System1 Announces Second Quarter 2022 Financial Results
System1, Inc. (NYSE: SST) reported a 30% year-over-year revenue increase, reaching $220 million for Q2 2022, alongside a 55% growth in gross profit to $67 million. Despite a $34 million net loss, adjusted EBITDA rose by 20% to $41 million. The company updated its 2022 guidance, expecting pro forma revenue between $900 million and $930 million and adjusted EBITDA between $155 million and $165 million. A new $25 million stock and warrant repurchase program reflects their confidence in long-term prospects.
- Revenue increased 30% year-over-year to $220 million.
- Gross profit rose 55% year-over-year to $67 million.
- Adjusted EBITDA increased 20% year-over-year to $41 million.
- Authorized $25 million stock and warrant repurchase program demonstrates confidence in business fundamentals.
- Net loss of $34 million compared to $12 million net income in the prior year.
- Full-year guidance reflects economic conditions, indicating potential softness in growth.
-
Revenue Grew
30% Year-Over-Year to$220 Million -
Revenue Grew
7% Year-Over-Year on a Pro Forma Basis -
Gross Profit1 Grew
55% Year-Over-Year to$67 Million -
Adjusted Gross Profit Grew
31% Year-Over-Year to on a Pro Forma Basis$74 Million -
Net Loss of
$34 million -
Adjusted EBITDA increased
20% to compared to$41 million in the prior year on a Pro Forma Basis$34 Million -
Company Announces
Stock and Warrant Repurchase Program$25 million -
Company Updates Full-Year 2022 Guidance:
to$900 Million of Pro Forma Revenue,$930 Million to$285 Million of Pro Forma Adjusted Gross Profit and$295 Million to$155 Million of Pro Forma Adjusted EBITDA$165 Million
“System1 made considerable progress in Q2 on our key operating priorities that will enable us to triple our scale over the next few years. We launched new subscription products, began rolling out our next-generation RAMP technology, and integrated our latest acquisitions,” commented
Tridivesh Kidambi, Chief Financial Officer of
Explanatory Note of Year-Over-Year Comparisons
For financial reporting purposes, S1
Second Quarter 2022 Financial Highlights
-
Revenue increased
30% year-over-year to compared to$220 million in the prior year.$170 million -
Revenue increased
7% year-over-year on a pro forma basis2. -
Gross profit increased
55% year-over-year to compared to$67 million in the prior year.$43 million -
Adjusted Gross Profit increased
31% year-over-year to compared to$74 million in the prior year on a pro forma basis2.$56 million -
Net loss of
, compared to$34 million of net income in the prior year.$12 million -
Adjusted EBITDA increased
20% year-over-year to compared to$41 million in the prior year on a pro forma basis2.$34 million -
Adjusted Gross Profit and Adjusted EBITDA excludes
negative impact to gross profit in the second quarter of 2022 caused by a traffic partner advertising network inadvertently sending fraudulent traffic to the Company.$6 million
Full-Year 2022 Guidance
-
The Company is updating its full year outlook to reflect current economic conditions. The Company expects for the full year 2022:
-
Pro forma Revenue between
and$900 million $930 million -
Pro forma Adjusted Gross Profit between
and$285 million $295 million -
Pro forma Adjusted EBITDA between
and$155 million .$165 million
-
Pro forma Revenue between
Second Quarter 2022 Business Highlights
-
On
May 4, 2022 , the Company completed the acquisition of Answers.com, one of the largest destinations for higher education and lifelong learning content, to add to its portfolio of Owned & Operated publishing sites and search destinations. This is the Company’s fourth acquisition year to date in 2022. -
In
July 2022 , the Company renewed its strategic advertising agreement with Microsoft Bing for an additional 3 years on substantially similar terms to our prior agreement. -
In
August 2022 , the Company’s Board of Directors authorized a stock and warrant repurchase program covering System1’s Class A common stock and public warrants.$25 million
_________________________
1 Gross profit is defined as revenue less cost of revenue (exclusive of depreciation and amortization).
2 Please refer to the tables at the end of this release for a reconciliation of pro forma financial results to reported S1
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 or “guidance” for fiscal year 2022. 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 registration statements on Form S-4 (including the related proxy statement/prospectus) with respect to the Business Combination with
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.
