Fourth Quarter Financial
Highlights:
- Revenue decreased 7% Year-Over-Year to $187
million
- Gross Profit increased 6% Year-Over-Year to $47
million
- Adjusted Gross Profit increased 31% Year-Over-Year to $59
million
- GAAP Net Loss of $51 million
- Adjusted EBITDA increased 18% Year-Over-Year to $27 million,
In-Line with Guidance
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an
omnichannel customer acquisition marketing platform, announced its
financial results for the fourth quarter and full year 2022.
“Against a challenging operating environment, System1’s fourth
quarter results were in-line with expectations as we continued to
invest in the initiatives that will drive growth across both of our
major business lines,” commented Michael Blend, Co-Founder &
Chief Executive Officer. “We expect 2023 to show increasing
acceleration in our subscription business, while our advertising
business is poised to move back into growth mode as we continue to
navigate an uncertain digital advertising market. Despite macro
headwinds in both advertiser and consumer demand, we are
forecasting significant EBITDA and cashflow in 2023.”
Tridivesh Kidambi, Chief Financial Officer of System1,
commented, “We are pleased with our fourth quarter financial and
operating results, as we delivered revenue, adjusted gross profit
and adjusted EBITDA in-line with our guidance. We remain confident
in both the long-term power and efficiency of RAMP and our
diversified business model, and we are taking the proper steps to
be successful regardless of the external macro environment. We
believe the overall market for both advertising and consumer demand
reached its low-point in Q1 of 2023, and we believe our investment
focus and capital allocation decisions position us for a strong
rebound this year.”
Note: Adjusted gross profit and Adjusted EBITDA are
non-GAAP metrics that are defined and reconciled at the end of this
release.
Fourth Quarter 2022 Financial Highlights
- Revenue decreased 7% year-over-year to $187 million compared to
$200 million in the prior year.
- Gross profit increased 6% year-over-year to $47 million.
- Adjusted Gross Profit increased 31% year-over-year to $59
million compared to $45 million in the prior year.
- Net loss of $51 million, compared to $3 million of net income
in the prior year. The net loss was primarily driven by non-cash
impairment charges related to the write-down of goodwill of $26
million in the fourth quarter.
- Adjusted EBITDA increased 18% year-over-year to $26 million
compared to $22 million in the prior year.
- The Company also filed restated 10-Qs for the quarters ended
March 31, 2022, June 30, 2022 and September 30, 2022. The
restatements corrected certain errors identified by the Company
related to its accounting for (i) the valuation and purchase price
allocation of certain intangible assets acquired in the Company’s
business combination (the “Business Combination”) with S1 Holdco,
LLC and System1 SS Protect Holdings, Inc. (“Protected”) on January
27, 2022, (ii), equity awards including certain restricted stock
awards with market-based vesting conditions that were granted in
connection with the Business Combination, (iii) the valuation and
purchase price allocation of intangible assets acquired in the
Company’s acquisition of NextGen Shopping, Inc., d/b/a CouponFollow
("CouponFollow") on March 4, 2022, and (iv) certain other
errors.
FY 2022 Financial Highlights
- Revenue in the predecessor period was $53 million and revenue
in the successor period was $774 million, compared to $688 million
in the prior year. Gross profit in the predecessor period was $6
million and gross profit in the successor period was $189 million,
compared to $163 million in the prior year.
- Adjusted Gross Profit in the predecessor period was $11 million
and adjusted Gross Profit in the successor period was $235 million,
compared to $167 million in the prior year.
- Net loss in the predecessor period was $37 million and net loss
in the successor period was $442 million, compared to net income of
$33 million in the prior year. The net loss was primarily driven by
non-cash impairment charges related to the write-down of goodwill
of $366 million combined in the third and fourth quarters of
2022.
- Adjusted EBITDA in the predecessor period was $1 million and
adjusted EBITDA in the successor period was $118 million, compared
to $88 million in the prior year.
- While the Company continues to pursue its claims related to the
one-time ad credit in Q2 of 2022 of $6.3 million of gross profit
and Adjusted EBITDA, the Company is no longer excluding these
expenses from its calculation of Adjusted Gross Profit and Adjusted
EBITDA in accordance with updated guidance derived from Compliance
& Disclosure Interpretations issued by the staff from the
Securities and Exchange Commission.
