System1 Inc. Earnings Call: Strong Growth Amid Challenges

System1 Inc. ((SST)) has held its Q1 earnings call. Read on for the main highlights of the call.

System1 Inc. recently held its earnings call, revealing a mixed sentiment characterized by strong financial performance and success in owned and operated products, tempered by challenges in marketing-driven revenue and uncertainties due to changes in Google’s products.

Strong Financial Performance

System1 reported impressive financial metrics for the first quarter, with revenue reaching $74.5 million, surpassing the high end of their guidance. The company saw a 33% year-over-year increase in adjusted gross profit and a substantial rise in adjusted EBITDA to $12.1 million, up from $400,000 the previous year.

Success of Owned and Operated Products

The company’s owned and operated products experienced significant growth, with a 51% year-over-year revenue increase. Notably, CouponFollow user sessions surged by over 160%, and Startpage sessions increased by 11% year-over-year, highlighting the strong performance of these platforms.

Growth in Partner Network

System1’s Partner Network also showed positive results, with a 4% year-over-year revenue increase. The adjusted gross profit for this segment rose by 37% year-over-year and 4% sequentially, indicating steady growth and profitability.

Expansion in International Markets

International markets contributed significantly to System1’s revenue, representing 30% of total owned and operated revenue, up from 29% in the previous year. This expansion underscores the company’s successful efforts to grow its global presence.

Decline in Marketing-Driven Revenue

Despite the overall positive performance, System1 faced a 34% year-over-year decline in marketing-driven revenue. This decrease was primarily due to a drop in a non-core, low-gross-margin business segment, which impacted the company’s total revenue.

Challenges with Google Product Changes

System1 is navigating challenges related to Google’s transition from AFD to RSOC, which has introduced volatility and uncertainty. This shift has impacted the company’s ability to provide financial guidance for the second quarter of 2025.

Overall Revenue Decline

The company reported a 12% year-over-year decline in total Q1 revenue, with a 1% sequential decrease. This decline reflects the challenges faced in certain segments despite the strong performance in others.

Forward-Looking Guidance

During the earnings call, System1 highlighted its achievements, including exceeding its guidance range with approximately $75 million in revenue and a 33% year-over-year increase in adjusted gross profit. The company is investing heavily in AI-powered automation and Agentic coding to boost productivity and accelerate product development. However, due to uncertainties stemming from Google’s policy changes and broader market volatility, System1 refrained from providing financial guidance for Q2 2025.

In summary, System1 Inc.’s earnings call painted a picture of robust financial performance and successful product growth, juxtaposed with challenges in marketing-driven revenue and uncertainties due to external factors like Google’s product changes. The company’s strategic investments in technology and international expansion are poised to drive future growth, though market volatility remains a concern.