NYSE:SST System1 Q1 2024 Earnings Report $0.41 +0.08 (+22.72%) Closing price 04/25/2025 03:58 PM EasternExtended Trading$0.39 -0.02 (-5.12%) As of 04/25/2025 07:45 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast System1 EPS ResultsActual EPS-$0.45Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ASystem1 Revenue ResultsActual Revenue$84.92 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ASystem1 Announcement DetailsQuarterQ1 2024Date5/9/2024TimeAfter Market ClosesConference Call DateThursday, May 9, 2024Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by System1 Q1 2024 Earnings Call TranscriptProvided by QuartrMay 9, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Hello. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the System 1 Q1 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and instructions will be provided at that time. Operator00:00:18I would now like to turn the conference over to Kyle Oskard, Vice President of Finance. You may begin. Speaker 100:00:26Thank you for standing by, and welcome to the Q1 2024 conference call for System 1. Joining me today to discuss System 1's business and financial results are Co Founder and CEO, Michael Blend and our Chief Financial Officer, Trudyesh Kadavy. A recording of this conference call will be available on our Investor Relations website shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making certain forward looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long term growth and overall future prospects. Speaker 100:01:00We may also make statements regarding regulatory or compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call, in particular those described in our risk factors included in our annual report on Form 10 ks for the fiscal year 2023 filed on March 15, as well as the current uncertainty and unpredictability in our business, the markets and the global economy generally. You should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on management's assumptions and beliefs as of the date hereof, and System 1 disclaims any obligation to update any forward looking statements except as required by law. Our discussion today will include non GAAP financial measures, including adjusted EBITDA and adjusted gross profit. Speaker 100:01:51These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Historical performance and future estimates provided during this call exclude results from Total Security. Information regarding our non GAAP financial measures, including a reconciliation of our non GAAP financial measures to our most comparable historical GAAP financial measures may be found on our Investor Relations website. I would now like to turn the conference call over to System 1's Co Founder and Chief Executive Officer, Michael Blund. Speaker 200:02:24Thanks, Kyle. Good afternoon, everyone, and thanks for joining us on our Q1 System 1 earnings call. Let's get right into our quarterly performance. I'm happy to announce that System 1 was able to deliver financial results, which exceeded our earlier guidance. System 1 delivered $85,000,000 of revenue $31,000,000 of gross profit. Speaker 200:02:46Adjusted EBITDA was $423,000 Owned and operated revenue was $69,000,000 down 35% year over year and down 13% from last quarter. This was driven by 12% sequential decline in advertising spend, which generated over 1,200,000,000 sessions, an 18% year over year increase and a 14% quarter over quarter increase. Spread was approximately $0.02 per session. International revenue continued to remain a highlight with international revenue representing approximately 29% of owned and operated revenue. This was up from 25% of owned and operated revenue in Q4 of 2023. Speaker 200:03:31Overall, Q1 was somewhat choppy, but ended on a positive note. The overall advertising marketplace started off a bit weak in January and improved as quarter progressed. This pattern was expected to match what we see in a typical Q1. Our Q1 volatility was driven primarily by our Google relationship, which as a reminder is our largest revenue source. We saw significant volatility from Google during the quarter. Speaker 200:03:59Their sell side pricing moved around more than typical and the Google product team introduced new features at a very rapid pace with minimal advanced notice to us. Longer term, this is a good thing for System 1. We work closely with Google to integrate new features into our tech stack and their product improvements almost always lead to increased revenues for SystemWin. In the short term, however, the rapid fire of Google changes caused quite a bit of volatility in the overall Google Partner ecosystem. Fortunately, things have begun to stabilize with Google. Speaker 200:04:35The last couple of weeks of Q1 were particularly strong and these favorable trends have continued through the early weeks of Q2. If Google pricing and product rollout stay consistent, we expect all of our marketing driven businesses lines to benefit. Partner network revenue was $16,000,000 and gross profit was 11,000,000 dollars Revenue increased 5% year over year, but was down 5% sequentially as we expected due to typical seasonality. Sessions were $1,000,000,000 up 134% year over year and 32% sequentially as traffic from existing driven by the same marketplace headwinds that impacted our owned and operated business. The marketplace headwinds we faced in our O and O business, namely narrowing RPS spreads and volatility in sell side pricing were shared by our partners as well. Speaker 200:05:39But notwithstanding that, our partner network business continues to perform through solid execution as well as what we believe is the attractiveness of our ramp platform. Key metrics evidencing this include in Q1 of 2024 total active partners grew 5% from Q4 to over 2 50 total partners. Average revenue per partner decreased sequentially by 9% due to Q1 seasonality and choppiness in the marketplace. Remember when partners join our ramp platform, there is a timeframe during which they begin to scale up with us. This is a function of the partner getting more familiar with our platform as well as our constant evaluation and monitoring of their traffic quality. Speaker 200:06:23We consider our platform partner to be a scaled partner when they are generating at least $50,000 of revenue per quarter on ramp. At the end of Q1, we had 57 scale partners compared to 50 scale partners in Q1 of 23, representing a 14% growth rate. Moreover, as I mentioned previously, our partners are using us more and for more sessions. It is our hope that as the advertising market continues to improve, the combination of our growth in number of scale partners and the increase in the number of sessions will accelerate the growth of our partner network business. Moving to our organic businesses, they had a good quarter on several fronts. Speaker 200:07:04First, we saw a significant increase in organic traffic to MapQuest and Coupon Follow that began in March and should continue through Q2. These increases were driven primarily by favorable changes in the Google search algorithms. We've been working very hard to improve the customer experience on these sites and the hope our Google rankings would improve. Fortunately, our efforts have begun paying off with increased traffic that directly drives corresponding increases in revenue. We also saw the launch of several key business development partnerships with our Startpage and coupon follow-up properties that we expect to begin paying dividends as the year progresses. Speaker 200:07:48Going forward, we are focused in a few key areas. First, we are continuing to invest in our ramp platform. AI has materially improved our ability to scale our buy side capabilities and we plan to open up our buy side to partners who currently use us primarily for sell side monetization. 2nd, our organic properties will keep focusing on their on-site experiences, we'll be launching new and improved apps and we'll be integrating additional distribution partnerships. 