Earnings call transcript Q2 2023

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Operator

Thank you for standing by, and welcome to the Second Quarter 2023 Conference Call and Webcast for System1.

Joining me today to discuss System1’s business and financial results are our Co-founder and CEO, Michael Blend; and our Chief Financial Officer, Tridivesh Kidambi. A recording of this conference call will be available on our Investor Relations website shortly after this call is ended.

I’d like to take this opportunity to remind you that during the call, we will be making forward-looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects. statements or make matters. also may regarding compliance regulatory We

year those unknown to for XXXX, in uncertainties in first filed XXXX, results in These June our uncertainty during and risk from registration described the our subject economy markets XX, in on Form filed particular, and call. and to or XX-Q XX-K risks In this and materially the the factors actual statements X, XXXX, are April as in our Form known S-X and those generally. XXXX, on our implied of fiscal Form X, as the for quarter cause that XXXX, unpredictability July differ the the business, global on on included projected our well statement could filed current

rely future of update and on assumptions statements not as date of as should we events. except any call the All on and are our by statements make obligation statements required to based disclaims on any that as this forward-looking predictions law. forward-looking You beliefs SystemX forward-looking hereof

be considered or discussion our addition as GAAP include GAAP non-GAAP financial be and adjusted on of historical our including and measures Investor found to Our may results. an our for to non-GAAP EBITDA. isolation These regarding Relations today from a reconciliation website. measures Information should adjusted substitute gross not non-GAAP non-GAAP results a including will profit in our results financial

the Blend. Co-Founder Chief Michael and to I SystemX’s would Executive now conference call turn to over like Officer,

Michael Blend

Tridi stakeholders We as last on forward public about We and November speak we've us upgrades for a dealing our for being been QX restatement regular with. be issues with to to business opportunity call. able look our earnings. on you afternoon, provide basis. thankfully are to pass-through XXXX now our I earnings was last able Kyle. everyone, to Good Thanks, thanks QX to joining and are the glad our

Now, declines we I most is shareholders rebound the common is whether there. marketing? the The asked of good specifically that I the no the see on, we so that So in volatility of news The seeing first year. we this news experienced get longer that thought start areas a XXXX back by seeing we quarter not continue digital are the rapid would question are is we in and performance good we to half in marketing. focus

ready in So at optimistic. we are this not market, rebound the yet to point, although a we're cautiously call

quarter. delivered revenue Now against XX% which that second SystemX of our of and $XXX $XX million gross backdrop, profit, sequentially. million let's about talk up was

of guidance. partners. million, one that Our late July primary adjusted by our specific network not we deliver partners that EBITDA our is was on EBITDA was terminated were $XX.X informed The did of unfortunately in which one advertising reason our

go into on to Tridi but $X.X more unexpected will as result, million charge this, adjusted a details an we took EBITDA.

$X.X million than subscriber side, the end subscription quarter another $X.X to increased count quarter. at strong more had this of the Net from million On almost we churn, with business new XXX,XXX acquiring paying the our quarter subscribers. last of we

quarter-over-quarter and sequentially was year-over-year XX% spend we down a advertising increase. billings Our representing X%, slightly by increased

struggles understand a These over Advertising per face of spread results more XX% side and spend our to help the and session. advertising disappointing, the continue business million operated $XX.X to are have like into XXX headwinds sessions generated We detail in we shareholders I sequentially. $X.XX would owned On SystemX, of here. we down had to specifically. go million, was with

decline steady and business. margin like advertisements our then traditionally to traffic and traffic The where It been been resulting when from offers since started Bing last Google we highest This on repurchase. summer, revenue and search the specific gross platform. lowest business our O&O is quality send for on in has is experiencing has issues reason business. the SEM-related we decline traffic place This engines our we

The decline and we no rest majority decline. business result represents our in decline operated a profit as sequential and in our owned and longer the sequentially pull despite year-over-year profit the driver gross and of owned the of up back headwinds. our SCM economic gross of over is spend XXX% is of major the overall operated the

up revenue positive note, growth inclusive and this shine business gross with termination million. network This mentioned a partner On of the of and to the is advertising earlier. of was continues $XX.X XX% profit network I our sequentially,

of year. upgrade we ramp business end biggest at been advertising the the has platform the to deployed the network beneficiary last Our of

new winning expanding from existing our rapidly customers revenues and We're base.