On January 27, 2022, S1 Holdco, LLC (“S1 Holdco”) and
Protected.net Group Ltd. (“Protected”) combined with Trebia
Acquisition Corp. (“Trebia”) to form System1, Inc (the “Business
Combination”). Financial results for the period prior to January
26, 2022 (the "predecessor period") are comprised of the results of
S1 Holdco, and the results for the periods after January 27, 2022
(the "successor period") are the consolidated results of System1,
Inc.
Fourth Quarter 2022 Business Highlights
- Acquired 1.0 billion sessions to its Owned & Operated
properties via its RAMP platform and maintained a spread of $.03
per session between its revenue and cost per session.
- Added over 400,000 new subscribers to its suite of subscription
products, and ended the year with over 2.4 million total paying
subscribers.
- Introduced several new enhancements to its private search
engine, Startpage.com, including private local in-map results,
instant answers, and improvements to create a more intuitive search
experience, including integrations with Microsoft Bing.
- In March 2023, the Company renewed one of its advertising
relationships with Google. The new agreement was renewed under
substantially the same terms and has a termination date of March
2025.
About System1, Inc.
System1 combines best-in-class technology & data science to
operate its advanced Responsive Acquisition Marketing Platform
(RAMP). System1’s RAMP is omnichannel and omnivertical, and built
for a privacy-centric world. RAMP enables the building of powerful
brands across multiple consumer verticals, the development &
growth of a suite of privacy-focused products, and the delivery of
high-intent customers to advertising partners. For more
information, visit www.system1.com.
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 System1 or its management team’s expectations,
hopes, beliefs, intentions or strategies regarding the future. In
addition, any statements that refer to projections, forecasts or
other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,”
“potential,” “predict,” “project,” “should,” “would” and similar
expressions may identify forward-looking statements, but the
absence of these words does not mean that a statement is not
forward-looking.
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 registration
statements on Form S-4 (including the related proxy
statement/prospectus) with respect to the Business Combination with
Trebia Acquisition Corp. and on Form S-1, each filed with the
Securities and Exchange Commission (the “SEC”), as well as
System1’s Form 10-K, Form 10-Q/As, Form 8-K and other reports filed
with the SEC from time to time. Please refer to these SEC filings
for additional information regarding the risks and other factors
that may impact System1’s business, prospects, financial results
and operating performance following completion of the Business
Combination.
Such risks, uncertainties and assumptions include, but are not
limited to: (1) our ability to grow and manage growth profitably,
and retain key employees; (2) our ability to acquire businesses on
acceptable terms and to successfully integrate and recognize
anticipated synergies from acquired businesses; (3) use of cash and
other available liquidity to grow and invest in our businesses; (4)
continued growth of our digital media and subscription offerings;
(5) international growth; (6) our ability to develop or introduce
new products, services, features and technologies; (7) our
liquidity and our ability to repay or refinance our outstanding
indebtedness; (8) technology, platform and infrastructure systems
capacity, coverage, reliability and security; (9) changes in or
recent developments related to applicable laws or regulations
(including those concerning data security, consumer privacy and/or
information sharing); (10) the possibility that we may be adversely
affected by other economic, business, and/or competitive factors;
and (11) the impact of Covid-19 and other political or societal
developments. The foregoing list of factors is not exclusive.
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. System1 will not undertake any obligation to
update or revise any forward-looking statements whether as a result
of new information, future events or otherwise. You should not take
any statement regarding past trends or activities as a
representation that such trends or activities will continue in the
future. Accordingly, you should not put undue reliance on these
statements.
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.
System1 believes Adjusted Gross Profit and Adjusted EBITDA are
relevant and useful metrics for investors because it allows
investors to view performance in a manner similar to the method
used by management. There are limitations on the use of Adjusted
Gross Profit and Adjusted EBITDA and it may not be comparable to
similarly titled measures of other companies. Other companies,
including companies in System1’s industry, may calculate non-GAAP
financial measures differently than System1 does, limiting the
usefulness of those measures for comparative purposes.