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 is defined as revenue less cost of revenues plus certain discrete items impacting a particular segment’s results in a particular period. 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 less cost of revenue. Adjusted EBITDA should not be considered a substitute for income (loss) from operations, net income (loss), or net income (loss) attributable to
The Company is not able to reasonably reconcile Adjusted EBITDA to net income, its nearest GAAP metric, 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
|
|
|
Three Months
|
|||
Revenue |
$ |
219,797 |
|
|
|
$ |
169,579 |
Operating costs and expenses: |
|
|
|
|
|||
Cost of revenues (excludes depreciation and amortization) |
|
152,558 |
|
|
|
|
126,167 |
Salaries, commissions, and benefits |
|
45,555 |
|
|
|
|
17,698 |
Selling, general, and administrative |
|
16,167 |
|
|
|
|
6,277 |
Depreciation and amortization |
|
33,397 |
|
|
|
|
3,112 |
Total operating costs and expenses |
|
247,677 |
|
|
|
|
153,254 |
Operating income (loss) |
|
(27,880 |
) |
|
|
|
16,325 |
Other expense (income): |
|
|
|
|
|||
Interest expense |
|
7,324 |
|
|
|
|
4,476 |
Change in fair value of warrant liabilities |
|
(4,139 |
) |
|
|
|
— |
Total other expense (income), net |
|
3,185 |
|
|
|
|
4,476 |
Income (loss) before income tax |
|
(31,065 |
) |
|
|
|
11,849 |
Income tax (benefit) provision |
|
3,000 |
|
|
|
|
77 |
Net income (loss) |
$ |
(34,065 |
) |
|
|
$ |
11,772 |
Net loss attributable to non-controlling interest |
|
(4,867 |
) |
|
|
|
— |
Net income (loss) attributable to |
$ |
(29,198 |
) |
|
|
$ |
11,772 |
Unaudited Condensed Balance Sheets |
||||||||
(In thousands, except for par values) |
||||||||
|
Successor |
|
|
Predecessor |
||||
|
|
|
|
|
||||
ASSETS |
|
|
|
|
||||
Current assets: |
|
|
|
|
||||
Cash and cash equivalents |
$ |
37,442 |
|
|
|
$ |
47,896 |
|
Restricted cash, current |
|
5,757 |
|
|
|
|
— |
|
Accounts receivable |
|
93,397 |
|
|
|
|
90,203 |
|
Prepaid expenses and other current assets |
|
9,671 |
|
|
|
|
7,689 |
|
Total current assets |
|
146,267 |
|
|
|
|
145,788 |
|
Restricted cash, non-current |
|
1,532 |
|
|
|
|
743 |
|
Property and equipment, net |
|
4,330 |
|
|
|
|
830 |
|
Internal-use software development costs, net |
|
11,647 |
|
|
|
|
11,213 |
|
Intangible assets, net |
|
537,913 |
|
|
|
|
50,368 |
|
|
|
907,248 |
|
|
|
|
44,820 |
|
Operating lease right-of-use assets |
|
7,533 |
|
|
|
|
— |
|
Other non-current assets |
|
779 |
|
|
|
|
3,149 |
|
Total assets |
$ |
1,617,249 |
|
|
|
$ |
256,911 |
|
LIABILITIES AND EQUITY |
|
|
|
|
||||
Current liabilities: |
|
|
|
|
||||
Accounts payable |
|
17,286 |
|
|
|
|
72,846 |
|
Accrued expenses and other current liabilities |
|
97,752 |
|
|
|
|
31,284 |
|
Deferred revenue |
|
68,368 |
|
|
|
|
1,971 |
|
Operating lease liabilities, current |
|
2,065 |
|
|
|
|
— |
|
Notes payable, current |
|
14,888 |
|
|
|
|
170,453 |
|
Total current liabilities |
|
200,359 |
|
|
|
|
276,554 |
|
Operating lease liabilities, non-current |
|
7,073 |
|
|
|
|
— |
|
Notes payable, non-current |
|
406,026 |
|
|
|
|
— |
|
Warrant liability |
|
13,669 |