to We and reporting comprehensive our ramp partner the console. of network deliver continue rest suite We self-serve capabilities official a several year-over-year to advertising significant business of the in of the our part the launch for expect is We quarter. partners. to designed year. highlights tools business new to of announced portal provide had our our growth this This

I As quickly well Star big launched which most been in in partners. we has a the mobile offering great refer Microsoft we new such a page features features as launch We as listing been Page, job industry. to world's collaboration Star It's encourage what we search help and enhanced engine. been product has team includes search ads adding On a with Page. received in to engine, everybody this new as use Star The private to shopping. doing Bing, mentioned, very the our private

to of and large business In Star Microsoft go really And were we partner ramp the future. by we whole growing addition can't forward mentioning with the our supply to have the proud year in as We're we I the with Microsoft by Page, team let platform. on Microsoft call the quickly relationship further global language look our there working selected our them with advertising. into and how models of without integrated

into down primary can When it you business areas. advertising our three break think about how you works,

monetization ASMs and is consumers. we the advertising the specifically, and ultimately, content the have AI these the first generative through of our then quickly permeated replaced, First, then very of steps process. consumers two show

as cost. well, given of our clicks including categorizing thousands versions almost campaigns And when including our Albert can really then verticals. we on at flow continue is overall a requires then in consumer works integrating much still next something action. ad campaigns content, we expanding housing our to to With time. of in And I'm new manage and the of the after step images, elements, any on these anticipating proud content then ad, an we process, for offer. we that and winners calls our at at of our creatives, on so AI particularly educate ad optimize continued can and no AI, someone and headlines headline platform we I'm early creative into original algorithms and systems. team this stages. generative quickly, creative of efficiencies creation, image create see First, are creation, LLMs Each an advertising in upside related find our refine the will we

by in laser generating over our year, we're last forward, business. Going short reduced flow focused have the and we the on XX% the throughout approximately headcount cost operating Overall, term. structure cash

expenses. reducing also of are non-payroll operating We related several pockets

will in sacrificing opportunities. continue growth we can to investment to future costs without We reduce take where opportunities

remain into uncertain operate but macro through on bullish Our treaty ability the second an get will our for half outlook. guidance specific to of I XXXX,

shareholders very management every aligned As we system remind one. I quarter, to like over is own with as XX% our highly of you

the We have past will navigated one business in no this be cycles and different.

that cycle back as fewer public are are Our with the debut well ride team the set haul up. has up this year and the past we for hope you is and are us we doing turns. not envisioned, we people much while in the with for more And the long been

Tridi more off detail, to things quarterly well to hand Tridi. as the updated in away, guidance. now Take discuss I'll as it results

Tridivesh Kidambi

our we been future platform making at on rebound financial everyone network continue in in subscription and be Thanks, we today. throughout own to on that joining a That advertising being year-over-year Michael. poised growth declines be operated than businesses said, have you year-over-year marketplaces. the of more to we our Thank the were offset of with quarters, and results are advertising us by the the But payback our for businesses. the believe and bullish growth. past ramp varied advertising investments forefront delivering was Overall,

million is primarily XX%. to decrease The was $XXX XX%, by Revenue driven while as is subscription decrease XX% was compared million owned up operated year-over-year revenue $XXX year-over-year. last advertising revenue network and up year, is the a down X% and advertising which business,

mainly acquisition XX% year-over-year gross $XX.X versus declined segment advertising to the was revenue profit to down million last advertising $XX while subscription $XX.X down by owned impacted year-over-year. million increased and was spend for million million, spend spend $XX This year. was year-over-year. Revenue million, marketing Adjusted operated XX% XX% at $XX.X less less

X% been seeing session, down year. Network million and to have $XX.X revenue revenue versus throughout year, sequentially. and both session Continuing up less CPS cost agency per the per $XX.X million fees were we a RPS, was trend last

In last down QX, also $X.XX versus to per while $X.XX was RPS $X.XX quarter. $X.XX down to was CPS $X.XX session, sequentially the versus

between session at we $X.XX. result, a As cost revenue maintained our per spread and session per

