System1, Inc. (SST)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue of $74.5M fell 12% YoY but exceeded the company’s guidance high-end and beat S&P consensus; adjusted gross profit rose 33% YoY to $41.5M and adjusted EBITDA surged to $12.1M, all above guidance high-end . EPS loss narrowed YoY and beat S&P consensus (actual -$1.90 vs. -$3.50 estimate), signaling operational improvement despite top-line pressure from mix and Google product transitions (S&P Global data)*.
• Owned & Operated advertising revenue was $57.9M (down 16% YoY) with product revenue $22.3M (38% of O&O), while Partner Network revenue was $16.6M and adjusted gross profit rose 37% YoY; RAMP processed 3.0B sessions with continued AI/agentic automation gains .
• Management withdrew Q2 2025 guidance due to uncertainty around Google’s AFD-to-RSOC shift, broader ad demand volatility, and evolving tariff policies; prior Q1 guidance was exceeded across revenue, adjusted gross profit, and adjusted EBITDA .
• Stock reaction catalysts: beats vs company guidance and S&P revenue/EPS consensus, AI execution momentum, and caution from removal of near-term guidance tied to Google monetization changes .

What Went Well and What Went Wrong

What Went Well

• All key Q1 metrics above high-end of guidance; adjusted EBITDA rose to $12.1M vs. $0.4M last year, demonstrating operating leverage and cost discipline .
• AI and agentic coding drove faster development, campaign automation, and scaling; “productivity is through the roof” with 3–5x gains cited, broadening capacity and pace of innovation .
• O&O products strength: CouponFollow sessions +~160% YoY; Startpage sessions +11% YoY; MapQuest sessions +30% YoY and viral engagement (CNN/Colbert) .

Quote: “We have quickly made the transition to become an AI‑first product and engineering organization… paying off in faster execution… beginning to show up in our financials.” — CEO Michael Blend .

What Went Wrong

• Total revenue down 12% YoY to $74.5M, reflecting lower marketing-driven revenue amid Google-related product changes and mix shift away from low-margin segments .
• GAAP net loss widened YoY to $19.9M; cash declined to $43.9M with ~$20M use of cash (earn-out and bonuses), and net leverage ~4.6x with $275M term loan outstanding .
• Near-term uncertainty: withdrawal of Q2 guidance over Google AFD opt-outs and RSOC transition, ad demand volatility, and evolving tariff policies .

Financial Results

Segment breakdown – Q1 2025:

KPIs – Q1 2025:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Revenue… gross profit and EBITDA were all above the high end of our guidance range… investments we have been making in AI are showing up in our results.” — CEO Michael Blend .
• “We remain committed to delivering strong financial results, while continuing to focus on operating expense reduction initiatives.” — CFO Tridivesh Kidambi .
• “We do not plan to provide financial guidance for the second quarter of 2025.” — Company statement .
• “Our biggest challenge over the next couple of quarters continues to be related to volatility with Google… we have not yet seen material impact… shift away from AFD to RSOC will continue to cause volatility.” — CEO .

Q&A Highlights

• Macro resilience in digital advertising: Management not seeing “wonkiness” yet; performance marketing typically last to be impacted; potential benefits if buy-side pricing falls .
• Tariffs impact: Minimal across SST’s verticals; monitoring, hence no Q2 guidance .
• Google regulatory outcomes (GAM): Potential split of Google businesses could be net positive; SST “manufactures demand” for Google and could benefit if partner network seeks more revenue .
• Social/TikTok & international: Fewer Chinese app advertisers could lower buy-side prices; TikTok international traffic remains favorable; U.S. exposure limited .
• Agentic coding: 3–5x productivity increases; business leaders building tools themselves; faster testing and productization .
• Margin flow-through: Expect bulk of gross profit to flow to adjusted EBITDA given OpEx discipline .

Estimates Context

Values retrieved from S&P Global.*

• Q1 2025: Revenue and EPS both beat S&P consensus; EBITDA (S&P definition) missed, while company-reported adjusted EBITDA was $12.1M (non-GAAP) . Coverage remains thin (one estimate across metrics), suggesting higher revision sensitivity (S&P Global data)*.

Key Takeaways for Investors

• Execution beat: Revenue, adjusted gross profit, and adjusted EBITDA all exceeded high-end guidance; EPS beat S&P consensus — a positive signal of operating improvement amid revenue mix headwinds (S&P Global)*.
• AI/agentic leverage: Material productivity gains (3–5x) and automation at scale underpin improved efficiency and faster product iteration — a medium-term margin and growth catalyst .
• Google transition risk/reward: Near-term volatility from AFD→RSOC shift led to guidance withdrawal; SST is a leading RSOC partner and expects medium-term benefits as the ecosystem stabilizes .
• Product-led resilience: Strong O&O product KPIs (CouponFollow, Startpage, MapQuest) broaden monetization and reduce reliance on volatile marketing-driven revenue; watch seasonality from Q4 to Q1 .
• Liquidity and leverage: Cash $43.9M, revolver availability $50M, term loan $275M, net leverage ~4.6x; capital structure remains a focus area as EBITDA scales .
• Estimate path: Expect upward revisions to revenue/EPS near-term given beats, but EBITDA estimate definitions vs adjusted EBITDA differ — monitor consensus methodology and coverage breadth (S&P Global)*.
• Trading implications: Near-term stock narrative hinges on RSOC adoption pace, evidence of sustained margin flow-through, and continued product KPI strength; risk events include further Google policy changes and ad demand shocks .