System1 10Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from ______ to ______

Commission File Number 001-39331

System1, Inc.

(Exact name of registrant as specified in its charter)


Delaware						92-3978051
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

4235 Redwood Avenue Los Angeles, CA						90066
(Address of Principal Executive Offices)						(Zip Code)

(310) 924-6037

(Registrant’s telephone number including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

SST

The New York Stock Exchange

Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share

SST.WS

The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 31, 2024, there were 70,707,001 shares of Class A common stock, $0.0001 par value per share, outstanding and 21,203,676 shares issued and outstanding of Class C common stock, $0.0001 par value per share.

Table of Contents


		Page

Part I - Financial Information		1

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Changes in Stockholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II - Other Information		39

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39

Signatures		42

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

System1, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except par value)


	September 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	69,092	$	135,343
Restricted cash, current	4,129		3,813
Accounts receivable, net	57,602		56,093
Prepaid expenses and other current assets	4,382		6,754
Total current assets	135,205		202,003
Restricted cash, non-current	371		4,294
Property and equipment, net	2,431		3,084
Internal-use software development costs, net	14,230		11,425
Intangible assets, net	241,006		297,001
Goodwill	82,407		82,407
Operating lease right-of-use assets	3,298		4,732
Other non-current assets	365		524
Total assets	$	479,313	$	605,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,423	$	9,499
Accrued expenses and other current liabilities	71,072		59,314
Operating lease liabilities, current	2,330		2,333
Debt, net	16,338		15,271
Total current liabilities	99,163		86,417
Operating lease liabilities, non-current	1,821		3,582
Long-term debt, net	259,236		334,232
Warrant liability	1,217		2,688
Deferred tax liability	6,726		8,307
Other non-current liabilities	8,304		929
Total liabilities	$	376,467	$	436,155
Commitments and contingencies (Note 7)
Stockholder's Equity:
Class A common stock $0.0001 par value; 500,000 shares authorized, 70,460 and 65,855 Class A shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	$	7	$	7
Class C common stock $0.0001 par value; 25,000 shares authorized, 21,204 and 21,513 Class C shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	2		2
Additional paid-in capital	858,740		843,112
Accumulated deficit	(768,174)		(707,662)
Accumulated other comprehensive loss	(262)		(181)
Total stockholders' equity attributable to System1, Inc.	90,313		135,278
Non-controlling interest	12,533		34,037
Total stockholders' equity	102,846		169,315
Total liabilities and stockholders' equity	$	479,313	$	605,470

The accompanying notes are an integral part of these condensed consolidated financial statements.

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except for per share)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue	$	88,832	$	87,818	$	268,330	$	305,851
Operating expenses:
Cost of revenue (excluding depreciation and amortization)	51,171		50,585		160,667		190,195
Salaries and benefits	29,177		26,695		87,597		81,896
Selling, general, and administrative	10,172		11,808		36,889		42,004
Depreciation and amortization	20,128		19,584		59,875		58,666
Total operating expenses	110,648		108,672		345,028		372,761
Operating loss	(21,816)		(20,854)		(76,698)		(66,910)
Other expense (income):
Interest expense, net	7,957		13,053		23,798		36,789
(Gain) loss from debt extinguishment	—		619		(20,109)		619
Change in fair value of warrant liabilities	281		(7,482)		(1,471)		(6,873)
Total other expense (income), net	8,238		6,190		2,218		30,535
Loss before income tax	(30,054)		(27,044)		(78,916)		(97,445)
Income tax expense (benefit)	585		(1,116)		359		(11,614)
Net loss from continuing operations	(30,639)		(25,928)		(79,275)		(85,831)
Net loss from discontinued operations, net of tax	—		(137,209)		—		(163,222)
Net loss	(30,639)		(163,137)		(79,275)		(249,053)
Less: Net loss from continuing operations attributable to non-controlling interest	(7,037)		(6,081)		(18,763)		(18,989)
Less: Net loss from discontinued operations attributable to non-controlling interest	—		(25,566)		—		(30,472)
Net loss attributable to System1, Inc.	$	(23,602)	$	(131,490)	$	(60,512)	$	(199,592)

Amounts attributable to System1, Inc.:
Net loss from continuing operations	$	(23,602)	$	(19,847)	$	(60,512)	$	(66,842)
Net loss from discontinued operations	—		(111,643)		—		(132,750)
Net loss attributable to System1, Inc.	$	(23,602)	$	(131,490)	$	(60,512)	$	(199,592)

Basic and diluted net loss per share:
Continuing operations	$	(0.34)	$	(0.21)	$	(0.88)	$	(0.71)
Discontinued operations	—		(1.18)		—		(1.42)
Basic and diluted net loss per share	$	(0.34)	$	(1.39)	$	(0.88)	$	(2.13)

Weighted average number of shares outstanding - basic and diluted	70,045		94,359		69,073		93,649

The accompanying notes are an integral part of these condensed consolidated financial statements

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net loss	$	(30,639)	$	(163,137)	$	(79,275)	$	(249,053)
Other comprehensive (loss) income:
Foreign currency translation loss	(44)		(188)		(275)		(110)
Comprehensive loss	(30,683)		(163,325)		(79,550)		(249,163)
Comprehensive loss attributable to non-controlling interest	(7,114)		(31,685)		(18,957)		(49,465)
Comprehensive loss attributable to System1, Inc.	$	(23,569)	$	(131,640)	$	(60,593)	$	(199,698)

The accompanying notes are an integral part of these condensed consolidated financial statements.

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In thousands)


	Class A Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2023	65,855	$	7	21,513	$	2	$	843,112	$	(707,662)	$	(181)	$	34,037	$	169,315
Net loss	—	—		—	—		—		(10,537)		—		(3,254)		(13,791)
Issuance of common stock in connection with settlement of incentive plan	970	—		—	—		2,464		—		—		(757)		1,707
Conversion of Class C shares to Class A shares	309	—		(309)	—		241		—		—		(241)		—
Tax receivable agreement liability and deferred taxes arising from LLC interest ownership exchanges and the issuance of common stock from equity incentive plans	—	—		—	—		(110)		—		—		—		(110)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	1,498	—		—	—		178		—		—		(1,169)		(991)
Other comprehensive loss	—	—		—	—		—		—		(90)		(45)		(135)
Stock-based compensation	—	—		—	—		4,317		—		—		88		4,405
Contributions from members, net of distributions	—	—		—	—		—		—		—		5		5
Balance at March 31, 2024	68,632	$	7	21,204	$	2	$	850,202	$	(718,199)	$	(271)	$	28,664	$	160,405
Net loss	—	—		—	—		—		(26,373)		—		(8,472)		(34,845)


Issuance of restricted stock, net of forfeitures and shares withheld for taxes	623	—		—	—		284		—		—		(308)		(24)
Other comprehensive loss	—	—		—	—		—		—		(24)		(72)		(96)
Stock-based compensation	—	—		—	—		3,784		—		—		87		3,871
Distributions to members	—	—		—	—		—		—		—		(32)		(32)
Balance at June 30, 2024	69,255	$	7	21,204	$	2	$	854,270	$	(744,572)	$	(295)	$	19,867	$	129,279
Net loss	—	—		—	—		—		(23,602)		—		(7,037)		(30,639)


Issuance of restricted stock, net of forfeitures and shares withheld for taxes	1,205	—		—	—		288		—		—		(308)		(20)
Other comprehensive loss	—	—		—	—		—		—		33		(77)		(44)
Stock-based compensation	—	—		—	—		4,182		—		—		88		4,270

Balance at September 30, 2024	70,460	$	7	21,204	$	2	$	858,740	$	(768,174)	$	(262)	$	12,533	$	102,846

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In thousands)


	Class A Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Balance at December 31, 2022	91,674	$	9	21,747	$	2	$	831,566	$	(439,296)	$	(260)	$	78,650	$	470,671
Net loss	—	—		—	—		—		(33,802)		—		(9,124)		(42,926)
Cumulative-effect of adoption of ASU 2016-13	—	—		—	—		—		(326)		—		—		(326)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	832	—		—	—		(1,449)		—		—		(281)		(1,730)
Issuance of common stock in connection with settlement of incentive plan	407	—		—	—		1,819		—		—		(160)		1,659
Conversion of Class C shares to Class A shares	234	—		(234)	—		1,047		—		—		(1,047)		—
Increase in tax receivable agreement liability	—	—		—	—		(441)		—		—		—		(441)
Other comprehensive loss	—	—		—	—		—		—		(62)		(47)		(109)
Stock-based compensation	—	—		—	—		6,203		—		—		958		7,161
Balance at March 31, 2023	93,147	$	9	21,513	$	2	$	838,745	$	(473,424)	$	(322)	$	68,949	$	433,959
Net loss	—	—		—	—		—		(34,301)		—		(8,690)		(42,991)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	455	—		—	—		(133)		—		—		(181)		(314)



Other comprehensive income (loss)	—	—		—	—		—		—		208		(22)		186
Stock-based compensation	—	—		—	—		4,956		—		—		615		5,571
Balance at June 30, 2023	93,602	$	9	21,513	$	2	$	843,568	$	(507,725)	$	(114)	$	60,671	$	396,411
Net loss	—	—		—	—		—		(131,490)		—		(31,647)		(163,137)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	656	—		—	—		204		—		—		(258)		(54)
Other comprehensive loss	—	—		—	—		—		—		(165)		(23)		(188)
Stock-based compensation	—	—		—	—		6,493		—		—		615		7,108
Balance at September 30, 2023	94,258	$	9	21,513	$	2	$	850,265	$	(639,215)	$	(279)	$	29,358	$	240,140

The accompanying notes are an integral part of these condensed consolidated financial statements