3rd, we're planning to start expanding our subscription business by rolling out more internally developed subscription products. Speaker 200:08:26And finally, we have been back to exploring the M and A market again as the digital market stabilized and pricing has started to get a bit more rational. Overall, I'm very pleased with our execution in Q1, especially with respect to product enhancements on ramp focused on AI driven automation. We're executing with focus and we are shipping products faster than ever. Our execution is starting to show up in our performance and I'm increasingly confident we are moving back into growth mode. I also am happy to have Chuck Ursini rejoin SystemWay in an official capacity as our President and COO. Speaker 200:09:04Chuck and I co founded SystemWay and Chuck was our original CEO. He has driven much of our execution in the last year and I'm happy to have him back in an official capacity. As I mentioned every quarter, SystemOne Management has much of our network and worth in SystemOne Shares. We're highly aligned with our longer term shareholders. Management is in this for the long haul and we welcome investors who want to come along for the ride. Speaker 200:09:30I'll now hand things off to Triti to discuss our quarterly results in more detail as well as our Q2 guidance. Take it away, Triti. Speaker 300:09:40Thanks, Michael. As Michael mentioned, there were market related challenges in Q1, especially early in the quarter, but we remain bullish given that March came in not just above the 1st 2 months of the quarter, but also above expectations. And we delivered results above the high end of the guidance range for revenue, gross profit and for adjusted EBITDA. As I discussed Q1 results, I want to highlight that year over year comparisons continue to be a challenge as we haven't yet rebounded to the levels of advertising demand we saw in the first half of twenty twenty three due to continued macro declines in the advertising market through the 1st three quarters last year. And in Q1 of last year, our owned and operated SCM business still contributed $6,000,000 of gross profit, as compared to approximately $2,000,000 of gross profit a quarter starting in Q2 of 2023 and continuing through last quarter. Speaker 300:10:33Also, we typically expect a sequential decline in Q1 versus a seasonally strong Q4. Now on to our operating results. Q1 revenue was $84,900,000 representing a 30% year over year decline and sequential decline of 12%. That was good for $900,000 above the top end of our Q1 revenue guidance range that we provided in March. Owned and operated advertising revenue was 69,000,000 dollars representing a 35% year over year decline and sequential decline of 13%. Speaker 300:11:02Network advertising revenue was 15,900,000 dollars up 5% year over year and down 5% sequentially. Adjusted gross profit was $31,200,000 down 18% year over year and 17% sequentially, and that was above the high end of guidance by $1,200,000 Revenue less advertising spend for our owned and operated advertising segment declined 16% sequentially to $22,500,000 Network revenue less agency fees was down 17% to $10,900,000 versus the prior quarter. Owned and operated cost per session and revenue per session were both down $0.01 sequentially to $0.04 and $0.06 respectively, with the spread down slightly to approximately $0.02 On the network advertising business, revenue per session was $0.02 per session. Most importantly, total sessions processed by ramp in the most recent quarter was $2,260,000,000 up 22% sequentially and 53% year over year. Adjusted EBITDA impacting operating expenses, which are net of add backs were $30,800,000 down 7% year over year. Speaker 300:12:07As a reminder, we expect Q1 to be the high watermark for OpEx driven by FY2023 audit costs. Adjusted EBITDA was 422,000 dollars versus $5,200,000 last year, which came in above the high end of the Q1 guidance range by $1,400,000 With respect to liquidity, we ended the quarter with $69,900,000 of unrestricted cash on our balance sheet and a term loan balance of $296,000,000 Our net leverage at quarter end was approximately 9.19x. I want to reiterate my comments from our last earnings call with respect to capital structure. We remain comfortable that our current liquidity, including the $50,000,000 of availability on a revolver, provide ample cushion for all of our short and medium term liquidity needs. We remain highly focused on maximizing equity value for our shareholders, while remaining focused on continuing to delever the business. Speaker 300:12:59And we will continue to be opportunistic on debt repurchases. For example, we extinguished an additional $1,200,000 of term debt for $720,000 of cash on April 30. And per Michael's comments, we will continue to explore accretive M and A where we have a track record of execution of success. Most importantly, we'll continue to prioritize investment and execution to drive organic growth in our core advertising business. Although we have recently seen more stability in the market through the 1st several weeks of Q2, there's still quite a bit of uncertainty in the online advertising environment in which we operate, as evidenced by the recent news about Google delaying the deprecation of cookies. Speaker 300:13:37So again, we will not be providing full year guidance for 2024 at this time, other than to say that we expect to deliver year over year growth in revenue, adjusted gross profit and adjusted EBITDA in the second half of twenty twenty four. We are estimating Q2 revenue to come in between $88,000,000 $90,000,000 representing an 8% year over year decline at the midpoint. We're estimating adjusted gross profit to come in between $33,000,000 $35,000,000 representing a 16% decline at the midpoint. And we estimate Q1 adjusted EBITDA to come in between $5,000,000 $7,000,000 slightly down year over year at the midpoint. We remain cautiously optimistic about the digital advertising market stabilizing this year and remain extremely bullish about our ability to execute against both near and long term opportunities. Speaker 300:14:22Thank you. Speaker 100:14:23Thank you, Trudy. We are now going to open the line for some questions. Operator00:14:31Thank Your first question comes from the line of Dan Kurnos with The Benchmark Company. Your line is open. Speaker 400:14:49Great. Thanks. Good afternoon. Good start to the year, guys. Maybe I guess we'll start with what Trudy just kind of talked about kind of high level, obviously Google pushing out cookie deprecation until next year. Speaker 400:15:02There's a ton of issues around that. We've also had a TikTok ban passed in the house. It seems like kind of the Wild West right now. Can you guys just kind of help us think through how your partners are looking at the environment right now? And in the confines of Google probably making a bunch of changes to privacy sandbox and a bunch of other things, just how you're thinking about being able to maintain sort of consistent spread as we go through this volatile period? Speaker 200:15:36Yes. Thanks, Dan, and thanks for joining. Good to hear from you. So specifically related to cookie deprecation, we actually think that's going to be a bit of a tailwind for us. What's going to happen when cookies are deprecated, we're pretty highly confident is that contextual advertising is going to be more effective as some of the 3rd party cookie based advertising kind of goes away. Speaker 200:16:02And so we're not concerned at all about the cookie deprecation. We're in fact a little bit disappointed that they ended up pushing into 2025. We still remain highly confident that some form of that's going to be coming out. Everything we're hearing from Google is that they're talking about delay rather than kind of reversing their course on cookie deprecation. TikTok, specifically, we don't have much exposure there. Speaker 200:16:32We do advertise on TikTok through the network. It's been pretty effective for us. Most of our exposure though is international. So we don't expect that domestic people from the U. S. Speaker 200:16:48Will continue to be able to advertise via TikTok, in the international markets. So we don't really anticipate any problems there. I mean overall on kind of a macro level, we're starting to see, I would say the overall advertising market and