System1, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Owned and operated products performed well with revenue up 16% sequentially from Q2. Startpage grew user sessions 22% year-over-year, CouponFollow saw 47% sequential and 108% year-over-year organic session growth, and MapQuest had 15% year-over-year user session growth.
• Launched over 12,000 new marketing campaigns in Q3, a 50% increase from Q1, with investments in RAMP platform paying off in increased campaign launch throughput.
• Operating expenses decreased 5% sequentially, and adjusted EBITDA came in at $10.3 million, exceeding the high end of guidance.

Segment Performance

• Owned and operated businesses: Total owned and operated revenue was $71 million, up 7% year-over-year but down 9% from last quarter. Adjusted gross profit was $26 million, up 11% year-over-year and down 4% from last quarter. International revenue represented 35% of owned and operated revenue in Q3 2024 compared to 24% in Q3 2023.
• Partner Network: Partner Network revenues was $18 million, down 17% year-over-year but up 5% sequentially. Adjusted gross profit was $13 million, down 5% year-over-year and 3% sequentially. Total sessions were $2.3 billion, up 159% year-over-year and 13% sequentially.

Guidance

• Due to ongoing market volatility, System1 has decided not to provide Q4 financial guidance at this time. Management may revisit the possibility of offering guidance later in the quarter if market stability improves.

Risks

• Volatility in the advertising marketplace, particularly related to Google's search partner network underperformance affecting marketing-driven business lines.
• Uncertainty in market conditions, making it challenging to provide accurate short-term outlooks, especially during the seasonally strong Q4.

Question and Answer

Q: What have you done that's enabled you to essentially resurrect the brand MapQuest and what gives you confidence to continue to grow it?

A: When taking over MapQuest, it was in decline. Moved it to our technology stack, added features like points of interest, improved mobile apps, and launched a new private mapping app. Confidence comes from continuing to add features and improve the product to attract users.

Q: Impact of election end on ad market?

A: Expect pricing normalization post-election burst, but guidance is withheld due to market volatility and uncertainty around buy-side and sell-side dynamics in the next six weeks.

Q: Impact of antitrust trials and TikTok on the ecosystem?

A: Uncertainty on antitrust impact, but continued strength internationally with TikTok, seeing positive performance and responsive product development from TikTok.