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2024		2023
Cash Flows from Operating Activities
Net loss	$	(79,275)	$	(249,053)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	59,877		85,364
Stock-based compensation	11,194		44,112
Impairment of goodwill	—		115,483
Impairment of assets held for sale	—		3,276
Amortization of debt issuance costs	2,966		4,663
Noncash lease expense	1,407		1,327
Change in fair value of warrant liabilities	(1,471)		(6,873)
Deferred tax benefits	(1,581)		(19,385)
(Gain) loss from debt extinguishment	(20,109)		619
Share-based compensation liabilities	15,765		—
Other, net	(27)		1,750
Changes in operating assets and liabilities:
Accounts receivable	(1,487)		17,786
Prepaid expenses and other current assets	2,437		647
Accounts payable	(75)		5,223
Accrued expenses and other current liabilities	5,671		(71)
Deferred revenue	(91)		12,746
Long-term earnout liabilities	—		(20,000)
Other non-current liabilities	(1,228)		(3,522)
Net cash used in operating activities	(6,027)		(5,908)
Cash Flows from Investing Activities
Purchases of property and equipment	(31)		(2,015)

Capitalized software development costs	(4,931)		(4,844)

Net cash used in investing activities	(4,962)		(6,859)
Cash Flows from Financing Activities
Proceeds from related-party loan, net of lender fees	—		63,000
Repayments of related party loan, inclusive of lender fees	—		(44,000)



Repayment of Term Loan	(56,786)		(15,000)


Payment of acquisition holdback	—		(1,935)

Taxes paid related to net settlement of stock awards	(2,137)		(3,053)



Distributions to members, net of contributions	(27)		(66)
Net cash used in financing activities	(58,950)		(1,054)
Effect of exchange rate changes in cash, cash equivalents and restricted cash	81		(231)
Net decrease in cash, cash equivalents and restricted cash	(69,858)		(14,052)
Cash and cash equivalents and restricted cash, beginning of the period	143,450		39,075
Cash and cash equivalents and restricted cash, end of the period	$	73,592	$	25,023
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	69,092	$	4,853
Restricted cash	4,500		7,779
Cash and restricted cash included in assets held for sale from discontinued operations	—		12,391
Total cash, cash equivalents and restricted cash	$	73,592	$	25,023

Supplemental cash flow information:
Capitalized assets financed by accounts payable	$	—	$	53
Stock-based compensation included in capitalized software development costs	1,113		1,644
Settlement of incentive plan through issuance of common stock	1,707		1,658

The accompanying notes are an integral part of these condensed consolidated financial statements

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Organization and Description of Business

System1, Inc. and subsidiaries (the "Company", "we", "our" or "us") operates an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers.

We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform ("RAMP"). Operating seamlessly across major advertising networks and advertising category verticals to acquire high-intent end-users, RAMP allows us to monetize these acquired end-users through our relationships with third party advertisers and advertising networks ("Advertising Partners"). RAMP operates across our network of owned and operated websites, allowing us to monetize end-user traffic that we source from various acquisition marketing channels, including Google, Facebook, Outbrain, and TikTok. RAMP also allows third party advertising platforms and publishers ("Network Partners") to send end-user traffic to, and monetize end-user traffic on, our owned and operated websites or through our monetization agreements.

We have two reportable segments: Owned and Operated Advertising and Partner Network (see Note 10, Segment Reporting).

On August 1, 2024, we undertook a corporate reorganization, the result of which was that all of the assets and business operations of the Company are now held by System1 Holdings, LLC ("System1 Holdings"), a newly formed intermediate holding company of which we maintain the controlling interest and in which the non-controlling interest is owned by the holders of our Class C common stock. Following the corporate reorganization, (a) System1 Holdings now owns 100% of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interest, and 100% of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our owned and operated products, which includes CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our digital advertising businesses, including our proprietary RAMP platform. S1 Holdco and its subsidiaries remain obligors and guarantors under our Term Loan and 2022 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

2.Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements and related disclosures are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Our condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Our fiscal year ends on December 31, 2024. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 15, 2024.

In our opinion, the unaudited interim condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2024 or future operating periods.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

We completed the sale of Total Security Limited, formerly known as Protected.net Group Limited ("Protected") on November 30, 2023. The results of operations of our Protected business are presented as net loss from discontinued operations in our condensed consolidated statements of operations in the periods applicable (see Note 12, Discontinued Operations).

Revision of Previously Issued Consolidated Financial Statements

During the fourth quarter of 2023, we identified certain errors related to our previously issued financial statements as of and for the three and nine months ended September 30, 2023 as follows:

a.Additional paid-in capital was understated by $0.9 million as of September 30, 2023, and salaries and benefits expense was understated by an immaterial amount for the three months ended September 30, 2023 and overstated by $0.6 million for the nine months ended September 30, 2023, as a result of not accelerating expenses upon the forfeiture of certain cash and equity Replacement Awards (as defined in Note 9, Net Loss Per Share) previously granted in 2022. This impacted the condensed consolidated balance sheet, condensed consolidated statements of operations, condensed consolidated statements of changes in stockholders' equity, and condensed consolidated statement of cash flows.

b.We did not appropriately account for changes in equity and earnings per share, specifically:

i.the carrying amount of non-controlling interest was not updated as changes in ownership events occurred during each reporting period;

ii.certain equity Replacement Awards granted during 2022 were not properly considered in the allocation of net income (loss) to controlling and non-controlling interest and earnings per share. These errors impacted the condensed consolidated balance sheets, condensed consolidated statement of operations, condensed consolidated statements of changes in stockholders' equity, and condensed consolidated statement of cash flows.

c.We made additional corrections for other immaterial errors.

d.We adjusted for the tax impacts of the revisions related to such errors described above.

We concluded that the errors were not material, either individually or in the aggregate, to our previously issued condensed consolidated financial statements for the impacted period. To correct the immaterial errors, we have revised our previously issued condensed consolidated financial statements as of and for the period ended September 30, 2023.

We have revised the condensed consolidated balance sheet, condensed consolidated statement of operations, condensed consolidated statement of comprehensive income (loss), condensed consolidated statement of changes in stockholders' equity, and condensed consolidated statement of cash flows for the period ended September 30, 2023, as well as the associated Notes to the condensed consolidated financial statements to reflect the correction of these immaterial errors in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024. The following tables reflect the errors discussed in a through d above.

The following table reflects the revisions to the previously issued condensed consolidated balance sheet as of September 30, 2023 (in thousands):

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


	As Previously Reported		Revision Adjustment		As Currently Reported
Liabilities and Stockholders' Equity
Deferred tax liability	$	15,009	$	338	$	15,347	(d)
Total liabilities	687,066		338		687,404
Stockholders’ Equity / Members’ Deficit
Additional paid-in capital	$	849,398	$	867	$	850,265	(a) (b)
Accumulated deficit	(646,242)		7,027		(639,215)		(a) (b) (d)
Accumulated other comprehensive loss	(435)		156		(279)		(d)

Total stockholders' equity attributable to System1, Inc.	$	202,732	$	8,050	$	210,782
Non-controlling interest	37,746		(8,388)		29,358		(b)
Total stockholders' equity	$	240,478	$	(338)	$	240,140
Total liabilities and stockholders' equity	$	927,544	$	—	$	927,544

The following tables reflect the revisions to the previously issued condensed consolidated statement of operations for the three and nine months ended September 30, 2023 (in thousands):


	Three Months Ended September 30, 2023
	As Previously Reported		Revision Adjustment		As Currently Reported
Salaries and benefits	$	26,689	$	6	$	26,695	(a)
Total operating expenses	108,666		6		108,672
Operating loss	(20,848)		(6)		(20,854)

Loss before income tax	$	(27,038)	$	(6)	$	(27,044)
Income tax expense (benefit)	(920)		(196)		(1,116)		(d)
Net loss from continuing operations	(26,118)		190		(25,928)
Net loss from discontinued operations, net of tax	(137,209)		—		(137,209)
Net loss	(163,327)		190		(163,137)
Less: Net loss from continuing operations attributable to non-controlling interest	(6,328)		247		(6,081)		(b)
Less: Net loss from discontinued operations attributable to non-controlling interest	(25,566)		—		(25,566)
Net loss attributable to System1, Inc.	$	(131,433)	$	(57)	$	(131,490)

Amounts attributable to System1, Inc.:
Net loss from continuing operations	$	(19,790)	$	(57)	$	(19,847)	(a) (b) (d)
Net loss from discontinued operations	(111,643)		—		(111,643)
Net loss attributable to System1, Inc.	$	(131,433)	$	(57)	$	(131,490)

Basic and diluted net loss per share:
Continuing operations	$	(0.21)	$	—	$	(0.21)
Discontinued operations	(1.19)		0.01		(1.18)		(b)
Basic and diluted net loss per share	$	(1.40)	$	0.01	$	(1.39)

Weighted average number of shares outstanding - basic and diluted	93,941		418		94,359		(b)

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


	Nine Months Ended September 30, 2023
	As Previously Reported		Revision Adjustment		As Currently Reported
Salaries and benefits	$	82,484	$	(588)	$	81,896	(a)
Total operating expenses	373,349		(588)		372,761
Operating loss	(67,498)		588		(66,910)

Loss before income tax	$	(98,033)	$	588	$	(97,445)
Income tax expense (benefit)	(10,626)		(988)		(11,614)		(d)
Net loss from continuing operations	(87,407)		1,576		(85,831)
Net loss from discontinued operations, net of tax	(163,222)		—		(163,222)
Net loss	(250,629)		1,576		(249,053)
Less: Net loss from continuing operations attributable to non-controlling interest	(19,543)		554		(18,989)		(b)
Less: Net loss from discontinued operations attributable to non-controlling interest	(30,472)		—		(30,472)
Net loss attributable to System1, Inc.	$	(200,614)	$	1,022	$	(199,592)

Amounts attributable to System1, Inc.:
Net loss from continuing operations	$	(67,864)	$	1,022	$	(66,842)	(a) (b) (d)
Net loss from discontinued operations	(132,750)		—		(132,750)
Net loss attributable to System1, Inc.	$	(200,614)	$	1,022	$	(199,592)