|
|
|
|
— |
|
Deferred tax liability |
|
137,354 |
|
|
|
|
7,789 |
|
Protected incentive plan liability |
|
18,163 |
|
|
|
|
— |
|
Other liabilities |
|
7,482 |
|
|
|
|
969 |
|
Total liabilities |
|
790,126 |
|
|
|
|
285,312 |
|
Commitments and contingencies |
|
|
|
|
||||
EQUITY / MEMBERS' DEFICIT |
|
|
|
|
||||
Class A Common stock - |
|
9 |
|
|
|
|
— |
|
Class |
|
2 |
|
|
|
|
— |
|
Additional paid-in capital |
|
761,002 |
|
|
|
|
— |
|
Accumulated deficit |
|
(118,373 |
) |
|
|
|
— |
|
Members' deficit |
|
— |
|
|
|
|
(28,829 |
) |
Accumulated other comprehensive income |
|
179 |
|
|
|
|
428 |
|
Total equity/members' deficit |
|
642,819 |
|
|
|
|
(28,401 |
) |
Non-controlling interest |
|
184,304 |
|
|
|
|
— |
|
Total equity/members' deficit |
|
827,123 |
|
|
|
|
(28,401 |
) |
Total liabilities and equity/members' deficit |
$ |
1,617,249 |
|
|
|
$ |
256,911 |
|
The following tables reconcile net income (loss) to Adjusted EBITDA and Pro Forma Adjusted EBITDA for the periods presented for
|
Successor |
||
|
|
||
($ in millions) |
Three Months Ended
|
||
Net (Loss) |
$ |
(34.1 |
) |
Plus: |
|
||
Income Tax (Benefit) |
|
3.0 |
|
Interest Expense |
|
7.3 |
|
Depreciation & Amortization |
|
33.4 |
|
Other Expense |
|
2.1 |
|
Stock-Based Compensation & Distributions To Members |
|
22.4 |
|
Non-cash revaluation of warrant liability |
|
(4.1 |
) |
Acquisition & Restructuring Costs |
|
4.6 |
|
One-time Ad Credit Impact |
|
6.3 |
|
Acquisition Earnout |
|
0.1 |
|
Adjusted EBITDA |
$ |
41.0 |
|
|
Three Months Ended |
||||||||
|
Predecessor |
|
Unaudited |
|
Pro Forma |
||||
($ in millions) |
S1 |
|
|
|
Total |
||||
Net Income (Loss) |
$ |
11.8 |
|
$ |
7.5 |
|
|
$ |
19.3 |
Plus: |
|
|
|
|
|
||||
Income Tax Expense |
|
0.1 |
|
|
— |
|
|
|
0.1 |
Interest Expense |
|
4.5 |
|
|
(0.2 |
) |
|
|
4.3 |
Depreciation & Amortization |
|
3.1 |
|
|
0.1 |
|
|
|
3.2 |
Other Expense |
|
— |
|
|
2.7 |
|
|
|
2.7 |
Stock-Based Compensation & Distribution To Members |
|
3.3 |
|
|
— |
|
|
|
3.3 |
Terminated Product Lines |
|
— |
|
|
— |
|
|
|
— |
Acquisition & Restructuring Costs |
|
0.9 |
|
|
0.5 |
|
|
|
1.4 |
Acquisition Earnout |
|
— |
|
|
— |
|
|
|
— |
Adjusted EBITDA |
$ |
23.7 |
|
$ |
10.6 |
|
|
$ |
34.3 |
The following tables reconcile Revenue to Pro Forma Revenue, Adjusted Gross Profit and Pro
|
Three Months
|
||
|
Successor |
||
($ in millions) |
|
||
Revenue |
$ |
219.8 |
|
Less: Cost of Revenue (exclusive of depreciation and amortization) |
|
(152.6 |
) |
Gross Profit |
$ |
67.2 |
|
One-time Ad Credit Impact |
|
6.3 |
|
Adjusted Gross Profit |
$ |
73.5 |
|
|
Three Months Ended |
||||||||||
|
Unaudited |
|
|
|
Pro Forma |
||||||
($ in millions) |
S1 |
|
|
|
Total |
||||||
Revenue |
$ |
169.6 |
|
|
$ |
36.0 |
|
|
$ |
205.6 |
|
Less: Cost of Revenue (exclusive of depreciation and amortization) |
|
(126.2 |
) |
|
|
(23.4 |
) |
|
$ |
(149.6 |
) |
Gross Profit |
$ |
43.4 |
|
|
$ |
12.6 |
|
|
$ |
56.0 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20220811005264/en/
Investors:
Brett.milotte@icrinc.com
Source:
FAQ
What were System1's Q2 2022 revenue results?
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