System1 Announces Third Quarter 2022 Financial Results
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an omnichannel customer acquisition marketing platform, announced its financial results for the third quarter of 2022
LOS ANGELES--(BUSINESS WIRE)--Nov 10, 2022--
System1, Inc. (NYSE: SST) (“System1” or the “Company”), an omnichannel customer acquisition marketing platform, announced its financial results for the third quarter of 2022.
“During Q3, System1 continued to make progress on our key operating priorities, including a significant upgrade to our RAMP platform, scaling new subscription products and integrating our recent acquisitions,” commented Michael Blend, Co-Founder & Chief Executive Officer. “Despite seeing headwinds in the advertising environment, our platform generated significant annual growth and adjusted EBITDA. While continuing to invest for our longer-term success, we also retain the flexibility to deploy capital under our previously announced stock and warrant repurchase authorization.”
Tridivesh Kidambi, Chief Financial Officer of System1, commented, “While the macro environment remains challenging, we are pleased with our third quarter financial and operating results. Our business generated $63 million of adjusted gross profit via our RAMP platform, even in a difficult macro environment. We expect to see significant softness in the advertising marketplace through the rest of the year, but we remain optimistic for a rebound in 2023 and believe we have positioned our businesses to take advantage of an improving marketplace.”
Explanatory Note of Year-Over-Year Comparisons
For financial reporting purposes, S1 Holdco, LLC has been determined to be the accounting predecessor, and therefore its financial results are presented for all periods prior to the Business Combination with Trebia Acquisition Corp. (subsequently renamed System1).
Third Quarter 2022 Financial Highlights
Full-Year 2022 Guidance
Third Quarter 2022 Business Highlights
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 or “guidance” for fiscal year 2022. 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 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 its 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.
Gross Profit and 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.
The Company is not able to reasonably reconcile Adjusted Gross Profit to Gross Profit and Adjusted EBITDA to net income, its nearest GAAP metrics, in its guidance for future periods due to uncertainties regarding purchase accounting, stock-based compensation, taxes and other potential adjustments.
Unaudited Condensed Statements of Operations
(In thousands)
Successor
Predecessor
Three Months
Ended
September 30, 2022
Three Months
Ended
September 30, 2021
Revenue
$
201,176
$
171,446
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)
137,681
128,885
Salaries, commissions, and benefits
55,862
15,139
Selling, general, and administrative
16,520
7,936
Depreciation and amortization
33,420
3,459
Total operating costs and expenses
243,483
155,419
Operating income (loss)
(42,307
)
16,027
Other expense (income):
Interest expense
10,011
4,184
Change in fair value of warrant liabilities
4,489
—
Total other expense, net
14,500
4,184
Income (loss) before income tax
(56,807
)
11,843
Income tax (benefit) provision
(19,228
)
475
Net income (loss)
$
(37,579
)
$
11,368
Net loss attributable to non-controlling interest
(5,936
)
—
Net income (loss) attributable to System1, Inc.
$
(31,643
)
$
11,368
Unaudited Condensed Balance Sheets
(In thousands, except for par values)
Successor
Predecessor
September 30,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents
$
31,933
$
47,896
Restricted cash, current
7,338
—
Accounts receivable
78,846
90,203
Prepaid expenses and other current assets
8,756
7,689
Total current assets
126,873
145,788
Restricted cash, non-current
2,772
743
Property and equipment, net
4,349
830
Internal-use software development costs, net
12,599
11,213
Intangible assets, net
506,018
50,368
Goodwill
904,240
44,820
Operating lease assets
6,893
—
Other non-current assets
708
3,149
Total assets
$
1,564,452
$
256,911
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
12,242
$
72,846
Accrued expenses and other current liabilities
90,265
31,284
Protected.net incentive plan liability, current
19,266
—
Deferred revenue
68,289
1,971
Operating lease liabilities, current
2,102
—
Debt, net
14,954
170,453
Total current liabilities
207,118
276,554
Operating lease liabilities, non-current
6,406
—
Debt, net
402,273
—
Warrant liability
18,158
Deferred tax liability
120,724
7,789
Protected.net incentive plan liability, non-current
11,517
—
Other liabilities
2,909
969
Total liabilities
769,105
285,312
Commitments and contingencies
EQUITY / MEMBERS' DEFICIT
Class A common stock - $0.0001 par value; 250,000 shares authorized, 91,490 Class A shares issued and outstanding as of September 30, 2022
9
—
Class C common stock - $0.0001 par value; 25,000 shares authorized, 21,747 Class C shares issued and outstanding as of September 30, 2022
2
—
Additional paid-in capital
767,169
—
Accumulated deficit
(150,016
)
—
Members' deficit
—
(28,829
)
Accumulated other comprehensive income
13
428
Total equity/members' deficit attributable to System1, Inc.
617,177
(28,401
)
Non-controlling interest
178,170
—
Total equity/members' deficit.
795,347
(28,401
)
Total liabilities and equity/members' deficit
$
1,564,452
$
256,911
The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented.
Successor
Predecessor
System1, Inc.
S1 Holdco LLC
($ in millions)
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
Net income (Loss)
$
(37.6
)
$
11.4
Plus:
Income Tax Expense (Benefit)
(19.2
)
0.5
Interest Expense
10.0
4.2
Depreciation & Amortization
33.4
3.5
Other Expense
2.3
—
Stock-Based Compensation & Distributions To Members
8.0
0.7
Protected.net Acquisition Bonus Accrual
22.6
—
Non-cash revaluation of warrant liability
4.5
—
Acquisition & Restructuring Costs
5.5
2.9
Adjusted EBITDA
$
29.5
$
23.2
The following table reconciles Revenue to Gross Profit and Adjusted Gross Profit for the periods presented.
Successor
Predecessor
System1, Inc.
S1 Holdco LLC
($ in millions)
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
Revenue
$
201.2
$
171.4
Less: Cost of revenues (excluding depreciation and amortization)
(137.7
)
(128.9
)
Less: Depreciation and amortization related to cost of revenues
(13.5
)
(1.1
)
Gross Profit
50.0
41.4
Add: Depreciation and amortization related to cost of revenues
13.5
1.1
Adjusted Gross Profit
$
63.5
$
42.5
View source version on businesswire.com:https://www.businesswire.com/news/home/20221110005621/en/
CONTACT: Investors:
Brett Milotte
ICR, Inc.
Brett.milotte@icrinc.com
KEYWORD: CALIFORNIA UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: DIGITAL MARKETING OTHER COMMUNICATIONS MEDIA CONTENT MARKETING DATA MANAGEMENT COMMUNICATIONS PROFESSIONAL SERVICES TECHNOLOGY
SOURCE: System1, Inc.
Copyright Business Wire 2022.
PUB: 11/10/2022 04:05 PM/DISC: 11/10/2022 04:07 PM
http://www.businesswire.com/news/home/20221110005621/en