Basic and diluted net loss per share:
Continuing operations	$	(0.73)	$	0.02	$	(0.71)	(b)
Discontinued operations	(1.42)		—		(1.42)
Basic and diluted net loss per share	$	(2.15)	$	0.02	$	(2.13)

Weighted average number of shares outstanding - basic and diluted	93,281		368		93,649		(b)

The following tables reflect the revisions related to the previously issued condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2023 (in thousands):


	Three Months Ended September 30, 2023
	As Previously Reported		Revision Adjustment		As Currently Reported
Net loss	$	(163,327)	$	190	$	(163,137)	(a) (d)
Other comprehensive loss:
Foreign currency translation loss	(188)		—		(188)
Comprehensive loss	(163,515)		190		(163,325)
Comprehensive loss attributable to non-controlling interest	(31,932)		247		(31,685)		(b)
Comprehensive loss attributable to System1, Inc.	$	(131,583)	$	(57)	$	(131,640)

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


	Nine Months Ended September 30, 2023
	As Previously Reported		Revision Adjustment		As Currently Reported
Net loss	$	(250,629)	$	1,576	$	(249,053)	(a) (d)
Other comprehensive loss:
Foreign currency translation loss	(109)		(1)		(110)		(c)
Comprehensive loss	(250,738)		1,575		(249,163)
Comprehensive loss attributable to non-controlling interest	(50,019)		554		(49,465)		(b)
Comprehensive loss attributable to System1, Inc.	$	(200,719)	$	1,021	$	(199,698)

The following tables reflect the revisions to the previously issued condensed consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2023 (in thousands). Although the impact of such revisions is pervasive throughout the condensed consolidated statement of changes in stockholders' equity as a result of the errors described above, the most significant revisions include a reduction of net loss of $1.6 million, an increase of non-controlling interest of $1.8 million, a reduction in accumulated deficit of $1.0 million and a reduction in additional paid-in-capital of $1.0 million.


	Class A Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
As Previously Reported
Balance at December 31, 2022	91,674	$	9	21,747	$	2	$	831,566	$	(439,296)	$	(260)	$	78,650	$	470,671
Net loss	—	—		—	—		—		(33,952)		—		(9,174)		(43,126)
Cumulative-effect of adoption of ASU 2016-13	—	—		—	—		—		(326)		—		—		(326)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	832	—		—	—		(1,730)		—		—		—		(1,730)
Issuance of common stock in connection with settlement of incentive plan	407	—		—	—		1,659		—		—		—		1,659

Conversion of Class C shares to Class A shares	234	—		(234)	—		955		—		—		(955)		—

Increase in tax receivable agreement liability	—	—		—	—		(441)		—		—		—		(441)
Other comprehensive loss	—	—		—	—		—		—		(62)		(47)		(109)
Stock-based compensation	—	—		—	—		6,963		—		—		—		6,963
Balance at March 31, 2023	93,147	$	9	21,513	$	2	$	838,972	$	(473,574)	$	(322)	$	68,474	$	433,561
Net loss	—	—		—	—		—		(35,230)		—		(8,947)		(44,177)

Issuance of restricted stock, net of forfeitures and shares withheld for taxes	455	—		—	—		(314)		—		—		—		(314)





Other comprehensive income (loss)	—	—		—	—		—		—		209		(22)		187
Stock-based compensation	—	—		—	—		5,571		—		—		—		5,571
Balance at June 30, 2023	93,602	$	9	21,513	$	2	$	844,229	$	(508,804)	$	(113)	$	59,505	$	394,828
Net loss	—	—		—	—		—		(131,433)		—		(31,894)		(163,327)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	656	—		—	—		(54)		—		—		—		(54)

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


	Class A Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Other comprehensive loss	—	—		—	—		—		—		(165)		(23)		(188)
Stock-based compensation	—	—		—	—		7,102		—		—		—		7,102
Balance at September 30, 2023	94,258	$	9	21,513	$	2	$	851,277	$	(640,237)	$	(278)	$	27,588	$	238,361

Revision Adjustments
Net loss	—	$	—	—	$	—	$	—	$	150	$	—	$	50	$	200	(a) (b) (d)

Issuance of restricted stock, net of forfeitures and shares withheld for taxes	—	—		—	—		281		—		—		(281)		—		(a) (b)
Issuance of common stock in connection with settlement of incentive plan	—	—		—	—		160		—		—		(160)		—		(b)

Conversion of Class C shares to Class A shares	—	—		—	—		92		—		—		(92)		—		(b)



Stock-based compensation	—	—		—	—		(760)		—		—		958		198		(a) (b)
Balance at March 31, 2023	—	$	—	—	$	—	$	(227)	$	150	$	—	$	475	$	398
Net loss	—	—		—	—		—		929		—		257		1,186		(a) (b) (d)

Issuance of restricted stock, net of forfeitures and shares withheld for taxes	—	—		—	—		181		—		—		(181)		—		(a) (b)





Other comprehensive loss	—	—		—	—		—		—		(1)		—		(1)		(c)
Stock-based compensation	—	—		—	—		(615)		—		—		615		—		(a) (b)
Balance at June 30, 2023	—	$	—	—	$	—	$	(661)	$	1,079	$	(1)	$	1,166	$	1,583
Net loss	—	—		—	—		—		(57)		—		247		190		(a) (b) (d)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	—	—		—	—		258		—		—		(258)		—		(a) (b)
Stock-based compensation	—	—		—	—		(609)		—		—		615		6		(a) (b)
Balance at September 30, 2023	—	$	—	—	$	—	$	(1,012)	$	1,022	$	(1)	$	1,770	$	1,779

As Revised
Net loss	—	$	—	—	$	—	$	—	$	(33,802)	$	—	$	(9,124)	$	(42,926)
Cumulative-effect of adoption of ASU 2016-13	—	—		—	—		—		(326)		—		—		(326)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	832	—		—	—		(1,449)		—		—		(281)		(1,730)
Issuance of common stock in connection with settlement of incentive plan	407	—		—	—		1,819		—		—		(160)		1,659

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


	Class A Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In-Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Non-Controlling Interest		Total Stockholders’ Equity
Conversion of Class C shares to Class A shares	234	—		(234)	—		1,047		—		—		(1,047)		—

Increase in tax receivable agreement liability	—	—		—	—		(441)		—		—		—		(441)
Other comprehensive loss	—	—		—	—		—		—		(62)		(47)		(109)
Stock-based compensation	—	—		—	—		6,203		—		—		958		7,161
Balance at March 31, 2023	93,147	$	9	21,513	$	2	$	838,745	$	(473,424)	$	(322)	$	68,949	$	433,959
Net loss	—	—		—	—		—		(34,301)		—		(8,690)		(42,991)

Issuance of restricted stock, net of forfeitures and shares withheld for taxes	455	—		—	—		(133)		—		—		(181)		(314)





Other comprehensive income (loss)	—	—		—	—		—		—		208		(22)		186
Stock-based compensation	—	—		—	—		4,956		—		—		615		5,571
Balance at June 30, 2023	93,602	$	9	21,513	$	2	$	843,568	$	(507,725)	$	(114)	$	60,671	$	396,411
Net loss	—	—		—	—		—		(131,490)		—		(31,647)		(163,137)
Issuance of restricted stock, net of forfeitures and shares withheld for taxes	656	—		—	—		204		—		—		(258)		(54)
Other comprehensive loss	—	—		—	—		—		—		(165)		(23)		(188)
Stock-based compensation	—	—		—	—		6,493		—		—		615		7,108
Balance at September 30, 2023	94,258	$	9	21,513	$	2	$	850,265	$	(639,215)	$	(279)	$	29,358	$	240,140

The following table reflects the revisions to the previously issued condensed consolidated statement of cash flows for the nine months ended September 30, 2023 (in thousands):


	As Previously Reported		Revision Adjustment		As Currently Reported
Cash Flows from Operating Activities
Net loss	$	(250,629)	$	1,576	$	(249,053)	(a) (d)
Stock-based compensation	43,909		203		44,112		(a)
Deferred tax benefits	(18,397)		(988)		(19,385)		(d)
Changes in operating assets and liabilities:
Accrued expenses and other current liabilities	1,708		(1,779)		(71)		(c)
Other non-current liabilities	(4,510)		988		(3,522)		(d)
Net cash used by operating activities	(5,908)		—		(5,908)

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management’s estimates are based on historical information available as of the date of the condensed consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, acquired intangible assets, assets held for sale and long-lived assets, valuation and recognition of stock-based compensation awards, income taxes, contingent consideration and determination of the fair value of the warrant liabilities. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Risks

We are subject to certain business and operational risks, including competition from alternative technologies, as well as dependence on key Advertising Partners, key employees, key contracts, and growth to achieve our business and operational objectives.

As of September 30, 2024, we had two paid search advertising partnership agreements with Google and one paid search advertising partnership agreement with Microsoft. One of the Google agreements expires on February 28, 2025. Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately or with minimal notice.

We recorded revenue of $6.6 million from an Advertising Partner and an estimated contra revenue liability of $5.8 million at September 30, 2024, due to certain Network Partners related to traffic sent to our platform by those Network Partners that generated search advertising revenue. We have currently withheld payment to the impacted Network Partners pending our comprehensive ongoing review of whether such traffic generating the search advertising revenue was valid or otherwise complied with the terms of our commercial arrangements with such Network Partners. For any traffic determined to be either invalid or not in compliance with such commercial arrangements, the corresponding amounts may be withheld from our Network Partners as a result of such violations and, in such cases, would be recognized as revenue in the period in which such final determinations are made.

