt of $172.0 million with Cerberus Business Finance, LLC.

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

As of December 31, 2024, there was no balance outstanding on the 2022 Revolving Facility and principal of $280.1 million was outstanding on the Term Loan.

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

From March 31, 2026, $7.5 million of the Term Loan is payable quarterly.

The Term Loan matures in 2027.

We entered into a term loan ("Term Loan") and revolving facility ("Revolving Facility" and, together with the Term Loan "Credit Agreement") with Bank of America, N.A.

as administrative agent, on January 27, 2022, providing for a 5.5 year Term Loan with an initial principal balance of $400.0 million and with net proceeds of $376.0 million.

The Term loan expires in July 2027.

For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75%.

The Term Loan is amortized in quarterly installments on each scheduled payment date.

The Term Loan comes with a leverage ratio covenant, which goes into effect only if the utilization on the 2022 Revolving Facility exceeds 35% of the total availability under the 2022 Revolving Facility at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40.

The Term Loan comes with a leverage ratio covenant, which goes into effect only if the utilization on the Revolving Facility exceeds 35% of the total availability under the Revolving Facility at each quarter-end, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40.

The Credit Agreement has certain financial and nonfinancial covenants, including the "springing" leverage ratio covenant described above.

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Should we fail to distribute the financial statements to our lender within 120 days, we have an additional 30 days to cure such default.

The 2022 Revolving Facility matures in January 2027, and accordingly, it is classified within long-term debt, net on the consolidated balance sheet.

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

In March 2022, we borrowed $49.0 million under our 2022 Revolving Facility, to fund a portion of the purchase price related to the CouponFollow acquisition.

In October 2022, we borrowed the remaining $1.0 million available.

In December 2023, we repaid the full $50 million that was outstanding.

During 2024 we did not have any borrowings from the 2022 Revolving Facility and at December 31, 2024, there was no outstanding balance.

We have been able to and expect to be able to continue to make the required payments of principal and interest on the Credit Agreement (as and when due) on a timely basis.

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

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 discount of 64.1% of its par value).

Following the repurchases on January 17, 2024 and April 30, 2024, the outstanding principal amount of the Term Loan was $301.3 million and $295.0 million, respectively.

We used available cash on hand to fund the repurchase.

2023 Revolving Note

On April 10, 2023, we entered into a $20.0 million Revolving Note ("2023 Revolving Note") with trusts established for the benefit of our co-founders ("Lenders").

Each Lender provided a $10.0 million commitment for an aggregate principal of $20.0 million under the 2023 Revolving Note.

Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate of SOFR plus 3.15%.

The maturity date under the 2023 Revolving Note is July 10, 2024 ( " Maturity Date " ) with automatic three-month extensions, unless we or any Lender provides written notice of our election not to extend the 2023 Revolving Note, unless there is an event of default that is then continuing as the time of such extension .

The Lenders are also entitled to (i) an unused commitment fee equal to 1.0% per annum of the actual daily amount of total unfunded commitments under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a closing loan fee equal to 12.0% of each Lender's commitment under the

2023 Revolving Note, or $2.4 million in total.

The closing loan fee was originally payable within 180 days of April 10, 2023, but which payment was subsequently extended to November 30, 2023.

The full amount of $2.4 million closing loan fee was paid as of December 31, 2023.

Further, this closing loan fee was capitalized in prepaid and other current assets, and amortized on a straight-line basis through the Maturity Date.

As of December 31, 2023 there was no balance outstanding on the 2023 Revolver Note, and we terminated the 2023 Revolver Note.

Senior Unsecured Promissory Note

On September 6, 2023, we entered into a $5.2 million Senior Unsecured Promissory Note (the "Promissory Note") with the CouponFollow seller and an employee of ours ("Lender"), in order to convert the amount owed to him as a result of the acquisition of CouponFollow into a loan to us (the "Loan").

The amount of the Loan was equal to the amount of the Holdback liability of $5.2 million owed to the Lender.

The Promissory Note accrues interest at SOFR plus 3.15%.

Under the terms of the agreement, the Promissory Note became due and payable immediately upon sale of Protected.

