System1, Inc. Q4 FY2024 earnings call

• Financial Performance: Fourth quarter revenue was $76M, gross profit $45M, adjusted EBITDA $17.9M (79% YoY growth). Owned and operated products drove growth, while marketing-driven businesses were affected by Google changes.
• Product Highlights:
  • CouponFollow: Organic sessions up >20% QoQ, 129% YoY; browser extension users doubled YoY.
  • Startpage: User sessions up >20% YoY; private browser apps have over 200,000 downloads.
  • MapQuest: User sessions up >45% YoY; revitalized with new functionality and went viral.
• Google Impact: Volatility due to Google's Search Partner Network changes affecting marketing-driven businesses; shift to RSOC product.
• AI Integration: Heavy investment in AI within RAMP platform for efficiency and product expansion.

For the fourth quarter, System1 had $76 million in revenue and $45 million in gross profit. Adjusted EBITDA was $17.9 million, a 79% year-over-year increase. The owned and operated products segment saw revenue increase 60% year-over-year. Total owned and operated revenue was $65 million, with a 19% year-over-year decline but a 60% increase in owned and operated products. Partner Network revenue was $11 million, and adjusted gross profit was $14 million, up 10% both year-over-year and sequentially. Without an accounting adjustment, Partner Network revenue was $18 million, an 8% year-over-year increase.

• Q1 2025 revenue estimated $69M-$71M (down 18% YoY midpoint).
• Adjusted gross profit estimated $38M-$40M (up 25% YoY midpoint).
• Adjusted EBITDA estimated $9M-$11M (up over $9.5M YoY midpoint).
• No full-year guidance due to Google volatility.

• Google Volatility: Fluctuations in Google's Search Partner Network affecting marketing-driven businesses, causing revenue and monetization issues.
• Product Transition Risks: Disruption from Google's shift from AFD to RSOC, causing short-term business decline but long-term opportunity.

Q: First off, Michael and Tridi, thoughts on DeepSeek and AI investment in RAMP with lower CapEx than tech peers?

A: Michael Blend discussed AI's impact on operations, efficiency, and product development, noting AI tools are improving productivity 2-4x and enabling non-engineering teams to create products.

Q: Can you talk about balance sheet and efforts to improve capital structure?

A: Tridivesh Kidambi mentioned net leverage was 5.6 times, but bullish on business growth to improve leverage.

Q: How do periods of heavy political advertising spending impact your business?

A: Michael Blend said political spending drives up ad pricing, but the political season passing is favorable as buy side pricing comes down.

Q: How well positioned are you for RSOC shift?

A: Michael Blend stated System1 has invested heavily in RSOC, is a market leader, and expects short-term bumpiness but long-term benefit.

Q: Thoughts on adjusted gross profit guidance and growth in uneven environment?

A: Tridivesh Kidambi and Michael Blend discussed guidance is based on RAMP execution and organic product growth, with confidence in Q1 but waiting on Google transition impact for full year.