System1, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Q2 was a solid quarter with adjusted EBITDA at $11.7 million, up 18% year-over-year. Revenue was ~$78 million, and adjusted gross profit was $41 million, up 6% year-over-year.
• Owned & Operated products (CouponFollow, Startpage, MapQuest) performed strongly with significant year-over-year growth in sessions and revenue.
• Marketing segment faced volatility from Google, but partner marketing business showed progress with migration to RSOC.
• Heavy investment in AI-powered Agentic coding is paying off, with progress on product development and platform expansion.
• Changed segment reporting to marketing and products, with marketing combining paid acquisition business lines and products focusing on flagship consumer products.

Segment Performance:

• Products Segment: Revenue was $24 million, up 34% year-over-year and 8% sequentially. Adjusted gross profit was $22.7 million, up 32% year-over-year and 8% sequentially. Key products like CouponFollow, Startpage, and MapQuest performed well with strong organic traffic and growth in sessions and revenue per session.
• Marketing Segment: Revenue was $54 million, down 29% year-over-year but up 4% sequentially. Adjusted gross profit was $20 million, down 17% year-over-year and 10% sequentially. Impacted by volatility in the Google Search Partner Network, but partner marketing business showed progress with migration to Google's RSOC product and increased average revenue per partner.

Guidance: Management will not provide guidance for Q3 2025 or the full year due to volatility in the marketing segment and ongoing changes in the Google Marketplace. They believe greater clarity is needed before offering guidance.

Risks:

• Volatility in the Google Search Partner Network impacting the marketing segment.
• Ongoing changes in the Google Marketplace creating near-term challenges, particularly in driving sustainable growth in the marketing segment.

Question and Answer: Q: On the product side, how should investors focus on KPIs for products like CouponFollow and MapQuest?

A: Michael and Tridi noted focusing on traffic (sessions) and revenue per session as key metrics for measuring performance of flagship consumer products.

Q: On the second half of the year, should investors consider lapping last year's presidential election impact?

A: Michael mentioned political spending affecting pricing, and O&O marketing issues are specific to Google Search Partner Network volatility, expecting improvement in the next couple of quarters.

Q: Thoughts on strategic M&A and accessing capital?

A: Michael stated System1 has a history of successful M&A, looking to partner with companies to help optimize their legacy platforms, and confident in accessing capital for deals as the business improves.

Q: On Agentic coding helping others, plans for white-labeling or back-end services?

A: Michael said they don't currently see a stand-alone Agentic coding product, but plan to partner with companies to help rebuild their platforms.

Q: Optimizing brand footprint given SEO challenges and AI/Agentic browsing?

A: Michael noted products like Startpage, MapQuest, and CouponFollow are in categories less easily displaced by AI as they require specific functionality not easily replaced by single-answer AI tools.

Q: Google Partner Network volatility and TAC return?

A: Michael explained Google shifted to RSOC, causing volatility, but they don't plan to pull back, expecting volatility to lessen over the next couple of quarters as Google works out kinks in RSOC.