Per the terms of the note we (i) must prepay the Loan under certain circumstances, which include consummation of a strategic transaction, the refinancing of the existing credit agreement, the incurrence by us of any indebtedness exceeding $2.5 million, or the sale of any of our assets in excess of $2.5 million;

(ii) may prepay the Loan at any time without penalty or interest;

and (iii) must make four substantially equal amortization payments on April 1, 2024, May 1, 2024, June 1, 2024, and July 1, 2024, unless there is an event of default, including a continuing event of default on the Credit Agreement, at which point the holder may declare all amounts due immediately.

The Lender under the Promissory Note is also entitled to a closing fee equal to 12% of the initial principal amount outstanding under the Promissory Note with 50% paid on October 15, 2023 and the remaining 50% due on December 15, 2023.

We recorded expense of approximately $0.6 million within loss on extinguishment of related-party debt on our consolidated statements of operations, which related to the 12% closing fee payable to the Lender.

Upon completion of the Protected disposal, the Promissory Note, accrued interest and the remaining 50% of the closing fee was settled.

On October 6, 2023, we entered into a $2.5 million Term Loan Note ("Term Note") with Openmail2, LLC ("Term Lender"), which is principally owned and managed by trusts established for the benefit of our co-founders.

The amounts outstanding under the Term Note accrue interest at the rate per annum equal to the SOFR plus 5.75%.

The maturity date under the Term Note is December 31, 2024, unless there is an event of default, including a continuing event of default on the credit agreement, at which point the holder may declare all amounts due immediately .

We must prepay the Loan under certain circumstances, which include (i) the consummation of a strategic transaction or (ii) upon the full refinancing and termination of the existing credit agreement.

The Lender was also entitled to a closing fee equal to 10.0% of the principal amount of the Term Note, payable within 180 days of October 6, 2023.

Upon completion of the Protected disposal, the Term Note, accrued interest and closing fee was settled.

The previously unamortized portion of the loan fee of $0.2 million was included in loss on extinguishment of related-party debt on our consolidated statements of operations.

Secured Facility

On October 6, 2023, Protected, our indirect wholly-owned subsidiary at the time, entered into a Secured Facility Agreement providing for a $10.0 million term loan ("Secured Facility") with a subsidiary of JDI ("Secured Lender") , one of our significant shareholders, which is principally owned and managed by certain members of the Protected management team .

Pursuant to the Secured Facility, the Secured Lender provided a $10.0 million commitment to Protected, which amount was (i) drawn down in full on the closing date and (ii) secured by the assets of Protected pursuant to a deed granted in favor of the Secured Lender pursuant to a Debenture between Protected and the Secured Lender, dated October 6, 2023.

The amounts outstanding under the Secured Facility accrue interest at the rate of 8.5% per annum.

The amounts outstanding under the Secured Facility are due upon the earlier of (i) October 6, 2024 or (ii) the date on

which Protected undergoes a Change of Control.

The Secured Lender was also entitled to a closing fee equal to 12.0% the principal amount of the borrowings under the Secured Facility, which was paid in full on the closing date.

In addition, Protected agreed to reimburse the Secured Lender for their reasonable and documented costs incurred in connection with the negotiation, documentation and execution of the Secured Facility.

Upon completion of the Protected disposal, the Secured Facility, the related loan fee and an early settlement fee were settled.

The previously unamortized portion of the loan fee and the early settlement fee for an aggregate amount of $1.4 million was included in net loss from discontinued operations, net of tax on our consolidated statements of operations.

As of December 31, 2025, there was principal of $260.1 million outstanding.

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

From March 31, 2026, $7.5 million of the Term Loan is payable quarterly.

Revolving Facility

The Revolving Facility provides borrowing availability of up to $50.0 million and expires in January 2027.

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

During 2024 we did not have any borrowings from the Revolving Facility.

During the fourth quarter of 2025 we borrowed $50.0 million from the Revolving Facility and the balance outstanding at December 31, 2025 was $50.0 million.

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

We have been able to and expect to be able to continue to make the required payments of principal and interest on the Credit Agreement (as and when due) on a timely basis.