3.Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net

Goodwill

Goodwill was $82.4 million as of September 30, 2024 and December 31, 2023, all of which is attributable to the Partner Network reporting unit. No impairment of goodwill was recognized in any of the periods presented for our continuing operations.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Internal-use Software Development Costs, Net and Intangible Assets, Net

Internal-use software development costs and intangible assets consisted of the following (in thousands):


	September 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Internal-use software development costs	$	19,832	$	(5,602)	$	14,230
Intangible assets:
Developed technology	$	196,128	$	(131,128)	$	65,000
Trademarks and trade names	236,053		(62,750)		173,303
Software	5,100		(3,297)		1,803
Customer relationships	2,900		(2,000)		900
Total	$	440,181	$	(199,175)	$	241,006


	December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Internal-use software development costs	$	13,788	$	(2,363)	$	11,425
Intangible assets:
Developed technology	$	196,128	$	(94,354)	$	101,774
Trademarks and trade names	236,053		(45,050)		191,003
Software	5,100		(2,341)		2,759
Customer relationships	2,900		(1,435)		1,465
Total	$	440,181	$	(143,180)	$	297,001

The internal-use software development costs include construction in progress (which amounts are not subject to amortization until placed in service) of $4.5 million and $3.5 million as of September 30, 2024 and December 31, 2023, respectively.

Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Amortization expense for internal-use software development	$	1,229	$	716	$	3,238	$	2,112
Amortization expense for intangible assets	$	18,665	$	18,665	$	55,995	$	55,995

No impairment of internal-use software development cost or intangible assets was recognized for any of the periods presented.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

4.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following items as of the periods presented (in thousands):


	September 30, 2024		December 31, 2023
Accrued revenue share	$	26,129	$	16,365
Accrued payroll and related benefits	14,041		13,751
Accrued marketing expenses	11,816		19,737
Shared-based compensation liability	9,395		—
Other current liabilities	9,691		9,461





Accrued expenses and other current liabilities	$	71,072	$	59,314

CouponFollow Incentive Plan

As of September 30, 2024, we determined that it is probable the CouponFollow business would achieve all performance conditions during the Performance Periods, and accordingly, has recognized a short-term liability within accrued expenses and other current liabilities of $9.4 million and a non-current liability of $6.7 million within other non-current liabilities in our condensed consolidated balance sheets for all Tier amounts set forth in the CouponFollow Incentive Plan. The total amount to be earned under the CouponFollow Incentive Plan is $21.3 million The carrying amount of the share-based liabilities approximates its fair value.

For the nine months ended September 30, 2024, we issued 1.0 million shares of Class A common stock with an aggregate fair value of $1.7 million, net of shares withheld for taxes, on the date of the settlement to settle the second $3.3 million installment of the Fixed Amount. We recognized a gain of $0.5 million for the difference between the fair value of the Class A common stock issued and the carrying value of the liability. For the three and nine months ended September 30, 2024, we recognized $0.8 million and $2.5 million for the third installment of the Fixed Amount within salaries and benefits expenses on the condensed consolidated statements of operations, respectively.

5.Debt, Net

We entered into a term loan ("Term Loan") and revolving facility ("2022 Revolving Facility") with Bank of America, N.A., on January 27, 2022, providing for a 5.5-year term loan with a principal balance of $400.0 million and with the net proceeds of $376.0 million. The 2022 Revolving Facility provided for borrowing availability of up to $50.0 million. As of September 30, 2024, there was no balance outstanding on the 2022 Revolving Facility, and principal of $285.1 million was outstanding on the Term Loan. Through December 31, 2025, the outstanding Term Loan is subject to quarterly amortization payments of $5.0 million. From March 31, 2026, the Term Loan is subject to quarterly amortization payments of $7.5 million. The Term Loan matures in 2027.

For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75%. The Term Loan is amortized in quarterly installments on each scheduled payment date. The Term Loan comes with a leverage covenant, which goes into effect only if the utilization on the 2022 Revolving Facility exceeds 35% of the $50.0 million 2022 Revolving Facility at each quarter-end starting the second quarter 2022, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40. The facility has certain financial and nonfinancial covenants, including a leverage ratio. The facility also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31. Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure. We were in compliance with our financial covenants as of September 30, 2024.

The interest rate on the 2022 Revolving Facility is the adjusted SOFR plus 2.5% with an adjusted SOFR floor of 0%. As of September 30, 2024, we had $50.0 million available on the 2022 Revolving Facility.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

During nine months ended September 30, 2024 we completed the repurchase of $64.9 million in principal amount of our Term Loan for an aggregate purchase price of $41.6 million (at an average discount of 64.12% of its par value). Following the repurchases on January 17, 2024 and April 30, 2024, the outstanding principal amount of the Term Loan was $301.3 million and $295.0 million, respectively. We used available cash on hand to fund the repurchases. Our gain on the repurchases were $20.1 million before fees and expenses incurred to negotiate, document and consummate the repurchase.

The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands):


	September 30, 2024		December 31, 2023
Term Loan 1, 2	$	275,574	$	349,503
Total Debt, net	$	275,574	$	349,503
_______________
1 Includes unamortized discount of $9.0 million and $14.7 million and unamortized loan fees of $0.5 million and $0.8 million, as of September 30, 2024 and December 31, 2023, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method.
2 Estimated fair value of the Term Loan was $181.0 million and $222.7 million as of September 30, 2024 and December 31, 2023, respectively.

6.Income Taxes

We are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings. System1 Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, System1 Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by System1 Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.

We recorded an income tax expense of $0.6 million and $0.4 million for the three and nine months ended September 30, 2024 and a benefit from income taxes of $1.1 million and $11.6 million for the three and nine months ended September 30, 2023, respectively. The effective tax rate was (2.0)% and (0.5)% for the three and nine months ended September 30, 2024, respectively and 4.1% and 11.9% for the three and nine months ended September 30, 2023, respectively. The provision for income taxes differs from the amount of income tax computed by applying the U.S. statutory federal tax rate of 21% to the loss before income taxes due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, changes to tax reserves, return to provision true-ups, increase to the valuation allowance related to unrealizable deferred tax assets, and outside basis adjustments. As of September 30, 2024, we had a full valuation allowance on our U.S. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.

During the three and nine months ended September 30, 2024 and 2023, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement. The total amount of Tax Receivable Agreement Payments due under the Tax Receivable Agreement was $0.9 million and $0.8 million as of September 30, 2024 and December 31, 2023, respectively.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

7.Commitments and Contingencies

In June 2023, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $5.0 million in each annual period between July 2023 and June 2026. As of September 30, 2024, we remain contractually obligated to spend $8.0 million towards this commitment.

As of September 30, 2024, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

Litigation

We are subject to various legal proceedings and claims that arise in the ordinary course of business. We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the condensed consolidated financial statements. There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows. We accrued for losses when the loss is deemed probable and the liability can reasonably be estimated.

In October 2023, a putative California class action complaint (the "Complaint") was filed against us and our Protected business regarding alleged violations of California’s Auto Renewal Law requirements related to the marketing and sale of its subscription service offerings for anti-virus and ad-blocking software (the "Protected Software") to consumers. The Complaint alleges claims under California’s false advertising and unfair competition laws and primarily alleges that the marketing and sales checkout flows for the Protected Software did not clearly and conspicuously disclose that the named plaintiffs set forth in the Complaint were purchasing the Protected Software for a promotional period which would auto-renew after the applicable promotional period. While we dispute the claims alleged, we reached a tentative settlement during June 2024. During September 2024 we entered into a Settlement Agreement, that still remains subject to court approval. The amount of such settlement has been accrued accordingly in accrued expenses and other current liabilities in our condensed consolidated balance sheet as of September 30, 2024.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, we believe the estimated fair value of these agreements was immaterial. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2024.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

8.Fair Value Measurement

Financial Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our fair value hierarchy for liabilities measured at fair value on a recurring basis (in thousands):


	September 30, 2024		December 31, 2023
	Level 1
Public Warrants	$	1,217	$	2,688

The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. There were no transfers in or out of levels during the periods presented.

9.Net Loss Per Share

Basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Basic and diluted net loss per share was calculated as follows (in thousands, except per share):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Basic and diluted net loss per share
Net loss from continuing operations attributable to System1, Inc.	$	(0.34)	$	(0.21)	$	(0.88)	$	(0.71)
Net loss from discontinued operations, net of tax attributable to System1, Inc.	—		(1.18)		—		(1.42)
Basic and diluted net loss per share	$	(0.34)	$	(1.39)	$	(0.88)	$	(2.13)
Numerator:
Net loss from continuing operations attributable to System1, Inc.	$	(23,602)	$	(19,847)	$	(60,512)	$	(66,842)
Net loss from discontinued operations, net of tax attributable to System1, Inc.	—		(111,643)		—		(132,750)
Net loss attributable to System1, Inc.	$	(23,602)	$	(131,490)	$	(60,512)	$	(199,592)
Denominator:
Weighted-average common shares outstanding used in computing basic and diluted net loss per share	70,045		94,359		69,073		93,649

For the periods presented in the table above, a total of 16.8 million Public Warrants were excluded from the computation of net loss per share as the impact was anti-dilutive. In addition, for the three and nine months ended September 30, 2024, we excluded stock appreciation rights ("SARs") of 22.3 million as they are contingently issuable based on certain performance conditions, which were not achieved as of September 30, 2024 . Refer to Note 11, Stock-Based Compensation for further details.

During 2022, we replaced certain unvested profits interests awards, value creation units and Class F units that were outstanding, with a combination of a restricted stock unit and cash awards (collectively, "Replacement Awards"). We do not consider unvested Class A common stock related to the Replacement Awards as outstanding for accounting purposes as they are subject to continued service requirements or contingencies. These shares are not included in the denominator of the net loss per share calculation until the employee provides the requisite service resulting in the vesting of the award or the contingency is removed, or upon termination of an employee at which

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

point the common stock underlying the award becomes issuable to the previous investors. Shares associated with the vested or forfeited Replacement Awards are deemed to be issued and outstanding for accounting purposes on the day of vest or forfeiture.

10.Segment Reporting

We have two operating and reportable segments: Owned and Operated Advertising and Partner Network. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance. Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

The CODM measures and evaluates reportable segments based on segment operating revenue as well as adjusted gross profit. The tables below include the following operating expenses that are not allocated to the reporting segments presented to our CODM: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments. The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported condensed consolidated net loss from continuing operations before income tax and are included in the reconciliation that follows.