you've seen this in the people reporting their Q1s looks like we're starting to see things relatively stable. We're always reluctant to kind of call the stability and call the growth in the back half, but we don't really see anything that's particularly alarming right now to us. Speaker 400:17:24Got it. That's really helpful. And since you brought up international, Michael, I feel like I ask you this every call and sort of like it's coming, coming. You flagged it as a highlight, especially in O and O in Q1 and just kind of curious what sort of opportunity set you're seeing further from here? I Speaker 200:17:44mean, sure you can kind of talk about the number specifically, but we definitely remain under indexed international. It's starting to tick up. You want to kind of talk about where we are there, Trudy? Yes. Speaker 500:17:53I think we mentioned in the prepared remarks that international as a percentage of our owned and operated revenue was close to 30%, 29% in Q1, up from 25% in Q4. And so again, I think for our internal efforts, we're doing a good job marching against getting closer to where we think that should be on a worldwide basis, which is in and around 50%. And so we think we're making good progress overall. Speaker 200:18:18We're a bit under indexed in the EU and the EU in particular has had varying they're rolling out kind of privacy related things, privacy related regulation at pretty rapid pace in the EU. So our owned and operated is under indexed in the EU, but also our partner network as well is under indexed in the EU. So we see a lot of opportunity there. Asia, we're doing pretty well. I would say, South America, there's opportunity there, although that's not really where the real money is. Speaker 200:18:53The real money is going to be international. It's going to be in the EU, kind of UK and Asia. But we think we'll continue growing our overall share internationally. Speaker 400:19:07Without giving away your roadmap, is there anything else you can share with us on either the internal developments as it relates to things you're doing with Startpage or Coupon Follow and how that might be additive to the balance of the year. And Michael, interesting to hear the commentary about internally developed subscription products given the history. I'm sure you have plenty of experience now and you certainly had some before. So just love to get some color on how you're thinking about attacking that TAM as well? Speaker 200:19:38Yes, I'll kind of answer those sequentially, I think, Dan. So we've mentioned one thing on the coupon follow in MapQuest side specifically in Q1 kind of in March. Google started they rolled out one of their core algorithm updates and we benefited from that algorithm update. So MapQuest and both Coupon Follow achieved some better positioning basically and the Google rankings. Doing that requires a lot of hard work. Speaker 200:20:16You spend some time on the customer experience on your sites and you can spend 6 to 12 months improving the customer experience and it takes a long time for that to pay off in the Google rankings. So we're really pleased to see that roll out and to see us benefit. And that rolled out in March. And so we got some of the benefit in March. I think we'll continue seeing that benefit accrue really through the rest of the year because it's remained at that level that we saw in March and in some cases we're continuing to improve in the rankings. Speaker 200:20:55We have been making we're not ready to announce anything right now, but we have been making some pretty good progress in putting together what we think are going to be some really interesting apps related both on the MapQuest start page and then on the coupon follow side. And so we do intend on rolling those out most likely in Q2. We could see some slippage into Q3 for 1 or 2 of them. And those are going to be a mix, Dan, of both advertising via monetizing via our typical advertising tech stack. And we also are going to be getting and we anticipate getting back into the subscription business. Speaker 200:21:40And just as a reminder, Dan, we sold our large subscription business last year. We do have a smaller subscription business that we're still operating and we think we've got a lot of in house expertise both in how to build those subscription products, but also how to market them. So we're going to leverage that expertise across additional products. Speaker 400:22:06Perfect. Super helpful guys. I appreciate it. I'll get back in the queue. Thank you. Speaker 200:22:11Thanks Dan. Thanks for joining. Operator00:22:14Your next question comes from the line of Thomas Forte with Maxim Group. Your line is open. Speaker 600:22:21Great. So first off, Michael and Trudy, congrats on the quarter. You sound very optimistic on your business, which is encouraging to hear. One question and one follow-up. So Michael, when I think about your core competency, it's connecting advertisers and consumers with intent. Speaker 600:22:37The consumer environment, the consumer spending environment right now is pretty challenging. So I'm wondering how you're navigating those challenges. And then if you've ramped your efforts in travel or some additional categories to perhaps mirror where the discretionary spending is focused today? Speaker 200:22:57Yes, Tom, I mean, as we've talked about over several quarters, so as consumer demand is kind of moving up or down, what that generally does is affects pricing on the buy side. So as the economy shifting around, while we do see the effects of it, we're able to kind of change our pricing to follow consumer demand. What we have seen is I can kind of talk to you about some verticals that we're seeing a movement in because we have exposure across really the entire economy because we really we effectively are chasing the verticals that are that consumers are looking for. So what we've been seeing is in the health category, health probably stayed pretty steady for a long time. And that really matches the overall U. Speaker 200:23:51S. Economy. So we're seeing a lot of consistency in the health category, which is around 18% to 20% of overall advertisers spend, something like that. Interestingly, we're starting to see automotive pick up a little bit. That's just in the places where we're advertising. Speaker 200:24:10And so obviously as automotive is picking up and we're seeing the dealerships come back in and start spending money again, we're going to be focused on that as well. And then within finance, finance is such a broad category. We're seeing certain areas of finance that completely dried up. Mortgage, which used to be a pretty big vertical for us, it's going to be very difficult to get any scale right now on mortgage or particularly in the refinancing space. But on the flip side, some of the areas related to more like higher interest rates going up are good for us. Speaker 200:24:45So, a lot of things related to banking, getting higher interest rate savings accounts, those things where consumers are starting to kind of perk up to their ability to make some money off of the higher interest rates, we're seeing pop up. So in general, we haven't I would say we're just not seeing kind of the weak you pointed to consumer weakness. I would say we're not seeing a decline. I'd say that we're starting to see some relative stability, on the consumer side. And while again, we're not ready to kind of call a return to normal, we're definitely not feeling the way we were in call it early 2023. Speaker 600:25:31Great. And then I know you're not giving a full year outlook, but I was hoping that you could just high level the following. So with this being a presidential election year and the expectation that there'll be a large portion of digital advertising going toward that, historically, as that presented opportunities and challenges? How have you navigated that situation historically? Speaker 200:25:54We haven't seen like in the past, so I guess this will be the either 3rd or 4th presidential cycle that we've been through at System 1. We haven't seen a lot of changes in the marketplaces we play in as the elections come around. I suspect you'll see