System1, Inc. 10-Q

Item 1. Financial Statements System1, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except par value) March 31, 2026 December 31, 2025 ASSETS Current assets: Cash and cash equivalents $ 51,514 $ 86,887 Restricted cash, current 500 1,243 Accounts receivable, net 53,257 57,289 Prepaid expenses and other current assets 6,468 4,061 Total current assets 111,739 149,480 Restricted cash, non-current 379 379 Property and equipment, net 1,459 1,562 Internal-use software development costs, net 13,897 13,672 Intangible assets, net 101,358 148,089 Goodwill 82,407 82,407 Operating lease right-of-use assets 8,722 9,120 Other non-current assets 364 263 Total assets $ 320,325 $ 404,972 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,290 $ 22,016 Accrued expenses and other current liabilities 33,278 46,277 Operating lease liabilities, current 1,467 1,427 Debt, net 76,816 76,718 Total current liabilities 125,851 146,438 Operating lease liabilities, non-current 7,753 8,183 Long-term debt, net 221,648 228,399 Deferred tax liability 3,549 4,013 Other non-current liabilities 548 520 Total liabilities 359,349 387,553 Commitments and contingencies (Note 7) Stockholders' equity: Class A common stock $ 0.0001 par value; 500,000 shares authorized, 8,302 and 8,225 Class A shares issued as of March 31, 2026 and December 31, 2025, respectively 1 1 Class C common stock $ 0.0001 par value; 25,000 shares authorized, 1,813 and 1,813 Class C shares issued as of March 31, 2026 and December 31, 2025, respectively — — Additional paid-in capital 880,302 878,859 Accumulated deficit ( 894,746 ) ( 847,679 ) Accumulated other comprehensive loss ( 222 ) ( 157 ) Treasury stock, at cost - 190 and 137 shares as of March 31, 2026 and December 31, 2025, respectively ( 759 ) ( 557 ) Total stockholders' equity attributable to System1, Inc. ( 15,424 ) 30,467 Non-controlling interest ( 23,600 ) ( 13,048 ) Total stockholders' equity ( 39,024 ) 17,419 Total liabilities and stockholders' equity $ 320,325 $ 404,972 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except for per share amounts) Three Months Ended March 31, 2026 2025 Revenue $ 37,234 $ 74,513 Operating expenses: Cost of revenue 13,860 46,077 Salaries and benefits 20,800 24,988 Selling, general, and administrative 16,789 16,574 Impairment of long-lived assets 36,822 — Total operating expenses 88,271 87,639 Operating loss ( 51,037 ) ( 13,126 ) Other expense: Interest expense, net 6,629 7,085 Change in fair value of warrant liabilities — 32 Total other expense, net 6,629 7,117 Loss before income tax ( 57,666 ) ( 20,243 ) Income tax benefit ( 75 ) ( 387 ) Net loss ( 57,591 ) ( 19,856 ) Less: Net loss attributable to non-controlling interest ( 10,524 ) ( 3,973 ) Net loss attributable to System1, Inc. $ ( 47,067 ) $ ( 15,883 ) Basic and diluted net loss per share: $ ( 5.82 ) $ ( 2.14 ) Weighted average number of shares outstanding - basic and diluted 8,090 7,439 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands) Three Months Ended March 31, 2026 2025 Net loss $ ( 57,591 ) $ ( 19,856 ) Other comprehensive loss: Foreign currency translation (loss) income ( 79 ) 13 Comprehensive loss ( 57,670 ) ( 19,843 ) Comprehensive loss attributable to non-controlling interest ( 10,538 ) ( 3,971 ) Comprehensive loss attributable to System1, Inc. $ ( 47,132 ) $ ( 15,872 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (In thousands) Class A Common Stock Class C Common Stock Treasury Stock, at cost Shares Amount Shares Amount Shares Amount Additional Paid-In-Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2025 8,225 $ 1 1,813 $ — 137 $ ( 557 ) $ 878,859 $ ( 847,679 ) $ ( 157 ) $ ( 13,048 ) $ 17,419 Net loss — — — — — — — ( 47,067 ) — ( 10,524 ) ( 57,591 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 77 — — — — — ( 27 ) — — ( 17 ) ( 44 ) Class A common stock repurchases — — — — 53 ( 202 ) — — — — ( 202 ) Other comprehensive loss — — — — — — — — ( 65 ) ( 14 ) ( 79 ) Stock-based compensation — — — — — — 1,470 — — — 1,470 Contribution from members — — — — — — — — — 3 3 Balance at March 31, 2026 8,302 $ 1 1,813 $ — 190 $ ( 759 ) $ 880,302 $ ( 894,746 ) $ ( 222 ) $ ( 23,600 ) $ ( 39,024 ) Class A Common Stock Class C Common Stock Treasury Stock, at cost Shares Amount Shares Amount Shares Amount Additional Paid-In-Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2024 7,365 $ 1 1,870 $ — — $ — $ 863,041 $ ( 782,335 ) $ ( 443 ) $ 4,732 $ 84,996 Net loss — — — — — — — ( 15,883 ) — ( 3,973 ) ( 19,856 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 120 — — — — — 33 — — ( 325 ) ( 292 ) Other comprehensive income — — — — — — — — 11 2 13 Stock-based