System1 Announces First Quarter 2024 Financial Results
All Key Financial Results Above the High-End of
-
Revenue Decreased
$11.2 Million Over Prior Quarter to$84.9 Million
-
Gross Profit Decreased 25% Over Prior Quarter to
$18.6 Million
-
Adjusted Gross Profit Decreased 17% Over Prior Quarter to
$31.2 Million
-
GAAP Net Loss Decreased 46% Over Prior Quarter to
$14 Million
-
Adjusted EBITDA Decreased
$9.6 million Over Prior Quarter to$0.4 Million
-
Company Provides Second Quarter Guidance of:
$88 Million to$90 Million of Revenue and$5 Million to$7 Million of Adjusted EBITDA
“We are pleased to report a strong start to the year, with our headline Q1 results exceeding the top end of our guidance ranges for Revenue, Adjusted Gross Profit and Adjusted EBITDA. We had a strong quarter of execution across our core initiatives and I am pleased we were able to deliver these results,” commented
Tridivesh Kidambi, Chief Financial Officer of
Note: Adjusted Gross Profit and Adjusted EBITDA are non-GAAP metrics that are defined and reconciled at the end of this release.
First Quarter 2024
-
Successfully completed a modified “Dutch auction” tender offer in January of 2024, repurchasing
$63.7 million of term debt for a purchase price of$40.9 million , exclusive of fees and expenses. This brought the total debt repaid betweenNovember 2023 andJanuary 2024 to$155 million .
- Significant enhancements to RAMP released throughout the quarter focused on automation, with more than 90% of Owned & Operated customer acquisition advertising decisions now automated.
-
Released several improvements to RAMP Partner Portal, including enhanced reporting and self-serve functionality for
Network Partners .
Second Quarter 2024 Guidance
The Company expects for the second quarter of 2024:
-
Revenue between
$88 million and$90 million .
-
Gross Profit between
$20 million and$22 million .
-
Adjusted Gross Profit between
$33 million and$35 million .
-
Adjusted EBITDA between
$5 million and$7 million .
In reliance on the unreasonable efforts exception for forward-looking information provided under Regulation S-K, the Company is not reasonably able to provide a quantitative reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measures without unreasonable effort due to uncertainties regarding purchase accounting, stock-based compensation, taxes and other potential adjustments. The difference between Gross Profit and Adjusted Gross Profit is primarily depreciation and amortization related to the cost of revenues, which are estimated to be approximately
The Company’s achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in its filings with the
About
Cautionary Statement Regarding Forward-Looking Statements
This press release includes “forward-looking statements” “within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, particularly any statements or materials regarding System1’s future results. Forward-looking statements include, but are not limited to, statements regarding
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause System1’s actual financial results or operating performance to be materially different from those expressed or implied by these forward-looking statements. Readers or users of this press release should evaluate the risk factors summarized below, which summary list is not exclusive. Readers or users of this press release should also carefully review the “Risk Factors” and other information included in our Annual Report on Form 10-K and our Post-Effective Amendment to our Registration Statement on Form S-1 each filed with the
Such risks, uncertainties and assumptions include, but are not limited to: (1) our ability to maintain our key relationships with network partners and advertisers, including our monetization arrangements; (2) our ability to collect, process, effectively utilize and safely store the first party data that we obtain through our services; (3) The performance of our responsive acquisition marketing platform, or RAMP; (4) changes in customer demand for our services and our ability to incorporate to such changes; (5) our ability to maintain and attract consumers and advertisers in the face of changing economic or competitive conditions; (6) our ability to improve and maintain adequate internal control over financial reporting and remediate identified material weaknesses; (7) our ability to successfully source and complete acquisitions and to integrate the operations of companies
Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from any forward-looking statements contained in this press release. System1’s independent auditors have not audited, reviewed, compiled or performed any procedures with respect to the forward-looking statements for the purpose of their inclusion in this press release, and accordingly, do not express an opinion or provide any other form of assurance with respect thereto for the purpose of this press release.
