System1, Inc. (NYSE:SST) is an omnichannel customer acquisition platform that delivers high-intent customers to brands, advertisers, and publishers. The company's proprietary Responsive Acquisition Marketing Platform (RAMP) operates seamlessly across major advertising networks and verticals to acquire and monetize end-users through its relationships with third-party advertisers and advertising networks.

Financials

In the first quarter of 2024, System1 reported revenue of $84.9 million, a 30% year-over-year decline, and a net loss of $13.8 million. The company's annual revenue for the fiscal year 2023 was $401.9 million, while its annual net loss was $227.2 million. System1's annual operating cash flow and free cash flow for the fiscal year 2023 were -$24.7 million and -$32.7 million, respectively.

The company's Owned and Operated Advertising segment generated $69 million in revenue, a 35% year-over-year decline, while the Partner Network segment contributed $15.9 million, a 5% year-over-year increase. The decline in Owned and Operated Advertising revenue was primarily driven by a 12% sequential decline in advertising spend, which the company attributes to volatility in the Google advertising ecosystem, its largest revenue source.

Despite the challenges, System1 was able to deliver financial results that exceeded its earlier guidance. The company's adjusted gross profit for the first quarter of 2024 was $31.2 million, down 18% year-over-year and 17% sequentially, but above the high end of the guidance range. Adjusted EBITDA for the quarter was $422,000, also above the high end of the guidance range.

Partner Network Performance

The company's Partner Network segment continued to perform well, with revenue increasing 5% year-over-year, despite a 5% sequential decline due to typical seasonality. The segment's total sessions processed by RAMP increased 22% sequentially and 53% year-over-year to 2.26 billion, highlighting the platform's growing adoption.

International Operations

System1's international operations were a bright spot, with international revenue representing approximately 29% of Owned and Operated Advertising revenue in the first quarter of 2024, up from 25% in the fourth quarter of 2023. The company sees significant opportunities for growth in the European Union and Asia, where it is currently underindexed.

Outlook

Looking ahead, System1 is cautiously optimistic about the digital advertising market stabilizing in 2024 and remains focused on executing its strategic priorities. The company is continuing to invest in its RAMP platform, with a focus on AI-driven automation to scale its buy-side capabilities and open up the platform to partners. Additionally, the company is planning to expand its subscription business by rolling out more internally-developed subscription products.

System1 is also exploring accretive M&A opportunities as the digital markets stabilize and pricing becomes more rational. The company's management team, which has a significant ownership stake, remains highly aligned with shareholders and committed to driving long-term value.

For the second quarter of 2024, System1 is guiding for revenue between $88 million and $90 million, adjusted gross profit between $33 million and $35 million, and adjusted EBITDA between $5 million and $7 million. While the company is not providing full-year guidance due to the ongoing uncertainty in the online advertising environment, it expects to deliver year-over-year growth in revenue, adjusted gross profit, and adjusted EBITDA in the second half of 2024.

Conclusion

System1's ability to navigate the volatile advertising market and execute on its strategic initiatives positions the company well for long-term success. The company's focus on innovation, international expansion, and diversification of its revenue streams, combined with its strong management team and alignment with shareholders, make it an intriguing investment opportunity in the digital advertising space.