compensation — — — — — — 2,766 — — 44 2,810 Distribution to members — — — — — — — — — ( 12 ) ( 12 ) Balance at March 31, 2025 7,485 $ 1 1,870 $ — — $ — $ 865,840 $ ( 798,218 ) $ ( 432 ) $ 468 $ 67,659 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended March 31, 2026 2025 Cash Flows from Operating Activities Net loss $ ( 57,591 ) $ ( 19,856 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,129 20,477 Stock-based compensation 1,264 2,651 Impairment of long-lived assets 36,822 — Amortization of debt issuance costs 846 911 Noncash lease expense 382 489 Change in fair value of warrant liabilities — 32 Deferred tax benefits ( 460 ) ( 588 ) Share-based compensation liabilities — 806 Other, net 3 23 Changes in operating assets and liabilities: Accounts receivable 4,033 1,156 Prepaid expenses and other current assets ( 2,509 ) ( 3,245 ) Accounts payable ( 7,726 ) ( 2,760 ) Accrued expenses and other current liabilities ( 12,941 ) ( 16,025 ) Other non-current liabilities ( 386 ) ( 20 ) Net cash used in operating activities ( 26,134 ) ( 15,949 ) Cash Flows from Investing Activities Purchases of property and equipment — ( 46 ) Purchases of intangible asset — ( 275 ) Capitalized software development costs ( 2,175 ) ( 1,227 ) Net cash used in investing activities ( 2,175 ) ( 1,548 ) Cash Flows from Financing Activities Repayment of term loan ( 7,500 ) ( 5,000 ) Taxes paid related to net settlement of stock awards ( 44 ) ( 292 ) Contributions from (Distributions to) members, net 3 ( 12 ) Repurchases of Class A common stock ( 202 ) — Net cash used in financing activities ( 7,743 ) ( 5,304 ) Effect of exchange rate changes in cash, cash equivalent and restricted cash ( 64 ) 9 Net decrease in cash, cash equivalents and restricted cash ( 36,116 ) ( 22,792 ) Cash, cash equivalents and restricted cash, beginning of the period 88,509 67,948 Cash, cash equivalents and restricted cash, end of the period $ 52,393 $ 45,156 Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 51,514 $ 43,913 Restricted cash 879 1,243 Total cash, cash equivalents and restricted cash $ 52,393 $ 45,156 Supplemental cash flow information: Cash paid for income taxes, net $ 236 $ 286 Cash paid for interest $ 6,315 $ 4,319 Stock-based compensation included in capitalized software development costs $ 206 $ 159 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Description of Business System1, Inc. and subsidiaries (the "Company", "we", "our" or "us") operates flagship internet utilities including CouponFollow, MapQuest, and Startpage.com, and a best-in-class marketing platform powered by artificial intelligence, enabling third party publishers ("Network Partners") to monetize and maximize the value of user traffic across a wide range of advertising category verticals. On August 1, 2024, we undertook a corporate reorganization, the result of which was that all of the assets and business operations of the Company are now held by System1 Holdings, LLC ("System1 Holdings"), a newly formed intermediate holding company of which we maintain the controlling interest and in which the non-controlling interest is owned by the holders of our Class C common stock. Following the corporate reorganization, (a) System1 Holdings now owns 100 % of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interests, and 100 % of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our 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. Liquidity and Going Concern We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. We have experienced declining cash flows and financial performance primarily as a result of reductions in Advertising Partners and overall consumer demand for our marketing services. As of March 31, 2026, we had cash and cash equivalents of $ 51.5 million and negative net working capital, which we define as current assets less current liabilities, of $ 14.1 million. We had an aggregate principal amount outstanding of $ 50.0 million under our revolving facility (as defined in Note 5, Debt, Net) with a maturity date of January 27, 2027, and $ 252.6 million of term debt outstanding on our term loan which matures in July 2027. 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 or our term loan in July 2027. As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying unaudited interim condensed consolidated financial statements and related disclosures are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S- 6 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) X. Our condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation. Our fiscal year ends on December 31, 2026. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 11, 2026. In our opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2026 or future operating periods. There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 that have had a material impact on our condensed consolidated financial statements and related notes. On June 10, 2025, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the Class A and Class C common stock (the "Reverse Stock Split"). All share data and per share data amounts included in this Form 10-Q have been retrospectively adjusted to reflect the effect of the Reverse Stock Split. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management's estimates are based on historical information available as of the date of the condensed consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, intangible assets, and long-lived assets, valuation and recognition of stock-based compensation awards and income taxes. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Risks We are subject to certain business and operational risks, including competition from alternative technologies, as well as dependence on key Advertising Partners, key employees, key contracts, and growth to achieve our business and operational objectives. Concentrations As of March 31, 2026, we had one paid search advertising partnership agreement with Google, and one paid search advertising partnership agreement with Microsoft. The agreement with Google (our largest Advertising Partner by revenue) is in effect through September 30, 2027. We had a second Google agreement that originally was scheduled to remain in effect through February 28, 2027, but was terminated for convenience by Google effective as of February 10, 2026 . The agreement with Microsoft (our next largest Advertising Partner by revenue) is in effect through December 31, 2026. Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately, or with minimal notice . 7 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Accounting Pronouncements Not Yet Adopted In November 2024, the Financial Accounting Standards Board issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which improves the disclosures about a public business entity's expenses and requires detailed information about the types of expenses in commonly presented expense financial statement captions. This guidance will be effective for the annual periods beginning with the year ending December 31, 2027 and interim periods during the year ending December 31, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures. In September 2025, the Financial Accounting Standards Board issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Softwa re, which amends certain aspects of the accounting for and disclosure of software costs. This guidance will be effective for the annual periods beginning with the year ending December 31, 2028 and interim periods during the year ending December 31, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures. 3. Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net Goodwill In the second quarter of 2025, as a result of organizational restructuring, we changed our identified segments and determined there are now two operating and reportable segments, Marketing and Products. There was no change to the Partner Network reporting unit. See Note 9, Segment Reporting, for further discussion of our operating and reportable segments. No impairment of goodwill was recognized in any of the periods presented. If revenue and gross profit performance deteriorate further, it is possible that there could be impairment of Goodwill in future periods in the Partner Network reporting unit. Goodwill was $ 82.4 million as of March 31, 2026 and December 31, 2025, all of which was attributable to the Partner Network reporting unit. Internal-use Software Development Costs, Net and Intangible Assets, Net During the first quarter of 2026, we significantly reduced our marketing activities for search monetization in our publishing business and performed an analysis of the carrying value of the long-lived assets in our Marketing asset group. The asset group was tested for recoverability using the undiscounted cash flows over the remaining useful life of the primary asset in the asset group. The estimated net cash flows were determined utilizing internal forecasts. If forecasted net cash flows were less than the carrying amount of the asset group, an impairment expense would be measured by comparing the fair value of the asset group to its carrying amount. The carrying amount of an individual asset in the group cannot be reduced below its fair value. We concluded that the carry ing amount of the Marketing asset group exceeded the undiscounted cash flows. Consequently, our