Reorganization

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 our acquisition marketing platform 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 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

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

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Net cash used in operating activities

Net cash (used in) provided by investing activities $ (6,255) $ 203,179

Net cash used in financing activities $ (63,961) $ (74,072)

Net cash used in investing activities

Net cash provided by (used in) financing activities

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 cash flows from operating 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 year ended December 31, 2024, cash used in operating activities of $5.3 million resulted primarily from a net loss of $97.3 million, offset by $95.0 million of non-cash items, comprised of $80.1 million depreciation and amortization expense, $15.8 million stock based compensation expense, $17.9 million shared based compensation liability expense and $20.1 million gain on extinguishment of debt.

In the year ended December 31, 2025, cash used in operating activities of $4.1 million resulted primarily from a net loss of $81.2 million, offset by $96.0 million of non-cash items, comprised of $82.9 million depreciation and amortization expense, $11.3 million stock based compensation expense and $3.4 million shared based compensation liability.

Net cash used for working capital was $19.0 million.

In the year ended December 31, 2023, cash provided by operating activities of $24.7 million resulted primarily from a net loss of $285.6 million, payment of long term earnout liabilities of $20.0 million, a decrease in accrued expenses and other current liabilities of $19.4 million and a noncash tax benefit of $22.3 million.

This was partially offset by noncash items including an impairment of goodwill of $115.5 million, depreciation and amortization expense of $105.2 million , and stock-based compensation expense of $53.1 million and a decrease in accounts receivable of $20.9 million and an increase in deferred revenue of $15.3 million.

In the year ended December 31, 2024, cash used in operating activities of $5.3 million resulted primarily from a net loss of $97.3 million, offset by $95.0 million of non-cash items, comprised of $80.1 million depreciation and amortization expense, $15.8 million of stock-based compensation expense, $17.9 million shared-based compensation liability expense and $20.1 million gain on extinguishment of debt.

Net cash used for working capital was $2.9 million.

Investing Activities

In the year ended December 31, 2025, cash used in investing activities of $6.7 million resulted primarily from capitalization of software development costs.

In the year ended December 31, 2023, cash provided by investing activities of $203.2 million resulted primarily from proceeds from the sale of our Protected business segment on November 30, 2023.

In the year ended December 31, 2024, cash used in investing activities of $6.3 million resulted primarily from capitalization of software development costs.

Financing Activities

Our financing activities consisted primarily of borrowings and repayments of our indebtedness under our credit facilities and redemptions of our Class A common stock.

In the year ended December 31, 2024 , cash used in financing activities of $64.0 million resulted primarily from repayment of principal and interest on the Term Loan.

In the year ended December 31, 2023, cash used in financing activities of $74.1 million resulted primarily from repayment of the 2022 Revolving Facility of $50.0 million and repayment of our Term Loan of $20.0 million.

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

In the year ended December 31, 2025, cash provided by financing activities of $31.3 million resulted primarily from $50.0 million drawn on our revolver facility and proceeds of $2.3 million from the sale of unregistered securities , offset by $20.0 million repayment of principal and interest on our Term Loan and $0.6 million of share repurchases.

In the year ended December 31, 2024, cash used in financing activities of $64.0 million resulted primarily from repayment of principal and interest on our Term Loan.

Off-Balance Sheet Arrangements

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Service Agreements

In June 2021, 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 .

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

As of December 31, 2025, we remain contractually obligated to spend a remaining $1.2 million towards this commitment.

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We do not currently believe the resolution of any such contingencies will have a material adverse effect upon our consolidated financial statements.

See Item 8, "Financial Statements and Supplementary Data —Note 8, Commitments and Contingencies" for additional information.

Critical Accounting Policies and Estimates

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If, however, the fair value of the reporting unit is less than the carrying amount, an impairment loss is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill

The fair values of our reporting units are computed through weighting a discounted cash flow model and a reference transaction model which include inputs developed using both internal and market-based data.

The fair values of our reporting units are determined by weighting a discounted cash flow model and a reference transaction model which include inputs developed using both internal and market-based data.

The key assumptions in a discounted cash flow model include, but are not limited to, the weighted average cost of capital, revenue growth rates (including long-term growth rates), and operating margins.

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The reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry.