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 System1 on a consolidated basis that System1
reports in accordance with GAAP. Although System1 uses Adjusted
Gross Profit and Adjusted EBITDA as financial measures to assess
the performance of its business, such use is limited because it
does not include certain costs necessary to operate System1’s
business. System1’s presentation of Adjusted Gross Profit and
Adjusted EBITDA should not be construed as indications that its
future results will be unaffected by unusual or nonrecurring
items.
Unaudited Condensed Statements of
Operations
Successor
Predecessor
(In thousands)
Three months ended
December 31, 2022
Three months ended
December 31, 2021
Revenue
$
186,859
$
199,803
Operating costs and expenses:
Cost of revenues (excluding depreciation
and amortization)
128,157
155,276
Salaries, commissions, and benefits
41,665
18,715
Selling, general, and administrative
16,224
14,650
Depreciation and amortization
32,416
3,625
Impairment of goodwill
26,200
—
Total operating costs and expenses
244,662
192,266
Operating income (loss)
(57,803
)
7,537
Other expense (income):
Interest expense
9,939
4,162
Change in fair value of warrant
liabilities
(10,360
)
—
Total other expense (income), net
(421
)
4,162
Income (loss) before income tax
(57,382
)
3,375
Income tax (benefit) provision
(6,224
)
262
Net income (loss)
$
(51,158
)
$
3,113
Net loss attributable to non-controlling
interest
(18,264
)
—
Net income (loss) attributable to System1,
Inc.
$
(32,894
)
$
3,113
Consolidated Statements of
Operations
Successor
Predecessor
(In thousands)
Period from
January 27, 2022
through
December 31, 2022
Period from
January 1, 2022
through
January 26, 2022
Year Ended
December 31, 2021
Revenue
$
773,940
$
52,712
$
688,389
Operating costs and expenses:
Cost of revenues (excluding depreciation
and amortization)
538,779
41,507
521,113
Salaries, commissions, and benefits
194,976
31,181
66,747
Selling, general, and administrative
63,478
15,665
35,813
Depreciation and amortization
118,652
1,000
13,885
Impairment of goodwill
366,309
—
—
Total operating costs and expenses
1,282,194
89,353
637,558
Operating income (loss)
(508,254
)
(36,641
)
50,831
Other expense (income):
Interest expense
32,050
1,049
16,870
Change in fair value of warrant
liabilities
3,751
—
—
Total other expense (income), net
35,801
1,049
16,870
Income (loss) before income tax
(544,055
)
(37,690
)
33,961
Income tax (benefit) provision
(101,976
)
(629
)
965
Net income (loss)
$
(442,079
)
$
(37,061
)
$
32,996
Net loss attributable to non-controlling
interest
(105,682
)
—
—
Net income (loss) attributable to System1,
Inc.
$
(336,397
)
$
(37,061
)
$
32,996
Consolidated Balance Sheets
Successor
Predecessor
(In thousands, except for par
values)
December 31, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
24,606
$
47,896
Restricted cash, current
9,074
—
Accounts receivable
80,927
90,203
Prepaid expenses and other current
assets
11,901
7,689
Total current assets
126,508
145,788
Restricted cash, non-current
5,395
743
Property and equipment, net
4,022
830
Internal-use software development costs,
net
6,948
11,213
Intangible assets, net
492,686
50,368
Goodwill
515,591
44,820
Operating lease right-of-use assets
6,484
—
Other non-current assets
2,822
3,149
Total assets
$
1,160,456
$
256,911
LIABILITIES AND MEMBERS’
DEFICIT
Current liabilities:
Accounts payable
12,068
72,846
Accrued expenses and other current
liabilities
95,447
31,284
Protected.net incentive plan liability,
current
15,436
—
Deferred revenue
70,164
1,971
Operating lease liabilities, current
2,149
—
Debt, net
15,021
170,453
Total current liabilities
210,285
276,554
Operating lease liabilities,
non-current
5,875
—
Long-term debt, net
399,504
—
Warrant liability
7,798
—
Deferred tax liability
43,355
7,789
Protected.net incentive plan liability,
non-current
15,824
—
Other liabilities
5,027
969
Total liabilities
687,668
285,312
Commitments and contingencies (Note
11)
EQUITY / MEMBERS' DEFICIT
Class A common stock - $0.0001 par value;
500,000 shares authorized, 91,674 Class A shares issued and
outstanding as of December 31, 2022
9
—
Class C common stock - $0.0001 par value;
25,000 shares authorized, 21,747 Class C shares issued and
outstanding as of December 31, 2022
2
—
Treasury stock, at cost, 190 shares as of
December 31, 2022
—
—
Additional paid-in capital
829,687
—
Accumulated deficit
(445,301
)
—
Members' deficit
—
(28,829
)
Accumulated other comprehensive income
(loss)
(417
)
428
Total equity/members' deficit
383,980
(28,401
)
Non-controlling interest
88,808
—
Total equity/members' deficit
472,788
(28,401
)
Total liabilities and equity/members'
deficit
$
1,160,456
$
256,911
The following tables reconcile net income (loss) to Adjusted
EBITDA for the periods presented.