The following table summarizes revenue by reportable segments (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Owned and Operated Advertising	$	70,798	$	66,187	$	217,224	$	249,512
Partner Network	18,034		21,631		51,106		56,339
Total revenue	$	88,832	$	87,818	$	268,330	$	305,851

The following table summarizes Adjusted gross profit by reportable segments (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Owned and Operated Advertising	$	26,406	$	23,886	$	76,246	$	81,314
Partner Network	13,053		15,312		37,462		40,337
Adjusted gross profit	39,459		39,198		113,708		121,651
Other cost of revenue	1,798		1,965		6,045		5,995
Salaries and benefits	29,177		26,695		87,597		81,896
Selling, general, and administrative	10,172		11,808		36,889		42,004
Depreciation and amortization	20,128		19,584		59,875		58,666

Interest expense, net	7,957		13,053		23,798		36,789
(Gain) loss from debt extinguishment	—		619		(20,109)		619
Change in fair value of warrant liabilities	281		(7,482)		(1,471)		(6,873)
Loss before income tax	$	(30,054)	$	(27,044)	$	(78,916)	$	(97,445)

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes revenue by geographic region (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
United States	$	85,216	$	81,512	$	258,113	$	292,122
Other countries	3,616		6,306		10,217		13,729
Total revenue	$	88,832	$	87,818	$	268,330	$	305,851

11.Stock-Based Compensation

We recorded the following total stock-based compensation expense (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Stock-based compensation expense	$	3,783	$	5,267	$	11,196	$	15,393

Stock Appreciation Rights Plan

During the quarter ended June 30, 2024, we adopted the 2024 Stock Appreciation Rights Plan (the "2024 Plan"), to enhance our ability to attract, retain, and motivate individuals who are expected to make significant contributions to our future financial and operating performance. The maximum number of Class A common stock that may be issued pursuant to awards of Stock Appreciation Rights ("SARs") granted under the 2024 Plan ("Awards") is 23.8 million shares.

Financial performance in the Plan is determined by the achievement of Adjusted EBITDA. The Plan defines Adjusted EBITDA as, with respect to any particular period, the Company’s net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expenses, dividends or other distributions to equity holders, expense associated with revaluation of any warrants, costs associated with acquisitions or dispositions, deferred compensation, management fees, minority interest expense, restructuring charges, impairment and certain segment-specific adjustments, and such other adjustments as may be appropriate to accurately reflect performance, in each case, as determined by the Plan administrator.

In July 2024, we granted 22.4 million SARs in accordance with the Plan. Each Award is subject to the employee's continued service through the applicable Vesting Date (as defined in the Plan) and the term of any Stock Appreciation Right shall not exceed seven years. The SARs will vest in four equal tranches upon achieving trailing twelve month Adjusted EBITDA targets of $50.0 million, $60.0 million, $70.0 million, and $80.0 million.

Upon exercise, the SARs will be settled in shares of our Class A common stock or in cash at our election. We will assess whether it is probable that the award will vest for each of the four tranches at the end of every reporting period. If and when the award is deemed probable of vesting, we will recognize stock-based compensation expense for the award on a graded basis through the date of vesting. Unvested SARs are forfeited upon termination of service.

We use the Black-Scholes option pricing model to estimate the grant date fair value of each SARs award granted under the Plan. The expected term is estimated using the simplified method, which is the midpoint between the vesting date and the contractual term. Volatility is based on a blend of the historical volatility of our common stock and the peer-leveraged volatility. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The following table sets forth the key assumptions used to determine the fair value:

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)


Input
Risk-free interest rate						4.01% - 4.56%
Term (in years)						2.5 - 7.0
Volatility factor						73.18% - 89.76%
Dividend yield						0.00%

The weighted-average grant date fair value of SARs granted during the three months ended September 30, 2024 was $0.94.

A summary of our SARs activity is as follows:


	Number of Shares (in thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2024	—	$	—	—	$	—
Granted	22,446	1.44
Forfeited/canceled	(135)	1.44
Outstanding at September 30, 2024	22,311	1.44		5.25

Expected to vest as of September 30, 2024	—	$	1.44	5.25	$	—

As of September 30, 2024, we determined that none of the performance conditions related to the SARs are probable of being achieved. Accordingly, no stock-based compensation expense for the three and nine months ended September 30, 2024 was recognized. As of September 30, 2024, the total unrecognized compensation cost related to unvested SARs was $21.0 million.

12.Discontinued Operations

Sale of Protected

On November 30, 2023, we completed the sale of our Protected business, our subscription reporting unit. Total consideration comprised of: (a) $240.0 million in cash, subject to certain adjustments, (b) the return and subsequent cancellation of approximately 29.1 million shares of our Class A common stock, par value $0.0001 per share, owned by Just Develop It ("JDI") and other entities and individuals affiliated with the Purchasing Parties and (c) confirmation from JDI, Protected and the Protected CEO that the financial performance benchmarks related to the financial benchmarks included in the Protected Incentive Plan (as defined below), will, as a result of the Protected sale, no longer be achievable.

Impairment of Protected

Upon classifying our Protected business as held for sale as of September 30, 2023, we performed a goodwill impairment test on the Subscription reporting unit, resulting in a goodwill impairment charge of $115.5 million. This impairment was the result of decreases in long-term forecasts due to adverse customer trends and other macroeconomic outcomes. We recorded a further impairment loss of $3.3 million upon the classification of the disposal group as held for sale, for a total impairment charge of $118.8 million that was recorded in the results of discontinued operations for the three and nine months ended September 30, 2023. There was no tax benefit of this charge for the three and nine months ended September 30, 2023.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The financial results of Protected are presented as a loss from discontinued operations, net of taxes in the condensed consolidated statements of operations. The following table presents the summarized discontinued operations condensed consolidated statements of operations (in thousands):


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Revenue	$	54,550	$	151,610
Operating expenses:
Cost of revenue (excluding depreciation and amortization)	51,373		126,047
Salaries and benefits	10,144		36,738
Selling, general, and administrative	6,796		11,507
Depreciation and amortization	8,385		26,729
Impairment of goodwill	115,483		115,483
Impairment of assets held for sale	3,276		3,276
Total operating expenses	195,457		319,780
Operating loss	(140,907)		(168,170)
Other (income) expense, net	(47)		10
Loss from discontinued operations before income taxes	(140,860)		(168,180)
Income tax benefit	(3,651)		(4,958)
Net loss from discontinued operations	$	(137,209)	$	(163,222)

The following table presents the significant non-cash items and capital expenditures for the discontinued operations with respect to the subscription business that are included in the condensed consolidated statements of cash flows (in thousands):


	Nine Months Ended September 30, 2023
Impairment of goodwill	$	115,483
Impairment of assets held for sale	3,276
Depreciation and amortization	26,729
Stock-based compensation	28,716
Capital expenditures	1,451

Transition Service Agreement

In connection with a transition service agreement entered into with the sale of our Protected business, we agreed to provide certain services for which full reimbursement of cost will be provided through the earlier of November 30, 2024 or the date Protected is able to independently participate in Google's advertising purchasing programs.

Discontinued Operations Related-Party Transactions

Payment Processing Agreement

Protected utilizes multiple credit card payment processors, including Paysafe Financial Services Limited ("Paysafe"). In March 2021, Paysafe completed a merger with Foley Trasimene Acquisition Corp. II, a special purpose acquisition company sponsored by entities affiliated with a sponsor of Trebia who was also a member of our Board of Directors. We incurred credit card processing fees related to Paysafe for the three and nine months ended September 30, 2023 of $4.2 million and $11.9 million, respectively.

System1, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Office Facilities

Protected had an agreement with JDI Property Holdings Limited, an entity controlled by one of our directors, which allowed Protected to use space at their property in exchange for GBP 0.1 million per year.

Protected Incentive Plan Installment Payments

In 2022, in connection with the acquisition of Protected, we effected an incentive plan for eligible recipients (the "Protected Incentive Plan"), providing up to $100.0 million payable in fully-vested shares of our Class A common stock contingent upon the achievement of the future performance of Protected’s business. The Protected Incentive Plan originally was to be paid out in two tranches based on performance of the business for 2023 and 2024. The first award (2023), consisting of $50.0 million of Class A common stock payable in January 2024, was modified to a cash award resulting in $20.0 million of payments in 2022 and 2023 with an additional final $10.0 million, payable upon the achievement of certain performance thresholds around marketing spend and operating contribution of Protected on or before December 31, 2024. On November 30, 2023, none of the performance thresholds were met, and therefore, none of the additional cash bonus payments have been paid.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SYSTEM1 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated or the context otherwise requires, references in this section to "the Company," "System1," "we," "us," "our" and other similar terms refer to System1, Inc and its subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ending December 31, 2023. In addition to historical information, the following discussion and analysis contains forward-looking statements. Our actual results may differ significantly from those projected in such forward-looking statements. Factors that might cause future results to differ materially from those projected in such forward-looking statements include, but are not limited to, those discussed in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements."

References to "Notes" are notes included in our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 have been revised to correct prior period errors as discussed in Item I, "Financial Statements - Note 2, Summary of Significant Accounting Policies." Accordingly, this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations reflects the impact of those revisions.

Company Overview

We operate an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers.

Through RAMP, we ingested over 13 billion rows of data daily across approximately 40 advertising vertical categories during the three months ended September 30, 2024. We are able to efficiently monetize user intent by linking data on consumer engagement, such as first party search data like traffic sources, device type and search queries, with data on monetization rates and advertising spend. This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising category verticals.

We focus on monetizing user traffic acquired by our Network Partners. Since launching, it has expanded to support additional advertising formats across multiple advertising platforms, and has acquired several leading websites, enabling it to control the entire flow of the user acquisition experience, by monetizing user traffic through our network of owned and operated websites. As of September 30, 2024, we own and operate approximately 40 websites, including leading search engines like info.com and Startpage.com, and digital media publishing websites and internet utilities, such as HowStuffWorks, MapQuest, CouponFollow and ActiveBeat.

