System1, Inc. Q1 FY2024 earnings call

• Q1 financial results exceeded earlier guidance. - Owned & Operated revenue was impacted by a 12% sequential decline in advertising spend and volatility from Google, but the last couple of weeks of Q1 and early Q2 were strong. - Partner Network revenue had year-over-year growth but sequential decline due to seasonality. - Organic businesses saw increased traffic from MapQuest and CouponFollow due to Google Search algorithm changes and plan to launch new apps and distribution partnerships. - Focus on investing in RAMP platform, improving organic properties' on-site experiences, expanding subscription business, and exploring M&A. - Chuck Ursini rejoined as President and COO.

System1 delivered $85 million of revenue and $31 million of gross profit in Q1. Owned & Operated revenue was $69 million, down by 35% year-over-year and 13% from last quarter. Owned & Operated revenue represented a significant portion, but international revenue was a highlight, accounting for approximately 29% of Owned & Operated revenue, up from Q4 2023's 25%. Partner Network revenue was $16 million, with revenue up 5% year-over-year but down by % sequentially due to seasonality. Partner Network gross profit was $11 million. Adjusted EBITDA was $423,000. The company generated over 1.2 billion sessions, an 18% year-over-year increase and 14% quarter-over-quarter increase. Partner Network had 1 billion sessions, up 134% year-over-year and 32% sequentially.

• Estimates Q2 revenue to be between $88 million and $90 million, representing an 8% year-over-year decline at the midpoint. - Estimates adjusted gross profit to be between $33 million and $35 million, a 16% decline at the midpoint. - Estimates Q1 adjusted EBITDA to be between $5 million and $7 million, slightly down year-over-year at the midpoint. - Will not provide full year guidance for 2024 but expects year-over-year growth in revenue, adjusted gross profit, and adjusted EBITDA in the second half of 2024.

• Uncertainty in the online advertising environment, such as Google delaying cookie deprecation. - Volatility from Google's product changes and pricing in the short term. - Potential impact from TikTok ban and related uncertainties. - Macro-level advertising market fluctuations that could affect performance.

Q: Daniel Kurnos asked about how partners are looking at the environment with Google's cookie deprecation delay, TikTok ban, etc., and Michael Blend responded that cookie deprecation is a tailwind for contextual advertising, they have little exposure to TikTok domestically, and the overall advertising market is relatively stable.

Q: Daniel Kurnos asked about international opportunity set, and Michael Blend and Tridivesh Kidambi responded that international revenue is increasing, they are under-indexed in certain regions like the EU, and see opportunities in EU, U.K., and Asia.

Q: Daniel Kurnos asked about internal developments with Startpage, CouponFollow, and subscription products, and Michael Blend responded that they benefited from Google algorithm updates, plan to roll out new apps in Q2/Q3, and will leverage expertise to expand subscription business.

Q: Thomas Forte asked about navigating consumer spending challenges and ramping efforts in certain categories, and Michael Blend responded that they adjust pricing with consumer demand, see consistency in health category, automotive pick-up, and changes in finance verticals.

Q: Thomas Forte asked about presidential election impact on digital advertising, and Michael Blend and Tridivesh Kidambi responded that they haven't seen major impacts historically, expect growth in back half, and cookie deprecation is a bigger lever than presidential election.

Q: Daniel Kurnos asked about RAMP and scaling buy side, and Michael Blend and Tridivesh Kidambi responded that they have incorporated AI to scale advertising in an automated manner, plan to open buy-side to partners, and the OpEx load is sufficient for medium-term initiatives.