System1 Announces Third Quarter 2022 Financial Results
System1, Inc. (NYSE: SST) reported a 17% revenue increase year-over-year, reaching $201 million, and a 21% growth in gross profit to $50 million. Adjusted gross profit soared 49% to $63 million, while adjusted EBITDA rose 28% to $29 million. However, the company posted a net loss of $38 million compared to a $11 million net income in the prior year. System1 updated its 2022 guidance, forecasting revenue between $830 million and $845 million and adjusted EBITDA between $125 million and $130 million.
- 17% revenue growth year-over-year to $201 million
- Adjusted gross profit increased 49% year-over-year to $63 million
- Adjusted EBITDA rose 28% year-over-year to $29 million
- Launched upgrades to the RAMP platform enhancing ad serving and machine learning
- Net loss of $38 million compared to $11 million net income last year
- Expecting significant softness in the advertising marketplace for the remainder of the year
-
Revenue Grew
17% Year-Over-Year to$201 Million -
Gross Profit Grew
21% Year-Over-Year to$50 Million -
Adjusted Gross Profit Grew
49% Year-Over-Year to$63 Million -
Net Loss of
$38 Million -
Adjusted EBITDA increased
28% to Compared to$29 Million in the Prior Year$23 Million -
Company Updates Full-Year 2022 Guidance:
to$830 Million of Revenue,$845 Million to$255 Million of Adjusted Gross Profit and$260 Million to$125 Million of Adjusted EBITDA$130 Million
“During Q3,
Tridivesh Kidambi, Chief Financial Officer of
Explanatory Note of Year-Over-Year Comparisons
For financial reporting purposes,
Third Quarter 2022 Financial Highlights
-
Revenue increased
17% year-over-year to compared to$201 million in the prior year.$171 million -
Gross Profit grew
21% year-over-year to .$50 million -
Adjusted Gross Profit increased
49% year-over-year to compared to$63 million in the prior year.$43 million -
Net loss of
, compared to$38 million of net income in the prior year.$11 million -
Adjusted EBITDA increased
28% year-over-year to compared to$29 million in the prior year.$23 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:
-
Revenue between
and$830 million .$845 million -
Adjusted Gross Profit between
and$255 million .$260 million -
Adjusted EBITDA between
and$125 million .$130 million -
2022 guidance for Revenue, Adjusted Gross Profit, and Adjusted EBITDA includes
Protected.net unaudited financial results prior toJanuary 27, 2022 .
-
Revenue between
Third Quarter 2022 Business Highlights
- Released several important upgrades to its RAMP platform, including the consolidation of core ad serving systems, improved machine learning pipelines and key tooling features to leverage System1’s first-party data.
-
Acquired 1.1 billion sessions to its Owned & Operated properties via its RAMP platform and increased its margin per session to
38% versus29% last year. -
MapQuest launched a new strategic partnership with HERE Technologies, one of the world’s top data and geospatial technology providers. This partnership will provide the long-term foundation forMapQuest to invest in new products and features to enhance the service for both its individual and business customers. - Added over 300,000 new subscribers to its suite of subscription products, and the TotalAdBlock product passed 400,000 total paying subscribers.
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.
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.
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
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
|
|
|
Three Months
|
|||
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 |
$ |
(31,643 |
) |
|
|
$ |
11,368 |
Unaudited Condensed Balance Sheets (In thousands, except for par values) |
|||||||||
|
Successor |
|
Predecessor |
||||||
|
|
|
|
||||||
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 |
|
||
|
|
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 |
|
||
|
|
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 |
|
||
|
|
11,517 |
|
|
|
— |
|
||
Other liabilities |
|
2,909 |
|
|
|
969 |
|
||
Total liabilities |
|
769,105 |
|
|
|
285,312 |
|
||
Commitments and contingencies |
|
|
|
||||||
EQUITY / MEMBERS' DEFICIT |
|
|
|
||||||
Class A common stock - |
|
9 |
|
|
|
— |
|
||
Class C common stock - |
|
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 |
|
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 |
|||
|
|
|
|
S1 |
|||
($ in millions) |
Three Months Ended
|
|
|
Three Months Ended
|
|||
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 |
||||
|
|
|
|
S1 |
||||
($ in millions) |
Three Months Ended
|
|
|
Three Months Ended
|
||||
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/
Investors:
Brett.milotte@icrinc.com
Source:
FAQ
What were System1's Q3 2022 revenue figures and growth rate?
What is the adjusted gross profit for System1 in Q3 2022?
Did System1 experience a net profit or loss in Q3 2022?
What is System1's adjusted EBITDA for Q3 2022?