On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), ("Business Combination Agreement") by and among us, S1 Holdco, LLC ("S1 Holdco") and Total Security Limited, formerly known as Protected.net Group Limited ("Protected"). On January 26, 2022 ("Closing Date"), we consummated the business combination ("Merger") pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company was organized via an "Up-C" structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco.

On August 1, 2024, we undertook a corporate reorganization, the result of which was that all of the assets and business operations of System1 are now held by System1 Holdings, a newly formed intermediate holding company of which we maintain the controlling interest and in which the non-controlling interest is held by our Class C common stockholders. Following the corporate reorganization, (a) System1 Holdings now owns 100% of S1 Holdco (the previous intermediate holding company) and 100% of S1 Media, LLC (“S1 Media”), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our owned and operated products businesses, which include CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our digital advertising businesses, including its proprietary RAMP platform. S1 Holdco and its subsidiaries remain obligors and guarantors under our Term Loan and 2022 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

Our primary operations are in the United States, and we also have operations in Canada and the Netherlands. Operations outside the United States are subject to risks inherent in operating under different legal systems as well as various political and economic environments. Among the risks are changes in existing tax laws, changes in the regulatory framework in foreign jurisdictions, data privacy laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, exposure to currency exchange fluctuations and employment laws impacting foreign employees. We do not engage in hedging activities to mitigate our exposure to fluctuations in foreign currency exchange rates.

As a result of the current uncertainty in economic activity, including geopolitical developments and other macroeconomic factors such as rising interest rates, inflation and the impact of earlier supply chain disruptions, we are unable to predict the size and duration of the impact on our revenue and our results of operations.

Sale of Protected

We completed the sale of our Protected business on November 30, 2023. The results of operations of our Protected business prior to its sale are presented as net loss from discontinued operations in our condensed consolidated statements of operations for all periods presented. Unless otherwise noted, the information contained in this Management Discussion and Analysis relates solely to our continuing operations and does not include the operations of our Protected business (see Item I, "Financial Statements - Note 12, Discontinued Operations").

Components of Our Results of Operations

Revenue

We earn revenue by deploying components of our RAMP to our owned and operated websites to acquire and monetize end-users via advertising offerings from our Advertising Partners. For this revenue stream, we are the principal in the transaction and report revenue on a gross basis for the amounts received from our Advertising Partners. Additionally, revenue is earned from revenue-sharing arrangements with our Network Partners, whereby

our Network Partners acquire end-users and use RAMP to monetize those end-users via our relationships with Advertising Partners. We have determined that we are the agent in these transactions and therefore report revenue on a net basis, based on the difference between amounts received by us from our Advertising Partners, less amounts remitted to our Network Partners based on the underlying revenue-sharing agreements.

We recognize revenue upon delivering user-traffic to our Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment terms with our Advertising Partners is typically 30 days.

Revenue may fluctuate from period to period due to a number of factors including seasonality and the shift in mix of user acquisition sources from Advertising Partners.

We have two reportable segments:

•Owned and Operated Advertising ("O&O"); and

•Partner Network.

Operating Expenses

We classify our operating expenses into the following categories:

Cost of revenue (excluding depreciation and amortization). Cost of revenue (excluding depreciation and amortization) primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, as well as domain name registration costs and licensing costs to provide mapping services to Mapquest.com. We do not pre-pay any traffic acquisition costs, and therefore, such costs are expensed as incurred.

Salaries and benefits. Salaries and benefits expenses include salaries, bonuses, stock-based compensation, and employee benefits costs.

Selling, general, and administrative. Selling, general, and administrative expenses consist of fees for software services, professional services, occupancy costs and travel and entertainment. These costs are expensed as incurred.

Depreciation and amortization. Depreciation and amortization expenses are primarily attributable to our capital investment(s) and consist of property and equipment depreciation and amortization of intangible assets with finite lives.

Other Expenses

Other expenses consist of the following:

Interest expense, net. Interest expense consists of interest on our debt and the amortization of deferred financing costs and debt discount.

(Gain) loss from debt extinguishment. Gain from the repurchase of a portion of our Term Loan indebtedness at a discount.

Change in fair value of warrant liabilities. The mark to market of our liability-classified Public Warrants.

Income tax expense (benefit)

in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.

Results of Operations

Comparisons of the three and nine months ended September 30, 2024 and 2023

The following table summarizes key components of our results of operations for the periods indicated (in thousands, except percentage information):


	Three Months Ended September 30,								Year/Year Change
	2024		% of Revenue		2023		% of Revenue		($)		(%)*
Revenue	$	88,832	100	%	$	87,818	100	%	$	1,014	1	%
Operating expenses:
Cost of revenue (excluding depreciation and amortization)	51,171		58	%	50,585		58	%	586		1	%
Salaries and benefits	29,177		33	%	26,695		30	%	2,482		9	%
Selling, general, and administrative	10,172		11	%	11,808		13	%	(1,636)		(14)	%
Depreciation and amortization	20,128		23	%	19,584		22	%	544		3	%
Total operating expenses	110,648		125	%	108,672		124	%	1,976		2	%
Operating loss	(21,816)		(25)	%	(20,854)		(24)	%	(962)		5	%
Other expense (income):
Interest expense, net	7,957		9	%	13,053		15	%	(5,096)		(39)	%
(Gain) loss from debt extinguishment	—		—	%	619		1	%	(619)		(100)	%
Change in fair value of warrant liabilities	281		—	%	(7,482)		(9)	%	7,763		(104)	%
Total other expense (income), net	8,238		9	%	6,190		7	%	2,048		33	%
Loss before income tax	(30,054)		(34)	%	(27,044)		(31)	%	(3,010)		11	%
Income tax expense (benefit)	585		1	%	(1,116)		(1)	%	1,701		(152)	%
Net loss from continuing operations	(30,639)		(34)	%	(25,928)		(30)	%	(4,711)		18	%
Net loss from discontinued operations, net of tax	—		—	%	(137,209)		(156)	%	137,209		(100)	%
Net loss	(30,639)		(34)	%	(163,137)		(186)	%	132,498		(81)	%
Less: Net loss from continuing operations attributable to non-controlling interest	(7,037)		(8)	%	(6,081)		(7)	%	(956)		16	%
Less: Net loss from discontinued operations attributable to non-controlling interest	—		—	%	(25,566)		(29)	%	25,566		(100)	%
Net loss attributable to System1, Inc.	$	(23,602)	(27)	%	$	(131,490)	(150)	%	$	107,888	(82)	%

* Percentages may not sum due to rounding


	Nine Months Ended September 30,								Year/Year Change
	2024		% of Revenue		2023		% of Revenue		($)		(%)*
Revenue	$	268,330	100	%	$	305,851	100	%	$	(37,521)	(12)	%
Operating expenses:
Cost of revenue (excluding depreciation and amortization)	160,667		60	%	190,195		62	%	(29,528)		(16)	%
Salaries and benefits	87,597		33	%	81,896		27	%	5,701		7	%
Selling, general, and administrative	36,889		14	%	42,004		14	%	(5,115)		(12)	%
Depreciation and amortization	59,875		22	%	58,666		19	%	1,209		2	%
Total operating expenses	345,028		129	%	372,761		122	%	(27,733)		(7)	%
Operating loss	(76,698)		(29)	%	(66,910)		(22)	%	(9,788)		15	%
Other expense (income):
Interest expense, net	23,798		9	%	36,789		12	%	(12,991)		(35)	%
(Gain) loss from debt extinguishment	(20,109)		(7)	%	619		—	%	(20,728)		(3349)	%
Change in fair value of warrant liabilities	(1,471)		(1)	%	(6,873)		(2)	%	5,402		(79)	%
Total other expense (income), net	2,218		1	%	30,535		10	%	(28,317)		(93)	%
Loss before income tax	(78,916)		(29)	%	(97,445)		(32)	%	18,529		(19)	%
Income tax expense (benefit)	359		—	%	(11,614)		(4)	%	11,973		(103)	%
Net loss from continuing operations	(79,275)		(30)	%	(85,831)		(28)	%	6,556		(8)	%
Net loss from discontinued operations, net of tax	—		—	%	(163,222)		(53)	%	163,222		(100)	%
Net loss	(79,275)		(30)	%	(249,053)		(81)	%	169,778		(68)	%
Less: Net loss from continuing operations attributable to non-controlling interest	(18,763)		(7)	%	(18,989)		(6)	%	226		(1)	%
Less: Net loss from discontinued operations attributable to non-controlling interest	—		—	%	(30,472)		(10)	%	30,472		(100)	%
Net loss attributable to System1, Inc.	$	(60,512)	(23)	%	$	(199,592)	(65)	%	$	139,080	(70)	%

* Percentages may not sum due to rounding

Revenue and Cost Metrics

The key non-financial performance metrics we use to evaluate our business, track the effectiveness of our operations and measure our performance are total advertising spend, number of Owned & Operated Advertising sessions (“O&O sessions”), number of Partner Network sessions (“Network sessions”), Owned & Operated Advertising cost-per-session (“O&O CPS”), Owned & Operated Advertising revenue-per-session (“O&O RPS”) and Partner Network revenue-per-session (“Network RPS”).

We define total advertising spend as the amount of advertising that is spent by us to acquire traffic to our owned and operated websites. We believe total advertising spend is a relevant measure to gauge the effectiveness of our Company to deploy capital to acquire monetizable traffic to our Owned & Operated websites, which is a key driver of our Owned & Operated reporting segments.

We define O&O sessions as the total number of monetizable user visits to our Owned & Operated Advertising websites. We define Network sessions as the number of monetizable user visits delivered by our Network Partners to RAMP. Monetizable visits exclude those visits identified by our Advertising Partners as spam, bot, or other invalid traffic.

We define O&O CPS as advertising spend divided by O&O sessions. We believe O&O CPS is a relevant measure to gauge the efficiency of operations and processes in deploying advertising spend, especially when evaluated in combination with total advertising spend.

We define O&O RPS as O&O revenue divided by O&O sessions. We define Network RPS as Network Partner revenue divided by Network sessions. We believe both O&O RPS and Network RPS are key measures to evaluate our effectiveness in converting monetizable traffic into revenue.

Revenue

The following table presents our revenue by reportable segment (in thousands):


	Three Months Ended September 30,				Year/Year Change
	2024		2023		($)		(%)
Owned and Operated Advertising	$	70,798	$	66,187	$	4,611	7%
Partner Network	18,034		21,631		(3,597)		(17)%
Total revenue	$	88,832	$	87,818	$	1,014	1%


	Nine Months Ended September 30,				Year/Year Change
	2024		2023		($)		(%)
Owned and Operated Advertising	$	217,224	$	249,512	$	(32,288)	(13)%
Partner Network	51,106		56,339		(5,233)		(9)%
Total revenue	$	268,330	$	305,851	$	(37,521)	(12)%

Owned and Operated Advertising

Owned and Operated Advertising revenue increased for the three months ended September 30, 2024 as compared to the prior year comparative period, and decreased for the nine months ended September 30, 2024 as compared to the prior year comparative period. For the three months ended September 30, 2024 compared to the prior year comparative period, O&O sessions increased by approximately 1.1 billion to 2.0 billion from 920 million, and O&O RPS decreased by $0.04 to $0.03 from $0.07. For the nine months ended September 30, 2024 compared to the prior year comparative period, O&O sessions increased approximately 2.5 billion to 5.3 billion from 2.8 billion, and O&O RPS decreased by $0.05 to $0.04 from $0.09. The year-over-year increases in sessions were due to the integration of new traffic acquisition sources into RAMP. The year-over-year declines in RPS were related to a mix shift to lower RPS traffic, as well as a softening of domestic advertiser demand.

Partner Network

Partner Network revenue decreased for the three and nine months ended September 30, 2024 as compared to the prior year comparative periods. For the three months ended September 30, 2024 compared to the prior year comparative period, Network sessions increased approximately 1.4 billion to 2.3 billion from 894 million, and Network RPS decreased by $0.01 to $0.01 from $0.02. For the nine months ended September 30, 2024 compared to the prior year comparative period, Network sessions increased approximately 3.9 billion to 5.9 billion from 2.0 billion, and Network RPS decreased by $0.02 to $0.01 from $0.03. The year-over-year increases in sessions were due to the onboarding of new Network Partners. The year-over-year declines in RPS are primarily due to a softening of domestic advertiser demand and instability experienced in the Advertising Partner ecosystem generally starting in the fourth quarter of 2023.

Cost of revenue (excluding depreciation and amortization)

Cost of revenue (excluding depreciation and amortization) remained relatively consistent for the three months ended September 30, 2024 and decreased for the nine months ended September 30, 2024 in line with the changes in O&O revenue discussed above. For the three and nine months ended September 30, 2024, compared to

prior year comparative periods, our O&O CPS decreased $0.03 to $0.02 from $0.05 and $0.03 to $0.03 from $0.06, respectively. This is primarily due to a mix shift away to lower CPS traffic to offset the declines in RPS.

Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenue as well as adjusted gross profit and other measures. We define and calculate adjusted gross profit as revenue less advertising expense incurred to acquire users. The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties and fees. We exclude the following items from segment adjusted gross profit: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments.

The following table presents our Adjusted gross profit by reportable segment (in thousands):


	Three Months Ended September 30,				Year/Year Change
	2024		2023		($)		(%)
Owned and Operated Advertising	$	26,406	$	23,886	$	2,520	11	%
Partner Network	13,053		15,312		(2,259)		(15)	%


	Nine Months Ended September 30,				Year/Year Change
	2024		2023		($)		(%)
Owned and Operated Advertising	$	76,246	$	81,314	$	(5,068)	(6)	%
Partner Network	37,462		40,337		(2,875)		(7)	%

Refer to the Revenue and Cost of revenue (excluding depreciation and amortization) discussions above for explanation of the change for each period.

Salaries and benefits

Salaries and benefits increased for the three and nine months ended September 30, 2024 as compared to the prior year comparative periods. The increase for the three and nine months was primarily related to the recognition of $5.5 million and $16.1 million related to CouponFollow share-based liabilities (see Item I, "Financial Statements - Note 4, Accrued Expenses and Other Current Liabilities"), respectively. This was partially offset by a $1.5 million and $4.2 million decrease in stock-based compensation and $1.6 million and $5.3 million decrease in severance and payroll-related expenses due to a reduction in workforce for the three and nine months ended September 30, 2024, respectively.

Selling, general, and administrative

Selling, general, and administrative expense decreased for the three and nine months ended September 30, 2024 as compared to the prior year comparative periods. The decrease was primarily due to a $1.3 million and $2.5 million decrease in advisory, consulting, and legal fees, and a decrease in bad debt expense of $0.7 million and $2.3 million for the three and nine months ended September 30, 2024, respectively.

Depreciation and amortization

Depreciation and amortization expense increased for the three and nine months ended September 30, 2024 as compared to the prior year comparative periods, primarily related to increased amortization for our continued investment in internally developed software.

Interest expense, net

Interest expense, net decreased for the three and nine months ended September 30, 2024 as compared to the prior year comparative periods, primarily due to a lower debt outstanding balance in the current year as a result of paying down a significant portion of our principal balance, as well as a decline in adjusted Secured Overnight Financing Rate ("SOFR") interest rates.

(Gain) loss from debt extinguishment

(Gain) loss from debt extinguishment decreased for the three ended September 30, 2024 and increased for the nine months ended September 30, 2024 as compared to the prior year comparative periods due to the gain recognized as a result of our repurchase of debt through the Dutch auction and direct buy back that occurred in January and April of 2024, respectively.

Change in fair value of warrant liabilities

The increase in fair value of our warrant liabilities for the three months and decrease for the nine months ended September 30, 2024, as compared to the prior year comparative periods, respectively was due to the remeasurement of our warrant liability to its fair value at September 30, 2024 where the fluctuations are driven by the market value of our Class A common stock.

Income tax expense (benefit)

The difference between the effective tax rates for the periods presented and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling income (loss), non-deductible expenses, changes to reserves, return to provision true-ups, valuation allowance and outside basis adjustments.

Net loss from discontinued operations, net of tax

Net loss from discontinued operations, net of tax is comprised of the net loss from discontinued operations, net of tax and only includes direct operating expenses incurred that: (1) are clearly identifiable as costs being disposed of upon completion of the sale, and (2) will not be continued by us on an ongoing basis.

Indirect expenses which supported our subscription business, and which remained as part of the continuing operations following the sale are not reflected in loss from discontinued operations, net of tax.

Liquidity and Capital Resources

We expect existing cash and cash equivalents, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months. Our main sources of liquidity have historically been, and are expected to be from cash on hand, cash flows from operations and financing activities. Our ability to fund future operating expenses and capital expenditures, and our ability to meet our future debt service obligations, will depend on our ability to execute on our operational strategy and may be affected by our profitability, as well as general economic, financial and other factors which are beyond our control.

We continue to develop and implement plans to improve our liquidity. Our main focus is executing on our operational strategy, which includes continued focus on expanding the number of advertising partners that are utilizing or integrated with RAMP by continuing to attract and monetize users with commercial intent on our owned and operated web properties and on behalf of our network partners as well as optimizing bids and driving higher returns on advertising spend. Additionally, we are focused on our current cost structure by reducing our cash operating expenses and debt service obligations. Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could have a negative impact on our financial condition and operating results.

As of September 30, 2024, we had unrestricted cash and cash equivalents of $69.1 million and $50.0 million available to borrow on our 2022 Revolving Facility. For the nine months ended September 30, 2024, we had cash outflows of $69.9 million. The principal drivers of our cash outflows were $56.8 million repayment of our Term Loan, $11.3 million related to net change in operations and $4.9 million of software development costs, offset by a $5.2 million working capital changes.

Credit Facilities

See Item 1, "Financial Statements - Note 5, Debt, Net" of this Quarterly Report on Form 10-Q.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):


	Nine Months Ended September 30,
	2024		2023
Net cash used in operating activities	$	(6,027)	$	(5,908)
Net cash used in investing activities	(4,962)		(6,859)
Net cash used in financing activities	(58,950)		(1,054)

Operating Activities

Our cash flows from operating activities are primarily impacted by growth in our operations, timing of collections from our partner and related payments to our suppliers for advertising inventory and data. We typically pay suppliers in advance of collections from our clients and our collection and payment cycles can vary from period to period. In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.

In the nine months ended September 30, 2024, cash used in operating activities of $6.0 million resulted primarily from favorable changes in net income, excluding the impact of non-cash items offset by favorable changes in working capital balances. The favorable changes in working capital balances included an increase in accrued expenses and other current liabilities offset by an increase in account receivable balances.

In the nine months ended September 30, 2023, cash used in operating activities of $5.9 million resulted primarily from net loss adjusted for noncash items, including the impairment of goodwill and assets held for sale of $118.8 million, depreciation and amortization expense of $85.4 million, stock-based compensation of $44.1 million, and a decrease in accounts receivable of $17.8 million. This was partially offset by a net loss of $249.1 million and a payment of long-term earnout liabilities of $20.0 million.

Investing Activities

Our primary investing activities consisted of costs capitalized for internally developed software.

In the nine months ended September 30, 2024 and September 30, 2023, cash used in investing activities of $5.0 million and $6.9 million resulted primarily from costs capitalized for internally developed software, respectively.

Financing Activities

Our financing activities consisted primarily of repayments of our indebtedness under our credit facilities.

In the nine months ended September 30, 2024, cash used in financing activities of $59.0 million was primarily related to the repayment of the 2022 Term Note in the amount of $56.8 million.