Key assumptions in these models include, but are not limited to, the selection of comparable transactions, revenue and "EBITDA" is defined as net income or loss before results from discontinued operations, interest, income tax expense or benefit, and depreciation and amortization multiples and EBITDA margins from those transactions.

Key assumptions in these models include, but are not limited to, the selection of comparable transactions, revenue and "EBITDA" is defined as net income or loss, interest, income tax expense or benefit, and depreciation and amortization multiples and EBITDA margins from those transactions.

Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

In conjunction with our fourth quarter assessment of goodwill, our valuation techniques did not indicate any impairment as of December 31, 2025.

All reporting units with goodwill passed the first step of the goodwill evaluation, with the fair value of our Partner Network reporting unit exceeding its respective carrying values by 11.9% and, accordingly, we were not required to perform the second step of the goodwill evaluation.

There is $82.4 million of goodwill residing in our Partner Network reporting unit.

In applying the income and market approaches to determining the fair value of the Partner Network reporting unit, we rely on a number of significant assumptions and estimates including revenue growth rates and gross profit margins, discount rates and future market conditions, among others.

Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.

Changes in one or more of these significant estimates or assumptions, could affect the results of these impairment assessments.

If revenue and gross profit performance deteriorate further, it is possible that there could be impairment of Goodwill at our Partner Network reporting unit in future periods.

As part of our fourth quarter review for impairment, we assessed the total fair values of the reporting units and compared total fair value to our market capitalization at December 31, 2025, including the implied control

premium, to determine if the fair values are reasonable compared to external market indicators.

When comparing our market capitalization to the discounted cash flow models for each reporting unit summed together, the implied control premium was approximately 10% as of December 31, 2025.

We believe several factors are contributing to our low market capitalization, including the lack of trading volume in our stock and the low market analyst coverage.

Given continuing economic uncertainties and related risks to our business, there can be no assurance that our estimates and assumptions made for purposes of our goodwill impairment testing as of December 31, 2025 will prove to be accurate predictions of the future.

We may be required to record additional goodwill impairment charges in future periods, whether in connection with our next annual impairment testing as of October 1, 2026 or prior to that, if any change constitutes a triggering event outside of the quarter from when the annual goodwill impairment test is performed.

It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

See Note 4, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net .

Stock-Based Compensation

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We have elected to treat stock-based payment awards with time-based service condition(s) only as a single award, with the related compensation expense recognized on a straight-line basis.

The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following;

(i) The fair value of S1 Holdco’s equity was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist, as the equity was not publicly traded, (ii) The expected term of the award is estimated by considering the contractual term and vesting period of the award, the employees’ expected exercise behavior and the post-vesting employee turnover rate.

For non-employees, the expected life equals the contractual term of the award, (iii) The risk-free interest rate is based on published U.S.

Treasury Department interest rates for the expected term of the underlying award and (iv) The volatility was based on the expected unit price volatility of the underlying units over the expected term of the award which is based upon historical share price data of an index of comparable publicly traded companies.

We are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings.

The assumptions used in the Hull-White I binomial lattice option pricing model to value equity are based upon the following;

(i) the expected term is equal to the estimated remaining contractual term, (ii) the risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant and (iii) the volatility is based on a blend of the historical volatility of our common stock and the peer-leveraged volatility.

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

S1 Holdco is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, S1 Holdco was not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by S1 Holdco was passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We were subject to U.S.

As of August 1, 2024, we are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings.

System1 Holdings is treated as a partnership for U.S.

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

Various of our subsidiaries are subject to income tax in the United States and in other countries.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities ("DTAs" and "DTLs", as applicable) for the expected future tax consequences of events that have been included in the financial statements.

Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax

rates in effect for the year in which the differences are expected to reverse.

Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of operations.

if permitted under the tax law, and results of operations.

If we determine that we would not be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would increase the provision for income taxes.

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For information regarding recent accounting pronouncements, see Item 8, "Financial Statements and Supplementary Data — Note 2, Summary of Significant Accounting Policies" .

Quantitative and Qualitative Disclosure about Market Risk.

As a smaller reporting company, we are not required to provide the information required by this Item.

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-K

Item 7. Management’s Discussion and Analysis