Successor
Predecessor
($ in millions)
System1, Inc.
S1 Holdco LLC
Three months ended
December 31, 2022
Three months ended
December 31, 2021
Net income (loss)
$
(51.2
)
$
3.1
Plus:
Income tax (benefit)
(6.2
)
0.3
Interest expense
9.9
4.2
Depreciation and amortization
32.4
3.6
Other expense
1.8
0.1
Stock-based compensation &
distributions to members
7.6
3.5
Protected.net acquisition bonus
accrual
10.5
—
Non-cash revaluation of warrant
liability
(10.4
)
—
Acquisition and restructuring costs
6.0
8.0
Impairment of goodwill
26.2
—
Adjusted EBITDA
$
26.6
$
22.8
Successor
Predecessor
($ in millions)
System1, Inc.
S1 Holdco LLC
Period from
January 27, 2022
through
December 31, 2022
Period from
January 1, 2022
through
January 26, 2022
Year Ended
December 31,
2021
Net income (loss)
$
(442.1
)
$
(37.1
)
$
33.0
Plus:
Income tax (benefit)
(102.0
)
(0.6
)
1.0
Interest expense
32.1
1.0
16.9
Depreciation and amortization
118.7
1.0
13.9
Other expense
7.7
(0.1
)
0.1
Stock-based compensation &
distributions to members
56.1
23.4
9.6
Protected.net acquisition bonus
accrual
51.3
—
—
Non-cash revaluation of warrant
liability
3.8
—
—
Acquisition and restructuring costs
25.9
13.2
13.7
Acquisition earnout
0.4
—
—
Impairment of goodwill
366.3
—
—
Adjusted EBITDA
$
118.2
$
0.8
$
88.2
The following table reconciles Revenue to Gross Profit and
Adjusted Gross Profit for the periods presented.
Successor
Predecessor
($ in millions)
System1, Inc.
S1 Holdco LLC
Three months ended
December 31, 2022
Three months ended
December 31, 2021
Revenue
$
187.0
$
200.0
Less: Cost of revenues (excluding
depreciation and amortization)
(128.0
)
(155.0
)
Less: Depreciation and amortization
related to cost of revenues
(12.4
)
(1.2
)
Gross profit
46.6
43.8
Add: Depreciation and amortization related
to cost of revenues
12.4
1.2
Adjusted Gross Profit
$
59.0
$
45.0
Successor
Predecessor
($ in millions)
System1, Inc.
S1 Holdco LLC
Period from
January 27, 2022
through
December 31, 2022
Period from
January 1, 2022
through
January 26, 2022
Year Ended
December 31,
2021
Revenue
$
774.0
$
53.0
$
688.0
Less: Cost of revenues (excluding
depreciation and amortization)
(539.0
)
(42.0
)
(521.0
)
Less: Depreciation and amortization
related to cost of revenues
(45.6
)
(5.0
)
(4.3
)
Gross profit
189.4
6.0
162.7
Add: Depreciation and amortization related
to cost of revenues
45.6
5.0
4.3
Adjusted Gross Profit
$
235.0
$
11.0
$
167.0
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version on businesswire.com: https://www.businesswire.com/news/home/20230602005085/en/
Investors:
Brett Milotte ICR, Inc. Brett.milotte@icrinc.com
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