that hit kind of the video market a fair amount. We don't play heavily on the video side. So we are not projecting anything really kind of any tailwinds or headwinds relating from that what will be certainly a burst of activity the last couple of months of the year. Speaker 200:26:41Tre, do you want to like kind of follow-up on that related to where we're looking for 2024? Yes. Speaker 500:26:47I mean, I think to that point, just some of the uncertainty that Michael highlighted around how we're thinking about ad markets. We obviously chose not to guide for the full year, but we do think kind of given our current trends, the stability we are seeing, we do expect to see growth in the back half versus our second half of twenty twenty three. You start to see that a little bit in our Q2 guidance specifically around EBITDA. But I think kind of Q3, Q4, we expect to be guiding to and delivering growth across all three of the key financial metrics. Yes. Speaker 200:27:23We're kind of going to burn off some declines we had in the past. And so looking forward towards the end of the year, we would expect, as Trudy said, to move back into growth mode. I would say, Tom, just to kind of follow-up, I would say bigger for us and I would say also bigger for the overall, certainly the digital display market. We do think cookie deprecation, when that comes about, we think that's going to have pretty substantial effects from the testing that we've seen and also looking back historically to an iOS, when a similar change came through in Safari, that had a pretty substantial effect in pricing in the display and programmatic market. So we would suspect that that's going to be there's going to be some winners and losers when the chrome cookie deprecation comes about. Speaker 200:28:23Every indication we see will be a winner. But I would say if you're looking towards the future and what's going to happen in the overall ad market that would be for us at least that would be a much bigger lever than anything related to the presidential election. Speaker 600:28:39Great. Thanks again for taking my questions. Speaker 200:28:42Thanks, Tom. Thanks, Tom. Thanks for joining. Operator00:28:46Your next question is a follow-up from Dan Kurnos. Your line is open. Speaker 400:28:53Thanks. I thought I'd just sneak one more in, Michael. Just on ramp and scaling the buy side, I just want to get a sense from you. You've kind of talked about it in the past, but a few things. Just how you're thinking about the opportunity, how much you have to invest on that side? Speaker 400:29:12Obviously, a lot of that's moving towards self serve, it feels like. And you touched on it in the last response to a degree, but it also theoretically can help open up the opportunity with additional formats, whether it's video or other things in theory. So I'm just kind of curious how you're looking at that opportunity and what it might mean for the P and L? Speaker 200:29:35Yes, sure Dan. So we kind of caught a I would say we caught a break with the launch of generative AI. And so for us, both across all of our different ad formats, so for us, we're kind of almost a unique advertiser in the marketplace. When you think about your typical advertiser, I talk about it's going to be someone like a Capital One advertising credit cards or somebody advertising mortgages. And it's pretty straightforward to come up with your advertising copy and your advertising units and what if you're going to do video advertising what that's going to look like. Speaker 200:30:19There's only so many permutations you can have on an ad for get a better credit card. When you contrast that with what we do at System 1, we're advertising at hundreds of different verticals. And so the different advertising permutations, if you've got 100 permutation of advertising across 100 verticals, all of a sudden you're expanding pretty quickly into 10,000 different ad formats. It's actually quite difficult by hand to come up with all those formats in an automated way, recreate different tones and different colors and all the different changes you can make to advertising to pull consumers better. And so AI came along and allowed us to automate a lot of those processes. Speaker 200:31:11And so in addition to that, we're using machine learning AI to handle the bid pricing. So when you think about not only all the verticals we're in, but all the different places we advertise. So everywhere from Facebook to Google to TikTok to any place you can spend money, all of a sudden you've got a bunch of different advertising channels, multiply that times the number of ad permutations and the entire system gets pretty complex pretty quickly. So where we are now is we've got the ability to scale our advertising in a much more automated manner as we very quickly have incorporated AI into our platform. And so what we've been doing that, we're one of the biggest advertisers in the world at this point. Speaker 200:31:57And so what we're going to be doing going forward is opening up those capabilities on the buy side to people that want to use our platform, which we really haven't done before. And we think it's going to really give people using our platform an advantage in the marketplace because they can really dovetail with the off the capabilities that we've built ourselves. And if you think about the average partner of ours, they don't have a 100 person engineering team to go develop these by say capabilities. Our average partner might be anywhere from 5 to 30 employees. And so by offering up that buy side scale, we think that we have the ability turn ramp into much more of a software type product, almost a DSP type product. Speaker 200:32:48And we think that not only is going to help our owned and operated business scale and we're already really seeing the effects of that. We think by opening up the buy side, we're going to get a lot more people on the platform. It's going to be a lot more sticky. Speaker 500:33:01And Dan, this is Trudy. Just to hop in on kind of the P and L impact. Our as you kind of said, our OpEx base, year, we kind of already recalibrated and reorganized how we think about product and development against these specific initiatives and goals. And to Michael's point, really it's create a platform that we can use end to end internally, and then think about potentially how that gets syndicated out. And so at least for, I'd say, at least the next 12 months, the team that we have here and the OpEx kind of the OpEx load that we have should be sufficient to kind of build out these medium term initiatives. Speaker 500:33:42So short answer is no increase faster than the Speaker 200:33:45P and L. Yes. Don't expect a lot of cost a lot of incremental cost going into this. So that's another benefit we've had is a lot of the automation on our platform is allowing us to do more with the same number of people. Speaker 400:34:01That is really helpful. Thanks for the complete answer. Appreciate it, guys. Speaker 200:34:07Appreciate it, Dan. Thank you. Operator00:34:10This concludes the question and answer session. I will turn the call to Michael Blend for closing remarks. Speaker 200:34:17Yes. Well, thanks everybody for joining us today. If you've been following us at System 1 closely, it's been a choppy few quarters for us, but the team has been really heads down executing and it feels like we're starting to see all that hard work paying off. I'd say we're getting increasingly optimistic about our trajectory here at the company. And so we look forward to speaking with all of you at our Q2 earnings call. Speaker 200:34:41Thank you very much. Thanks for joining.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSystem1 Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) System1 Earnings HeadlinesNYSE to Commence Delisting Proceedings with Respect to Warrants of System1, Inc. (SST.WS)April 7, 2025 | businesswire.comSystem1, Inc. 