Cover Page
Cover Page - shares | 3 Months Ended | |
Mar. 31, 2022 | May 17, 2022 | |
Cover | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Mar. 31, 2022 | |
Document Transition Report | false | |
Entity File Number | 001-39331 | |
Entity Registrant Name | System1, Inc. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 98-1531250 | |
Entity Address, Address Line One | 4235 Redwood Avenue | |
Entity Address, City or Town | Marina Del Rey | |
Entity Address State Or Province | CA | |
Entity Address, Postal Zip Code | 90066 | |
City Area Code | 310 | |
Local Phone Number | 924-6037 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 90,566,172 | |
Entity Central Index Key | 0001805833 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2022 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Class A Common Stock | ||
Cover | ||
Title of 12(b) Security | Class A common stock, par value $0.0001 per share | |
Trading Symbol | SST | |
Security Exchange Name | NYSE | |
Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share | ||
Cover | ||
Title of 12(b) Security | Redeemable warrants, each whole warrant exercisable for one Class A common stock at an exercise price of $11.50 per share | |
Trading Symbol | SST.WS | |
Security Exchange Name | NYSE |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2022 | Dec. 31, 2021 | Mar. 31, 2021 |
Current assets: | |||
Cash and cash equivalents | $ 42,178,000 | $ 47,896,000 | $ 30,853,000 |
Restricted cash, current | 4,895,000 | 0 | |
Accounts receivable, net of allowance for doubtful accounts | 99,976,000 | 90,203,000 | |
Prepaid expenses and other current assets | 14,468,000 | 7,689,000 | |
Total current assets | 161,517,000 | 145,788,000 | |
Restricted cash, non-current | 3,034,000 | 743,000 | |
Property and equipment, net | 2,855,000 | 830,000 | |
Internal-use software development costs, net | 10,704,000 | 11,213,000 | |
Intangible assets, net | 568,675,000 | 50,368,000 | |
Goodwill | 907,009,000 | 44,820,000 | |
Due from related party | 0 | 2,469,000 | |
Operating lease right-of-use assets | 6,388,000 | 0 | |
Other non-current assets | 808,000 | 680,000 | |
Total assets | 1,660,990,000 | 256,911,000 | |
Current liabilities: | |||
Accounts payable | 76,004,000 | 72,846,000 | |
Accrued expenses and other current liabilities | 67,635,000 | 31,284,000 | |
Deferred revenue | 64,810,000 | 1,971,000 | |
Operating lease liabilities, current | 1,895,000 | 0 | |
Due to related party | 80,000 | 0 | |
Notes payable, current | 14,822,000 | 170,453,000 | |
Total current liabilities | 225,246,000 | 276,554,000 | |
Operating lease liabilities, non-current | 5,645,000 | 0 | |
Notes payable, non-current | 409,777,000 | 0 | |
Warrant liability | 40,773,000 | 0 | |
Deferred tax liability | 144,027,000 | $ 7,789,000 | |
Other liabilities | 5,804,000 | 969,000 | |
Total liabilities | 831,272,000 | 285,312,000 | |
Commitments and contingencies (Note 11) | |||
EQUITY / MEMBERS' DEFICIT | |||
Additional paid-in capital | 728,540,000 | 0 | |
Accumulated deficit | (89,175,000) | 0 | |
Members' deficit | 0 | (28,829,000) | |
Accumulated other comprehensive (loss) income | (28,000) | 428,000 | |
Total equity/members' deficit | 639,348,000 | (28,401,000) | |
Non-controlling interest | 190,370,000 | 0 | |
Total equity/members' deficit | 829,718,000 | (28,401,000) | |
Total liabilities and equity/members' deficit | 1,660,990,000 | $ 256,911,000 | |
Class A Common Stock | |||
EQUITY / MEMBERS' DEFICIT | |||
Common stock value | 9,000 | ||
Class C Common Stock | |||
EQUITY / MEMBERS' DEFICIT | |||
Common stock value | $ 2,000 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) | Mar. 31, 2022$ / sharesshares |
Class A Common Stock | |
Common stock, par value (in dollars per share) | $ / shares | $ 0.0001 |
Common stock, shares authorized (in shares) | 250,000,000 |
Common stock issued (in shares) | 86,596,614 |
Common stock outstanding (in shares) | 86,596,614 |
Class C Common Stock | |
Common stock, par value (in dollars per share) | $ / shares | $ 0.0001 |
Common stock, shares authorized (in shares) | 25,000,000 |
Common stock issued (in shares) | 22,077,319 |
Common stock outstanding (in shares) | 22,077,319 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Income Statement [Abstract] | |||
Revenue | $ 52,712 | $ 166,108 | $ 147,561 |
Operating costs and expenses: | |||
Cost of revenues (exclusive of depreciation and amortization shown separately below) | 41,760 | 120,131 | 110,785 |
Salaries, commissions, and benefits | 35,175 | 43,459 | 15,195 |
Selling, general, and administrative | 14,817 | 14,981 | 6,950 |
Depreciation and amortization | 1,000 | 23,311 | 3,689 |
Total operating costs and expenses | 92,752 | 201,882 | 136,619 |
Operating (loss) income | (40,040) | (35,774) | 10,942 |
Interest expense | 1,049 | 4,776 | 4,048 |
Loss on warrant fair value | 0 | 13,761 | 0 |
(Loss) income before income tax | (41,089) | (54,311) | 6,894 |
Income tax (benefit) expense | (629) | (16,252) | 151 |
Net (loss) income | (40,460) | (38,059) | 6,743 |
Net (loss) attributable to non-controlling interest | 0 | (8,068) | 0 |
Net (loss) | $ (40,460) | $ (29,991) | $ 6,743 |
Basic net (loss) per share (in dollars per share) | $ (0.36) | ||
Diluted net (loss) per share (in dollars per share) | $ (0.36) | ||
Weighted average number of shares outstanding - basic (in shares) | 82,210,000 | ||
Weighted average number of shares outstanding - diluted (in shares) | 82,210,000 | ||
Basic net (loss) income per unit (in dollars per share) | $ (1.97) | $ 0.33 | |
Diluted net (loss) income per unit (in dollars per share) | $ (1.97) | $ 0.33 | |
Weighted average units outstanding - basic (in shares) | 20,488,000 | 20,488,000 | |
Weighted average units outstanding - diluted (in shares) | 20,488,000 | 20,488,000 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Statement of Comprehensive Income [Abstract] | |||
Net (loss) income | $ (40,460) | $ (38,059) | $ 6,743 |
Other comprehensive (loss) income | |||
Foreign currency translation income | 87 | (34) | 441 |
Comprehensive (loss) income | (40,373) | (38,093) | 7,184 |
Comprehensive (loss) attributable to non-controlling interest | 0 | (8,074) | 0 |
Comprehensive (loss) income attributable to System1, Inc. | $ (40,373) | $ (30,019) | $ 7,184 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands | Total | Previously Reported | Revision of Prior Period, Adjustment | Cumulative Effect, Period of Adoption, Adjusted Balance | Common StockClass A Common Stock | Common StockClass A Common StockPreviously Reported | Common StockClass A Common StockRevision of Prior Period, Adjustment | Common StockClass A Common StockCumulative Effect, Period of Adoption, Adjusted Balance | Common StockClass C Common Stock | Common StockClass C Common StockPreviously Reported | Common StockClass C Common StockRevision of Prior Period, Adjustment | Common StockClass C Common StockCumulative Effect, Period of Adoption, Adjusted Balance | Common StockClass D Common Stock | Common StockClass D Common StockPreviously Reported | Common StockClass D Common StockRevision of Prior Period, Adjustment | Common StockClass D Common StockCumulative Effect, Period of Adoption, Adjusted Balance | Additional Paid-In-Capital | Additional Paid-In-CapitalPreviously Reported | Additional Paid-In-CapitalRevision of Prior Period, Adjustment | Additional Paid-In-CapitalCumulative Effect, Period of Adoption, Adjusted Balance | Accumulated Deficit | Accumulated DeficitPreviously Reported | Accumulated DeficitRevision of Prior Period, Adjustment | Accumulated DeficitCumulative Effect, Period of Adoption, Adjusted Balance | Accumulated Other Comprehensive Income | Accumulated Other Comprehensive IncomePreviously Reported | Accumulated Other Comprehensive IncomeRevision of Prior Period, Adjustment | Accumulated Other Comprehensive IncomeCumulative Effect, Period of Adoption, Adjusted Balance | Non-Controlling Interest | Non-Controlling InterestPreviously Reported | Non-Controlling InterestRevision of Prior Period, Adjustment | Non-Controlling InterestCumulative Effect, Period of Adoption, Adjusted Balance |
Beginning balance at Dec. 31, 2021 | $ (28,401) | |||||||||||||||||||||||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||||||||||||||||||||||
Net (loss) | (40,460) | |||||||||||||||||||||||||||||||
Other comprehensive income | 87 | $ 87 | ||||||||||||||||||||||||||||||
Share-based compensation | 27,698 | |||||||||||||||||||||||||||||||
Ending balance (in shares) at Jan. 26, 2022 | 52,680 | 29,017 | 81,697 | 0 | 22,077 | 22,077 | 0 | 2,900 | 2,900 | |||||||||||||||||||||||
Ending balance at Jan. 26, 2022 | $ 466,400 | $ 355,742 | $ 822,142 | $ 5 | $ 3 | $ 8 | $ 0 | $ 2 | $ 2 | $ 0 | $ 0 | $ 0 | $ 525,579 | $ 157,046 | $ 682,625 | $ (59,184) | $ 0 | $ (59,184) | $ 0 | $ 0 | $ 0 | $ 0 | $ 198,691 | $ 198,691 | ||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||||||||||||||||||||||
Net (loss) | (38,059) | $ (29,991) | $ (8,068) | |||||||||||||||||||||||||||||
Issuance of common stock in connection with the acquisition of business (in shares) | 2,000 | |||||||||||||||||||||||||||||||
Issuance of common stock in connection with the acquisition of business | 25,500 | $ 25,500 | ||||||||||||||||||||||||||||||
Conversion of Class D shares to Class A shares (in shares) | 2,900 | (2,900) | ||||||||||||||||||||||||||||||
Conversion of Class D shares to Class A shares | 1 | $ 1 | ||||||||||||||||||||||||||||||
Net deferred tax liability resulting from changes in outside basis difference on investment in S1 Holdco, LLC | (6,752) | (6,752) | ||||||||||||||||||||||||||||||
Other comprehensive income | (34) | (28) | (6) | |||||||||||||||||||||||||||||
Share-based compensation | 27,167 | 27,167 | ||||||||||||||||||||||||||||||
Distribution to members | (247) | (247) | ||||||||||||||||||||||||||||||
Ending balance (in shares) at Mar. 31, 2022 | 86,597 | 22,077 | 0 | |||||||||||||||||||||||||||||
Ending balance at Mar. 31, 2022 | $ 829,718 | $ 9 | $ 2 | $ 0 | $ 728,540 | $ (89,175) | $ (28) | $ 190,370 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Changes in Member's Deficit (Unaudited) - USD ($) $ in Thousands | Total | Members’ Capital | Accumulated Other Comprehensive Income (Loss) |
Beginning balance at Dec. 31, 2020 | $ (48,229) | $ (47,886) | $ (343) |
Net (loss) income | 6,743 | 6,743 | |
Accumulated other comprehensive income | 441 | 441 | |
Share-based compensation expense | 146 | 146 | |
Contribution from OpenMail | 147 | 147 | |
Ending balance at Mar. 31, 2021 | (40,752) | (40,850) | 98 |
Beginning balance at Dec. 31, 2021 | (28,401) | (28,829) | 428 |
Net (loss) income | (40,460) | (40,460) | |
Accumulated other comprehensive income | 87 | 87 | |
Share-based compensation expense | 27,698 | 27,698 | |
Ending balance at Jan. 26, 2022 | $ (41,076) | $ (41,591) | $ 515 |
Condensed Consolidated Statem_5
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Cash Flows from Operating Activities: | |||
Net (loss) income | $ (40,460) | $ (38,059) | $ 6,743 |
Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities: | |||
Depreciation and amortization | 1,000 | 23,311 | 3,689 |
Share-based compensation | 27,698 | 27,167 | 146 |
Amortization of debt issuance costs | 0 | 911 | 565 |
Amortization of right-of-use assets | 115 | 283 | 0 |
Write-down of internal use software development costs | 0 | 676 | 255 |
Write-down of contingent consideration liability | 0 | 0 | 63 |
Change in fair value of contingent consideration and CEO equity profit interest | (9) | 1 | 1,412 |
Change in fair value of warrants | 0 | 13,761 | 0 |
Deferred tax expense (benefits) | (816) | (17,141) | (274) |
Changes in operating assets and liabilities—net of effect of acquisitions: | |||
Accounts receivable, net of allowance for doubtful accounts | 11,118 | (14,522) | (4,471) |
Due from related party | 0 | 0 | (252) |
Prepaids and other assets | 905 | (9,920) | (1,029) |
Accounts payable | (67,600) | 66,170 | 5,306 |
Accrued expenses and other current liabilities | 57,170 | (171,340) | (958) |
Deferred revenue | 311 | 3,654 | 164 |
Long term earn-out liabilities | 0 | 0 | (27) |
Other long-term liabilities | 78 | 88,832 | (1,204) |
Net cash provided by (used for) operating activities | (10,490) | (26,216) | 10,128 |
Cash flows from Investing Activities: | |||
Purchases of property and equipment | 0 | (1,373) | 0 |
Expenditures for internal-use software development costs | (441) | (922) | (1,440) |
Purchase of businesses—net of cash acquired | 0 | (426,555) | 0 |
Net cash (used for) investing activities | (441) | (428,850) | (1,440) |
Cash flows from Financing Activities: | |||
Proceeds from term loan and line of credit | 0 | 449,000 | 0 |
Repayment of loan | 0 | (172,488) | 0 |
Repayment of promissory note | 0 | 0 | (1,750) |
Member capital contributions | 0 | 0 | 147 |
Payments for financing costs | 0 | (24,423) | 0 |
Redemptions of class A common stock | 0 | (510,469) | 0 |
Cash received from backstop | 0 | 246,484 | 0 |
Payments on contingent consideration from purchase of companies | 0 | 0 | (5,000) |
Distributions to members | 0 | (247) | 0 |
Net cash (used for) provided by financing activities | 0 | (12,143) | (6,603) |
Effect of exchange rate changes in cash, cash equivalent and restricted cash | (132) | (237) | (245) |
Net Increase (decrease) in cash | (11,063) | (467,446) | 1,840 |
Cash and cash equivalents and restricted cash, beginning of the period | 48,639 | 37,576 | 29,013 |
Cash and cash equivalents and restricted cash, end of the period | 37,576 | 50,107 | 30,853 |
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets: | |||
Cash and cash equivalents | 36,833 | 42,178 | 30,853 |
Restricted cash | 743 | 7,929 | 0 |
Total cash, cash equivalents and restricted cash | 37,576 | 50,107 | 30,853 |
Supplemental cash flow information: | |||
Cash paid for interest | 0 | 932 | 3,762 |
Cash paid for taxes | 241 | 261 | 518 |
Supplemental schedule of non-cash operating activities | |||
ROU assets obtained in exchange for operating lease liabilities | $ 7,987 | $ 0 | $ 0 |
ORGANIZATION AND DESCRIPTION OF
ORGANIZATION AND DESCRIPTION OF BUSINESS | 3 Months Ended |
Mar. 31, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND DESCRIPTION OF BUSINESS | ORGANIZATION AND DESCRIPTION OF BUSINESS System1, Inc. and subsidiaries (“System1”, or the “Company”, f/k/a Trebia Acquisition Corp.) operates an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and sells antivirus software packages to end user customers. The Company provides its omnichannel customer acquisition platform services through its proprietary responsive acquisition marketing platform, or RAMP. Operating seamlessly across major advertising networks and advertising category verticals to acquire users on its behalf, RAMP allows the Company to monetize such users through its relationships with third party advertisers and advertising networks, which the Company refers to as its “Advertising Partners”. RAMP also allows third party advertising platforms and publishers, which the Company refers to as its “Network Partners”, to send user traffic to, and monetize user traffic on, the Company’s owned and operated websites. RAMP operates across the Company’s network of owned and operated websites and related products, allowing the Company to monetize user traffic that the Company sources from various acquisition marketing channels, including Google, Facebook, Taboola, Snapchat and TikTok. The Company, through Protected.net, also provides antivirus software solutions to its customers, offering its customers a single packaged solution that provides protection and reporting to the end user. The Company delivers its antivirus software solutions directly to end-user customers across the world. The antivirus software solutions product offering comprises a core security package with varying levels of extra protection based on a customer's specific needs. The Company’s primary operations are in the United States; however, the Company also has operations in Canada, the United Kingdom, and the Netherlands. Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among these risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, and exposure to currency exchange fluctuations. The Company does not engage in hedging activities to mitigate its exposure to fluctuations in foreign currency exchange rates. For the purposes of the condensed consolidated financial statements, periods on or before January 26, 2022 reflect the financial position, results of operations and cash flows of S1 Holdco and its consolidated subsidiaries prior to the Merger transaction (as defined in Note 3), referred to herein as the “Predecessor,” and periods beginning on or after January 27, 2022 reflect the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as a result of the Merger transaction, referred to herein as the “Successor”. Revenue attributable to the United States represents 98%, 81% and 98% of total revenue for the period January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor) and the three months ended March 31 2021 (Predecessor), respectively, and long-lived assets attributable to the United States and Canada represent 84% and 11% of total long-lived assets as of March 31, 2022 (Successor) , respectively, and 99% and 1% of total long-lived assets as of December 31, 2021 (Predecessor) |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2022 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation System1, Inc. was a special purpose acquisition company originally incorporated as a Cayman Islands exempted company on February 11, 2020 under the name Trebia Acquisition Corp. (“Trebia”). The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Merger”). On January 27, 2022, the Company consummated its Merger, which resulted in the acquisition of S1 Holdco, LLC (“S1 Holdco”) and System1 SS Protected Holdings, Inc. (“Protected”). As a result of the Merger, the results of operations, financial position and cash flows of the Predecessor and Successor are not directly comparable. The Company was deemed the accounting acquirer in the Merger based on an analysis of the criteria outlined in Accounting Standards Codification 805, Business Combinations . S1 Holdco was deemed to be the predecessor entity based on an analysis of the criteria outlined in the Accounting Standards Codification 805, Business Combinations . Accordingly, the historical financial statements of S1 Holdco became the historical financial statements of the combined Company, upon the consummation of the Merger. As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger and (ii) the combined results of the Company, including S1 Holdco and Protected following the closing of the Merger. The accompanying financial statements include a Predecessor period, which includes the period through January 26, 2022 concurrent with the Merger, and a Successor period from January 27, 2022 through March 31, 2022. A black-line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the period from January 27, 2022 through March 31, 2022 (Successor) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter. Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented. Capital Resources, Liquidity, and Concentrations To date, the Company’s available liquidity and operations have been financed through the initial public offering of Trebia, the backstop agreement, external loan facilities, and cash flows from operations. The Company is subject to certain business risks, including dependence on key employees, dependence on key contracts, competition from alternative technologies, and dependence on growth to achieve its business and operational objectives. The Company’s revenue is dependent on two key Advertising Partners, which are Google and Microsoft, and which comprised 88% and 4%, respectively, of the Company’s revenue for the period from January 1, 2022 through January 26, 2022 (Predecessor), 73% and 3%, respectively, of the Company's revenue from January 27, 2022 through March 31, 2022 (Successor), and 83% and 5%, respectively, of the Company’s revenue for the three months ended March 31, 2021 (Predecessor). The Company has (i) two paid search advertising partnership contracts with Google, and (ii) one paid search advertising partnership contract with Microsoft. One of the Google contracts was renewed with an effective date of March 1, 2021, and has a two-year term through February 28, 2023. The other Google contract was renewed with a two-year term through July 31, 2023. All arrangements under the Microsoft contract were originally set to expire on November 30, 2021. However, the parties initially agreed to a three-month extension through February 28, 2022, and thereafter the contract continues to automatically renew on a month to month basis as the parties work to finalize a renewal or long-term extension of this arrangement. All three agreements may be terminated by the respective Advertising Partner immediately or with minimal notice under certain circumstances. Impact of COVID-19 The worldwide spread of COVID-19 has resulted, and is expected to continue to result, in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including those provided by the Company’s clients, while also disrupting sales channels and advertising and marketing activities for an unknown period of time until the virus is contained or economic activity normalizes. Our revenue growth and results of operations have been resilient despite the headwinds created by the COVID-19 pandemic. The extent to which ongoing and future developments related to the global impact of the COVID-19 pandemic, including related vaccination measures and inoculation rates designed to curb its spread, continue to impact its business, financial condition, results of operations and cash flows, cannot be predicted with certainty. Many of these ongoing and future developments and uncertainties are beyond the Company's control, including the speed of contagion or the spread of new variants, the development, distribution and implementation of effective preventative or treatment measures, including vaccines (and vaccination rates), the scope of governmental and other restrictions on travel, discretionary services and other activity, and the public reactions and receptiveness to these developments. A summary of the significant accounting policies followed by the Company in the preparation of the accompanying condensed consolidated financial statements is set forth below. Use of Estimates The preparation of these condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, acquired intangible assets and long-lived assets for impairment, inputs into the valuation of the Company’s share-based compensation awards, income taxes, variable and contingent consideration and determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain. Cash and cash equivalents Cash and cash equivalents consist of amounts held as bank deposits. Accounts Receivable Accounts receivable primarily represent amounts due from its Advertising Partners, these accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company does not require collateral for its accounts receivable. The Company considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer, and current economic industry trends. These accounts receivables have historically been paid on a timely basis. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection and therefore no allowance for doubtful accounts is required as of March 31, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The payment terms for the Company's accounts receivable are typically 30 days. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. Cash is deposited with high-credit-quality financial institutions and, at times, such balances with any one financial institution may exceed the insurance limits of the prevailing regulatory body. Historically, the Company has not experienced any losses related to these cash balances and believes that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits. Accounts receivable are primarily derived from Advertising Partners located inside the United States. As of March 31, 2022 (Successor), two of the Company’s largest Advertising Partners, Google and Yahoo represented 73% and 9% of the Company’s accounts receivables balance. As of December 31, 2021 (Predecessor), these two Advertising Partners represented 72% and 10%, respectively, of the Company’s accounts receivable balances. Foreign Currency The Company’s reporting currency is the U.S. dollar. The balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. The statement of operations amounts have been translated using the average exchange rate for the month in which the activity related. Accumulated net translation adjustments and foreign currency transaction gains/losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the functional currency were not material. Warrant Liability The Company accounts for the Public Warrants and Private Placement Warrants (collectively, the “Warrants”, which are discussed in further detail in Note 13 and Note 14) as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the Warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, or meet all of the requirements for equity classification under ASC 815, including (i) whether the Warrants are indexed to the Company’s own common stock and (ii) whether the holders of the Warrants could potentially require “net cash settlement” in circumstance(s) outside of the Company’s control, among other conditions required for equity classification. This assessment, which requires the use of professional judgment by management, was conducted at the time of issuance of the Warrants, and is conducted at each subsequent quarterly period end date while any Warrants remain outstanding. For issued or modified Warrants that meet all of the criteria for equity classification, such Warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified Warrants that do not meet all the criteria for equity classification, liability-classified Warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of such Warrants are recognized as a non-cash gain or loss on the Condensed Consolidated Statement of Operations. The Company accounts for the Warrants in accordance with ASC 815-40 under which the Warrants do not meet the criteria for equity classification, and therefore must be recorded as liabilities. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the fair value of the Public Warrants. Fair Value of Financial Instruments The Company applies the provisions of FASB ASC 820, Fair Value Measurements and Disclosures , which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement. The provisions of ASC 820 relate to financial and nonfinancial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. The Company measures fair value based on a three-level hierarchy of inputs, maximizing the use of observable inputs, where available, and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s level within the three-level hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy of inputs is as follows: Level 1 : Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 : Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions about current market conditions and require significant management judgment or estimation. Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, accounts payable and accrued liabilities. Cash equivalents and restricted cash are stated at fair value on a recurring basis. Accounts receivable, accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The carrying amount of the Company’s outstanding debt approximates the fair value, as the debt bears interest at a rate that approximates the prevailing market rate. The Company classifies the fair value of debt within Level 2 in the fair value hierarchy. The Company does not have any assets, with the exception of cash, cash equivalents and restricted cash, that are required to be carried at fair value on a recurring basis at March 31, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company’s liabilities measured at fair value relate to the former CEO of S1 Holdco's equity profits interest liability (Level 3), contingent consideration (Level 3), Public Warrant liabilities (Level 1) and Private Placement Warrant liabilities (Level 2). In January 2022, as part of the Merger, S1 Holdco settled the equity profits interest liability with S1 Holdco's former CEO. Certain assets, including goodwill and intangible assets, are also subject to measurement at fair value on a nonrecurring basis if they are deemed to be impaired as a result of an impairment review. The fair value of these assets is determined using unobservable inputs to present value the assets. Restricted cash The Company had restricted cash of $7,929 and $743 as of March 31, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The amount of restricted cash as of December 31, 2021 (Predecessor) relates to cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility. The Company’s restricted cash as of March 31, 2022 (Successor) primarily consists of (i) cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility, (ii) merchant reserve balances with its credit card processors held due to arrangements under which the Company's credit card processors withhold certain credit card funds to cover potential charge backs initiated by the Company’s customers, (iii) the escrow account balance related to the portion of vested equity awards as of the closing of the Business Combination that will be cash settled and will be released to the Company's employees as the service requirement is completed and (iv) the escrow account balance related to post-close adjustments and indemnifications from the RoadWarrior acquisition. Property and Equipment, net Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are three years for computer equipment, office equipment and software, three Internal-use software development costs, net Internal-use software development costs are stated at cost, less accumulated amortization. The Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure, including continuing to develop and deploy its RAMP platform. These costs include personnel and related employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as external direct costs of materials and services consumed in developing or obtaining the software. Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and correspondingly recorded in Salaries, commissions, and benefits expense in the Condensed Consolidated Statement of Operations. Internal-use software development activities generally consist of three stages: (i) the planning stage, (ii) the application and infrastructure development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation stages of software development, including costs associated with the post configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed for internal use when the preliminary project stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and the software will perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for deployment for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software, or lease its software, to third parties. Intangible Assets Intangible assets primarily consist of acquired technology, customer relationships and trade names/trademarks. The Company determines the appropriate useful life based on management’s estimate of the applicable intangible asset’s remaining economic useful life at the time of acquisition. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Certain customer relationship intangibles are amortized on an accelerated basis based upon the expected timing of economic benefits which are, derived from an analysis of customer attrition rates over the expected life. The estimated useful lives of the Company’s intangible assets are as follows: Useful Life (Years) Developed technology 4 Customer relationships 3 - 5 Trademarks and trade names 10 Other intangibles 4 The weighted average amortization period for all intangibles is 7 years. Impairment of Long-Lived Assets The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate that their carrying value may not be recoverable. Such events or changes in circumstances may include a significant adverse change in the extent or manner in which a long-lived asset is being used; significant adverse changes in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset; current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized and measured as the amount by which the carrying amount exceeds the estimated fair value. An impairment loss is charged to operations in the period in which management determines such impairment has occurred. Management has determined there to be no impairment of long-lived assets during the period from January 27, 2022 through March 31, 2022 (Successor), the period from January 1, 2022 through January 26, 2022 (Predecessor), and the three-month period ended March 31, 2021 (Predecessor). Business Combinations The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The goodwill is non-deductible for tax purposes. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which the Company's management believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations. Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value during each reporting period through the Company’s Condensed Consolidated Statements of Operations. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other , which requires the Company to test goodwill at the reporting unit level for impairment at least annually. The Company has the option (i) to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess. The determination of fair value(s) requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected cash flows from a market participant perspective, discount rates, industry data and management’s prior experience. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results. The Company tests for goodwill impairment annually at December 31st. During the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), there were no triggering events identified, and therefore no impairment charges recorded on goodwill during the interim periods were required. Revenue The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps: • Identification of a contract with a customer, • Identification of the performance obligations in the contract, • Determination of the transaction price, • Allocation of the transaction price to the performance obligations in the contract, and • Recognition of revenue when or as the performance obligations are satisfied. The Company’s revenue is principally derived from the following areas: Advertising and Other Revenue Revenue is earned from revenue-sharing arrangements with the Company’s Network Partners for the use of its RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. The Company has determined it is the agent in these transactions and reports revenue on a net basis, because (a) the Company does not control the underlying advertising space, (b) the Company does not acquire the traffic and does not have risk of loss in connection therewith and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. The Company reports this revenue on a net basis with respect to the amount retained under its revenue-sharing arrangements, which represents the difference between amounts received by the Company from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts. The Company also earns revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, the Company is the principal in the transaction and reports revenue on a gross basis for the amount(s) received from its Advertising Partners. For this revenue, the Company has determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with its Advertising Partners, and, in the case of its owned and operated websites, the Company maintains the website, provides the content and bears the cost and risk of loss associated with its websites’ advertising space. The Company recognizes revenue upon delivering traffic to its Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment term is typically 30 days. Subscription Revenue In connection with the Merger of Protected discussed in Note 3, the Company is also engaged in selling security software as a service subscriptions to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, adblocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. The Company’s services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period. The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during t |
MERGER
MERGER | 3 Months Ended |
Mar. 31, 2022 | |
Business Combination and Asset Acquisition [Abstract] | |
MERGER | MERGER On June 28, 2021, the Company entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (the “Business Combination Agreement”) by and among S1 Holdco, Trebia, and Protected (collectively, the “Companies”). On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company is organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco. The combined Companies’ business continues to operate through the subsidiaries of S1 Holdco and Protected. Additionally, Trebia’s ordinary shares, warrants and units ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.'s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively. The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock and Class C common stock. The aggregate cash consideration under the Business Combination Agreement (“Closing Cash Consideration”) was $444,948. The aggregate equity consideration paid under the Business Combination Agreement and/or retained S1 Holdco Class B Units was $619,738, consisting of (a) the aggregate equity consideration payable under the Business Combination Agreement, consisting of shares of Class A common stock (valued at $10.00 per share) and Replacement Awards, and (b) the aggregate Class B Units in S1 Holdco retained by S1 Holdco equity holders at the Closing (valued at $10.00 per share). In connection with the Merger, System1 and Cannae Holdings, Inc. (“Cannae”) entered into the Backstop Agreement (the “Backstop Agreement”) whereby Cannae agreed, subject to the other terms and conditions, to subscribe for System1 Class A common stock in order to fund a certain amount of redemptions by shareholders of System1 to be redeemed at the closing of the Merger. As a result of shareholder redemptions, System1 shareholders provided $7,031 of the cash used to fund the Closing Cash Consideration, and Cannae provided $246,484 of the cash used to fund the Closing Cash Consideration pursuant to its obligations under the Backstop Agreement. Concurrently with the consummation of the Merger, System1 entered into a tax receivable agreement with the minority holders of S1 Holdco, (the “Tax Receivable Agreement”), pursuant to which, among other things, the parties to the Tax Receivable Agreement have agreed to the allocation and payment of 85% of the actual savings, if any, in U.S. federal, state and local income tax that System1 may realize as a result of certain tax benefits (if any) related to the transactions contemplated by the Business Combination Agreement and future exchanges of Class B Units in S1 Holdco (together with the corresponding shares of the Company’s shares of Class C common stock) in exchange for shares of the Company’s Class A common stock. No amounts have been recorded as of March 31, 2022, related to the Tax Receivable Agreement as any tax savings are uncertain. The assets and liabilities were recorded at their fair values on the date of the Merger. The fair values below represent the Company’s preliminary determination of fair value of the assets acquired and liabilities assumed in the Merger. Amount Tangible assets acquired and liabilities assumed: Cash and marketable securities $ 68,746 Accounts receivable 79,087 Prepaid expenses 10,816 Property, plant & equipment, net 1,551 Internal-use software development costs, net 11,316 Other assets 8,205 Accounts payable (9,798) Deferred revenue (60,768) Accrued expenses and other current liabilities (97,789) Notes payable (172,038) VAT tax liability (12,280) Deferred tax liabilities (146,322) Other liabilities (7,633) Total tangible assets acquired and liabilities assumed (326,907) Intangible assets 555,500 Goodwill 836,093 Net assets acquired $ 1,064,686 Consideration: Cash $ 444,948 Equity 619,738 Total consideration $ 1,064,686 The intangible assets as of the closing date of the acquisition included: Amount Weighted Average Useful Life (in Years) Trademarks $ 243,200 10 Customer relationships $ 115,300 4 Technology $ 197,000 4 Total $ 555,500 The fair value of the intangible assets acquired was determined using either the income, market or replacement cost methodologies. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Customer relationships are amortized on an accelerated basis. To determine the amortization period for each of the customer relationships assets and to evaluate the pattern of usage of economic benefits, the Company performed a customer attrition analysis of the Company's customer relationships to estimate the attrition rate and consequently the life expectancy for the existing customer relationships. Key assumptions used in the valuation of intangible assets are below: Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Customer relationships – The value of customer relationships represent the fair value of future projected revenues that will be derived from the sale to customers acquired. The Company valued customer relationships using an excess-earnings method utilizing distributor inputs. Technology – Technology represents existing technology acquired and incorporated into the Company’s existing infrastructure. The Company valued technology using the excess-earnings method utilizing company-specific inputs. Unaudited Pro Forma Information The following table provides unaudited pro forma information as if the Merger occurred as of January 1, 2021. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, and transaction expenses as if the Merger and acquisitions of RoadWarrior and CouponFollow occurred January 1, 2021. The pro forma results did not include any anticipated cost synergies or other effects of the merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Three months ended March 31, 2022 March 31, 2021 Pro forma revenue $ 235,983 $ 193,201 Pro forma net (loss) $ (32,796) $ 88,746 |