Marketing asset group was no longer recoverable from future operations and we recognized an impairment to our Marketing asset group trademarks, the only asset in the group to which an impairment could be allocated under ASC 360. The impairment of long-lived assets expense was $ 36.8 million duri ng the three months ended March 31, 2026, presented in our condensed consolidated statements of operations. During the first quarter of 2026, we implemented measures to optimize and improve operating efficiency in response to changes in products offered by Advertising Partners. As a result of these actions, we incurred $ 2.2 million of one-time costs which were recorded during the three months ended March 31, 2026 , presented within salaries and benefits expense in our condensed consolidated statements of operations. These actions impacted our publishing business by reducing future cashflows. Internal-use software development costs and intangible assets consisted of the following (in thousands): 8 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2026 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Internal-use software development costs $ 30,706 $ ( 16,809 ) $ 13,897 Intangible assets: Developed technology $ 196,403 $ ( 196,390 ) $ 13 Trademarks and trade names 163,973 ( 62,892 ) 101,081 Software 5,100 ( 5,100 ) — Customer relationships 2,900 ( 2,636 ) 264 Total $ 368,376 $ ( 267,018 ) $ 101,358 December 31, 2025 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Internal-use software development costs $ 28,325 $ ( 14,653 ) $ 13,672 Intangible assets: Developed technology $ 196,403 $ ( 192,670 ) $ 3,733 Trademarks and trade names 236,053 ( 92,250 ) 143,803 Software 5,100 ( 4,891 ) 209 Customer relationships 2,900 ( 2,556 ) 344 Total $ 440,456 $ ( 292,367 ) $ 148,089 The internal-use software development costs include work in progress which is not being amortized of $ 4.6 million and $ 2.9 million as of March 31, 2026 and December 31, 2025 , respectively. Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands): Three Months Ended March 31, 2026 2025 Amortization expense for internal-use software development $ 2,156 $ 1,619 Amortization expense for intangible assets $ 9,909 $ 18,651 Amortization expense was presented as follows in the condensed consolidated statements of operations (in thousands): Three Months Ended March 31, 2026 2025 Cost of revenue $ 4,908 $ 13,050 Selling, general, and administrative $ 7,157 $ 7,220 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): 9 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2026 December 31, 2025 Accrued revenue share $ 18,156 $ 20,865 Accrued payroll and related benefits 8,358 7,552 Accrued marketing expenses 1,361 859 Shared-based compensation liability 424 13,408 Other current liabilities 4,979 3,593 Accrued expenses and other current liabilities $ 33,278 $ 46,277 CouponFollow Incentive Plan During the 2024 Performance Period, the CouponFollow business achieved all performance conditions such that the entire performance-based portion of the award vested or was expected to vest. Accordingly, we recognized a current share-based compensation liability of $ 17.8 million within accrued expenses and other current liabilities as of December 31, 2024 , of which $ 7.8 million was paid in cash in February 2025. During the 2025 Performance Period, we recognized $ 3.5 million in shared-based compensation liability expense within accrued expenses and other current liabilities for the performance-based portion of the award that vested on December 31, 2025. The total amount recognized under the CouponFollow Incentive Plan representing performance-based conditions was $ 21.3 million, of which $ 2.5 million is a discretionary bonus. The carrying amount of the share-based liabilities approximates its fair value, determined using Level 3 fair value inputs. In the first quarter of 2026, we paid $ 10.9 million and $ 2.1 million in cash for the last performance-based portion of the award and the discretionary bonus, respectively. The remaining $ 0.4 million discretionary bonus will be settled at management's discretion. 5. Debt, Net 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., on January 27, 2022, providing for a 5.5 year term loan with a principal balance of $ 400.0 million and with the net proceeds of $ 376.0 million . The Revolving Facility provided for borrowing availability of up to $ 50.0 million . As of March 31, 2026 , there was principal of $ 252.6 million outstanding on the Term Loan. Through December 31, 2025, $ 5.0 million of the Term Loan was payable quarterly. From March 31, 2026, $ 7.5 million of the Term Loan is payable quarterly. The Term Loan matures 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 covenant, which goes into effect only if the utilization on the Revolving Facility exceeds 35 % of the $ 50.0 million Revolving Facility at each quarter-end starting the second quarter 2022, 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. The Credit Agreement also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31. Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure. We were in compliance with the financial covenants under the Term Loan as of March 31, 2026. The interest rate on the Revolving Facility is the adjusted SOFR plus 2.5 % with an adjusted SOFR floor of 0 %. During the fourth quarter of 2025, we borrowed $ 50.0 million under the Revolving Facility and the balance outstanding as of March 31, 2026 and December 31, 2025 was $ 50.0 million, presented within current liabilities. We were in compliance with the financial covenants under the Revolving Facility as of March 31, 2026. 10 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 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, 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 carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands): March 31, 2026 December 31, 2025 Term Loan 1 $ 248,464 $ 255,117 Revolving Facility 50,000 50,000 Total debt, net 2 $ 298,464 $ 305,117 _______________ 1 Includes unamortized discount of $ 3.9 million and $ 4.7 million and unamortized loan fees of $ 0.2 million and $ 0.3 million, as of March 31, 2026 and December 31, 2025, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method. 2 Estimated fair value of our debt was $ 229.3 million as of March 31, 2026. 6. Income Taxes 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. federal and most applicable state and local income tax purposes. As a partnership, System1 Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by System1 Holdings 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. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us. We recorded an immaterial income tax benefit for the three months ended March 31, 2026 and an income tax benefit of $ 0.4 million for the three months ended March 31, 2025. The effective tax rate was 0.1 % for the three months ended March 31, 2026 and 2.0 % for the three months ended March 31, 2025. The provision for income taxes differs from the amount of income tax computed by applying the U.S. statutory federal tax rate of 21% to the loss before income taxes due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, the valuation allowance activity related to unrealizable deferred tax assets and outside basis adjustments. As of March 31, 2026 , we had a full valuation allowance on our U.S. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized. During the three months ended March 31, 2026 and 2025 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement and there were no amounts due, respectively. 11 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 7. Commitments and Contingencies 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 in each annual period between July 2023 and June 2026. As of March 31, 2026, we have fulfilled our contractual obligation towards this commitment. As of March 31, 2026, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities. Litigation We are subject to various legal proceedings and claims that arise in the ordinary course of business. We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the condensed consolidated financial statements. There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows. We accrued for losses when the loss is deemed probable and the liability can reasonably be estimated. In September 2025, certain lenders (the "Lenders") under our Credit Agreement, dated January 27, 2022 (the "Credit Agreement"), filed a lawsuit in the Supreme Court of the State of New York (the "New York Loan Matter") alleging (i) breach of contract against certain named subsidiaries of the Company that are parties to the Credit Agreement related to the corporate reorganization transactions undertaken by us in August 2024 to better align its corporate entity structure with its reportable business segments (the "Corporate Reorg Transactions"), (ii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with certain transactions undertaken by the Company related to the sale of its Total Security business in November 2023 (the "Total Security Transactions") and (iii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with the Corporate Reorg Transactions. Concurrently with the filing of the New York Loan Matter, the same Lenders under our Credit Agreement filed