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Email Address About System1System1 (NYSE:SST) provides omnichannel customer acquisition platform services through its proprietary responsive acquisition marketing platform in the United States, the United Kingdom, Canada, the Netherlands, and internationally. It operates through two segments: Owned and Operated Advertising, and Partner Network. The company engages in the provision of acquiring traffic to its owned and operated websites, as well as revenue-sharing arrangements and related services. It also operates MapQuest, a web-based navigation service that delivers turn-by-turn direction services to users; Info.com, a metasearch engine that consumers can use to search for relevant information; HowStuffWorks, a commercial website focused on helping people solve problems in their daily lives by using various types of digital media to easily breakdown and explain complex concepts, topics, terminology and mechanisms; Startpage, a private search engine that allows users to browse and search the Internet in complete privacy; and CouponFollow for coupon destinations for online shoppers, as well as ActiveBeat and Infospace. In addition, the company provides antivirus software solutions, which offers customers a single packaged solution that provides protection and reporting to the end users. 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There are 7 speakers on the call. Operator00:00:00Hello. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the System 1 Q1 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and instructions will be provided at that time. Operator00:00:18I would now like to turn the conference over to Kyle Oskard, Vice President of Finance. You may begin. Speaker 100:00:26Thank you for standing by, and welcome to the Q1 2024 conference call for System 1. Joining me today to discuss System 1's business and financial results are Co Founder and CEO, Michael Blend and our Chief Financial Officer, Trudyesh Kadavy. A recording of this conference call will be available on our Investor Relations website shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making certain forward looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long term growth and overall future prospects. Speaker 100:01:00We may also make statements regarding regulatory or compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call, in particular those described in our risk factors included in our annual report on Form 10 ks for the fiscal year 2023 filed on March 15, as well as the current uncertainty and unpredictability in our business, the markets and the global economy generally. You should not rely on our forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on management's assumptions and beliefs as of the date hereof, and System 1 disclaims any obligation to update any forward looking statements except as required by law. Our discussion today will include non GAAP financial measures, including adjusted EBITDA and adjusted gross profit. Speaker 100:01:51These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Historical performance and future estimates provided during this call exclude results from Total Security. Information regarding our non GAAP financial measures, including a reconciliation of our non GAAP financial measures to our most comparable historical GAAP financial measures may be found on our Investor Relations website. I would now like to turn the conference call over to System 1's Co Founder and Chief Executive Officer, Michael Blund. Speaker 200:02:24Thanks, Kyle. Good afternoon, everyone, and thanks for joining us on our Q1 System 1 earnings call. Let's get right into our quarterly performance. I'm happy to announce that System 1 was able to deliver financial results, which exceeded our earlier guidance. System 1 delivered $85,000,000 of revenue $31,000,000 of gross profit. Speaker 200:02:46Adjusted EBITDA was $423,000 Owned and operated revenue was $69,000,000 down 35% year over year and down 13% from last quarter. This was driven by 12% sequential decline in advertising spend, which generated over 1,200,000,000 sessions, an 18% year over year increase and a 14% quarter over quarter increase. Spread was approximately $0.02 per session. International revenue continued to remain a highlight with international revenue representing approximately 29% of owned and operated revenue. This was up from 25% of owned and operated revenue in Q4 of 2023. Speaker 200:03:31Overall, Q1 was somewhat choppy, but ended on a positive note. The overall advertising marketplace started off a bit weak in January and improved as quarter progressed. This pattern was expected to match what we see in a typical Q1. Our Q1 volatility was driven primarily by our Google relationship, which as a reminder is our largest revenue source. We saw significant volatility from Google during the quarter. Speaker 200:03:59Their sell side pricing moved around more than typical and the Google product team introduced new features at a very rapid pace with minimal advanced notice to us. Longer term, this is a good thing for System 1. We work closely with Google to integrate new features into our tech stack and their product improvements almost always lead to increased revenues for SystemWin. In the short term, however, the rapid fire of Google changes caused quite a bit of volatility in the overall Google Partner ecosystem. Fortunately, things have begun to stabilize with Google. Speaker 200:04:35The last couple of weeks of Q1 were particularly strong and these favorable trends have continued through the early weeks of Q2. If Google pricing and product rollout stay consistent, we expect all of our marketing driven businesses lines to benefit. Partner network revenue was $16,000,000 and gross profit was 11,000,000 dollars Revenue increased 5% year over year, but was down 5% sequentially as we expected due to typical seasonality. Sessions were $1,000,000,000 up 134% year over year and 32% sequentially as traffic from existing driven by the same marketplace headwinds that impacted our owned and operated business. The marketplace headwinds we faced in our O and O business, namely narrowing RPS spreads and volatility in sell side pricing were shared by our partners as well. Speaker 200:05:39But notwithstanding that, our partner network business continues to perform through solid execution as well as what we believe is the attractiveness of our ramp platform. Key metrics evidencing this include in Q1 of 2024 total active partners grew 5% from Q4 to over 2 50 total partners. Average revenue per partner decreased sequentially by 9% due to Q1 seasonality and choppiness in the marketplace. Remember when partners join our ramp platform, there is a timeframe during which they begin to scale up with us. This is a function of the partner getting more familiar with our platform as well as our constant evaluation and monitoring of their traffic quality. Speaker 200:06:23We consider our platform partner to be a scaled partner when they are generating at least $50,000 of revenue per quarter on ramp. At the end of Q1, we had 57 scale partners compared to 50 scale partners in Q1 of 23, representing a 14% growth rate. Moreover, as I mentioned previously, our partners are using us more and for more sessions. It is our hope that as the advertising market continues to improve, the combination of our growth in number of scale partners and the increase in the number of sessions will accelerate the growth of our partner network business. Moving to our organic businesses, they had a good quarter on several fronts. Speaker 200:07:04First, we saw a significant increase in organic traffic to MapQuest and Coupon Follow that began in March and should continue through Q2. These increases were driven primarily by favorable changes in the Google search algorithms. We've been working very hard to improve the customer experience on these sites and the hope our Google rankings would improve. Fortunately, our efforts have begun paying off with increased traffic that directly drives corresponding increases in revenue. We also saw the launch of several key business development partnerships with our Startpage and coupon follow-up properties that we expect to begin paying dividends as the year progresses. Speaker 200:07:48Going forward, we are focused in a few key areas. First, we are continuing to invest in our ramp platform. AI has materially improved our ability to scale our buy side capabilities and we plan to open up our buy side to partners who currently use us primarily for sell side monetization. 