$X.XX the On remained per flat business, session. at RPS advertising network

up performed business XX% $XX.X with million. subscription billings year-over-year well, Our to

We XX%. trend in CTA see discussing roughly XXX,XXX discuss at X% we acquisition, Subscriber million, XX% subscribers spend from in just deployed with and new users headwinds year-over-year new a this down of I year-over-year. acquisition At quarter-over-quarter were ARPU later increased We total a started my up the Total acquired towards flat marketing million significantly. in the $XX, of implications increase was June the remarks year-over-year. reflecting of increase $X.X will under business when period, some year-over-year. to $XX in $XX.X the a guidance. customer QX, XX% start our

were with add-backs financial of accounting statement year-over-year extended Operating expenses, costs and net the is up reflective increased reclassifications. consulting associated of million, XX% audit $XX.X which and

EBITDA year-over-year down XX% expenses the to $XX back in to We quarterly of year was revert operating and half a last expect with representing starting the Adjusted on year, margin saw million versus our we million second levels XX% gross QX. last $XX.X same profit.

recovered. the partners And would of $X.X had adjustment, represents us during the back terminated ad which adjusted impact paid late we any Outside The advertising have guidance In we our we're for credit negative payments EBITDA partner this an partner share we partner. less platform generated rev net a result, within on to July, partner the by delivered that our amount period. a charging network a to advertising range. look million as was revenue EBITDA by the by

million, the of With respect we million quarter sheet, of drawdown $XXX million on $XX.X was from cash $XX net ended balance of as million million, revolver was EBITDA, $X.X At debt revolver includes million of which new resulting end, defined leverage a quarter the which unrestricted. April million in credit was Gross our X.Xx. of by ratio $X the our full billings-based to LTM liquidity, $XX.X with drop. $XX our and facility

structure As Michael discussed, liquidity. laser-focused we cost and are on also

our in taken structure, throughout reduce and to for forecasted reduction already future year the have future cost the several we While to ratio. flows develop measures steps we're plans company's to our address improve cost cash continuing reduction leverage

Now on to guidance.

still in of not the year, yet Given see total. the early ramp half guidance we back specifically, be we'll normally and in QX at the in of do advertising we would for are XXXX see to not time QX we guiding markets but are instead, providing expected this

the Our ability guidance to current headwinds are continued throughout demand advertiser scale of levels we our the including in advertising assumes spend. seeing current year,

in we million in back ramp the of will a tandem of year. a line either million have basis. the in and with also On we in expect and year, QX maintaining RPS $X.XX the advertising, to in the session trends second seen continuation per range spend or spread all QX RPS our QX and half $X.XX CPS for CPS half and to versus translate approximately declining on year we the $XXX expect and being flat see to with This deploy of $XXX last advertising to

expect network second over network to half deliver the growth revenue. We our advertising XX% on year-over-year with in continue business significant growth to

described I in business, customer subscription the the of we $XX the costs, million versus second customer the acquisition last million a QX, On to $XX year over increased expect start earlier in to half spend of year. result as acquisition

revenue the half $XXX between second $XXX and representing at We in a XX% decline estimating million come million, year-over-year midpoint. are to

in year-over-year million midpoint. profit decline XX% gross to and million, between estimating come representing $XXX $XXX a at the are We

adjusted We between to are estimating million. million in come $XX EBITDA $XX and

benefits year of of advertising the the first increase of half back the growth network of the half the for guidance EBITDA the in XX% Our over our for and realization owned a the reflecting of and of year, our represents cost-cutting stabilization advertising, operated EBITDA forecast measures.

we negatively we record While our cost model financial to a a performing the performance opportunities. most short-term, with by deploying structure, business volatility. our in continue against conditions, proven recent impacted In has through investing while of track our and been our market have compelling streamline will resources

stewards we success. expansion been have in expect future managing without delivering historically, liquidity be of cash to compromising EBITDA, operating We able adjusted continue and prudent needs, while capital margin and the and our short-term, to flow

Michael Blend

everybody, thanks, glad that earnings us. we're for with back look a Well, forward cadence our join into for getting to having you joining communicating We're of you. QX us you, regular call. Thank and

System1 (SST) 9 Aug 232023 Q2 Earnings call transcript