ACQUISITIONS
ACQUISITIONS | 3 Months Ended |
Mar. 31, 2022 | |
Business Combination and Asset Acquisition [Abstract] | |
ACQUISITIONS | ACQUISITIONS RoadWarrior, LLC On February 9, 2022, the Company acquired the assets of RoadWarrior, LLC (“RoadWarrior”) for $19,636 in cash and $681 in contingent consideration, subject to achieving certain operating metrics. The acquisition expands the Company’s Mapquest.com website technology, and provides additional functionality for customers centered around route planning for delivery drivers and teams. The results of RoadWarrior’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements as of March 31, 2022 (Successor) . The total revenue and net income were immaterial for the period January 27, 2022 to March 31, 2022 (Successor). The acquisition of RoadWarrior constitutes a business combination under ASC 805, Business Combinations . Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. The purchase price allocations below represent the Company’s preliminary determination of fair value of the assets acquired and liabilities assumed for the acquisition. The working capital and deferred tax allocations are preliminary and subject to adjustment for additional information. Amount Tangible assets acquired and liabilities assumed: Working capital $ 154 Total tangible assets acquired and liabilities assumed 154 Intangible assets 4,500 Goodwill 15,663 Net assets acquired $ 20,317 Consideration: Cash $ 19,636 Contingent consideration 681 Total consideration $ 20,317 The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. The goodwill is deductible for tax purposes over 15 years. Transaction costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. The Company has incurred $286 in transaction costs related to the acquisition in the period from January 27, 2022 through March 31, 2022 (Successor). There was no transaction costs related to the acquisition in the period from January 1, 2022 through January 26, 2022 (Predecessor). Following are the details of the preliminary purchase price allocated to the intangible assets for the RoadWarrior acquisition: Amount Weighted Average Useful Life (in Years) Trademark $ 2,200 10 Software $ 1,000 4 Customer relationships $ 1,300 3 Total $ 4,500 The fair value of the intangible assets acquired was determined using either the income, market or replacement cost methodologies. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Key assumptions from the valuation of intangible assets are below: Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Software – Software technology represents existing technology acquired and incorporated into the Company’s existing infrastructure. The Company valued software using the relief from royalty method. Customer relationships – The value of customer relationships represent the fair value of future projected revenues that will be derived from the sale to customers acquired. The Company valued customer relationships using an excess-earnings method. NextGen Shopping, Inc. On March 4, 2022, the Company acquired NextGen Shopping, Inc. (d/b/a “CouponFollow”) for total cash consideration of $78,426, of which $25,227 was held-back, and the issuance of 2,000,000 shares of Class A common stock at a total fair value of $25,500. The cash payment included the transaction costs of $3,129 that the Company paid on behalf of CouponFollow in connection with the closing of the transaction. In addition to the upfront purchase price, an additional $10,000 in the form of future payments which are subject to continued services from certain individuals of CouponFollow, and up to $25,000 is payable contingent upon achieving certain financial thresholds and the continued employment of certain key individuals of CouponFollow. The acquisition leverages CouponFollow’s reputation, software and large organic traffic to vertically integrate with the Company’s RAMP platform and generate paid traffic for shopping-related products. The results of CouponFollow’s operations as of and after the date of acquisition have been included in the Company’s condensed consolidated financial statements as of March 31, 2022 (Successor). The total revenue and net income for the period January 27, 2022 to March 31, 2022 (Successor) were $1,920 and $581, respectively. The acquisition of CouponFollow constitutes a business combination under ASC 805. Accordingly, the assets acquired and liabilities assumed were recorded at their fair values on the date of acquisition. The purchase price allocations below represent the Company’s preliminary determination of fair value of the assets acquired and liabilities assumed for the acquisition. The working capital and deferred tax allocations are preliminary and subject to adjustment for additional information. Amount Tangible assets acquired and liabilities assumed: Cash and cash equivalents $ 21,232 Accounts receivable 5,860 Other current assets 299 Accounts payable (35) Accrued taxes (890) Deferred tax liabilities (8,093) Total tangible assets acquired and liabilities assumed 18,373 Intangible assets 30,300 Goodwill 55,253 Net assets acquired $ 103,926 Consideration: Cash $ 78,426 Equity 25,500 Total consideration $ 103,926 The goodwill arising from the acquisition consists largely of the expected synergies from combining operations as well as the value of the workforce. Transaction costs are not included as components of consideration transferred, but are recorded as expense in the period in which such costs are incurred. The Company has incurred $73 in transaction costs related to the acquisition in the period from January 27, 2022 through March 31, 2022 (Successor). There were no transaction costs related to the acquisition in the period from January 1, 2022 through January 26, 2022 (Predecessor). Following are the details of the preliminary purchase price allocated to the intangible assets for the CouponFollow acquisition: Amount Weighted Average Useful Life (in Years) Trademark $ 26,400 10 Software $ 3,900 4 Total $ 30,300 The fair value of the intangible assets acquired was determined using either the income, market or replacement cost methodologies. Intangible assets are amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed. Key assumptions from the valuation of intangible assets are below: Trademarks – Identified trademarks relate to the estimated fair value of future cash flows related to any trademarks acquired. The Company valued trademarks using the relief-from-royalty method under the income approach. Software – Software technology represents existing technology acquired that will be incorporated into the Company’s existing infrastructure. The Company valued software using the relief from royalty method. |
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET | 3 Months Ended |
Mar. 31, 2022 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT, NET | PROPERTY AND EQUIPMENT, NET Property and equipment, net as of March 31, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following: Successor Predecessor March 31, 2022 December 31, 2021 Computer equipment $ 236 $ 415 Motor vehicles 233 — Furniture and equipment 315 475 Leasehold improvements 2,163 976 Property and equipment—gross 2,947 1,866 Less accumulated depreciation (92) (1,036) Property and equipment—net $ 2,855 $ 830 Total depreciation expense on property and equipment was $16, $119 and $81 for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), respectively. |
GOODWILL, INTERNAL-USE SOFTWARE
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET | 3 Months Ended |
Mar. 31, 2022 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET | GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET Goodwill Goodwill as of December 31, 2021 (Predecessor), resulted from the acquisitions of Concourse Media, Mapquest, and Waterfox in 2019 and the prior acquisitions of InfoSpace in 2016 and Qool Media, Inc. in 2017. There was no Goodwill activity for the period January 1, 2022 through January 26, 2022 (Predecessor). The changes in goodwill by reportable segments were as follows: Owned and Operated Partner Network Total Goodwill at January 1, 2021 (Predecessor) $ 24,403 $ 20,417 $ 44,820 Additions — — — Goodwill at December 31, 2021 (Predecessor) $ 24,403 $ 20,417 $ 44,820 Goodwill as of March 31, 2022 (Successor), resulted from the acquisitions of S1 Holdco, Protected, CouponFollow and RoadWarrior in 2022. The changes in goodwill by reportable segments were as follows: Owned and Operated Partner Network Subscription Total Goodwill at January 27, 2022 (Successor) $ — $ — $ — $ — Additions 606,651 32,402 267,956 907,009 Goodwill at March 31, 2022 (Successor) $ 606,651 $ 32,402 $ 267,956 $ 907,009 Internal-use software development costs and intangible assets Internal-use software development costs and intangible assets consisted of the following: March 31, 2022 (Successor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 11,154 $ (450) $ 10,704 Intangibles: Developed technology $ 197,985 $ (8,646) $ 189,339 Trademarks and trade names 271,844 (4,478) 267,366 Software 3,910 (74) 3,836 Customer relationships 116,600 (8,466) 108,134 Total intangible costs $ 590,339 $ (21,664) $ 568,675 December 31, 2021 (Predecessor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 21,274 $ (10,061) $ 11,213 Intangibles: Developed technology $ 8,398 $ (7,242) $ 1,156 Trademarks and trade names 69,007 (21,375) 47,632 Professional service agreement 3,100 (2,359) 741 Customer relationships 1,500 (661) 839 Total intangible costs $ 82,005 $ (31,637) $ 50,368 The internal-use software development costs include internal-use software development costs in progress of $3,052 and $2,540 as of March 31, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company recorded amortization expense of $355, and $629 for internal-use software development costs and intangible assets, respectively, for the period from January 1, 2022 through January 26, 2022 (Predecessor). The Company recorded amortization expense of $1,534, and $21,658 for internal-use software development costs and intangible assets, respectively, for the period from January 27, 2022 through March 31, 2022 (Successor). The Company recorded amortization expense of $1,324, and $2,284 for internal-use software development costs and intangible assets, respectively, during the three months ended March 31, 2021 (Predecessor). No impairment of internal-use software development cost or intangible assets was identified for the period from January 1, 2022 through January 26, 2022 (Predecessor), January 27, 2022 through March 31, 2022 (Successor) and for the three months ended March 31, 2021 (Predecessor). As of March 31, 2022 (Successor), the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs for each of the next five years, is as follows: Amortization Expense Remainder of 2022 $ 100,085 2023 108,552 2024 101,996 2025 90,092 2026 40,300 Thereafter 138,721 Total amortization expense $ 579,746 |
ACCRUED EXPENSES AND OTHER CURR
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 3 Months Ended |
Mar. 31, 2022 | |
Payables and Accruals [Abstract] | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Successor Predecessor March 31, 2022 December 31, 2021 Former CEO profit interest $ — $ 11,132 Payable to employees 6,754 10,091 Accrued legal service fees 5,377 6,242 Accrued marketing expenses 5,552 — Holdback liability 21,013 — Contingent consideration 2,051 1,682 Other liabilities 12,460 1,543 VAT tax liability 11,063 — Accrued tax liability 3,365 361 Deferred rent — 233 Accrued expenses and other current liabilities $ 67,635 $ 31,284 |
DEFERRED REVENUE
DEFERRED REVENUE | 3 Months Ended |
Mar. 31, 2022 | |
Revenue from Contract with Customer [Abstract] | |
DEFERRED REVENUE | DEFERRED REVENUE Deferred revenue activities for the period January 1, 2021 through December 31, 2021 (Predecessor), January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 (Predecessor) through March 31, 2022 (Successor) are as follows: Deferred Revenue Deferred revenue as of January 1, 2021 (Predecessor) $ 1,889 Additional amounts deferred 5,116 Deferred revenue recognized (5,034) Deferred revenue as of December 31, 2021 (Predecessor) $ 1,971 Deferred Revenue Deferred revenue as of January 1, 2022 (Predecessor) $ 1,971 Additional amounts deferred 620 Deferred revenue recognized (309) Deferred revenue as of January 26, 2022 (Predecessor) $ 2,282 Deferred Revenue Deferred revenue as of January 27, 2022 (Successor) $ — Additional amounts deferred* 94,254 Deferred revenue recognized (29,444) Deferred revenue as of March 31, 2022 (Successor) $ 64,810 * Of the additional amounts deferred during the period January 27, 2022 through March 31, 2022 (Successor), $61,156 was acquired from the acquisitions. During the periods January 27, 2022 through March 31, 2022 (Successor), January 1, 2022 through January 26, 2022 (Predecessor), and January 1, 2021 through December 31, 2021 (Predecessor), $0, $309, and $1,889, respectively, of the deferred revenue recognized existed at the beginning of each respective period. We expect to recognize revenue related to the remaining performance obligations within the next twelve months. |
OTHER LIABILITIES
OTHER LIABILITIES | 3 Months Ended |
Mar. 31, 2022 | |
Other Liabilities Disclosure [Abstract] | |
OTHER LIABILITIES | OTHER LIABILITIES Other liabilities consisted of the following: Successor Predecessor March 31, 2022 December 31, 2021 Hold-back liability $ 5,600 $ — Deferred rent — 969 Other 204 — Other liabilities $ 5,804 $ 969 |
INCOME TAXES
INCOME TAXES | 3 Months Ended |
Mar. 31, 2022 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in the consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company’s income tax (benefit) expense was approximately ($629), ($16,252) and $151, with an effective income tax rate of 1.53%, 29.92% and 2.19% for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), 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 income (loss) from non-taxable pass-through entities related to non-controlling interests, state taxes, foreign rate differential, change in fair value of warrant liabilities, non-deductible expenses, outside basis adjustments, and Global Intangible Low-taxed Income. In assessing the ability to realize deferred tax assets for the period from January 1, 2022, through January 26, 2022 (Predecessor), the period from January 27, 2022, through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), respectively, management considered whether it is more likely than not some portion or all the deferred tax assets will be realized, as prescribed by ASC 740. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. Based on the weight of both positive and negative evidence, the Company determined that it was more-likely-than-not that the net deferred tax assets would be realizable, with the exception of Privacy One Group Limited, for which the Company does not anticipate future income. Management cannot conclude that it is more-likely-than-not that the deferred tax assets of Privacy One will be realized. As such, a full valuation allowance has been retained on the net deferred tax assets of Privacy One Group Limited. The unrecognized tax benefits of $34 relates to R&D tax credits for the period from January 27, 2022, through March 31, 2022 (Successor). The Company files income tax returns in the U.S. federal, states, and various foreign countries. For U.S. federal income tax purposes, as of March 31, 2022 (Successor), the year 2018 and later tax years remain open for examination by the tax authorities. For foreign income tax purposes, as of March 31, 2022 (Successor), the year 2016 and later tax years remain open for examination by the tax authorities under the Netherland’s five-year statute of limitations. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Leases The Company leases office facilities under noncancelable operating lease agreements. During the period from January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 through March 31, 2022 (Successor), the Company had leases for facilities in Marina del Rey, California; Bellevue, Washington; and Guelph, Canada. The Company has an agreement with JDI Property Holdings Limited (“JDI”) which allows for the Company to occupy desks at JDI’s property in such a place as JDI specifies from time to time in exchange for GBP 25 per month. The agreement with JDI expires on June 21, 2022. In March 2021, the Company entered into an agreement for a sublease of office space in Marina del Rey, California. The initial minimum lease payment is $147 per month. The initial term of the sublease is in effect until November of 2025 with no renewal periods. The lease accounting standard provides several optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company to not reassess, its prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption. Accordingly, for those leases that qualify, the Company did not recognize a right-of-use asset or lease liability, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The adoption of the lease standard did not have any effect on its previously reported Condensed Consolidated Statements of Operations and did not result in a cumulative catch-up adjustment to opening equity. The Company recorded $6,786 of Right-of-Use (“ROU”) assets, $7,987 of lease liabilities and reclassified $1,201 of deferred rent liabilities as a reduction to the beginning ROU assets upon implementation of ASC 842. A contract is or contains a lease when, (1) the contract contains an explicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at inception of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date, on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company’s right to use the underlying asset over the period of use. The Company’s facility leases are operating leases and operating lease right-of-use (“ROU”) asset and lease liabilities are recorded in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022 (Successor). An ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments include taxes, insurance, utilities and maintenance costs. As most of the Company’s leases do not provide an implicit interest rate, the incremental borrowing rate based on the information available on the commencement date of the lease is used to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and lease incentives. The lease terms may include options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option at the time the lease is commenced. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for as a single lease component. The components of lease expense were as follows: Successor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Operating lease cost $ 397 $ 142 Variable lease costs for operating leases were immaterial for the period from January 1, 2022 through January 26, 2022 (Predecessor) and the period from January 27, 2022 through March 31, 2022 (Successor). Operating lease costs were included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. Supplemental balance sheet information related to leases was as follows: Successor As of March 31, 2022 Operating leases: Operating lease right-of-use asset $ 6,388 Current operating lease liability $ 1,895 Operating lease liability - less current portion $ 5,645 Total operating lease liability $ 7,540 Weighted Average Remaining Lease Terms (in years): Operating leases 3.4 Weighted Average Discount Rate: Operating leases 4.8 % Maturities of lease liabilities by fiscal year for our operating leases are as follows as of March 31, 2022 (Successor) : Successor As of March 31, 2022 Operating leases: Remainder of 2022 $ 1,649 2023 2,253 2024 2,320 2025 1,975 Total lease payments $ 8,197 Less: Imputed interest (657) Present value of operating lease liabilities $ 7,540 Rent expense was $491 for the three months ended March 31, 2021 (Predecessor), which was included in Selling, general, and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of December 31, 2021 (Predecessor), the expected future operating lease obligation are as follows: Predecessor As of December 31, 2021 Year ending 2022 $ 1,957 2023 $ 1,950 2024 $ 1,950 2025 $ 1,663 Litigation The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company believes 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 the Company’s condensed consolidated financial position, results of operations, or cash flows. The Company accrues for losses when the loss is deemed probable and the liability can reasonably be estimated. System1, LLC (a wholly owned subsidiary of S1 Holdco LLC) was named (along with other affiliated defendant parties) in a lawsuit alleging breach of partnership agreement, breach of fiduciary duty and breach of contract (among other claims), by an individual who alleges that he was a co-founder and equity owner of OpenMail LLC (a significant shareholder of S1 Holdco and a predecessor entity that originally owned and operated the original System1 businesses) related to facts, circumstances and events that principally occurred prior to the formation of S1 Holdco. In March 2021, this matter was fully settled by the parties at no monetary and non-monetary expense or exposure to System1 or S1 Holdco, and included a complete release of claims against all named defendants, including System1 and S1 Holdco, and the case was voluntarily dismissed with prejudice. In July 2021, the Company received initial correspondence from counsel for a United Kingdom-based marketing research company and its United States subsidiary (collectively, the “Demanding Group”) alleging trademark infringement (i) based on its use of the “SYSTEM1” trade name and mark in the United States, and (ii) subsequently based on its use of the “SYSTEM1” trade name and mark in the United Kingdom. The correspondence demanded that we cease and desist from using the “SYSTEM1” name and mark, and made reference to potential legal action if we did not comply with that demand. While the Company was engaged in active discussions and correspondence with the Demanding Group to attempt to resolve the matter, the Demanding Group filed a lawsuit in the United States District Court for the Southern District of New York in September 2021 (the “Infringement Suit”), alleging (i) trademark infringement, (ii) false designation of origin, (iii) unfair competition and (iv) certain violations of New York business laws, seeking, among other things, an injunction, disgorgement of profits, actual damages and attorneys’ fees and costs. The Company believes that the Demanding Group’s infringement and other allegations and claims set forth in the Infringement Suit may be subject to a laches defense, among other defenses, and the Company intends to vigorously defend its rights and position in the Infringement Suit. The matter is currently pending. The Company filed a motion to dismiss the Infringement Suit in November 2021, and the parties are waiting for the court to rule on the pending motion. Even though the Company received similar correspondence from the Demanding Group regarding its alleged infringing use of the SYSTEM1 trade name and mark in the United Kingdom, no lawsuit has been filed in the United Kingdom. The Company does not believe that its activities infringe any rights of the Demanding Group in the United Kingdom because, among other defenses, the Company does not actively offer services to customers using the SYSTEM1 trade name and mark in the United Kingdom. The Company’s counsel has informed the Demanding Group’s UK counsel of these circumstances, and the Demanding Group’s UK counsel confirmed receipt of this correspondence, and the parties have not shared any further meaningful correspondence with the respect to the Demanding Group’s allegations of infringing use in the United Kingdom. Service Agreements On June 18, 2021 the Company entered into an agreement with a service provider whereby the Company is contractually obligated to pay $6,900 and $8,000 in the first and second years of the contract, respectively. The contract commencement date was July 1, 2021. The Company has paid a total of $5,776 to this service provider as of March 31, 2022 (Successor), $616 during the period January 1, 2022 to January 26, 2022 (Predecessor) and $934 during the period January 27, 2022 to March 31, 2022 (Successor). Executive Compensation Ian Weingarten was hired as CEO of S1 Holdco on April 10, 2019. He was entitled to a cash-settled profits interest of 5% of the value of S1 Holdco, which was contingent upon (i) a participation threshold of $300 million (which was subject to adjustment as set forth in the S1 Holdco operating agreement) and (ii) on a four-year vesting term, or if a qualifying change in control transaction occurs. In February 2021, Mr. Weingarten's employment with S1 Holdco was terminated and the parties entered into a separation agreement. In connection with the separation agreement, S1 Holdco agreed to payment of separation pay benefits consistent with the terms of Mr. Weingarten’s employment agreement, including the payment of the liability accrued for the cash-settled profits interest of 5% of S1 Holdco, which was deemed vested as to a 3.75% profits interest and forfeited as to the remaining 1.25% profits interest above the applicable adjusted threshold amount (subject to further increase to a 2.5% profits interest in the event that the Merger was not consummated). S1 Holdco recorded a liability for this arrangement of $11,132 as of December 31, 2021 (Predecessor). In January 2022, in conjunction with the consummation of the Merger, S1 Holdco settled the profits interest liability pursuant to the separation agreement with the Mr. Weingarten. Indemnifications In the ordinary course of business, the Company 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 the Company’s breach of such agreements, services to be provided by the Company, 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 the Company could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, the Company believes the estimated fair value of these agreements is immaterial. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2022 (Successor) or December 31, 2021 (Predecessor), respectively. |
DEBT
DEBT | 3 Months Ended |
Mar. 31, 2022 | |
Debt Disclosure [Abstract] | |
DEBT | DEBT As of December 31, 2021 (Predecessor), S1 Holdco had principal of $172,038 outstanding under a term loan secured from Cerberus Business Finance, LLC. Amortization payments of $1,750 were due quarterly and, upon delivery of the prior year’s audited consolidated financial statements, S1 Holdco was required to make a payment of 50% of excess free cash flow, as defined. S1 Holdco also had a $20,000 revolving line of credit. No amounts were outstanding as of December 31, 2021 under the revolving line of credit. Interest payments on the secured financing were due monthly at London InterBank Offered Rate (“LIBOR”), plus 7% with a LIBOR floor of 1%. Maturity for the secured financing was August 22, 2022. The facility had certain financial and nonfinancial covenants, including a leverage ratio. In connection with the Merger disclosed in Note 3, Orchid Merger Sub II LLC (a subsidiary of S1 Holdco) entered into a new loan (“Term Loan”) and revolving facility (“Revolving Facility”) on January 27, 2022, providing for a 5.5 year term loan with a principal balance of $400,000 and with the net proceeds of $376,000, of which a portion of the proceeds were used by S1 Holdco, to settle the outstanding debt of $172,038 with Cerberus Business Finance, LLC. In addition, the Company also obtained a Revolving Facility of $50,000 on January 27, 2022. For every interest period, the interest rate on the Term Loan is the adjusted Term Secured Overnight Financing Rate (“Term SOFR”) plus 4.75% with an adjusted Term SOFR floor of 0.50%. The Term Loan will amortize in quarterly installments on each scheduled payment date (commencing with the scheduled payment date occurring on June 30, 2022). The new loan comes with a springing covenant, which goes into effect if the utilization on the Revolving Facility exceeds 35% at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40. For the period covering June 30, 2022 through and including December 31, 2025, $5,000 of the amortization payment will be made quarterly. For March 31, 2026 (scheduled payment date) and thereafter, $7,500 of the amortization payment will be made quarterly. |
WARRANTS
WARRANTS | 3 Months Ended |
Mar. 31, 2022 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
WARRANTS | WARRANTS In June 2020, the Company issued Public Warrants and Private Placement Warrants in conjunction with the initial public offering of Trebia. Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants became exercisable on April 18, 2022, when the S-1/A registration statement, which was required to be filed under the terms of the Warrant Agreement and the Business Combination Agreement, was declared effective. The Public Warrants will expire five years from the completion of the Merger, or earlier upon redemption or liquidation. The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a Public Warrants and will have no obligation to settle such Public Warrants exercises unless a registration statement under the Securities Act with respect to the Class A common stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. Warrants are exercisable and the Company is obligated to issue a share of Class A common stock upon exercise of each Warrant, as the Warrants have been registered with SEC. The Company will use its commercially reasonable efforts to maintain the effectiveness of a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the Warrants, and a current prospectus relating thereto, until the expiration or redemption of the Warrants in accordance with the provisions of the Warrant Agreement. If the effectiveness of a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the Warrants is not maintained, Warrant holders may exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. In addition, if the Company's Class A common stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of the Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company elects to do so, the Company will not be required to file or maintain in effect a registration statement, but it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the Public Warrants for that number of shares of Class A common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the Public Warrants, multiplied the excess of the “fair market value” less the exercise price of the Public Warrants by (y) the fair market value and (B) 0.361. The “fair market value” shall mean the volume weighted average price of the Class A common stock for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent. Redemption of Warrants when the Price per Class A common stock equals or exceeds $18.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Public Warrants: ● in whole and not in part; ● at a price of $0.01 per Public Warrant; ● upon not less than 30 days’ prior written notice of redemption to each warrant holder and ● if, and only if, the last reported sale price of the Class A common stock for any 20 trading days within a 30-trading day period ending three business days before sending the notice of redemption to warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like). If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, we will not redeem the Warrants unless an effective registration statement under the Securities Act covering the underlying shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period. Redemption of Warrants When the Price per Class A common stock equals or exceeds $10.00 —Once the Warrants become exercisable, the Company may redeem the outstanding Warrants: ● in whole and not in part; ● at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the report on Form 10-K for the year ended December 31, 2021 filed on March 31, 2022, based on the redemption date and the “fair market value” of the Class A common stock; ● if, and only if, the Reference Value (as defined in the above under “Redemption of Warrants When the Price per Class A common stock Equals or Exceeds $18.00”) equals or exceeds $10.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like); and ● if the Reference Value is less than $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) the Private Placement Warrants must also be concurrently -called for redemption on the same terms (except as described below with respect to a holder’s ability to cashless exercise its warrants) as the outstanding Public Warrants, as described above. The exercise price and number of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. The Private Placement Warrants are identical to the Public Warrants underlying the units sold in the initial public offering of Trebia, except that (x) the Private Placement Warrants and the shares of shares of Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of the Merger, subject to certain limited exceptions, (y) the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees and (z) the Private Placement Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants will be entitled to registration rights. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | 3 Months Ended |
Mar. 31, 2022 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE MEASUREMENT | FAIR VALUE MEASUREMENT The following table presents the Company’s fair value hierarchy for liabilities measured at fair value on a recurring basis as of March 31, 2022 (Successor) . Level 1 Level 2 Level 3 Total Warrant liabilities: Public warrants $ 27,600 $ — $ — $ 27,600 Private warrants — 13,173 — 13,173 Total warrants liabilities $ 27,600 $ 13,173 $ — $ 40,773 Contingent consideration $ — $ — $ 2,255 $ 2,255 Grand total $ 27,600 $ 13,173 $ 2,255 $ 43,028 The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the former CEO of S1 Holdco's equity profits interest was determined with an option pricing model and utilizing significant unobservable inputs for a discount for lack of marketability and projected financial information. The fair value contingent consideration was determined with an option pricing model and contains significant unobservable inputs for projected financial information. Changes in estimated fair value of Level 1, 2 and 3 financial liabilities for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), respectively, are as follows: Contingent consideration Former CEO equity profits interest* Warrant liability Fair value of liabilities at December 31, 2020 (Predecessor) $ (8,240) $ (4,236) $ — Settlements 5,000 — — Change in fair value (63) (1,413) — Fair value of liabilities at March 31, 2021 (Predecessor) $ (3,303) $ (5,649) $ — Fair value of liabilities at December 31, 2021 (Predecessor) $ (1,682) $ (11,132) $ — Settlements — — — Fair value of liabilities at January 26, 2022 (Predecessor) $ (1,682) $ (11,132) $ — Fair value of liabilities at January 27, 2022 (Successor) $ (1,682) $ — $ (27,012) Additions (573) — — Change in fair value — — (13,761) Fair value of liabilities at March 31, 2022 (Successor) $ (2,255) $ — $ (40,773) * Former CEO equity profits interest as further described in executive compensation Note 11. The total impact of the changes in fair values related to contingent consideration and the former CEO of S1 Holdco's equity profits interest are included in Selling, general and administrative expenses, and Salaries, commissions and benefits, respectively in the Condensed Consolidated Statements of Operations. There were no transfers in or out of levels during the period January 1, 2022 through January 26, 2022 (Predecessor), the period January 27, 2022 through March 31, 2022 (Successor), or for the three months ended March 31, 2021 (Predecessor). |
NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE | 3 Months Ended |
Mar. 31, 2022 | |
Earnings Per Share [Abstract] | |
NET INCOME (LOSS) PER SHARE | NET INCOME (LOSS) PER SHARE For the period from January 1, 2022 through January 26, 2022 (Predecessor), and for the three months ended March 31, 2021 (Predecessor), the basic net income per unit attributable to members was calculated by dividing the net income attributable to common equity holders by the weighted-average number of membership units. For the period from January 27, 2022 through March 31, 2022 (Successor), the basic net income (loss) per share was calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock. Basic and diluted net income (loss) per share was calculated as follows: Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Basic net (loss) per share $ (0.36) n/a n/a Diluted net (loss) per share $ (0.36) n/a n/a Numerator: Net (loss) attributable to System1, Inc. $ (29,991) n/a n/a Denominator: Weighted-average common shares outstanding used in computing basic net (loss) per share (shares in thousands) 82,210 n/a n/a Weighted-average common shares outstanding used in computing diluted net (loss) per share (shares in thousands) 82,210 n/a n/a Basic and diluted net (loss) income per unit n/a $ (1.97) $ 0.33 Numerator: Net (loss) income n/a $ (40,460) $ 6,743 Denominator: Weighted-average membership units outstanding - basic n/a 20,488 20,488 Shares of Class C common stock outstanding for the period January 27, 2022 through March 31, 2022 (Successor) are considered potentially dilutive of the shares of Class A common stock under the application of the if-converted method, and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive. A total of 22,077,319 shares of Class C common stock were excluded from the computation of net loss per share for the period January 27, 2022 through March 31, 2022 (Successor) as the impact was anti-dilutive. Loss per share also excludes 17,250,000 Public Warrants and 8,233,334 Private Placement Warrants as their effect was anti-dilutive. |
SEGMENT REPORTING
SEGMENT REPORTING | 3 Months Ended |
Mar. 31, 2022 | |
Segment Reporting [Abstract] | |
SEGMENT REPORTING | SEGMENT REPORTING ASC Subtopic 280-10, Segment Reporting , establishes standards for reporting information about operating segments. 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, or CODM, in deciding how to allocate resources and assess performance. System1’s Chief Executive Officer, who is considered to be its 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 revenues as well as adjusted gross margin and other measures. The Company defines and calculates adjusted gross margin as revenue less advertising expense to acquire users. The remaining cost of revenues consist of non-advertising expenses such as set-up costs, royalties and fees. The Company excludes the following items from segment adjusted gross margin: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments, that the CODM does not consider for the purposes of making decisions to allocate resources among segments or to assess segment performance. Although these amounts are excluded from segment adjusted gross margin, they are included in reported consolidated net income from continuing operations before income tax and are included in the reconciliation that follows. The Company’s computation of segment Adjusted Gross Margin may not be comparable to other similarly-titled measures computed by other companies because all companies do not calculate segment Adjusted Gross Margin in the same fashion. Operating segments do not sell products and services across segments, and, accordingly, there are no intersegment revenues to be reported. The accounting policies for segment reporting are the same as for System1 as a whole. The CODM of the Company reviews operating results, assesses performance and makes decisions by operating segment. Management views each of the Company’s business lines as an operating segment. The Company has four business lines and operating segments: Publishing and Lead Generation, Search & Applications, Partner Network, and Subscription. The Publishing and Lead Generation and Search & Applications operating segments are aggregated into one reportable segment, referred to as Owned and Operated, based on their similar economic characteristics, technology platform utilized, types of services provided, Advertising Partners, and cost structures. The Company has three reportable segments: Owned and Operated, Partner Network and Subscription. The following summarizes assets by reportable segments: (Successor) (Predecessor) March 31, 2022 December 31, 2021 Owned and Operated $ 1,153,848 $ 214,968 Partner Network 57,811 41,943 Subscription 449,331 — Total assets $ 1,660,990 $ 256,911 The following summarizes revenue by reportable segments: Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Owned and Operated $ 130,258 $ 49,791 $ 139,426 Partner Network 7,976 2,921 8,135 Subscription 27,874 — — Total revenue $ 166,108 $ 52,712 $ 147,561 The following summarizes adjusted gross margin by reportable segments: Three-Month Period Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Owned and Operated $ 32,791 $ 9,310 $ 32,128 Partner Network 7,976 2,921 8,135 Subscription 12,647 — — Adjusted gross margin $ 53,414 $ 12,231 $ 40,263 Other cost of revenues 7,437 1,279 3,487 Salaries, commissions and benefits 43,459 35,175 15,195 Selling, general and administrative 14,981 14,817 6,950 Depreciation and amortization 23,311 1,000 3,689 Interest expense 4,776 1,049 4,048 Loss on warrant fair value 13,761 — — Net income before income tax $ (54,311) $ (41,089) $ 6,894 The following table presents our revenues disaggregated by geographic region. Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Geographic Region United States $ 134,608 $ 51,701 $ 144,558 United Kingdom 27,719 — 1 Other 3,781 1,011 3,002 Total revenue $ 166,108 $ 52,712 $ 147,561 |
