Release Date: May 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- System1 Inc (SST, Financial) reported first-quarter revenue of approximately $75 million, with adjusted gross profit of $41.5 million, marking a 33% year-over-year increase.
- Adjusted EBITDA for the quarter was $12.1 million, a significant increase from $400,000 in the prior year quarter, highlighting strong execution and operational improvements.
- Owned and operated products, including CouponFollow, Startpage, and MapQuest, showed strong performance with revenue increasing 51% year-over-year.
- The company is heavily investing in AI-powered automation through Agentic coding, which has significantly increased productivity and accelerated product development.
- International revenue represented 30% of total owned and operated revenue, indicating a growing global presence and focus on international markets.
Negative Points
- Total owned and operated revenue declined by 16% year-over-year and 10% sequentially, driven by a 34% annual revenue decrease in marketing businesses.
- The company is facing ongoing volatility due to Google-related product changes, impacting marketing-driven businesses and creating uncertainty.
- System1 Inc (SST) did not provide financial guidance for the second quarter of 2025 due to uncertainties related to Google's monetization strategy and broader market volatility.
- The sequential decline in adjusted gross profit was primarily due to seasonality, with a 13% decrease from Q4.
- The company is experiencing challenges with the volatility in marketing-driven businesses, which has hindered sustainable growth in the near term.
Q & A Highlights
Q: Can you provide insights on the resilience of digital advertising in the current macroeconomic environment compared to previous downturns?
A: Michael Blend, CEO, noted that digital advertising, particularly performance marketing, is holding up well. He mentioned that in downturns, branded advertising is typically affected first, while performance marketing, which System1 focuses on, tends to be more resilient. He also highlighted that any macro downturn might benefit System1 by reducing buy-side pricing.
Q: How are different advertiser verticals, such as health and finance, performing compared to those impacted by tariffs like autos?
A: Michael Blend stated that System1 has not observed significant effects in any verticals due to tariffs. He mentioned that the company is not heavily involved in verticals directly impacted by tariffs, such as those dealing with products from China. The company is monitoring the situation but has not seen major shifts yet.
Q: What are your thoughts on the potential regulatory changes affecting Google and how they might impact System1?
A: Michael Blend expressed that any regulatory changes leading to a breakup of Google could be beneficial for System1. He explained that increased competition among Google's split entities might lead to more opportunities for System1, especially in Google's search partner network. He also mentioned that System1's independent search engine, Startpage, could benefit from any market share shifts.
Q: Are there opportunities for System1 to gain market share domestically and internationally due to disruptions in the social media advertising space?
A: Michael Blend acknowledged that disruptions, such as advertisers pulling out of social media, could lower buy-side pricing, benefiting System1. He noted that TikTok has been a valuable source of traffic internationally and that System1 is seeing positive results in social media advertising, both domestically and internationally.
Q: Can you elaborate on the productivity gains from adopting Agentic coding and its impact on System1's operations?
A: Michael Blend highlighted significant productivity improvements from adopting Agentic coding, with a 3 to 5 times increase in product development efficiency. This shift allows System1 to bring products to market faster and test new ideas more quickly. Tridivesh Kidambi, CFO, added that this approach enables rapid innovation without the need for early investment decisions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