2nd, our organic properties will keep focusing on their on-site experiences, we'll be launching new and improved apps and we'll be integrating additional distribution partnerships. 3rd, we're planning to start expanding our subscription business by rolling out more internally developed subscription products. Speaker 200:08:26And finally, we have been back to exploring the M and A market again as the digital market stabilized and pricing has started to get a bit more rational. Overall, I'm very pleased with our execution in Q1, especially with respect to product enhancements on ramp focused on AI driven automation. We're executing with focus and we are shipping products faster than ever. Our execution is starting to show up in our performance and I'm increasingly confident we are moving back into growth mode. I also am happy to have Chuck Ursini rejoin SystemWay in an official capacity as our President and COO. Speaker 200:09:04Chuck and I co founded SystemWay and Chuck was our original CEO. He has driven much of our execution in the last year and I'm happy to have him back in an official capacity. As I mentioned every quarter, SystemOne Management has much of our network and worth in SystemOne Shares. We're highly aligned with our longer term shareholders. Management is in this for the long haul and we welcome investors who want to come along for the ride. Speaker 200:09:30I'll now hand things off to Triti to discuss our quarterly results in more detail as well as our Q2 guidance. Take it away, Triti. Speaker 300:09:40Thanks, Michael. As Michael mentioned, there were market related challenges in Q1, especially early in the quarter, but we remain bullish given that March came in not just above the 1st 2 months of the quarter, but also above expectations. And we delivered results above the high end of the guidance range for revenue, gross profit and for adjusted EBITDA. As I discussed Q1 results, I want to highlight that year over year comparisons continue to be a challenge as we haven't yet rebounded to the levels of advertising demand we saw in the first half of twenty twenty three due to continued macro declines in the advertising market through the 1st three quarters last year. And in Q1 of last year, our owned and operated SCM business still contributed $6,000,000 of gross profit, as compared to approximately $2,000,000 of gross profit a quarter starting in Q2 of 2023 and continuing through last quarter. Speaker 300:10:33Also, we typically expect a sequential decline in Q1 versus a seasonally strong Q4. Now on to our operating results. Q1 revenue was $84,900,000 representing a 30% year over year decline and sequential decline of 12%. That was good for $900,000 above the top end of our Q1 revenue guidance range that we provided in March. Owned and operated advertising revenue was 69,000,000 dollars representing a 35% year over year decline and sequential decline of 13%. Speaker 300:11:02Network advertising revenue was 15,900,000 dollars up 5% year over year and down 5% sequentially. Adjusted gross profit was $31,200,000 down 18% year over year and 17% sequentially, and that was above the high end of guidance by $1,200,000 Revenue less advertising spend for our owned and operated advertising segment declined 16% sequentially to $22,500,000 Network revenue less agency fees was down 17% to $10,900,000 versus the prior quarter. Owned and operated cost per session and revenue per session were both down $0.01 sequentially to $0.04 and $0.06 respectively, with the spread down slightly to approximately $0.02 On the network advertising business, revenue per session was $0.02 per session. Most importantly, total sessions processed by ramp in the most recent quarter was $2,260,000,000 up 22% sequentially and 53% year over year. Adjusted EBITDA impacting operating expenses, which are net of add backs were $30,800,000 down 7% year over year. Speaker 300:12:07As a reminder, we expect Q1 to be the high watermark for OpEx driven by FY2023 audit costs. Adjusted EBITDA was 422,000 dollars versus $5,200,000 last year, which came in above the high end of the Q1 guidance range by $1,400,000 With respect to liquidity, we ended the quarter with $69,900,000 of unrestricted cash on our balance sheet and a term loan balance of $296,000,000 Our net leverage at quarter end was approximately 9.19x. I want to reiterate my comments from our last earnings call with respect to capital structure. We remain comfortable that our current liquidity, including the $50,000,000 of availability on a revolver, provide ample cushion for all of our short and medium term liquidity needs. We remain highly focused on maximizing equity value for our shareholders, while remaining focused on continuing to delever the business. Speaker 300:12:59And we will continue to be opportunistic on debt repurchases. For example, we extinguished an additional $1,200,000 of term debt for $720,000 of cash on April 30. And per Michael's comments, we will continue to explore accretive M and A where we have a track record of execution of success. Most importantly, we'll continue to prioritize investment and execution to drive organic growth in our core advertising business. Although we have recently seen more stability in the market through the 1st several weeks of Q2, there's still quite a bit of uncertainty in the online advertising environment in which we operate, as evidenced by the recent news about Google delaying the deprecation of cookies. Speaker 300:13:37So again, we will not be providing full year guidance for 2024 at this time, other than to say that we expect to deliver year over year growth in revenue, adjusted gross profit and adjusted EBITDA in the second half of twenty twenty four. We are estimating Q2 revenue to come in between $88,000,000 $90,000,000 representing an 8% year over year decline at the midpoint. We're estimating adjusted gross profit to come in between $33,000,000 $35,000,000 representing a 16% decline at the midpoint. And we estimate Q1 adjusted EBITDA to come in between $5,000,000 $7,000,000 slightly down year over year at the midpoint. We remain cautiously optimistic about the digital advertising market stabilizing this year and remain extremely bullish about our ability to execute against both near and long term opportunities. Speaker 300:14:22Thank you. Speaker 100:14:23Thank you, Trudy. We are now going to open the line for some questions. Operator00:14:31Thank Your first question comes from the line of Dan Kurnos with The Benchmark Company. Your line is open. Speaker 400:14:49Great. Thanks. Good afternoon. Good start to the year, guys. Maybe I guess we'll start with what Trudy just kind of talked about kind of high level, obviously Google pushing out cookie deprecation until next year. Speaker 400:15:02There's a ton of issues around that. We've also had a TikTok ban passed in the house. It seems like kind of the Wild West right now. Can you guys just kind of help us think through how your partners are looking at the environment right now? And in the confines of Google probably making a bunch of changes to privacy sandbox and a bunch of other things, just how you're thinking about being able to maintain sort of consistent spread as we go through this volatile period? Speaker 200:15:36Yes. Thanks, Dan, and thanks for joining. Good to hear from you. So specifically related to cookie deprecation, we actually think that's going to be a bit of a tailwind for us. What's going to happen when cookies are deprecated, we're pretty highly confident is that contextual advertising is going to be more effective as some of the 3rd party cookie based advertising kind of goes away. Speaker 200:16:02And so we're not concerned at all about the cookie deprecation. We're in fact a little bit disappointed that they ended up pushing into 2025. We still remain highly confident that some form of that's going to be coming out. Everything we're hearing from Google is that they're talking about delay rather than kind of reversing their course on cookie