RELATED-PARTY TRANSACTIONS
RELATED-PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2022 | |
Related Party Transactions [Abstract] | |
RELATED-PARTY TRANSACTIONS | RELATED-PARTY TRANSACTIONS On October 16, 2018, S1 Holdco and its subsidiaries purchased a 50.1% interest in a UK-based company, Protected.net Group Ltd., for $55,000. At the time of the transaction, an investment vehicle known as Lone Investment Holdings (LIH) was a shareholder and creditor of Protected. LIH owned 7.7% of the equity of Protected, and also was a creditor for $10,500, with respect to shareholder loans for which Protected was the obligor. LIH’s shareholders primarily consist of members of the Company’s management team. As a result of the Merger, LIH’s shareholder loan to Protected was repaid, with interest, and LIH also received $1,158 in proceeds from the sale of its equity. During 2017, in connection with an equity financing transaction, S1 Holdco deferred the distribution of proceeds to two of its senior executives, one of whom terminated their employment with S1 Holdco in 2021, and instead extended them loans. The balance of the loans were $969 as of December 31, 2021. In January 2022, in conjunction with the consummation of the Merger, S1 Holdco settled the deferred distributions from the 2017 equity financing transaction, and simultaneously the loans were repaid in full. Additionally, during 2021, S1 Holdco extended a loan of $1,500 to its former CEO in connection with his separation agreement entered into with the former CEO of S1 Holdco. In January 2022, in conjunction with the consummation of the Merger, the loans were repaid in full. Protected utilizes multiple payment processors in order to process credit card payments from its subscription customers, including Paysafe Financial Services Limited (“Paysafe”). Paysafe recently completed a merger with Foley Trasimene Acquisition Corp. II, a special purpose acquisition company sponsored by entities affiliated with William Foley, who is also a sponsor of Trebia Acquisition Corp. and a member of the Company’s Board of Directors. Protected’s payment processing agreement with Paysafe was negotiated before the announcements of both (i) the Merger as well as (ii) the business combination between Paysafe and Foley Trasimene. The amount due from Paysafe was $1,300 as of March 31, 2022 (Successor). As disclosed in Note 11, the Company has an agreement with JDI which allows for the Company to occupy desks at JDI’s property. Additionally, the Company utilizes a JDI credit card and is recharged monthly. As of March 31, 2022 (Successor), the Company owes $80 to JDI. |
SHARE-BASED PAYMENTS
SHARE-BASED PAYMENTS | 3 Months Ended |
Mar. 31, 2022 | |
Share-based Payment Arrangement [Abstract] | |
SHARE-BASED PAYMENTS | SHARE-BASED PAYMENTS Pursuant to the Merger, the Company is required to replace certain profits interests awards with restricted stock units (“RSUs”) in System 1 (the “Replacement Awards”). The Replacement Awards will continue to vest over the original vesting schedule of the original underlying awards. The Company recognized stock-based compensation expense of $1,676 under these awards during the period January 27, 2022 through March 31, 2022 (Successor). The Company recognized a total stock-based compensation expense of $27,698 upon the Merger transaction during the period January 1, 2022 through January 26, 2022 (Predecessor). Subsequent to the Merger, the remaining amount of $13,818 will be amortized over the following weighted average period of 3 years, and forfeitures will be recognized as they occur. The Company recognized a total stock-based compensation expense of $27,167 during the period January 27, 2022 through March 31, 2022 (Successor). The unrecognized stock-based compensation expense associated with the unvested RSUs at March 31, 2022 was $11,790. In addition to the Replacement Awards, the Company issued RSUs and Restricted Stock Awards (RSAs) in January 2022 that vest upon the Company’s common stock trading at a volume weighted average price (VWAP) equal or exceeding $12.50 per share for any 20 trading days within a 30 trading day period. The VWAP of the Company’s common stock price exceeded the threshold in March 2022 and the Company has recorded $25,491 in expense associated with the vesting of these RSUs and RSAs during the period January 27, 2022 through March 31, 2022 (Successor). Since these RSUs and RSAs had a market condition to vest, the Company estimated the fair values of these RSUs and RSAs using a Monte Carlo simulation. The key assumptions used to determine the fair value of these RSUs and RSAs were as follows: Inputs Risk-free interest rate 1.6 % Expected stock price volatility 50.0 % Cost of equity 23.6 % Expected term (years) 5 Fair Value of Class A Common Stock $ 10.00 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2022 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS On May 4, 2022, the Company acquired the assets of Answers.com, one of the largest destinations for higher education and lifelong learning content for a total cash consideration of $4,632. In April 2022, the Private Placement Warrant holders exercised their Warrants on a cashless basis in exchange for 3,532,372 shares. Additionally, from April 20, 2022 through May 10, 2022, Public Warrant holders exercised 437,186 warrants on a cash basis resulting in total proceeds paid to the Company of $5,028. The total outstanding Public Warrants as of May 17, 2022 was 16,812,814. There are no outstanding Private Placement Warrants as of May 12, 2022. On April 27, 2022, the Company filed an S-8 with the SEC registering the System1, Inc. 2022 Incentive Award Plan ("Award Plan”). On May 10, 2022, the Company’s board of directors authorized the issuance of 1.9 million replacement RSU’s in connection with S1 Holdco unvested value creation units at the time of the Merger as required per the Business Combination Agreement and 4.9 million RSUs from the authorized Award Plan pool of shares (as defined in the Aware Plan). |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2022 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the period from January 27, 2022 through March 31, 2022 (Successor) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter. Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented. |
Principles of Consolidation | The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries for the Successor period, and S1 Holdco for the Predecessor periods. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. The condensed consolidated financial statements have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The year-end condensed consolidated balance sheet data was derived from audited financial statements of S1 Holdco and related notes included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 19, 2022 (the “Prospectus”), but does not include all disclosures required by U.S. GAAP. The Condensed Consolidated Statements of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the period from January 27, 2022 through March 31, 2022 (Successor) are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter. Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented. |
Use of Estimates | Use of Estimates The preparation of these condensed consolidated financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, acquired intangible assets and long-lived assets for impairment, inputs into the valuation of the Company’s share-based compensation awards, income taxes, variable and contingent consideration and determination of the fair value of the warrant liabilities. Significant estimates affecting the condensed consolidated financial statements have been prepared on the basis of the most current and best available information, including historical experience, known trends and other market-specific or other relevant factors that the Company believes to be reasonable. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in periods which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the condensed consolidated financial statements. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain. |
Cash and cash equivalents | Cash and cash equivalents Cash and cash equivalents consist of amounts held as bank deposits. |
Accounts Receivable | Accounts Receivable Accounts receivable primarily represent amounts due from its Advertising Partners, these accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company does not require collateral for its accounts receivable. The Company considers the following factors when determining the collectability of specific customer accounts: past transaction history with the customer, and current economic industry trends. These accounts receivables have historically been paid on a timely basis. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection and |
Concentration of Credit Risk | Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and accounts receivable. Cash is deposited with high-credit-quality financial institutions and, at times, such balances with any one financial institution may exceed the insurance limits of the prevailing regulatory body. Historically, the Company has not experienced any losses related to these cash balances and believes that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits. |
Foreign Currency | Foreign Currency The Company’s reporting currency is the U.S. dollar. The balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. The statement of operations amounts have been translated using the average exchange rate for the month in which the activity related. Accumulated net translation adjustments and foreign currency transaction gains/losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the functional currency were not material. |
Warrant Liability | Warrant Liability The Company accounts for the Public Warrants and Private Placement Warrants (collectively, the “Warrants”, which are discussed in further detail in Note 13 and Note 14) as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the Warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, or meet all of the requirements for equity classification under ASC 815, including (i) whether the Warrants are indexed to the Company’s own common stock and (ii) whether the holders of the Warrants could potentially require “net cash settlement” in circumstance(s) outside of the Company’s control, among other conditions required for equity classification. This assessment, which requires the use of professional judgment by management, was conducted at the time of issuance of the Warrants, and is conducted at each subsequent quarterly period end date while any Warrants remain outstanding. For issued or modified Warrants that meet all of the criteria for equity classification, such Warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified Warrants that do not meet all the criteria for equity classification, liability-classified Warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of such Warrants are recognized as a non-cash gain or loss on the Condensed Consolidated Statement of Operations. The Company accounts for the Warrants in accordance with ASC 815-40 under which the Warrants do not meet the criteria for equity classification, and therefore must be recorded as liabilities. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The fair value of the Private Placement Warrants has been estimated using the fair value of the Public Warrants. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company applies the provisions of FASB ASC 820, Fair Value Measurements and Disclosures , which provides a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement. The provisions of ASC 820 relate to financial and nonfinancial assets and liabilities, as well as other assets and liabilities carried at fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. The Company measures fair value based on a three-level hierarchy of inputs, maximizing the use of observable inputs, where available, and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s level within the three-level hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy of inputs is as follows: Level 1 : Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 : Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions about current market conditions and require significant management judgment or estimation. Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, accounts payable and accrued liabilities. Cash equivalents and restricted cash are stated at fair value on a recurring basis. Accounts receivable, accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The carrying amount of the Company’s outstanding debt approximates the fair value, as the debt bears interest at a rate that approximates the prevailing market rate. The Company classifies the fair value of debt within Level 2 in the fair value hierarchy. The Company does not have any assets, with the exception of cash, cash equivalents and restricted cash, that are required to be carried at fair value on a recurring basis at March 31, 2022 (Successor) and December 31, 2021 (Predecessor), respectively. The Company’s liabilities measured at fair value relate to the former CEO of S1 Holdco's equity profits interest liability (Level 3), contingent consideration (Level 3), Public Warrant liabilities (Level 1) and Private Placement Warrant liabilities (Level 2). In January 2022, as part of the Merger, S1 Holdco settled the equity profits interest liability with S1 Holdco's former CEO. Certain assets, including goodwill and intangible assets, are also subject to measurement at fair value on a nonrecurring basis if they are deemed to be impaired as a result of an impairment review. The fair value of these assets is determined using unobservable inputs to present value the assets. |
Restricted cash | The Company’s restricted cash as of March 31, 2022 (Successor) primarily consists of (i) cash held as collateral at the Company’s financial institution to secure the Company’s letter of credit issued in favor of its landlord under the lease for its Marina del Rey, California facility, (ii) merchant reserve balances with its credit card processors held due to arrangements under which the Company's credit card processors withhold certain credit card funds to cover potential charge backs initiated by the Company’s customers, (iii) the escrow account balance related to the portion of vested equity awards as of the closing of the Business Combination that will be cash settled and will be released to the Company's employees as the service requirement is completed and (iv) the escrow account balance related to post-close adjustments and indemnifications from the RoadWarrior acquisition. |
Property and Equipment, net | Property and Equipment, net Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are three years for computer equipment, office equipment and software, three |
Internal-use software development costs, net and Intangible assets | Internal-use software development costs, net Internal-use software development costs are stated at cost, less accumulated amortization. The Company capitalizes certain internal-use software development costs associated with creating and enhancing internally developed software related to the Company’s technology infrastructure, including continuing to develop and deploy its RAMP platform. These costs include personnel and related employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as external direct costs of materials and services consumed in developing or obtaining the software. Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and correspondingly recorded in Salaries, commissions, and benefits expense in the Condensed Consolidated Statement of Operations. Internal-use software development activities generally consist of three stages: (i) the planning stage, (ii) the application and infrastructure development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation stages of software development, including costs associated with the post configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed for internal use when the preliminary project stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and the software will perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for deployment for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. The Company does not transfer ownership of its software, or lease its software, to third parties. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate that their carrying value may not be recoverable. Such events or changes in circumstances may include a significant adverse change in the extent or manner in which a long-lived asset is being used; significant adverse changes in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset; current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized and measured as the amount by which the carrying amount exceeds the estimated fair value. An impairment loss is charged to operations in the period in which management determines such impairment has occurred. Management has determined there to be no impairment of long-lived assets during the period from January 27, 2022 through March 31, 2022 (Successor), the period from January 1, 2022 through January 26, 2022 (Predecessor), and the three-month period ended March 31, 2021 (Predecessor). |
Business Combinations | Business Combinations The results of a business acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided which may consist of cash, equity, or a combination of the two, paid in a business combination for the identifiable assets and liabilities of the acquired business at their acquisition-date fair values. Any excess amount paid over the identifiable net assets is recorded as goodwill. The goodwill is non-deductible for tax purposes. The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry purchase price multiples, customer and service attrition rate and estimating future cash flows. The Company estimates the fair value based on assumptions which the Company's management believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the Company’s Condensed Consolidated Statements of Operations. Transaction costs associated with business combinations are expensed as incurred and are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. When purchase consideration includes contingent consideration, the Company records the fair value of the contingent consideration as of the date of acquisition, and subsequently remeasures the contingent consideration at fair value during each reporting period through the Company’s Condensed Consolidated Statements of Operations. |
Goodwill | Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and identifiable intangibles in a business combination. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other , which requires the Company to test goodwill at the reporting unit level for impairment at least annually. The Company has the option (i) to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or (ii) to perform the quantitative impairment test. The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, an impairment loss is recognized in an amount equal to the excess. The determination of fair value(s) requires us to make significant estimates and assumptions. These estimates include, but are not limited to, future expected cash flows from a market participant perspective, discount rates, industry data and management’s prior experience. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results. The Company tests for goodwill impairment annually at December 31st. During the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), there were no triggering events identified, and therefore no impairment charges recorded on goodwill during the interim periods were required. |