Non-GAAP Measures: Adjusted Gross Profit and Adjusted EBITDA
Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures and represent key metrics used by System1’s management and board of directors to measure the operational strength and performance of its business, to establish budgets, and to develop operational goals for managing its business. Adjusted Gross Profit (Loss) is defined as gross profit plus depreciation and amortization related to cost of revenues. Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expenses, deferred compensation, management fees, minority interest expense, restructuring charges, impairment and certain discrete items impacting a particular segment’s results in a particular period.
Adjusted Gross Profit should not be considered a substitute for revenue. Adjusted EBITDA should not be considered a substitute for income (loss) from operations, net income (loss), or net income (loss) attributable to
Unaudited Condensed Statements of Operations
(In thousands)
|
Three Months Ended |
||||||
|
|
2024 |
|
|
|
2023 |
|
Revenue |
$ |
84,917 |
|
|
$ |
121,118 |
|
Operating expenses: |
|
|
|
||||
Cost of revenue (excluding depreciation and amortization) |
|
53,698 |
|
|
|
82,953 |
|
Salaries and benefits |
|
24,483 |
|
|
|
28,147 |
|
Selling, general, and administrative |
|
12,728 |
|
|
|
14,855 |
|
Depreciation and amortization |
|
19,804 |
|
|
|
19,392 |
|
Impairment of goodwill |
|
— |
|
|
|
— |
|
Total operating expenses |
|
110,713 |
|
|
|
145,347 |
|
Operating loss |
|
(25,796 |
) |
|
|
(24,229 |
) |
Other expense (income): |
|
|
|
||||
Interest expense, net |
|
7,970 |
|
|
|
11,402 |
|
Gain from debt extinguishment |
|
(19,676 |
) |
|
|
— |
|
Change in fair value of warrant liabilities |
|
(251 |
) |
|
|
(1,409 |
) |
Total other (income) expense, net |
|
(11,957 |
) |
|
|
9,993 |
|
Loss before income tax |
|
(13,839 |
) |
|
|
(34,222 |
) |
Income tax benefit |
|
(48 |
) |
|
|
(3,829 |
) |
Net loss from continuing operations |
|
(13,791 |
) |
|
|
(30,393 |
) |
Net loss from discontinued operations, net of tax |
|
— |
|
|
|
(12,533 |
) |
Net loss |
|
(13,791 |
) |
|
|
(42,926 |
) |
Less: Net loss from continuing operations attributable to non-controlling interest |
|
(3,254 |
) |
|
|
(6,757 |
) |
Less: Net loss from discontinued operations attributable to non-controlling interest |
|
— |
|
|
|
(2,367 |
) |
Net loss attributable to |
$ |
(10,537 |
) |
|
$ |
(33,802 |
) |
Unaudited Condensed Balance Sheets
(In thousands, except for par values)
|
|
|
|
||||
ASSETS |
|
|
|
||||
|
|
|
|
||||
Current assets: |
|
|
|
||||
Cash and cash equivalents |
$ |
69,920 |
|
|
$ |
135,343 |
|
Restricted cash, current |
|
7,231 |
|
|
|
3,813 |
|
Accounts receivable, net |
|
52,735 |
|
|
|
56,093 |
|
Prepaid expenses and other current assets |
|
9,791 |
|
|
|
6,754 |
|
Total current assets |
|
139,677 |
|
|
|
202,003 |
|
Restricted cash, non-current |
|
533 |
|
|
|
4,294 |
|
Property and equipment, net |
|
2,836 |
|
|
|
3,084 |
|
Internal-use software development costs, net |
|
12,545 |
|
|
|
11,425 |
|
