System1, Inc. Q2 FY2026 earnings call

Capital Structure Update

• Completed a debt exchange in July 2026 that reduced total outstanding debt from $302.6 million to $150 million, strengthening the company's balance sheet and positioning it to execute on strategic growth goals
• Pro forma cash balance as of June 30, 2026 was $16.2 million, with a consolidated net leverage ratio of 5.88x

Core Product Segment Performance

• Total sessions across owned-and-operated products increased 31% YoY and 5% sequentially, outperforming many digital publishers that have seen traffic declines from AI chatbots
• CouponFollow (Shopping Vertical): Rebounded strongly in Google SEO, with organic sessions growing 11% sequentially, and is now the second-ranked coupon site by organic traffic. Gross profit from paid acquisition increased 37% YoY, with ongoing AI investments improving content quality, coupon verification, and revenue optimization. The company is pursuing new AI-enabled commerce opportunities in the agentic commerce ecosystem leveraging its proprietary promo code data and merchant affiliate relationships
• MapQuest (Geolocation Vertical): Display ad performance remains strong supported by healthy CPMs from high-intent audiences and valuable first-party data. Total H1 2026 sessions increased 25% YoY. New adjacent products include the soft-launched Lighthouse family safety app, the upcoming MapQuest MCP server for AI agent and app integration, and a fully revamped Road Warrior delivery app for drivers and small businesses
• Startpage (Private Search): Benefited from strong privacy tailwinds, with user sessions growing 11% sequentially, and mobile app sessions increasing 63% YoY. Growth has been fully offset by declining Google monetization, as Google shows fewer ads and pays lower rates per search for syndication on Startpage, an issue management notes is industry-wide for Google partner search engines

Partner Network Performance

• The segment saw strong performance in April and May 2026, generating over $100,000 in daily net revenue, but a late-May Google partner network policy change caused a 30%+ drop in monetization. By end of June, the company recovered 50% of lost daily net revenue, leaving a significant negative impact on Q2 results
• Active partners (generating ≥$5,000 quarterly revenue) increased 5% sequentially, to 59 total, while scaled partners (generating ≥$50,000 quarterly revenue) reached 28, representing 47% of the active partner base. Revenue per active partner decreased 25% primarily due to the June Google monetization volatility

Emerging Initiatives

• Launched IntentStream, an audience data product that packages non-private first-party intent data (excluding Startpage search data to preserve user privacy) to provide brands with real-time pre-purchase purchase intent signals. The product is in early go-to-market stages with its first customers onboarded
• The emerging AI-driven subscription products division is seeing rapid product development and marketing experimentation velocity, with faster learning than past initiatives, positioning it to become a meaningful contributor long-term

Q3 2026 and Full-Year 2026 Strategic Priorities

• Invest in product portfolio growth, with a focus on AI-driven consumer experiences across search, commerce, and location
• Stabilize and diversify the partner network business to return daily gross profit to pre-June levels
• Operate efficiently and concentrate investment on highest-return growth opportunities
• Resume M&A activity, which has been successful for the company historically, as overall business growth resumes

System 1 reported total Q2 2026 revenue of $30.2 million, a 61% year-over-year (YoY) decrease and 19% sequential decrease from Q1 2026. Excluding the impact of reduced owned-and-operated marketing activity, revenue would have been 32% lower YoY and 6% lower sequentially. The Product segment generated $19.5 million in revenue, a 19% YoY decrease but 3% sequential increase, accounting for 64% of total company revenue. Product segment profit was $17.5 million, a 23% YoY decrease but 1% sequential increase, accounting for 65% of total profit. The Marketing (Partner Network) segment generated $10.7 million in revenue, an 80% YoY decrease and 42% sequential decrease. Marketing segment profit was $9.5 million, a 51% YoY decrease and 24% sequential decrease. Total adjusted gross profit was $25.5 million, down 38% YoY and 10% sequentially. Adjusted EBITDA was $1.9 million, down 83% YoY and 29% sequentially.

• Management is not providing Q3 2026 or full-year 2026 guidance at this time due to continued monetization volatility tied to Google partner network changes
• Management expects adjusted EBITDA to increase sequentially quarter-over-quarter for the remainder of 2026, after the June 2026 monetization downturn suppressed Q2 results below prior internal expectations

• Heavy concentration risk tied to Google: Most revenue from Startpage and the partner network business relies on Google syndication, and frequent Google policy and monetization changes have caused significant, unpredictable revenue and profit volatility
• Startpage usage growth has been fully offset by Google monetization declines, limiting the business's ability to translate user growth into revenue
• Ongoing macroeconomic and market uncertainty, plus unpredictability in the digital advertising ecosystem, creates material risk that actual results could differ from internal expectations

Q: Startpage has seen impressive sequential usage growth driven by privacy tailwinds, but faces Google monetization challenges. Does the usage growth offset the monetization headwinds, and what is the outlook? / A: Monetization challenges are currently more than offsetting Startpage's strong usage growth. Management is encouraged by the growing user traction, driven by consumer demand for private independent search and backlash against Google's heavy AI integration. The monetization issues are tied to Google's ongoing partner network quality cleanup, and management is hopeful the cleanup is nearing its end, seeing early green shoots for improvement; the company is also working to diversify monetization beyond Google.

Q: What is System 1's position on the agentic commerce opportunity, and how is the company positioned to capitalize? / A: Agentic commerce is still in early stages, but management sees growing purchase-motivated traffic from AI apps, and expects e-commerce via AI to grow meaningfully. System 1's CouponFollow business is well positioned, with a large library of verified up-to-date promo codes and strong established affiliate relationships with major e-commerce merchants, two key assets that AI agentic commerce apps need to monetize shopping traffic. The company is currently developing ways to offer these assets to the growing agentic commerce market.

Q: Have Startpage and partner network monetization troughed, and can we expect sequential improvement going forward? / A: Management cannot give definitive guidance as Google's algorithm changes are not transparent, but based on long experience in the space, it appears Google's partner network cleanup is nearing its end, with early signs of reduced volatility. The company is hopeful it has reached trough monetization and expects sequential improvement if this trend holds, which would benefit both Startpage and the partner network, which only needs reduced volatility more than large monetization gains.

Q: What is the company's position on potential antitrust claims against Google, given its large historical exposure to Google search markets? / A: Google has been adjudicated for antitrust violations in the search market, and many market participants expect meaningful settlements as early as 2027. System 1 is a long-time large-scale player in both the buy and sell side of Google search syndication, so the company has potential meaningful claims. Management confirms it is actively evaluating its claims and working to determine the best path forward to capitalize on this opportunity.