Revenue | Revenue The Company recognizes revenue when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company determines revenue recognition through the following steps: • Identification of a contract with a customer, • Identification of the performance obligations in the contract, • Determination of the transaction price, • Allocation of the transaction price to the performance obligations in the contract, and • Recognition of revenue when or as the performance obligations are satisfied. The Company’s revenue is principally derived from the following areas: Advertising and Other Revenue Revenue is earned from revenue-sharing arrangements with the Company’s Network Partners for the use of its RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space. The Company has determined it is the agent in these transactions and reports revenue on a net basis, because (a) the Company does not control the underlying advertising space, (b) the Company does not acquire the traffic and does not have risk of loss in connection therewith and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement. The Company reports this revenue on a net basis with respect to the amount retained under its revenue-sharing arrangements, which represents the difference between amounts received by the Company from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts. The Company also earns revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, the Company is the principal in the transaction and reports revenue on a gross basis for the amount(s) received from its Advertising Partners. For this revenue, the Company has determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with its Advertising Partners, and, in the case of its owned and operated websites, the Company maintains the website, provides the content and bears the cost and risk of loss associated with its websites’ advertising space. The Company recognizes revenue upon delivering traffic to its Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment term is typically 30 days. Subscription Revenue In connection with the Merger of Protected discussed in Note 3, the Company is also engaged in selling security software as a service subscriptions to customers. The subscription business provides real-time antivirus protection, a safe-browsing feature, adblocking, identity-theft protection, blocking of malicious websites and data breach monitoring. Subscription revenue is primarily derived from the (i) delivery of the antivirus software and (ii) delivery of the additional add-on service(s), which all are provided on a fixed-price basis. The performance obligations related to subscription, maintenance and support are satisfied over the length of the relevant customer contract and the associated subscription revenue is recognized over the contract term on a ratable basis, which is consistent with transfer of control. The Company’s services rendered to customers are generally paid for in advance with cash receipts recorded as deferred revenue and revenue recognized over time, generally the annual subscription period. The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of deferred revenue (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent. Cost of Revenues Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, and licensing costs to provide mapping services to Mapquest.com, and licensing costs related to the utilization of antivirus engine licensing costs related to APIs for the antivirus product. The Company does not pay any up-front payments, incentive payments or bonuses and such costs are expensed as incurred. |
Salaries, Commissions, and Benefits | Salaries, Commissions, and Benefits Salaries, commissions and benefits expenses include salaries, bonuses, stock-based compensation, costs incurred in the preliminary project planning and post-implementation stages of internal use software development, employee benefits costs associated with our executive, finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional services fees. |
Share-Based Compensation | Share-Based Compensation Compensation cost related to share-based payments is measured based on the fair value of the units issued and recognized within “Salaries, commissions, and benefits” in the Company’s Condensed Consolidated Statement of Operations. The Company has elected to treat share-based payment awards with graded vesting schedules and time-based service condition(s) only as a single award and recognizes share-based compensation expense on a straight-line basis over the vesting period, which is generally four years. After the Merger, the Company’s fair value of its common stock is derived from the market price of its Class A common stock, which is traded on the NYSE. The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following: • Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s board of directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist. • Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. For non-employees, the expected life equals the contractual term of the option. • Risk-free Interest Rate: The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. • Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies. The Company recorded total share-based compensation expense of $27,698 from January 1, 2022 through January 26, 2022 (Predecessor), $27,167 from January 27, 2022 through March 31, 2022 (Successor), and $146 for the three months ended March 31, 2021 (Predecessor). Share-based compensation expense is included in the Salaries, commissions, and benefits expense in the Condensed Consolidated Statements of Operations. |
Selling, general, and administrative expenses | Selling, general, and administrative expenses Selling, general, and administrative expenses consist of fees for professional services, occupancy costs, travel and entertainment. These costs are expensed as incurred. |
Depreciation and Amortization | Depreciation and Amortization Depreciation and amortization expenses are primarily attributable to the Company’s capital investment(s) and consist of fixed asset depreciation and amortization of intangible assets with finite lives. |
Income Taxes | Income Taxes The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its condensed consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco. Various subsidiaries of the Company are subject to income tax in the United States and in other countries. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would not be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would increase the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize both accrued interest and penalties, when appropriate, in provision for income taxes in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), the Company had not incurred any related interest and penalties. |
Non-Controlling Interest | Non-Controlling Interest The Company reports a non-controlling interest representing the economic interest in S1 Holdco held by certain individuals and entities other than the Company. The non-controlling interest is comprised of certain selling equity holders of S1 Holdco that retained an economic interest in S1 Holdco through their ownership of Class B units in S1 Holdco, together along with the same number of corresponding shares of Class C common stock in the Company. The non-controlling interest holders may, from time to time, require the Company to redeem all or a portion of their economic interest via a redemption of their Class B units in S1 Holdco together with surrendering their corresponding shares of Class C common stock in the Company in exchange for shares of Class A common stock on a one-for-one basis. As future redemptions occur, this will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The FASB issued this Update as part of its Simplification Initiative to improve areas of U.S. GAAP and reduce cost and complexity while maintaining usefulness. The main provisions remove certain exceptions, including the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items, the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public companies, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods therein. Early adoption of the amendments is permitted for which financial statements have not yet been made available for issuance. As of January 1, 2022, the Company has adopted the amendments of ASU 2019-12. The Company has not recorded a cumulative effect because of adopting this new standard. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize a lease liability and a right-of-use asset in the Consolidated Balance Sheet and aligns many of the underlying principles of the new lessor model with those in ASC 606, Revenue From Contracts With Customers. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Upon adoption, there will be a material increase in total assets and total liabilities in the Consolidated Balance Sheet due to the recognition of right-of-use assets and lease liabilities for the Company’s leases. In June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). ASU No. 2020-05 defers the effective date of Leases for private entities (the “all other” category) to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. On January 1, 2022, the Company adopted this pronouncement under the modified transition approach and recognized right-of-use assets of $6,786 and lease liabilities of approximately $7,987 in its Condensed Consolidated Balance Sheet. The modified transition approach permits a company to use its effective date as the date of initial application to apply the standard to its leases, and therefore not recast comparative prior period financial information. In June 2016, the FASB issued ASU No. 2016-13 , including subsequent amendments, Measurement of Credit Losses on Financial Instruments (Topic 326), which modifies the accounting methodology for most financial instruments. The guidance requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. This guidance is effective for annual periods beginning after December 15, 2022, and early adoption is permitted. The Company does not expect the adoption of this update to have a material effect on its condensed consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contact Liabilities from Contracts with Customers (“ASU 2021-08”) . ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606 in order to align the recognition of a contract liability with the definition of performance obligation. This approach is different from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for financial statements issued for fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company adopted ASU No. 2021-08 on January 1, 2022 and accordingly, has recorded contract assets and contract liabilities at the net book values of the acquired entities during the period from January 1, 2022 through January 26, 2022 (Predecessor) and the period from January 27, 2022 through March 31, 2022 (Successor). In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) , which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on January 1, 2022. Adoption of the ASU did not impact our financial position, results of operations or cash flows. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Accounting Policies [Abstract] | |
Schedule of Finite-Lived Intangible Assets | The estimated useful lives of the Company’s intangible assets are as follows: Useful Life (Years) Developed technology 4 Customer relationships 3 - 5 Trademarks and trade names 10 Other intangibles 4 Internal-use software development costs and intangible assets consisted of the following: March 31, 2022 (Successor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 11,154 $ (450) $ 10,704 Intangibles: Developed technology $ 197,985 $ (8,646) $ 189,339 Trademarks and trade names 271,844 (4,478) 267,366 Software 3,910 (74) 3,836 Customer relationships 116,600 (8,466) 108,134 Total intangible costs $ 590,339 $ (21,664) $ 568,675 December 31, 2021 (Predecessor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 21,274 $ (10,061) $ 11,213 Intangibles: Developed technology $ 8,398 $ (7,242) $ 1,156 Trademarks and trade names 69,007 (21,375) 47,632 Professional service agreement 3,100 (2,359) 741 Customer relationships 1,500 (661) 839 Total intangible costs $ 82,005 $ (31,637) $ 50,368 |
Schedule of Ownership Interest by Other Entities | The following tables summarizes the ownership interest in S1 Holdco as of March 31, 2022 (Successor). Units (in thousands) Ownership % Class A units of S1 Holdco 83,203 79.0 % Class B units of S1 Holdco 22,077 21.0 % |
MERGER (Tables)
MERGER (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Business Combination and Asset Acquisition [Abstract] | |
Schedule of Fair Value of the Assets Acquired and Liabilities Assumed | The assets and liabilities were recorded at their fair values on the date of the Merger. The fair values below represent the Company’s preliminary determination of fair value of the assets acquired and liabilities assumed in the Merger. Amount Tangible assets acquired and liabilities assumed: Cash and marketable securities $ 68,746 Accounts receivable 79,087 Prepaid expenses 10,816 Property, plant & equipment, net 1,551 Internal-use software development costs, net 11,316 Other assets 8,205 Accounts payable (9,798) Deferred revenue (60,768) Accrued expenses and other current liabilities (97,789) Notes payable (172,038) VAT tax liability (12,280) Deferred tax liabilities (146,322) Other liabilities (7,633) Total tangible assets acquired and liabilities assumed (326,907) Intangible assets 555,500 Goodwill 836,093 Net assets acquired $ 1,064,686 Consideration: Cash $ 444,948 Equity 619,738 Total consideration $ 1,064,686 |
Schedule of Acquired Finite-Lived Intangible Assets by Major Class | The intangible assets as of the closing date of the acquisition included: Amount Weighted Average Useful Life (in Years) Trademarks $ 243,200 10 Customer relationships $ 115,300 4 Technology $ 197,000 4 Total $ 555,500 |
Schedule of Pro Forma Net Revenue and Net Income | The following table provides unaudited pro forma information as if the Merger occurred as of January 1, 2021. The unaudited pro forma information reflects adjustments for additional amortization resulting from the fair value adjustments to assets acquired and liabilities assumed, adjustments for alignment of accounting policies, and transaction expenses as if the Merger and acquisitions of RoadWarrior and CouponFollow occurred January 1, 2021. The pro forma results did not include any anticipated cost synergies or other effects of the merged companies. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. Three months ended March 31, 2022 March 31, 2021 Pro forma revenue $ 235,983 $ 193,201 Pro forma net (loss) $ (32,796) $ 88,746 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Business Acquisition [Line Items] | |
Schedule of Fair Value of the Assets Acquired and Liabilities Assumed | The assets and liabilities were recorded at their fair values on the date of the Merger. The fair values below represent the Company’s preliminary determination of fair value of the assets acquired and liabilities assumed in the Merger. Amount Tangible assets acquired and liabilities assumed: Cash and marketable securities $ 68,746 Accounts receivable 79,087 Prepaid expenses 10,816 Property, plant & equipment, net 1,551 Internal-use software development costs, net 11,316 Other assets 8,205 Accounts payable (9,798) Deferred revenue (60,768) Accrued expenses and other current liabilities (97,789) Notes payable (172,038) VAT tax liability (12,280) Deferred tax liabilities (146,322) Other liabilities (7,633) Total tangible assets acquired and liabilities assumed (326,907) Intangible assets 555,500 Goodwill 836,093 Net assets acquired $ 1,064,686 Consideration: Cash $ 444,948 Equity 619,738 Total consideration $ 1,064,686 |
RoadWarrior, LLC | |
Business Acquisition [Line Items] | |
Schedule of Fair Value of the Assets Acquired and Liabilities Assumed | The working capital and deferred tax allocations are preliminary and subject to adjustment for additional information. Amount Tangible assets acquired and liabilities assumed: Working capital $ 154 Total tangible assets acquired and liabilities assumed 154 Intangible assets 4,500 Goodwill 15,663 Net assets acquired $ 20,317 Consideration: Cash $ 19,636 Contingent consideration 681 Total consideration $ 20,317 |
Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination | Following are the details of the preliminary purchase price allocated to the intangible assets for the RoadWarrior acquisition: Amount Weighted Average Useful Life (in Years) Trademark $ 2,200 10 Software $ 1,000 4 Customer relationships $ 1,300 3 Total $ 4,500 |
NextGen Shopping, Inc | |
Business Acquisition [Line Items] | |
Schedule of Fair Value of the Assets Acquired and Liabilities Assumed | The working capital and deferred tax allocations are preliminary and subject to adjustment for additional information. Amount Tangible assets acquired and liabilities assumed: Cash and cash equivalents $ 21,232 Accounts receivable 5,860 Other current assets 299 Accounts payable (35) Accrued taxes (890) Deferred tax liabilities (8,093) Total tangible assets acquired and liabilities assumed 18,373 Intangible assets 30,300 Goodwill 55,253 Net assets acquired $ 103,926 Consideration: Cash $ 78,426 Equity 25,500 Total consideration $ 103,926 |
Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination | Following are the details of the preliminary purchase price allocated to the intangible assets for the CouponFollow acquisition: Amount Weighted Average Useful Life (in Years) Trademark $ 26,400 10 Software $ 3,900 4 Total $ 30,300 |
PROPERTY AND EQUIPMENT, NET (Ta
PROPERTY AND EQUIPMENT, NET (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property, Equipment, Net | Property and equipment, net as of March 31, 2022 (Successor) and December 31, 2021 (Predecessor), consisted of the following: Successor Predecessor March 31, 2022 December 31, 2021 Computer equipment $ 236 $ 415 Motor vehicles 233 — Furniture and equipment 315 475 Leasehold improvements 2,163 976 Property and equipment—gross 2,947 1,866 Less accumulated depreciation (92) (1,036) Property and equipment—net $ 2,855 $ 830 |
GOODWILL, INTERNAL-USE SOFTWA_2
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Goodwill | The changes in goodwill by reportable segments were as follows: Owned and Operated Partner Network Total Goodwill at January 1, 2021 (Predecessor) $ 24,403 $ 20,417 $ 44,820 Additions — — — Goodwill at December 31, 2021 (Predecessor) $ 24,403 $ 20,417 $ 44,820 Owned and Operated Partner Network Subscription Total Goodwill at January 27, 2022 (Successor) $ — $ — $ — $ — Additions 606,651 32,402 267,956 907,009 Goodwill at March 31, 2022 (Successor) $ 606,651 $ 32,402 $ 267,956 $ 907,009 |
Schedule of Finite-Lived Intangible Assets | The estimated useful lives of the Company’s intangible assets are as follows: Useful Life (Years) Developed technology 4 Customer relationships 3 - 5 Trademarks and trade names 10 Other intangibles 4 Internal-use software development costs and intangible assets consisted of the following: March 31, 2022 (Successor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 11,154 $ (450) $ 10,704 Intangibles: Developed technology $ 197,985 $ (8,646) $ 189,339 Trademarks and trade names 271,844 (4,478) 267,366 Software 3,910 (74) 3,836 Customer relationships 116,600 (8,466) 108,134 Total intangible costs $ 590,339 $ (21,664) $ 568,675 December 31, 2021 (Predecessor) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Total internal-use software development costs $ 21,274 $ (10,061) $ 11,213 Intangibles: Developed technology $ 8,398 $ (7,242) $ 1,156 Trademarks and trade names 69,007 (21,375) 47,632 Professional service agreement 3,100 (2,359) 741 Customer relationships 1,500 (661) 839 Total intangible costs $ 82,005 $ (31,637) $ 50,368 |
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | As of March 31, 2022 (Successor), the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs for each of the next five years, is as follows: Amortization Expense Remainder of 2022 $ 100,085 2023 108,552 2024 101,996 2025 90,092 2026 40,300 Thereafter 138,721 Total amortization expense $ 579,746 |
ACCRUED EXPENSES AND OTHER CU_2
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Expenses and Other Liabilities | Successor Predecessor March 31, 2022 December 31, 2021 Former CEO profit interest $ — $ 11,132 Payable to employees 6,754 10,091 Accrued legal service fees 5,377 6,242 Accrued marketing expenses 5,552 — Holdback liability 21,013 — Contingent consideration 2,051 1,682 Other liabilities 12,460 1,543 VAT tax liability 11,063 — Accrued tax liability 3,365 361 Deferred rent — 233 Accrued expenses and other current liabilities $ 67,635 $ 31,284 |
DEFERRED REVENUE (Tables)
DEFERRED REVENUE (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Revenue from Contract with Customer [Abstract] | |
Schedule of Deferred Revenue | Deferred revenue activities for the period January 1, 2021 through December 31, 2021 (Predecessor), January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 (Predecessor) through March 31, 2022 (Successor) are as follows: Deferred Revenue Deferred revenue as of January 1, 2021 (Predecessor) $ 1,889 Additional amounts deferred 5,116 Deferred revenue recognized (5,034) Deferred revenue as of December 31, 2021 (Predecessor) $ 1,971 Deferred Revenue Deferred revenue as of January 1, 2022 (Predecessor) $ 1,971 Additional amounts deferred 620 Deferred revenue recognized (309) Deferred revenue as of January 26, 2022 (Predecessor) $ 2,282 Deferred Revenue Deferred revenue as of January 27, 2022 (Successor) $ — Additional amounts deferred* 94,254 Deferred revenue recognized (29,444) Deferred revenue as of March 31, 2022 (Successor) $ 64,810 |