Intangible assets, net |
|
278,336 |
|
|
|
297,001 |
|
|
|
82,407 |
|
|
|
82,407 |
|
Operating lease right-of-use assets |
|
4,241 |
|
|
|
4,732 |
|
Other non-current assets |
|
484 |
|
|
|
524 |
|
Total assets |
|
521,059 |
|
|
|
605,470 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
||||
Current liabilities: |
|
|
|
||||
Accounts payable |
|
7,055 |
|
|
|
9,499 |
|
Accrued expenses and other current liabilities |
|
52,351 |
|
|
|
59,314 |
|
Operating lease liabilities, current |
|
2,375 |
|
|
|
2,333 |
|
Debt, net |
|
16,190 |
|
|
|
15,271 |
|
Total current liabilities |
|
77,971 |
|
|
|
86,417 |
|
Operating lease liabilities, non-current |
|
2,938 |
|
|
|
3,582 |
|
Long-term debt, net |
|
268,597 |
|
|
|
334,232 |
|
Warrant liability |
|
2,438 |
|
|
|
2,688 |
|
Deferred tax liability |
|
7,649 |
|
|
|
8,307 |
|
Other liabilities |
|
1,061 |
|
|
|
929 |
|
Total liabilities |
|
360,654 |
|
|
|
436,155 |
|
Commitments and contingencies (Note 7) |
|
|
|
||||
Stockholders' equity: |
|
|
|
||||
Class A common stock - |
|
7 |
|
|
|
7 |
|
Class C common stock - |
|
2 |
|
|
|
2 |
|
Additional paid-in capital |
|
850,202 |
|
|
|
843,112 |
|
Accumulated deficit |
|
(718,199 |
) |
|
|
(707,662 |
) |
Accumulated other comprehensive loss |
|
(271 |
) |
|
|
(181 |
) |
Total stockholders' equity attributable to |
|
131,741 |
|
|
|
135,278 |
|
Non-controlling interest |
|
28,664 |
|
|
|
34,037 |
|
Total stockholders' equity |
|
160,405 |
|
|
|
169,315 |
|
Total liabilities and stockholders' equity |
$ |
521,059 |
|
|
$ |
605,470 |
|
The following table reconciles net loss to Adjusted EBITDA for the periods presented ($ in millions).
|
Three Months Ended |
||||||
|
|
2024 |
|
|
|
2023 |
|
Net loss from continuing operations |
$ |
(13.8 |
) |
|
$ |
(30.4 |
) |
Plus: |
|
|
|
||||
Income tax benefit |
|
— |
|
|
$ |
(3.8 |
) |
Interest expense |
|
8.0 |
|
|
$ |
11.4 |
|
Depreciation and amortization |
|
19.8 |
|
|
$ |
19.4 |
|
Other expense |
|
(0.1 |
) |
|
$ |
— |
|
Stock-based compensation & distributions to members |
|
4.0 |
|
|
$ |
(0.1 |
) |
Impairment of goodwill |
|
— |
|
|
$ |
5.8 |
|
Loss on extinguishment of related-party debt |
|
(19.7 |
) |
|
$ |
(1.4 |
) |
Non-cash revaluation of warrant liability |
|
(0.3 |
) |
|
$ |
— |
|
Acquisition and restructuring costs |
|
2.5 |
|
|
$ |
4.2 |
|
Adjusted EBITDA |
$ |
0.4 |
|
|
$ |
5.1 |
|
The following table reconciles Revenue to Gross Profit and Adjusted Gross Profit for the periods presented ($ in millions).
|
Three Months Ended |
||||||
|
|
2024 |
|
|
|
2023 |
|
Revenue |
$ |
84.9 |
|
|
$ |
121.1 |
|
Less: Cost of revenue (excluding depreciation and amortization) |
|
(53.7 |
) |
|
|
(83.0 |
) |
Less: Depreciation and amortization related to cost of revenue |
|
(12.6 |
) |
|
|
(12.4 |
) |
Gross Profit |
|
18.6 |
|
|
|
25.8 |
|
Add: Depreciation and amortization related to cost of revenue |
|
12.6 |
|
|
|
12.4 |
|
Adjusted Gross Profit |
$ |
31.2 |
|
|
$ |
38.2 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20240509798032/en/
Investors:
Brett.Milotte@icrinc.com
Source: