• Revenue: $75.6 million, a 21% year-over-year decrease and a 15% sequential decline.
• Gross Profit: $45 million, with adjusted gross profit at $44.7 million, up 19% year-over-year.
• Adjusted EBITDA: $17.9 million, a 79% year-over-year increase.
• Owned and Operated Revenue: $64.7 million, down 19% year-over-year.
• Owned and Operated Products Revenue: $27.1 million, up 60% year-over-year and 30% sequentially.
• Partner Network Revenue: $11 million, adjusted to $18 million, up 8% year-over-year.
• Sessions: 1.9 billion, up 46% year-over-year.
• Operating Expenses: $26.8 million, down $50 million quarter-over-quarter.
• Cash and Debt: $63.6 million in unrestricted cash, $280 million in term loan debt.
• Q1 Revenue Guidance: Estimated between $69 million and $71 million, down 18% year-over-year at the midpoint.
• Q1 Adjusted Gross Profit Guidance: Estimated to grow 25% year-over-year at the midpoint.
• Q1 Adjusted EBITDA Guidance: Estimated between $9 million and $11 million, up over $9.5 million year-over-year at the midpoint.

• Warning! GuruFocus has detected 4 Warning Signs with SST.

Release Date: March 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• System1 Inc (NYSE:SST) reported a significant year-over-year increase in adjusted EBITDA, up 79% to $17.9 million for Q4 2024.
• The company's owned and operated products, such as StarPage, MapQuest, and Coupon Follow, showed strong performance with a 60% revenue increase compared to Q4 last year.
• International markets contributed significantly, with international revenue representing 36% of total owned and operated revenue, up from 26% in Q4 2023.
• System1 Inc (NYSE:SST) has successfully integrated AI into its operations, leading to increased efficiency and productivity, particularly in marketing and product development.
• The company is well-positioned to benefit from Google's transition from AFD to RSOC, having invested heavily in the new product, which is expected to be beneficial in the medium to long term.

Negative Points

• System1 Inc (NYSE:SST) experienced a 21% year-over-year decrease in Q4 revenue, primarily due to a decline in advertising revenue.
• The company faced significant volatility and lower payments from Google, impacting its marketing-driven businesses and causing a 26% sequential decline in advertising spend.
• The transition from Google's AFD to RSOC is expected to cause short-term business and product disruption.
• Despite improvements, the company's net leverage remains high at 5.6 times, which is higher than desired.
• Political advertising spending in Q4 negatively impacted the company's advertising costs, although this is expected to improve post-election.

Q & A Highlights

Q: Michael, as experts on AI and early users of the technology, what are your thoughts on DeepSeek and your ability to invest in RAM at lower CapEx than your tech peers? A: Michael Blend, CEO: DeepSeek and other open-source providers are driving down costs, which benefits us. AI is enhancing our marketing operations by improving ad production and bid pricing. It's also boosting efficiency and productivity in product and engineering, with 2 to 4 times improvements. AI is unleashing creativity, allowing non-technical staff to develop products quickly.

Q: Can you discuss your balance sheet and efforts to improve your capital structure, including managing your debt? A: Tridivesh Kidambi, CFO: Our net leverage is 5.6 times, higher than desired. We are optimistic about business growth and refinancing our credit agreement in 2.5 years. We restructured our corporate structure to align with business management, focusing on owned and operated businesses.

Q: How do periods of heavy political advertising spending impact your business model? A: Michael Blend, CEO: Political advertising affects the buy side, increasing costs for us. With the political season over, the buy side opens up, and pricing decreases, which is favorable for System1.

Q: Can you elaborate on your readiness for the RSOC shift and how it impacts your positioning? A: Michael Blend, CEO: We invested heavily in RSOC, a new Google product, and are well-positioned as a market leader. While AFD revenue shifts to RSOC, we expect short-term bumpiness but support the transition as RSOC benefits consumers and advertisers.

Q: How do you view international markets and their contribution to growth? A: Michael Blend, CEO: International revenue is increasing, aided by AI tools for translation and advertising. We see growth potential in our shopping vertical and mapping services, which have limited international presence. We expect international gross profit to continue rising.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.