OTHER LIABILITIES (Tables)
OTHER LIABILITIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Other Liabilities Disclosure [Abstract] | |
Schedule of Other Liabilities | Other liabilities consisted of the following: Successor Predecessor March 31, 2022 December 31, 2021 Hold-back liability $ 5,600 $ — Deferred rent — 969 Other 204 — Other liabilities $ 5,804 $ 969 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Components of Lease Expense | The components of lease expense were as follows: Successor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Operating lease cost $ 397 $ 142 |
Schedue of Supplemental Balance Sheet Information | Supplemental balance sheet information related to leases was as follows: Successor As of March 31, 2022 Operating leases: Operating lease right-of-use asset $ 6,388 Current operating lease liability $ 1,895 Operating lease liability - less current portion $ 5,645 Total operating lease liability $ 7,540 Weighted Average Remaining Lease Terms (in years): Operating leases 3.4 Weighted Average Discount Rate: Operating leases 4.8 % |
Schedule of Maturities of Facility Lease Liabilities | Maturities of lease liabilities by fiscal year for our operating leases are as follows as of March 31, 2022 (Successor) : Successor As of March 31, 2022 Operating leases: Remainder of 2022 $ 1,649 2023 2,253 2024 2,320 2025 1,975 Total lease payments $ 8,197 Less: Imputed interest (657) Present value of operating lease liabilities $ 7,540 |
Schedule of Future Operating Lease Obligation Under ASC 840 | As of December 31, 2021 (Predecessor), the expected future operating lease obligation are as follows: Predecessor As of December 31, 2021 Year ending 2022 $ 1,957 2023 $ 1,950 2024 $ 1,950 2025 $ 1,663 |
FAIR VALUE MEASUREMENT (Tables)
FAIR VALUE MEASUREMENT (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Fair Value Disclosures [Abstract] | |
Schedule of Liabilities Measured at Fair Value on Recurring Basis | The following table presents the Company’s fair value hierarchy for liabilities measured at fair value on a recurring basis as of March 31, 2022 (Successor) . Level 1 Level 2 Level 3 Total Warrant liabilities: Public warrants $ 27,600 $ — $ — $ 27,600 Private warrants — 13,173 — 13,173 Total warrants liabilities $ 27,600 $ 13,173 $ — $ 40,773 Contingent consideration $ — $ — $ 2,255 $ 2,255 Grand total $ 27,600 $ 13,173 $ 2,255 $ 43,028 |
Schedule of Estimated Fair Value of Liabilities | Changes in estimated fair value of Level 1, 2 and 3 financial liabilities for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through March 31, 2022 (Successor), and for the three months ended March 31, 2021 (Predecessor), respectively, are as follows: Contingent consideration Former CEO equity profits interest* Warrant liability Fair value of liabilities at December 31, 2020 (Predecessor) $ (8,240) $ (4,236) $ — Settlements 5,000 — — Change in fair value (63) (1,413) — Fair value of liabilities at March 31, 2021 (Predecessor) $ (3,303) $ (5,649) $ — Fair value of liabilities at December 31, 2021 (Predecessor) $ (1,682) $ (11,132) $ — Settlements — — — Fair value of liabilities at January 26, 2022 (Predecessor) $ (1,682) $ (11,132) $ — Fair value of liabilities at January 27, 2022 (Successor) $ (1,682) $ — $ (27,012) Additions (573) — — Change in fair value — — (13,761) Fair value of liabilities at March 31, 2022 (Successor) $ (2,255) $ — $ (40,773) * Former CEO equity profits interest as further described in executive compensation Note 11. |
NET INCOME (LOSS) PER SHARE (Ta
NET INCOME (LOSS) PER SHARE (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Earnings Per Share [Abstract] | |
Schedule of Basic and Diluted Net Income Per Share | Basic and diluted net income (loss) per share was calculated as follows: Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Basic net (loss) per share $ (0.36) n/a n/a Diluted net (loss) per share $ (0.36) n/a n/a Numerator: Net (loss) attributable to System1, Inc. $ (29,991) n/a n/a Denominator: Weighted-average common shares outstanding used in computing basic net (loss) per share (shares in thousands) 82,210 n/a n/a Weighted-average common shares outstanding used in computing diluted net (loss) per share (shares in thousands) 82,210 n/a n/a Basic and diluted net (loss) income per unit n/a $ (1.97) $ 0.33 Numerator: Net (loss) income n/a $ (40,460) $ 6,743 Denominator: Weighted-average membership units outstanding - basic n/a 20,488 20,488 |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information | The following summarizes assets by reportable segments: (Successor) (Predecessor) March 31, 2022 December 31, 2021 Owned and Operated $ 1,153,848 $ 214,968 Partner Network 57,811 41,943 Subscription 449,331 — Total assets $ 1,660,990 $ 256,911 The following summarizes revenue by reportable segments: Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Owned and Operated $ 130,258 $ 49,791 $ 139,426 Partner Network 7,976 2,921 8,135 Subscription 27,874 — — Total revenue $ 166,108 $ 52,712 $ 147,561 The following summarizes adjusted gross margin by reportable segments: Three-Month Period Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Owned and Operated $ 32,791 $ 9,310 $ 32,128 Partner Network 7,976 2,921 8,135 Subscription 12,647 — — Adjusted gross margin $ 53,414 $ 12,231 $ 40,263 Other cost of revenues 7,437 1,279 3,487 Salaries, commissions and benefits 43,459 35,175 15,195 Selling, general and administrative 14,981 14,817 6,950 Depreciation and amortization 23,311 1,000 3,689 Interest expense 4,776 1,049 4,048 Loss on warrant fair value 13,761 — — Net income before income tax $ (54,311) $ (41,089) $ 6,894 |
Schedule of Revenues Disaggregated by Geographic Region | The following table presents our revenues disaggregated by geographic region. Successor Predecessor Predecessor Period from January 27, 2022 through March 31, 2022 Period from January 1, 2022 through January 26, 2022 Three Months Ended March 31, 2021 Geographic Region United States $ 134,608 $ 51,701 $ 144,558 United Kingdom 27,719 — 1 Other 3,781 1,011 3,002 Total revenue $ 166,108 $ 52,712 $ 147,561 |
SHARE-BASED PAYMENTS (Tables)
SHARE-BASED PAYMENTS (Tables) | 3 Months Ended |
Mar. 31, 2022 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of Assumptions Used To Determine Fair Value of RSUs and RSAs | The key assumptions used to determine the fair value of these RSUs and RSAs were as follows: Inputs Risk-free interest rate 1.6 % Expected stock price volatility 50.0 % Cost of equity 23.6 % Expected term (years) 5 Fair Value of Class A Common Stock $ 10.00 |
ORGANIZATION AND DESCRIPTION _2
ORGANIZATION AND DESCRIPTION OF BUSINESS (Details) - Geographic Concentration Risk | 1 Months Ended | 2 Months Ended | 3 Months Ended | 12 Months Ended | |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | |
United States | Revenue Benchmark | |||||
Business Acquisition [Line Items] | |||||
Concentration risk, percentage | 98.00% | 81.00% | 98.00% | ||
United States | Long Lived Assets | |||||
Business Acquisition [Line Items] | |||||
Concentration risk, percentage | 84.00% | 99.00% | |||
Canada | Long Lived Assets | |||||
Business Acquisition [Line Items] | |||||
Concentration risk, percentage | 11.00% | 1.00% |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Capital Resources and Liquidity (Details) | Jul. 30, 2021 | Mar. 01, 2021 | Jan. 26, 2022 | Mar. 31, 2022contractpartneragreement | Mar. 31, 2021 |
Product Information [Line Items] | |||||
Number of advertising partners | partner | 2 | ||||
Number of contract | agreement | 3 | ||||
Contract, term | 2 years | ||||
Product Information [Line Items] | |||||
Number of contract | 2 | ||||
Number of contract, renewed | 1 | ||||
Contract, term | 2 years | ||||
Microsoft | |||||
Product Information [Line Items] | |||||
Number of contract | 1 | ||||
Revenue Benchmark | Advertising Partner Risk | Google | |||||
Product Information [Line Items] | |||||
Concentration risk, percentage | 88.00% | 73.00% | 83.00% | ||
Revenue Benchmark | Advertising Partner Risk | Microsoft | |||||
Product Information [Line Items] | |||||
Concentration risk, percentage | 4.00% | 3.00% | 5.00% |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounts Receivable (Details) - USD ($) | Mar. 31, 2022 | Dec. 31, 2021 |
Accounting Policies [Abstract] | ||
Accounts receivable, allowance fordoubtful accounts | $ 0 | $ 0 |
Accounts receivable, payment term | 30 days |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details) - Accounts Receivable - Advertising Partner Risk | 3 Months Ended | 12 Months Ended |
Mar. 31, 2022 | Dec. 31, 2021 | |
Product Information [Line Items] | ||
Concentration risk, percentage | 73.00% | 72.00% |
Yahoo | ||
Product Information [Line Items] | ||
Concentration risk, percentage | 9.00% | 10.00% |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Restricted Cash (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Accounting Policies [Abstract] | ||
Restricted cash | $ 7,929 | $ 743 |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment, net (Details) | 3 Months Ended |
Mar. 31, 2022 | |
Computer Equipment, Office Equipment and Software | |
Property, Plant and Equipment [Line Items] | |
Estimated useful life | 3 years |
Furniture, Fixtures and Equipment | Minimum | |
Property, Plant and Equipment [Line Items] | |
Estimated useful life | 3 years |
Furniture, Fixtures and Equipment | Maximum | |
Property, Plant and Equipment [Line Items] | |
Estimated useful life | 7 years |
Motor Vehicles | |
Property, Plant and Equipment [Line Items] | |
Estimated useful life | 4 years |
Software Development | |
Property, Plant and Equipment [Line Items] | |
Estimated useful life | 3 years |
SUMMARY OF SIGNIFICANT ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Estimated Useful Life of Intangible Assets (Details) | 3 Months Ended |
Mar. 31, 2022 | |
Developed technology | |
Finite-Lived Intangible Assets [Line Items] | |
Useful Life | 4 years |
Customer relationships | Minimum | |
Finite-Lived Intangible Assets [Line Items] | |
Useful Life | 3 years |
Customer relationships | Maximum | |
Finite-Lived Intangible Assets [Line Items] | |
Useful Life | 5 years |
Trademarks and trade names | |
Finite-Lived Intangible Assets [Line Items] | |
Useful Life | 10 years |
Other intangibles | |
Finite-Lived Intangible Assets [Line Items] | |
Useful Life | 4 years |
SUMMARY OF SIGNIFICANT ACCOU_10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Other Information (Details) | 1 Months Ended | 2 Months Ended | 3 Months Ended | |||
Jan. 26, 2022USD ($) | Mar. 31, 2022USD ($) | Mar. 31, 2022USD ($) | Mar. 31, 2021USD ($) | Jan. 01, 2022USD ($) | Dec. 31, 2021USD ($) | |
Finite-Lived Intangible Assets [Line Items] | ||||||
Impairment of long-lived asset | $ 0 | $ 0 | $ 0 | |||
Goodwill impairment | 0 | 0 | 0 | |||
Revenue payment term | 30 days | |||||
Vesting period | 4 years | |||||
Share based expense | $ 27,698,000 | 27,167,000 | $ 146,000 | |||
Stock conversion ratio | 1 | |||||
Operating lease right-of-use assets | 6,388,000 | $ 6,388,000 | $ 6,786,000 | $ 0 | ||
Total operating lease liability | $ 7,540,000 | $ 7,540,000 | $ 7,987,000 | |||
Weighted Average | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Weighted average amortization period | 7 years |
SUMMARY OF SIGNIFICANT ACCOU_11
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule Ownership Interests (Details) - Holdco, LLC shares in Thousands | Mar. 31, 2022shares |
Class A units of S1 Holdco | Entity A | |
Property, Plant and Equipment [Line Items] | |
Shares/Units (in shares) | 83,203 |
Ownership percentage | 79.00% |
Class B units of S1 Holdco | Entity B | |
Property, Plant and Equipment [Line Items] | |
Shares/Units (in shares) | 22,077 |
Ownership percentage | 21.00% |
MERGER - Narrative (Details)
MERGER - Narrative (Details) - Business Combination Agreement $ / shares in Units, $ in Thousands | Jan. 26, 2022USD ($)$ / shares |
Business Acquisition [Line Items] | |
Cash consideration | $ 444,948 |
Equity | 619,738 |
Class B Common Stock | |
Business Acquisition [Line Items] | |
Equity | $ 619,738 |
Business acquisition, share price (in dollars per share) | $ / shares | $ 10 |
Class A Common Stock | |
Business Acquisition [Line Items] | |
Business acquisition, share price (in dollars per share) | $ / shares | $ 10 |
Trebia Acquisition Corporation | Financial Standby Letter of Credit | |
Business Acquisition [Line Items] | |
Aggregate commitment redemption value | $ 7,031 |
Cannae | Financial Standby Letter of Credit | |
Business Acquisition [Line Items] | |
Aggregate commitment redemption value | $ 246,484 |
MERGER - Fair Value of the Asse
MERGER - Fair Value of the Assets Acquired and Liabilities Assumed (Details) - USD ($) | Jan. 26, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Tangible assets acquired and liabilities assumed: | ||||
Goodwill | $ 0 | $ 907,009,000 | $ 44,820,000 | $ 44,820,000 |
Business Combination Agreement | ||||
Tangible assets acquired and liabilities assumed: | ||||
Cash and marketable securities | 68,746,000 | |||
Accounts receivable | 79,087,000 | |||
Prepaid expenses | 10,816,000 | |||
Property, plant & equipment, net | 1,551,000 | |||
Internal-use software development costs, net | 11,316,000 | |||
Other assets | 8,205,000 | |||
Accounts payable | (9,798,000) | |||
Deferred revenue | (60,768,000) | |||
Accrued expenses and other current liabilities | 97,789,000 | |||
Notes payable | (172,038,000) | |||
VAT tax liability | (12,280,000) | |||
Deferred tax liabilities | (146,322,000) | |||
Other liabilities | (7,633,000) | |||
Total tangible assets acquired and liabilities assumed | (326,907,000) | |||
Intangible assets | 555,500,000 | |||
Goodwill | 836,093,000 | |||
Net assets acquired | 1,064,686,000 | |||
Consideration: | ||||
Cash | 444,948,000 | |||
Equity | 619,738,000 | |||
Total consideration | $ 1,064,686,000 |
MERGER - Intangible Assets (Det
MERGER - Intangible Assets (Details) - Business Combination Agreement $ in Thousands | Jan. 26, 2022USD ($) |
Business Acquisition [Line Items] | |
Amount | $ 555,500 |
Trademarks | |
Business Acquisition [Line Items] | |
Amount | $ 243,200 |
Weighted Average Useful Life (in Years) | 10 years |
Customer relationships | |
Business Acquisition [Line Items] | |
Amount | $ 115,300 |
Weighted Average Useful Life (in Years) | 4 years |
Developed technology | |
Business Acquisition [Line Items] | |
Amount | $ 197,000 |
Weighted Average Useful Life (in Years) | 4 years |
MERGER - Pro Forma Net Revenue
MERGER - Pro Forma Net Revenue and Net Income (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2022 | Mar. 31, 2021 | |
Business Combination and Asset Acquisition [Abstract] | ||
Pro forma revenue | $ 235,983 | $ 193,201 |
Pro forma net (loss) | $ (32,796) | $ 88,746 |
ACQUISITIONS - Narrative (Detai
ACQUISITIONS - Narrative (Details) - USD ($) | Mar. 04, 2022 | Feb. 09, 2022 | Jan. 26, 2022 | Mar. 31, 2022 |
RoadWarrior, LLC | ||||
Business Acquisition, Contingent Consideration [Line Items] | ||||
Cash consideration | $ 19,636,000 | |||
Contingent consideration | $ 681,000 | |||
Weighted-average useful lives in years | 15 years | |||
Acquisition related costs | $ 0 | $ 286,000 | ||
NextGen Shopping, Inc | ||||
Business Acquisition, Contingent Consideration [Line Items] | ||||
Cash consideration | $ 78,426,000 | |||
Contingent consideration | 25,000,000 | |||
Acquisition related costs | $ 0 | 73,000 | ||
Holdback liability | 25,227,000 | |||
Transaction costs | 3,129,000 | |||
Future consideration | $ 10,000,000 | |||
Net revenue | 1,920,000 | |||
Net Income | $ 581,000 | |||
NextGen Shopping, Inc | Class A Common Stock | ||||
Business Acquisition, Contingent Consideration [Line Items] | ||||
Number of shares issued (in shares) | 2,000,000 | |||
Fair value | $ 25,500,000 |
ACQUISITIONS - Fair Value of th
ACQUISITIONS - Fair Value of the Assets Acquired and Liabilities Assumed (Details) - USD ($) | Mar. 04, 2022 | Feb. 09, 2022 | Mar. 31, 2022 | Jan. 26, 2022 | Dec. 31, 2021 | Dec. 31, 2020 |
Tangible assets acquired and liabilities assumed: | ||||||
Goodwill | $ 907,009,000 | $ 0 | $ 44,820,000 | $ 44,820,000 | ||
RoadWarrior, LLC | ||||||
Tangible assets acquired and liabilities assumed: | ||||||
Working capital | $ 154,000 | |||||
Total tangible assets acquired and liabilities assumed | 154,000 | |||||
Intangible assets | 4,500,000 | |||||
Goodwill | 15,663,000 | |||||
Net assets acquired | 20,317,000 | |||||
Consideration: | ||||||
Cash | 19,636,000 | |||||
Contingent consideration | 681,000 | |||||
Total consideration | $ 20,317,000 | |||||
NextGen Shopping, Inc | ||||||
Tangible assets acquired and liabilities assumed: | ||||||
Cash and cash equivalents | $ 21,232,000 | |||||
Accounts receivable | 5,860,000 | |||||
Other current assets | 299,000 | |||||
Accounts payable | (35,000) | |||||
Accrued taxes | (890,000) | |||||
Deferred tax liabilities | (8,093,000) | |||||
Total tangible assets acquired and liabilities assumed | 18,373,000 | |||||
Intangible assets | 30,300,000 | |||||
Goodwill | 55,253,000 | |||||
Net assets acquired | 103,926,000 | |||||
Consideration: | ||||||
Cash | 78,426,000 | |||||
Equity | 25,500,000 | |||||
Total consideration | $ 103,926,000 |
ACQUISITIONS - Intangible Asset
ACQUISITIONS - Intangible Assets (Details) - USD ($) $ in Thousands | Mar. 04, 2022 | Feb. 09, 2022 |
RoadWarrior, LLC | ||
Business Acquisition [Line Items] | ||
Amount | $ 4,500 | |
Weighted Average Useful Life (in Years) | 15 years | |
RoadWarrior, LLC | Trademarks | ||
Business Acquisition [Line Items] | ||
Amount | $ 2,200 | |
Weighted Average Useful Life (in Years) | 10 years | |
RoadWarrior, LLC | Software | ||
Business Acquisition [Line Items] | ||
Amount | $ 1,000 | |
Weighted Average Useful Life (in Years) | 4 years | |
RoadWarrior, LLC | Customer relationships | ||
Business Acquisition [Line Items] | ||
Amount | $ 1,300 | |
Weighted Average Useful Life (in Years) | 3 years | |
NextGen Shopping, Inc | ||
Business Acquisition [Line Items] | ||
Amount | $ 30,300 | |
NextGen Shopping, Inc | Trademarks | ||
Business Acquisition [Line Items] | ||
Amount | $ 26,400 | |
Weighted Average Useful Life (in Years) | 10 years | |
NextGen Shopping, Inc | Software | ||
Business Acquisition [Line Items] | ||
Amount | $ 3,900 | |
Weighted Average Useful Life (in Years) | 4 years |
PROPERTY AND EQUIPMENT, NET - S
PROPERTY AND EQUIPMENT, NET - Schedule Of Property And Equipment (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Property, Plant and Equipment [Line Items] | ||
Property and equipment—gross | $ 2,947 | $ 1,866 |
Less accumulated depreciation | (92) | (1,036) |
Property and equipment, net | 2,855 | 830 |
Computer equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment—gross | 236 | 415 |
Motor vehicles | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment—gross | 233 | 0 |
Furniture and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment—gross | 315 | 475 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment—gross | $ 2,163 | $ 976 |
PROPERTY AND EQUIPMENT, NET - N
PROPERTY AND EQUIPMENT, NET - Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Property, Plant and Equipment [Abstract] | |||
Depreciation expense | $ 16 | $ 119 | $ 81 |
GOODWILL, INTERNAL-USE SOFTWA_3
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Narrative (Details) - USD ($) | 1 Months Ended | 2 Months Ended | 3 Months Ended | ||
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | Dec. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |||||
Goodwill | $ 0 | $ 907,009,000 | $ 44,820,000 | $ 44,820,000 | |
Computer software, in progress | 3,052,000 | $ 2,540,000 | |||
Amortization expense for software development costs | 355,000 | 1,534,000 | $ 1,324,000 | ||
Amortization of intangible assets | 629,000 | 21,658,000 | 2,284,000 | ||
Impairment of intangible assets | 0 | 0 | 0 | ||
Computer software impairments | $ 0 | $ 0 | $ 0 |
GOODWILL, INTERNAL-USE SOFTWA_4
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Goodwill (Details) - USD ($) | 2 Months Ended | 12 Months Ended |
Mar. 31, 2022 | Dec. 31, 2021 | |
Goodwill [Roll Forward] | ||
Goodwill, beginning balance | $ 0 | $ 44,820,000 |
Additions | 907,009,000 | 0 |
Goodwill, ending balance | 907,009,000 | 44,820,000 |
Owned and Operated | ||
Goodwill [Roll Forward] | ||
Goodwill, beginning balance | 0 | 24,403,000 |
Additions | 606,651,000 | 0 |
Goodwill, ending balance | 606,651,000 | 24,403,000 |
Partner Network | ||
Goodwill [Roll Forward] | ||
Goodwill, beginning balance | 0 | 20,417,000 |
Additions | 32,402,000 | 0 |
Goodwill, ending balance | 32,402,000 | $ 20,417,000 |
Subscription | ||
Goodwill [Roll Forward] | ||
Goodwill, beginning balance | 0 | |
Additions | 267,956,000 | |
Goodwill, ending balance | $ 267,956,000 |
GOODWILL, INTERNAL-USE SOFTWA_5
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 590,339 | $ 82,005 |
Accumulated Amortization | (21,664) | (31,637) |
Net Carrying Amount | 568,675 | 50,368 |
