sst-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2024


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

For transition period from __________ to __________

Commission file number 001-39331

System1, Inc.

(Exact name of registrant as specified in its charter)


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

4235 Redwood Avenue Marina Del Rey, CA						90066
(Address of Principal Executive Offices)						(Zip Code)

(310) 924-6037

(Registrant’s telephone number including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

SST

The New York Stock Exchange

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

SST.WS

The New York Stock Exchange

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

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

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

As of May 7, 2024, there were 68,901,898 shares of Class A common stock, $0.0001 par value per share, outstanding and 21,203,676 shares issued and outstanding of Class C common stock, $0.0001 par value per share.

Table of Contents


		Page

Part I. - Financial Information		1

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32

Part II - Other Information		36

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

Signatures		38

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

System1, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except par value)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	69,920	$	135,343
Restricted cash, current	7,231		3,813
Accounts receivable, net	52,735		56,093
Prepaid expenses and other current assets	9,791		6,754
Total current assets	139,677		202,003
Restricted cash, non-current	533		4,294
Property and equipment, net	2,836		3,084
Internal-use software development costs, net	12,545		11,425
Intangible assets, net	278,336		297,001
Goodwill	82,407		82,407
Operating lease right-of-use assets	4,241		4,732
Other non-current assets	484		524
Total assets	521,059		605,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	7,055		9,499
Accrued expenses and other current liabilities	52,351		59,314
Operating lease liabilities, current	2,375		2,333
Debt, net	16,190		15,271
Total current liabilities	77,971		86,417
Operating lease liabilities, non-current	2,938		3,582
Long-term debt, net	268,597		334,232
Warrant liability	2,438		2,688
Deferred tax liability	7,649		8,307
Other liabilities	1,061		929
Total liabilities	$	360,654	$	436,155
Commitments and contingencies (Note 7)
Stockholders' equity:
Class A common stock - $0.0001 par value; 500,000 shares authorized, 68,632 and 65,855 Class A shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	$	7	$	7
Class C common stock - $0.0001 par value; 25,000 shares authorized, 21,204 and 21,513 Class C shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	2		2
Additional paid-in capital	850,202		843,112
Accumulated deficit	(718,199)		(707,662)
Accumulated other comprehensive loss	(271)		(181)
Total stockholders' equity attributable to System1, Inc.	131,741		135,278
Non-controlling interest	28,664		34,037
Total stockholders' equity	160,405		169,315
Total liabilities and stockholders' equity	$	521,059	$	605,470

See notes to condensed consolidated financial statements.

System1, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except for per share)


	Three Months Ended March 31,
	2024		2023
Revenue	$	84,917	$	121,118
Operating expenses:
Cost of revenue (excluding depreciation and amortization)	53,698		82,953
Salaries and benefits	24,483		28,147
Selling, general, and administrative	12,728		14,855
Depreciation and amortization	19,804		19,392
Total operating expenses	110,713		145,347
Operating loss	(25,796)		(24,229)
Other expense (income):
Interest expense, net	7,970		11,402
Gain from debt extinguishment	(19,676)		—
Change in fair value of warrant liabilities	(251)		(1,409)
Total other (income) expense, net	(11,957)		9,993
Loss before income tax	(13,839)		(34,222)
Income tax benefit	(48)		(3,829)
Net loss from continuing operations	(13,791)		(30,393)
Net loss from discontinued operations, net of tax	—		(12,533)
Net loss	(13,791)		(42,926)
Less: Net loss from continuing operations attributable to non-controlling interest	(3,254)		(6,757)
Less: Net loss from discontinued operations attributable to non-controlling interest	—		(2,367)
Net loss attributable to System1, Inc.	$	(10,537)	$	(33,802)

Amounts attributable to System1, Inc.:
Net loss from continuing operations	$	(10,537)	$	(23,636)
Net loss from discontinued operations	—		(10,166)
Net loss attributable to System1, Inc.	$	(10,537)	$	(33,802)

SEC Form 10-Q filed by System1 Inc.