deprecation. TikTok, specifically, we don't have much exposure there. Speaker 200:16:32We do advertise on TikTok through the network. It's been pretty effective for us. Most of our exposure though is international. So we don't expect that domestic people from the U. S. Speaker 200:16:48Will continue to be able to advertise via TikTok, in the international markets. So we don't really anticipate any problems there. I mean overall on kind of a macro level, we're starting to see, I would say the overall advertising market and you've seen this in the people reporting their Q1s looks like we're starting to see things relatively stable. We're always reluctant to kind of call the stability and call the growth in the back half, but we don't really see anything that's particularly alarming right now to us. Speaker 400:17:24Got it. That's really helpful. And since you brought up international, Michael, I feel like I ask you this every call and sort of like it's coming, coming. You flagged it as a highlight, especially in O and O in Q1 and just kind of curious what sort of opportunity set you're seeing further from here? I Speaker 200:17:44mean, sure you can kind of talk about the number specifically, but we definitely remain under indexed international. It's starting to tick up. You want to kind of talk about where we are there, Trudy? Yes. Speaker 500:17:53I think we mentioned in the prepared remarks that international as a percentage of our owned and operated revenue was close to 30%, 29% in Q1, up from 25% in Q4. And so again, I think for our internal efforts, we're doing a good job marching against getting closer to where we think that should be on a worldwide basis, which is in and around 50%. And so we think we're making good progress overall. Speaker 200:18:18We're a bit under indexed in the EU and the EU in particular has had varying they're rolling out kind of privacy related things, privacy related regulation at pretty rapid pace in the EU. So our owned and operated is under indexed in the EU, but also our partner network as well is under indexed in the EU. So we see a lot of opportunity there. Asia, we're doing pretty well. I would say, South America, there's opportunity there, although that's not really where the real money is. Speaker 200:18:53The real money is going to be international. It's going to be in the EU, kind of UK and Asia. But we think we'll continue growing our overall share internationally. Speaker 400:19:07Without giving away your roadmap, is there anything else you can share with us on either the internal developments as it relates to things you're doing with Startpage or Coupon Follow and how that might be additive to the balance of the year. And Michael, interesting to hear the commentary about internally developed subscription products given the history. I'm sure you have plenty of experience now and you certainly had some before. So just love to get some color on how you're thinking about attacking that TAM as well? Speaker 200:19:38Yes, I'll kind of answer those sequentially, I think, Dan. So we've mentioned one thing on the coupon follow in MapQuest side specifically in Q1 kind of in March. Google started they rolled out one of their core algorithm updates and we benefited from that algorithm update. So MapQuest and both Coupon Follow achieved some better positioning basically and the Google rankings. Doing that requires a lot of hard work. Speaker 200:20:16You spend some time on the customer experience on your sites and you can spend 6 to 12 months improving the customer experience and it takes a long time for that to pay off in the Google rankings. So we're really pleased to see that roll out and to see us benefit. And that rolled out in March. And so we got some of the benefit in March. I think we'll continue seeing that benefit accrue really through the rest of the year because it's remained at that level that we saw in March and in some cases we're continuing to improve in the rankings. Speaker 200:20:55We have been making we're not ready to announce anything right now, but we have been making some pretty good progress in putting together what we think are going to be some really interesting apps related both on the MapQuest start page and then on the coupon follow side. And so we do intend on rolling those out most likely in Q2. We could see some slippage into Q3 for 1 or 2 of them. And those are going to be a mix, Dan, of both advertising via monetizing via our typical advertising tech stack. And we also are going to be getting and we anticipate getting back into the subscription business. Speaker 200:21:40And just as a reminder, Dan, we sold our large subscription business last year. We do have a smaller subscription business that we're still operating and we think we've got a lot of in house expertise both in how to build those subscription products, but also how to market them. So we're going to leverage that expertise across additional products. Speaker 400:22:06Perfect. Super helpful guys. I appreciate it. I'll get back in the queue. Thank you. Speaker 200:22:11Thanks Dan. Thanks for joining. Operator00:22:14Your next question comes from the line of Thomas Forte with Maxim Group. Your line is open. Speaker 600:22:21Great. So first off, Michael and Trudy, congrats on the quarter. You sound very optimistic on your business, which is encouraging to hear. One question and one follow-up. So Michael, when I think about your core competency, it's connecting advertisers and consumers with intent. Speaker 600:22:37The consumer environment, the consumer spending environment right now is pretty challenging. So I'm wondering how you're navigating those challenges. And then if you've ramped your efforts in travel or some additional categories to perhaps mirror where the discretionary spending is focused today? Speaker 200:22:57Yes, Tom, I mean, as we've talked about over several quarters, so as consumer demand is kind of moving up or down, what that generally does is affects pricing on the buy side. So as the economy shifting around, while we do see the effects of it, we're able to kind of change our pricing to follow consumer demand. What we have seen is I can kind of talk to you about some verticals that we're seeing a movement in because we have exposure across really the entire economy because we really we effectively are chasing the verticals that are that consumers are looking for. So what we've been seeing is in the health category, health probably stayed pretty steady for a long time. And that really matches the overall U. Speaker 200:23:51S. Economy. So we're seeing a lot of consistency in the health category, which is around 18% to 20% of overall advertisers spend, something like that. Interestingly, we're starting to see automotive pick up a little bit. That's just in the places where we're advertising. Speaker 200:24:10And so obviously as automotive is picking up and we're seeing the dealerships come back in and start spending money again, we're going to be focused on that as well. And then within finance, finance is such a broad category. We're seeing certain areas of finance that completely dried up. Mortgage, which used to be a pretty big vertical for us, it's going to be very difficult to get any scale right now on mortgage or particularly in the refinancing space. But on the flip side, some of the areas related to more like higher interest rates going up are good for us. Speaker 200:24:45So, a lot of things related to banking, getting higher interest rate savings accounts, those things where consumers are starting to kind of perk up to their ability to make some money off of the higher interest rates, we're seeing pop up. So in general, we haven't I would say we're just not seeing kind of the weak you pointed to consumer weakness. I would say we're not seeing a decline. I'd say that we're starting to see some relative stability, on the consumer side. And while again, we're not ready to kind of call a return to normal, we're definitely not feeling the way we were in call it early 2023. Speaker 600:25:31Great. And then I know you're not giving a full year outlook, but I was hoping that you could just high level the following. So