Total internal-use software development costs | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 11,154 | 21,274 |
Accumulated Amortization | (450) | (10,061) |
Net Carrying Amount | 10,704 | 11,213 |
Developed technology | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 197,985 | 8,398 |
Accumulated Amortization | (8,646) | (7,242) |
Net Carrying Amount | 189,339 | 1,156 |
Trademarks and trade names | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 271,844 | 69,007 |
Accumulated Amortization | (4,478) | (21,375) |
Net Carrying Amount | 267,366 | 47,632 |
Software | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 3,910 | |
Accumulated Amortization | (74) | |
Net Carrying Amount | 3,836 | |
Professional service agreement | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 3,100 | |
Accumulated Amortization | (2,359) | |
Net Carrying Amount | 741 | |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 116,600 | 1,500 |
Accumulated Amortization | (8,466) | (661) |
Net Carrying Amount | $ 108,134 | $ 839 |
GOODWILL, INTERNAL-USE SOFTWA_6
GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET - Schedule of Future Amortization Expense (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Finite-Lived Intangible Assets [Line Items] | ||
Net Carrying Amount | $ 568,675 | $ 50,368 |
Intangible Assets and Internal Use Software Development Costs | ||
Finite-Lived Intangible Assets [Line Items] | ||
Remainder of 2022 | 100,085 | |
2023 | 108,552 | |
2024 | 101,996 | |
2025 | 90,092 | |
2026 | 40,300 | |
Thereafter | 138,721 | |
Net Carrying Amount | $ 579,746 |
ACCRUED EXPENSES AND OTHER CU_3
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Payables and Accruals [Abstract] | ||
Former CEO profit interest | $ 0 | $ 11,132 |
Payable to employees | 6,754 | 10,091 |
Accrued legal service fees | 5,377 | 6,242 |
Accrued marketing expenses | 5,552 | 0 |
Holdback liability | 21,013 | 0 |
Contingent consideration | 2,051 | 1,682 |
Other liabilities | 12,460 | 1,543 |
VAT tax liability | 11,063 | 0 |
Accrued tax liability | 3,365 | 361 |
Deferred rent | 0 | 233 |
Accrued expenses and other current liabilities | $ 67,635 | $ 31,284 |
DEFERRED REVENUE (Details)
DEFERRED REVENUE (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 12 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | |
Contract With Customer, Liability [Roll Forward] | |||
Beginning balance | $ 1,971 | $ 2,282 | $ 1,889 |
Additional amounts deferred | 620 | 94,254 | 5,116 |
Deferred revenue recognized | (309) | (29,444) | (5,034) |
Ending balance | $ 2,282 | 64,810 | $ 1,971 |
Additional amounts deferred acquired from the acquisitions | $ 61,156 |
DEFERRED REVENUE - Narrative (D
DEFERRED REVENUE - Narrative (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Jan. 27, 2022 | Jan. 26, 2022 | Jan. 01, 2022 | Dec. 31, 2021 | Jan. 01, 2021 | Dec. 31, 2020 |
Revenue Recognition and Deferred Revenue [Abstract] | |||||||
Contract with customer, liability | $ 64,810 | $ 0 | $ 2,282 | $ 1,971 | $ 1,889 | ||
Deferred revenue | $ 309 | $ 1,889 |
OTHER LIABILITIES (Details)
OTHER LIABILITIES (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Dec. 31, 2021 |
Other Liabilities Disclosure [Abstract] | ||
Hold-back liability | $ 5,600 | $ 0 |
Deferred rent | 0 | 969 |
Other | 204 | 0 |
Other liabilities | $ 5,804 | $ 969 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended | |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Income Tax Disclosure [Abstract] | ||||
Income tax (benefit) expense | $ (629) | $ (16,252) | $ 151 | |
Income tax expense, percent | 1.53% | 29.92% | 2.19% | |
Unrecognized tax benefits | $ 34 | $ 34 | ||
Tax effect on contribution | $ 6,752 |
COMMITMENTS AND CONTINGENCIES -
COMMITMENTS AND CONTINGENCIES - Lease Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | |||
Mar. 31, 2021 | Mar. 31, 2022 | Jan. 01, 2022 | Dec. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Initial minimum lease payment | $ 147 | |||
Rent expense | $ 491 | |||
Operating lease right-of-use assets | $ 6,388 | $ 6,786 | $ 0 | |
Total operating lease liability | $ 7,540 | 7,987 | ||
Accounting Standards Update 2016-02 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Deferred rent reclassified | $ 1,201 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES - Components of Lease Expense (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease cost | $ 397 | |
Operating lease cost - under ASC 840 | $ 142 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES - Schedue of Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Jan. 01, 2022 | Dec. 31, 2021 |
Operating leases: | |||
Operating lease right-of-use asset | $ 6,388 | $ 6,786 | $ 0 |
Current operating lease liability | 1,895 | 0 | |
Operating lease liability - less current portion | 5,645 | $ 0 | |
Total operating lease liability | $ 7,540 | $ 7,987 | |
Weighted Average Remaining Lease Terms (in years): | |||
Operating leases | 3 years 4 months 24 days | ||
Weighted Average Discount Rate: | |||
Operating leases | 4.80% |
COMMITMENTS AND CONTINGENCIES_4
COMMITMENTS AND CONTINGENCIES - Schedule of Maturities of Facility Lease Liabilities (Details) - USD ($) $ in Thousands | Mar. 31, 2022 | Jan. 01, 2022 |
Operating leases: | ||
Remainder of 2022 | $ 1,649 | |
2023 | 2,253 | |
2024 | 2,320 | |
2025 | 1,975 | |
Total lease payments | 8,197 | |
Less: Imputed interest | (657) | |
Present value of operating lease liabilities | $ 7,540 | $ 7,987 |
COMMITMENTS AND CONTINGENCIES_5
COMMITMENTS AND CONTINGENCIES (ASC 840) (Details) $ in Thousands | Dec. 31, 2021USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2022 | $ 1,957 |
2023 | 1,950 |
2024 | 1,950 |
2025 | $ 1,663 |
COMMITMENTS AND CONTINGENCIES_6
COMMITMENTS AND CONTINGENCIES - Service Agreements (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended | |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2022 | Jun. 28, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Obligated to pay, year one | $ 6,900 | |||
Obligated to pay, year two | $ 8,000 | |||
Payment service provider expenses | $ 616 | $ 934 | $ 5,776 |
COMMITMENTS AND CONTINGENCIES_7
COMMITMENTS AND CONTINGENCIES - Executive Compensation (Details) - USD ($) | Apr. 10, 2019 | Dec. 31, 2021 | Feb. 28, 2021 |
Executive Compensation | |||
Other Commitments [Line Items] | |||
Percentage of profit cash settled | 5.00% | ||
Participation threshold | $ 300,000,000 | ||
Loss contingency, vesting term | 4 years | ||
Loss contingency accrual | $ 11,132,000 | ||
Separation Agreement | |||
Other Commitments [Line Items] | |||
Percentage of profit cash settled | 5.00% | ||
Percentage of profit cash settled, deemed vested | 3.75% | ||
Percentage of profit cash settled, forfeited | 1.25% | ||
Percentage of profit cash settled, increase | 2.50% |
DEBT (Details)
DEBT (Details) - USD ($) | Jan. 27, 2022 | Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2026 | Dec. 31, 2021 | Dec. 31, 2025 |
Debt Instrument [Line Items] | ||||||||
Percentage of excess free cash flow payment | 50.00% | |||||||
Future minimum principal payment 2022 | $ 15,000,000 | $ 15,000,000 | ||||||
Future minimum principal payment 2023 | 20,000,000 | 20,000,000 | ||||||
Future minimum principal payment 2024 | 20,000,000 | 20,000,000 | ||||||
Future minimum principal payment 2025 | 20,000,000 | 20,000,000 | ||||||
Future minimum principal payment 2026 | 30,000,000 | 30,000,000 | ||||||
Future minimum principal payment 2027 | 344,000,000 | 344,000,000 | ||||||
Loan fees | 1,265,000 | $ 1,265,000 | ||||||
Interest expense | $ 2,492,000 | 4,776,000 | $ 4,286,000 | |||||
London Interbank Offered Rate (LIBOR) | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 7.00% | |||||||
LIBOR Floor Rate | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 1.00% | |||||||
Revolving Credit Facility | ||||||||
Debt Instrument [Line Items] | ||||||||
Revolving line of credit facility | $ 49,000 | $ 49,000 | ||||||
Long-term Line of Credit | $ 50,000,000 | |||||||
Term of loan | 5 years | |||||||
Debt Instrument covenant percentage | 35.00% | |||||||
Credit agreement, lonversion ratio | 5.40 | |||||||
Revolving Credit Facility | Forecast | ||||||||
Debt Instrument [Line Items] | ||||||||
Amortization quarterly payment | $ 7,500,000 | $ 5,000 | ||||||
Revolving Credit Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 2.75% | |||||||
Revolving Credit Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate Floor | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.00% | |||||||
Revolving Credit Facility | Line of Credit | ||||||||
Debt Instrument [Line Items] | ||||||||
Revolving line of credit facility | $ 20,000 | |||||||
Long-term Line of Credit | 0 | |||||||
Term Loan | Secured Debt | ||||||||
Debt Instrument [Line Items] | ||||||||
Long-term debt | $ 172,038,000 | 172,038,000 | ||||||
Periodic payment | $ 1,750,000 | |||||||
Term of loan | 5 years 6 months | |||||||
Principle amount | $ 400,000 | |||||||
Proceeds from term loan | $ 376,000 | |||||||
Term Loan and Revolving Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 4.75% | |||||||
Term Loan and Revolving Facility | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate Floor | ||||||||
Debt Instrument [Line Items] | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.50% |
WARRANTS (Details)
WARRANTS (Details) | 3 Months Ended |
Mar. 31, 2022business_dayinstallment$ / shares | |
Derivative [Line Items] | |
Warrants and rights outstanding, term | 5 years |
Multiplier used in calculating warrant exercise price | 0.361 |
Number of trading days on which fair market value of shares is reported | business_day | 10 |
Threshold period for not to transfer, assign or sell any of their shares or warrants after the completion of the initial business combination | 30 days |
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $18.00 | |
Derivative [Line Items] | |
Stock price trigger for redemption of public warrants (in dollars per share) | $ 18 |
Redemption price per public warrant (in dollars per share) | $ 0.01 |
Minimum threshold written notice period for redemption of public warrants | 30 days |
Threshold trading days for redemption of public warrants | business_day | 20 |
Threshold consecutive trading days for redemption of public warrants | installment | 30 |
Redemption Period | 30 days |
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $10.00 | |
Derivative [Line Items] | |
Stock price trigger for redemption of public warrants (in dollars per share) | $ 10 |
Redemption price per public warrant (in dollars per share) | $ 0.10 |
Minimum threshold written notice period for redemption of public warrants | 30 days |
FAIR VALUE MEASUREMENT - Schedu
FAIR VALUE MEASUREMENT - Schedule of Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring $ in Thousands | Mar. 31, 2022USD ($) |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | $ 40,773 |
Contingent consideration | 2,255 |
Grand total | 43,028 |
Level 1 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 27,600 |
Contingent consideration | 0 |
Grand total | 27,600 |
Level 2 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 13,173 |
Contingent consideration | 0 |
Grand total | 13,173 |
Level 3 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 0 |
Contingent consideration | 2,255 |
Grand total | 2,255 |
Public warrants | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 27,600 |
Public warrants | Level 1 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 27,600 |
Public warrants | Level 2 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 0 |
Public warrants | Level 3 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 0 |
Private warrants | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 13,173 |
Private warrants | Level 1 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 0 |
Private warrants | Level 2 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | 13,173 |
Private warrants | Level 3 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Total warrants liabilities | $ 0 |
FAIR VALUE MEASUREMENT - Sche_2
FAIR VALUE MEASUREMENT - Schedule of Estimated Fair Value of Liabilities (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Contingent consideration | |||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||
Beginning balance | $ (1,682) | $ (1,682) | $ (8,240) |
Settlements | 0 | 5,000 | |
Additions | (573) | ||
Change in fair value | 0 | (63) | |
Ending balance | (1,682) | (2,255) | (3,303) |
Former CEO Equity Profit Interest | |||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||
Beginning balance | (11,132) | (11,132) | (4,236) |
Settlements | 0 | 0 | |
Additions | 0 | ||
Change in fair value | 0 | (1,413) | |
Ending balance | (11,132) | 0 | (5,649) |
Warrant liability | |||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||
Beginning balance | 0 | 0 | 0 |
Settlements | 0 | 0 | |
Additions | 0 | ||
Change in fair value | (13,761) | 0 | |
Ending balance | $ 0 | $ (40,773) | $ 0 |
NET INCOME (LOSS) PER SHARE - B
NET INCOME (LOSS) PER SHARE - Basic And Diluted Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Earnings Per Share [Abstract] | |||
Basic net (loss) per share (in dollars per share) | $ (0.36) | ||
Diluted net (loss) per share (in dollars per share) | $ (0.36) | ||
Basic net (loss) income per unit (in dollars per share) | $ (1.97) | $ 0.33 | |
Diluted net (loss) income per unit (in dollars per share) | $ (1.97) | $ 0.33 | |
Numerator: | |||
Net (loss) income | $ (40,460) | $ (29,991) | $ 6,743 |
Denominator: | |||
Weighted-average common shares outstanding used in computing basic net (loss) per share (in shares) | 82,210,000 | ||
Weighted-average common shares outstanding used in computing diluted net (loss) per share (in shares) | 82,210,000 | ||
Weighted-average membership units outstanding - basic (in shares) | 20,488,000 | 20,488,000 | |
Weighted-average membership units outstanding - diluted (in shares) | 20,488,000 | 20,488,000 |
NET INCOME (LOSS) PER SHARE - A
NET INCOME (LOSS) PER SHARE - Additional Information (Details) | 2 Months Ended |
Mar. 31, 2022shares | |
Public warrants | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 17,250,000 |
Private Placement Warrants | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 8,233,334 |
Class C Common Stock | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 22,077,319 |
SEGMENT REPORTING - Narrative (
SEGMENT REPORTING - Narrative (Details) | 3 Months Ended |
Mar. 31, 2022segment | |
Segment Reporting [Abstract] | |
Number of operating segments | 4 |
Combined number of segments | 1 |
Reportable segments | 3 |
SEGMENT REPORTING - Schedule of
SEGMENT REPORTING - Schedule of Segment Reporting Information (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended | |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | Dec. 31, 2021 | |
Segment Reporting Information [Line Items] | ||||
Total assets | $ 1,660,990 | $ 256,911 | ||
Revenue | $ 52,712 | 166,108 | $ 147,561 | |
Adjusted gross margin | 12,231 | 53,414 | 40,263 | |
Other cost of revenues | 1,279 | 7,437 | 3,487 | |
Salaries, commissions, and benefits | 35,175 | 43,459 | 15,195 | |
Selling, general, and administrative | 14,817 | 14,981 | 6,950 | |
Depreciation and amortization | 1,000 | 23,311 | 3,689 | |
Interest expense | 1,049 | 4,776 | 4,048 | |
Loss on warrant fair value | 0 | 13,761 | 0 | |
(Loss) income before income tax | (41,089) | (54,311) | 6,894 | |
Owned and Operated | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | 1,153,848 | 214,968 | ||
Revenue | 49,791 | 130,258 | 139,426 | |
Adjusted gross margin | 9,310 | 32,791 | 32,128 | |
Partner Network | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | 57,811 | 41,943 | ||
Revenue | 2,921 | 7,976 | 8,135 | |
Adjusted gross margin | 2,921 | 7,976 | 8,135 | |
Subscription | ||||
Segment Reporting Information [Line Items] | ||||
Total assets | 449,331 | $ 0 | ||
Revenue | 0 | 27,874 | 0 | |
Adjusted gross margin | $ 0 | $ 12,647 | $ 0 |
SEGMENT REPORTING - Schedule _2
SEGMENT REPORTING - Schedule of Revenues Disaggregated by Geographic Region (Details) - USD ($) $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Revenue | $ 52,712 | $ 166,108 | $ 147,561 |
United States | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Revenue | 51,701 | 134,608 | 144,558 |
United Kingdom | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Revenue | 0 | 27,719 | 1 |
Other | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Revenue | $ 1,011 | $ 3,781 | $ 3,002 |
RELATED-PARTY TRANSACTIONS (Det
RELATED-PARTY TRANSACTIONS (Details) $ in Thousands | Oct. 16, 2018USD ($) | Mar. 31, 2022USD ($) | Dec. 31, 2021USD ($) | Dec. 31, 2017executive |
Lone Investment Holdings | SS Protected Limited | ||||
Related Party Transaction [Line Items] | ||||
Noncontrolling interest, ownership Percentage | 7.70% | |||
SS Protected Limited | ||||
Related Party Transaction [Line Items] | ||||
Amounts of transaction | $ 55,000 | |||
Lone Investment Holdings | ||||
Related Party Transaction [Line Items] | ||||
Due to related parties | $ 10,500 | |||
Paysafe | ||||
Related Party Transaction [Line Items] | ||||
Receivable from related parties | $ 1,300 | |||
Just Develop It Limited | ||||
Related Party Transaction [Line Items] | ||||
Due to related parties | $ 80 | |||
Purchased Interest | SS Protected Limited | ||||
Related Party Transaction [Line Items] | ||||
Ownership percentage | 50.10% | |||
Proceeds From Sale | Lone Investment Holdings | ||||
Related Party Transaction [Line Items] | ||||
Proceeds from issuance or sale of equity | $ 1,158 | |||
Extended Loans | Senior Executives | ||||
Related Party Transaction [Line Items] | ||||
Number of senior executives received extended loans | executive | 2 | |||
Extended Loans | Senior Executives | Two Senior Executives | ||||
Related Party Transaction [Line Items] | ||||
Due from related parties | $ 969 | |||
Extended Loans | Former CEO | Former CEO | ||||
Related Party Transaction [Line Items] | ||||
Due from related parties | $ 1,500 |
SHARE-BASED PAYMENTS - Narrativ
SHARE-BASED PAYMENTS - Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 2 Months Ended | 3 Months Ended | |
Jan. 26, 2022 | Mar. 31, 2022 | Mar. 31, 2022 | Mar. 31, 2021 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based expense | $ 27,698 | $ 27,167 | $ 146 | |
Fair market value of stock (in dollars per share) | $ 10 | $ 10 | ||
Restricted Stock Units | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based expense | $ 27,698 | $ 1,676 | ||
Amount of cost not yet recognized | $ 13,818 | $ 13,818 | ||
Weighted average period | 3 years | |||
Unrecognized stock-based compensation expense | $ 11,790 | 11,790 | ||
RSUs and Restricted Stock Awards (RSAs) | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share based expense | $ 25,491 | |||
Fair market value of stock (in dollars per share) | $ 12.50 | $ 12.50 | ||
20 Trading days | 20 days | |||
30 Trading days | 30 days |
SHARE-BASED PAYMENTS - Equity A
SHARE-BASED PAYMENTS - Equity Awards Valuation Assumptions (Details) | 3 Months Ended |
Mar. 31, 2022$ / shares | |
Share-based Payment Arrangement [Abstract] | |
Risk-free interest rate | 1.60% |
Expected stock price volatility | 50.00% |
Cost of equity | 23.60% |
Expected term (years) | 5 years |
Fair Value of Class A Common Stock (in dollars per share) | $ 10 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - Subsequent Event - USD ($) $ in Thousands | May 04, 2022 | May 10, 2022 | May 17, 2022 | May 12, 2022 | Apr. 30, 2022 |
Restricted Stock Units | Incentive Award Plan | |||||
Subsequent Event [Line Items] | |||||
Shares authorized (in shares) | 1,900,000 | ||||
Restricted Stock Units | Aware Plan | |||||
Subsequent Event [Line Items] | |||||
Shares authorized (in shares) | 4,900,000 | ||||
Private Placement Warrants | |||||
Subsequent Event [Line Items] | |||||
Warrants exercised (in shares) | 3,532,372 | ||||
Warrant outstanding (in shares) | 0 | ||||
Public warrants | |||||
Subsequent Event [Line Items] | |||||
Warrants exercised (in shares) | 437,186 | ||||
Proceeds from warrant exercises | $ 5,028 | ||||
Warrant outstanding (in shares) | 16,812,814 | ||||
Answers.com | |||||
Subsequent Event [Line Items] | |||||
Total cash consideration | $ 4,632 |
Uncategorized Items - sst-20220
Label | Element | Value |
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents | us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents | $ 517,553,000 |
Warrant Liability [Member] | ||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value | us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationsRecurringBasisLiabilityValue | 27,012,000 |
Contingent Consideration [Member] | ||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value | us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationsRecurringBasisLiabilityValue | 1,682,000 |
Former CEO Equity Interest [Member] | ||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value | us-gaap_FairValueMeasurementWithUnobservableInputsReconciliationsRecurringBasisLiabilityValue | $ 0 |