In the nine months ended September 30, 2023, cash used in financing activities of $1.1 million resulted primarily from repayment of our existing term loan of $15.0 million, taxes paid related to net settlement of stock awards of $3.1 million, and payment of acquisition holdback of $1.9 million. This was partially offset by net proceeds from a related-party revolver of $19.0 million.

Off-Balance Sheet Arrangements

We do not have any relationships with entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements during the periods presented other than the indemnification agreements.

Contractual Obligations and Known Future Cash Requirements

Service Agreements

In June 2021, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $5.0 million annually between July 2023 and June 2026. As of September 30, 2024, we remain contractually obligated to spend a remaining $8.0 million towards this commitment.

Contingencies

From time to time, we are subject to contingencies that arise in the ordinary course of business. We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We do not currently believe the resolution of any such contingencies will have a material adverse effect upon our condensed consolidated financial statements.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our condensed consolidated financial statements are stock-based compensation, business combinations and valuation of goodwill and income taxes.

There have been no material changes to our critical accounting policies and estimates as described in our Annual Report.

Recently Issued Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Item 1, "Financial Statements - Note 2, Summary of Significant Accounting Policies."

Item 3. Quantitative and Qualitative Disclosure about Market Risk

As a "smaller reporting company", as defined by Rule 10(f)(1) of Regulation S-K, we are not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that, as of September 30, 2024, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Material Weaknesses in Internal Control Over Financial Reporting

We have identified material weaknesses in our internal control over financial reporting as of September 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses identified were as follows:

•We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, the limited personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions.

•We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.

These material weaknesses contributed to the following additional material weaknesses:

•We did not design and maintain effective controls to timely analyze and record the financial statement effects from complex, non-routine transactions, including acquisitions, dispositions, and post-combination compensation arrangements. Specifically, we did not design and maintain effective controls over the application of US GAAP to such transactions, and, as it relates to acquisitions, did not design and maintain effective controls over (i) the review of the inputs and assumptions used in the measurement of assets acquired and liabilities assumed, including discounted cash flow analysis to value acquired intangible assets at an appropriate level of precision, (ii) the tax impacts of acquisitions to the financial statements, and (iii) conforming of US GAAP and accounting policies of acquired entities to that of the Company. In addition, we did not design and maintain effective controls relating to the oversight and ongoing recording of the financial statement results of the acquired businesses.

•We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over (i) the

preparation and review of business performance reviews, account reconciliations, journal entries, and identification of asset groups and (ii) maintaining appropriate segregation of duties. Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the consolidated financial statements, including the statement of cash flows.

•We did not design and maintain effective controls over accounting for accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest.

•We did not design and maintain effective controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment.

These material weaknesses resulted in the revision to the consolidated financial statements for each of the three quarterly periods in the year ended December 31, 2023.

These material weaknesses also resulted in an immaterial misstatement within cash flows from operating activities of System1, Inc. as of and for the nine months ended September 30, 2023 and within stockholders' equity of the consolidated financial statements of System1, Inc. as of December 31, 2023 and all quarterly periods during 2023.

•We did not design and maintain effective controls over the accounting for complex financial instruments, including the impact of these instruments on earnings per share.

This material weakness resulted in a material misstatement of the Trebia warrant liabilities, change in the fair value of the Trebia warrant liabilities, forward purchase agreement liabilities, change in the fair value of the forward purchase agreement liabilities, classification of redeemable shares of Class A common stock issued in connection with Trebia’s initial public offering, additional paid-in-capital, accumulated deficit, Earnings Per Share, and related financial disclosures of Trebia Acquisition Corp. in prior periods not presented in this Quarterly report on Form 10-Q.

Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

•We did not design and maintain effective controls over information technology ("IT") general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:

i.program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately;

ii.user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel;

iii.computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and

iv.testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

These IT deficiencies did not result in a material misstatement to the financial statements; however, the deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined these IT deficiencies in the aggregate constitute a material weakness.

Remediation Plan for the Material Weaknesses

We are in the process of, and we are focused on, designing and implementing effective measures to improve our internal control over financial reporting and remediate the material weaknesses. Our remediation efforts to address the identified material weaknesses are ongoing. Our efforts include a number of actions:

•Assessed the need of additional senior level accounting personnel with applicable technical accounting knowledge, training, and experience in accounting matters, and hired the appropriately skilled resources; continuing to assess the needs within the accounting department;

•Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls ensuring segregation of duties;

•Engaged an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission;

•Engaged third-party specialists to assist with the preparation of technical accounting analyses and valuations associated with business combinations, and ensuring adequate review by accounting personnel with applicable technical accounting knowledge, training, and experience in accounting for business combinations or dispositions;

•Designing and implementing controls to address the financial reporting risks over the accounting for dispositions, acquisitions and other complex, non-routine transactions, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, tax impacts, and ongoing recording of the financial statement results of the acquired businesses;

•Designing and implementing formal accounting policies with periodic reviews, procedures and controls supporting our period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, business performance reviews, foreign exchange gains/losses for intercompany transactions, appropriate determination of asset groups for impairment consideration and classification and presentation of accounts and disclosures, including the statement of cash flows;

•Designing and implementing controls to address the financial reporting risks over accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest;

•Designing and implementing controls to address the financial reporting risks over the accounting for complex financial instruments, including the earnings per share impacts;

•Designing and implementing controls to address the financial reporting risks over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment;

•Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.

We believe the measures described above will facilitate the remediation of the material weaknesses we have identified and will strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control over financial reporting and will continue to review, optimize and enhance our processes, procedures and controls. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation measures described above. These material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Therefore, these material weaknesses have not been remediated as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended September 30, 2024 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II—OTHER INFORMATION

Item 1. Legal Proceedings

We are party to pending litigation and claims in connection with the ordinary course of our business. We make provisions for estimated losses to be incurred in such litigation and claims, including legal costs, and we believe such provisions are adequate. See Item I, "Financial Statements - Note 7, Commitments and Contingencies", within the notes to our unaudited condensed consolidated financial statements for a summary of material legal proceedings, in addition to Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K filed with the SEC on March 15, 2024.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K Part I, Item "1A. Risk Factors" for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

In August 2022, the Board authorized up to $25.0 million for the repurchase of our Class A common stock and Public Warrants. During the quarter ended, no repurchases of our equity securities were made by us or by any of our affiliated purchasers. As of September 30, 2024, we had $23.9 million available under this authorization remaining.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The trading plan of our Chief Executive Officer was terminated during the second quarter of 2024 and the trading plan of our Chief Operating Officer expired during the third quarter of 2024. No new trading plans have been adopted as of the date of this filing.

Item 6. Exhibits

Incorporated by Reference

Filed or Furnished Herewith

Exhibit No.

Description

Form

File No.

Exhibit

Filing Date

2.1(a)

Business Combination Agreement, dated as of June 28, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto.

8-K

001-39331

2.1

6/29/2021

2.1(b)

Amendment No. 1 to the Business Combination Agreement, dated as of November 30, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto.

S-4

333-260714

2.2

12/1/2021

2.1(c)

Amendment No. 2 to the Business Combination Agreement, dated January 10, 2022, by and among S1 Holdco, LLC, a Delaware limited liability company, System1 SS Protect Holdings, Inc., a Delaware corporation and the other parties signatory thereto.

8-K

001-39331

10.1

1/20/2022

2.1(d)

Amendment No. 3 to the Business Combination Agreement, dated January 25, 2022, by and among S1 Holdco, LLC, a Delaware limited liability company, System1 SS Protect Holdings, Inc., a Delaware corporation and the other parties signatory thereto.

8-K

001-39331

10.1

1/26/2022

2.2

Share Purchase Agreement, dated November 30, 2023, by and among System1, Inc., Orchid Merger Sub II, LLC, Sonic Newco, LLC, JDI Antarctica Limited and JDI Antarctica Sub II Limited

8-K

001-39331

2.1

12/4/2023

3.1

Certificate of Incorporation of System1, Inc.

8-K

001-39331

3.1

2/2/2022

3.2

Second Amended and Restated Bylaws of System1, Inc.

8-K

001-39331

3.1

3/1/2023

4.1

Warrant Agreement, dated June 19, 2020, by and between Trebia Acquisition Corp. and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-39331

4.1

6/2/2020

4.2

Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

10-K

001-39331

4.2

6/6/2023

10.1^

System1, Inc. 2022 Incentive Award Plan.

8-K

001-39331

10.2

2/2/2022

10.2^

System1, Inc. 2024 Stock Appreciation Rights Plan.

8-K

001-39331

10.1

6/14/2024

10.3

First Amendment to System1, Inc. 2024 Stock Appreciation Rights Plan

10-Q

001-39331

10.1

8/8/2024

10.4#

Credit and Guaranty Agreement, dated as of January 27, 2022, among Orchid Finco LLC, System1 Midco, LLC, Orchid Merger Sub II, LLC and the subsidiaries from time to time party thereto, S1 Holdco, LLC, Bank of America, N.A. and the lenders from time to time party thereto.

10-K

001-39331

10.7

6/6/2023

10.9

Registration Rights Agreement, dated January 27, 2022, by and among System1, Inc. and the other parties that are signatory thereto.

S-1

333-262608

10.3

2/9/2022

10.10

Registration Rights Agreement, dated June 19, 2020, among the Company, the Sponsors and certain other security holders named therein.

8-K

001-39331

10.2

6/22/2020

31.1*

Certification of principal executive officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

XBRL Taxonomy Extension Schema Document.

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document.

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*						Filed herewith.
**						This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
^						Indicates management contract or compensatory plan.
#						Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant will furnish copies of any such schedules and exhibits to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	System1 Inc.
Date: November 7, 2024
	By:	/s/ Michael Blend
		Michael Blend
		Chief Executive Officer

Date: November 7, 2024	By:	/s/ Tridivesh Kidambi
		Tridivesh Kidambi
		Chief Financial Officer

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System1 (SST) 10-Q2024 Q3 Quarterly report

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