with this being a presidential election year and the expectation that there'll be a large portion of digital advertising going toward that, historically, as that presented opportunities and challenges? How have you navigated that situation historically? Speaker 200:25:54We haven't seen like in the past, so I guess this will be the either 3rd or 4th presidential cycle that we've been through at System 1. We haven't seen a lot of changes in the marketplaces we play in as the elections come around. I suspect you'll see that hit kind of the video market a fair amount. We don't play heavily on the video side. So we are not projecting anything really kind of any tailwinds or headwinds relating from that what will be certainly a burst of activity the last couple of months of the year. Speaker 200:26:41Tre, do you want to like kind of follow-up on that related to where we're looking for 2024? Yes. Speaker 500:26:47I mean, I think to that point, just some of the uncertainty that Michael highlighted around how we're thinking about ad markets. We obviously chose not to guide for the full year, but we do think kind of given our current trends, the stability we are seeing, we do expect to see growth in the back half versus our second half of twenty twenty three. You start to see that a little bit in our Q2 guidance specifically around EBITDA. But I think kind of Q3, Q4, we expect to be guiding to and delivering growth across all three of the key financial metrics. Yes. Speaker 200:27:23We're kind of going to burn off some declines we had in the past. And so looking forward towards the end of the year, we would expect, as Trudy said, to move back into growth mode. I would say, Tom, just to kind of follow-up, I would say bigger for us and I would say also bigger for the overall, certainly the digital display market. We do think cookie deprecation, when that comes about, we think that's going to have pretty substantial effects from the testing that we've seen and also looking back historically to an iOS, when a similar change came through in Safari, that had a pretty substantial effect in pricing in the display and programmatic market. So we would suspect that that's going to be there's going to be some winners and losers when the chrome cookie deprecation comes about. Speaker 200:28:23Every indication we see will be a winner. But I would say if you're looking towards the future and what's going to happen in the overall ad market that would be for us at least that would be a much bigger lever than anything related to the presidential election. Speaker 600:28:39Great. Thanks again for taking my questions. Speaker 200:28:42Thanks, Tom. Thanks, Tom. Thanks for joining. Operator00:28:46Your next question is a follow-up from Dan Kurnos. Your line is open. Speaker 400:28:53Thanks. I thought I'd just sneak one more in, Michael. Just on ramp and scaling the buy side, I just want to get a sense from you. You've kind of talked about it in the past, but a few things. Just how you're thinking about the opportunity, how much you have to invest on that side? Speaker 400:29:12Obviously, a lot of that's moving towards self serve, it feels like. And you touched on it in the last response to a degree, but it also theoretically can help open up the opportunity with additional formats, whether it's video or other things in theory. So I'm just kind of curious how you're looking at that opportunity and what it might mean for the P and L? Speaker 200:29:35Yes, sure Dan. So we kind of caught a I would say we caught a break with the launch of generative AI. And so for us, both across all of our different ad formats, so for us, we're kind of almost a unique advertiser in the marketplace. When you think about your typical advertiser, I talk about it's going to be someone like a Capital One advertising credit cards or somebody advertising mortgages. And it's pretty straightforward to come up with your advertising copy and your advertising units and what if you're going to do video advertising what that's going to look like. Speaker 200:30:19There's only so many permutations you can have on an ad for get a better credit card. When you contrast that with what we do at System 1, we're advertising at hundreds of different verticals. And so the different advertising permutations, if you've got 100 permutation of advertising across 100 verticals, all of a sudden you're expanding pretty quickly into 10,000 different ad formats. It's actually quite difficult by hand to come up with all those formats in an automated way, recreate different tones and different colors and all the different changes you can make to advertising to pull consumers better. And so AI came along and allowed us to automate a lot of those processes. Speaker 200:31:11And so in addition to that, we're using machine learning AI to handle the bid pricing. So when you think about not only all the verticals we're in, but all the different places we advertise. So everywhere from Facebook to Google to TikTok to any place you can spend money, all of a sudden you've got a bunch of different advertising channels, multiply that times the number of ad permutations and the entire system gets pretty complex pretty quickly. So where we are now is we've got the ability to scale our advertising in a much more automated manner as we very quickly have incorporated AI into our platform. And so what we've been doing that, we're one of the biggest advertisers in the world at this point. Speaker 200:31:57And so what we're going to be doing going forward is opening up those capabilities on the buy side to people that want to use our platform, which we really haven't done before. And we think it's going to really give people using our platform an advantage in the marketplace because they can really dovetail with the off the capabilities that we've built ourselves. And if you think about the average partner of ours, they don't have a 100 person engineering team to go develop these by say capabilities. Our average partner might be anywhere from 5 to 30 employees. And so by offering up that buy side scale, we think that we have the ability turn ramp into much more of a software type product, almost a DSP type product. Speaker 200:32:48And we think that not only is going to help our owned and operated business scale and we're already really seeing the effects of that. We think by opening up the buy side, we're going to get a lot more people on the platform. It's going to be a lot more sticky. Speaker 500:33:01And Dan, this is Trudy. Just to hop in on kind of the P and L impact. Our as you kind of said, our OpEx base, year, we kind of already recalibrated and reorganized how we think about product and development against these specific initiatives and goals. And to Michael's point, really it's create a platform that we can use end to end internally, and then think about potentially how that gets syndicated out. And so at least for, I'd say, at least the next 12 months, the team that we have here and the OpEx kind of the OpEx load that we have should be sufficient to kind of build out these medium term initiatives. Speaker 500:33:42So short answer is no increase faster than the Speaker 200:33:45P and L. Yes. Don't expect a lot of cost a lot of incremental cost going into this. So that's another benefit we've had is a lot of the automation on our platform is allowing us to do more with the same number of people. Speaker 400:34:01That is really helpful. Thanks for the complete answer. Appreciate it, guys. Speaker 200:34:07Appreciate it, Dan. Thank you. Operator00:34:10This concludes the question and answer session. I will turn the call to Michael Blend for closing remarks. Speaker 200:34:17Yes. Well, thanks everybody for joining us today. If you've been following us at System 1 closely, it's been a choppy few quarters for us, but the team has been really heads down executing and it feels like we're starting to see all that hard work paying off. I'd say we're getting increasingly optimistic about our trajectory here at the company. And so we look forward to speaking with all of you at our Q2 earnings call. Speaker 200:34:41Thank you very much. Thanks for joining.Read morePowered by