a lawsuit in California Superior Court (Los Angeles County) (the "California Matter" and, together with the New York Loan Matter, the "Creditor Lawsuits") alleging intentional and constructive fraudulent transfer against Openmail2, LLC, an entity controlled by our co-founders ("Openmail2") and certain trusts established for the benefit of the co-founders families (the "Co-founder Trusts") which are significant shareholders of the Company in connection with certain arm's-length negotiated loans that Openmail2 and the Co-founder Trusts extended to certain subsidiaries of the Company in fiscal year 2023 (the "Affiliate Loans") and which were repaid with a portion of the proceeds of the Total Security sale. In November 2025, the Creditor Lawsuits were consolidated into an amended complaint filed in U.S. District Court for the Southern District of New York, setting forth the same allegations against the same parties as those set forth in the Creditor Lawsuits, since the Lawsuits principally relate to the same allegations and underlying transactions. Our subsidiaries that were parties to the Affiliate Loans agreed to indemnify Openmail2 and the Co-founder Trusts for any third-party claims asserted against such parties in connection with extending the Affiliate Loans. We dispute all of the allegations set forth in the Creditor Lawsuits, deny any liability related thereto and intend to defend ourselves vigorously against the allegations and claims set forth therein. We have not accrued a loss related to the Creditor Lawsuits, as a loss is not currently probable and a loss, or range of loss, is not reasonably estimable. Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to claims related to these 12 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) indemnifications. As a result, we believe the estimated fair value of these agreements was immaterial. Accordingly, we have no liabilities recorded for these agreements as of March 31, 2026 or December 31, 2025, respectively . 8. Net Loss Per Share For the three months ended March 31, 2026 and 2025, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Basic and diluted net loss per share was calculated as follows (in thousands, except per share data) : Three Months Ended March 31, 2026 2025 Basic and diluted net loss per share Net loss attributable to System1, Inc. $ ( 5.82 ) $ ( 2.14 ) Numerator: Net loss attributable to System1, Inc. $ ( 47,067 ) $ ( 15,883 ) Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss per share 8,090 7,439 Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and Warrants outstanding for the three months ended March 31, 2026 and 2025, are considered potentially dilutive of the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive. For the three months ended March 31, 2026, 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of net loss per share as their impact was anti-dilutive. Additionally, 1.3 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of March 31, 2026. For the three months ended March 31, 2025, 16.8 million Warrants were excluded from the computation of net loss per share as their impact was anti-dilutive. Additionally, 2.1 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of March 31, 2025. See Note 10, Stock-Based Compensation, for additional details. 9. Segment Reporting We previously managed our business across two operating and reportable segments: the monetization of end-users acquired directly by us to our websites and products ("Owned & Operated Advertising"), and the monetization of end-users acquired by our Network Partners ("Partner Network"). In the second quarter of 2025, we had an internal organizational change that resulted in a change in how we manage our businesses. We combined the management of our Partner Network business with the portion of our Owned and Operated Advertising activities related to paid traffic acquisition via advertising costs and direct agency fees ("Marketing") and separately manage our CouponFollow, Startpage and MapQuest businesses which primarily acquire end-users organically ("Products"). This resulted in a change to our operating and reportable segments. We now have two operating and reportable segments: Marketing and Products. All prior year information in the tables below have been revised retrospectively to reflect the change to our reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance. Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. The CODM measures and evaluates reportable segments based on segment adjusted gross profit. The CODM evaluates both potential future, as well as historical budget to actual variances, adjusted gross profit by segment on a quarterly basis to determine the allocation of capital for acquisition marketing, as well as technical and personnel resources. Adjusted gross profit is also used to determine variable compensation 13 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) expense for certain employees. We have not presented segment assets as our CODM does not regularly use segment assets to evaluate or measure segment performance or allocate resources. The tables below include the following operating expenses that are not allocated to the reportable segments presented to our CODM, such as other cost of revenue (total cost of revenue excluding traffic acquisition cost and agency fees), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments. The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported condensed consolidated net loss before income tax and are included in the reconciliation that follows. The following table summarizes revenue, segment cost of revenue and segment adjusted gross profit by reportable segments (in thousands): Three Months Ended March 31, 2026 Three Months Ended March 31, 2025 Marketing Products Total Marketing Products Total Revenue $ 18,391 $ 18,843 $ 37,234 $ 52,250 $ 22,263 $ 74,513 Less: segment cost of revenue 5,862 1,526 7,388 30,463 1,309 31,772 Segment adjusted gross profit 12,529 17,317 29,846 21,787 20,954 42,741 Other cost of revenue 6,472 14,305 Salaries and benefits 20,800 24,988 Selling, general, and administrative 16,789 16,574 Impairment of long-lived assets 36,822 — Interest expense, net 6,629 7,085 Change in fair value of warrant liabilities — 32 Loss before income tax $ ( 57,666 ) $ ( 20,243 ) The following table summarizes revenue by geographic region (in thousands): Three Months Ended March 31, 2026 2025 United States $ 36,601 $ 73,699 Other countries 633 814 Total revenue $ 37,234 $ 74,513 10. Stock-Based Compensation We are authorized to issue and/or grant restricted stock, restricted stock units, stock options, SARs, and other stock-based and cash-based awards under our 2022 Incentive Award Plan. We recorded the following stock-based compensation expenses for equity-classified awards included within salaries and benefits in the condensed consolidated statements of operations (in thousands): Three Months Ended March 31, 2026 2025 Stock-based compensation expense $ 1,264 $ 2,651 14 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Restricted Stock Units For the three months ended March 31, 2026 and 2025, we recognized stock-based compensation of $ 1.5 million and $ 2.3 million, respectively, within equity. Stock Appreciation Rights On May 30, 2025 the SARs plan administrator certified that the trailing twelve month ("TTM") adjusted EBITDA exceeded the Tranche I performance threshold and the Tranche I awards vested ("Vested SARs"). On June 10, 2025 our stockholders approved an amendment to the System1, Inc. 2024 Stock Appreciation Rights Plan, (as amended, the "2024 SARs Plan") and the repricing ("Repricing") of certain outstanding SARs previously granted to our employees and consultants under the SARs Plan (collectively, the "SARs Plan Amendment and Repricing"). The strike price of the SARs granted changed from $ 1.44 to $ 0.44 and the adjusted EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $ 60 million ("Tranche II"), (ii) $ 70 million ("Tranche III") and (iii) $ 80 million ("Tranche IV") to (i) $ 55 million, (ii) $ 60 million and (iii) $ 65 million, respectively ("the Modification"). There were no changes to the other terms of the SARs Plan. At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the SARs option fair value. The following table sets forth the key assumptions used to determine the modified fair value: Input Risk-free interest rate 3.87 % - 4.11 % Term (in years) 3.06 - 6.06 Volatility factor 84.27 % - 97.65 % Dividend yield 0.00 % The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is equal to the remaining contractual term. Volatility is based on a blend of the historical volatility of our common stock and the peer-leveraged volatility. As of March 31, 2026, achievement of the performance conditions associated with Tranches II, III and IV before the fifth, sixth and seventh anniversary dates of the grant date, respectively, remains not probable. No stock-based compensation expense was recorded for the SARs for the three months ended March 31, 2026. For the three months ended March 31, 2025, we recognized $ 0.4 million in stock-based compensation expense within equity relating to Tranche I awards which vested during the third quarter of 2025. During the three months ended March 31, 2026 and 2025, no SARs were exercised. 15