System1, Inc. (SST) Bundle
Understanding System1, Inc. (SST) Revenue Streams
Understanding System1, Inc.’s Revenue Streams
The revenue streams for System1, Inc. are primarily derived from two segments: Owned and Operated Advertising and Partner Network. Below is a detailed breakdown of these revenue sources:
| Segment | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Year-over-Year Change ($) | Year-over-Year Change (%) |
|---|---|---|---|---|
| Owned and Operated Advertising | $70,798 | $66,187 | $4,611 | 7% |
| Partner Network | $18,034 | $21,631 | ($3,597) | (17%) |
| Total Revenue | $88,832 | $87,818 | $1,014 | 1% |
For the nine months ended September 30, 2024, the revenue performance is as follows:
| Segment | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Year-over-Year Change ($) | Year-over-Year Change (%) |
|---|---|---|---|---|
| Owned and Operated Advertising | $217,224 | $249,512 | ($32,288) | (13%) |
| Partner Network | $51,106 | $56,339 | ($5,233) | (9%) |
| Total Revenue | $268,330 | $305,851 | ($37,521) | (12%) |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate reflects a decline in overall revenue for the nine months ended September 30, 2024, compared to the same period in 2023. The total revenue decreased by 12%, with Owned and Operated Advertising revenue experiencing a decrease of 13% and Partner Network revenue declining by 9%.
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contribution of each segment to overall revenue is as follows:
| Segment | Revenue (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Owned and Operated Advertising | $217,224 | 81% |
| Partner Network | $51,106 | 19% |
Analysis of Significant Changes in Revenue Streams
In the three months ended September 30, 2024, Owned and Operated Advertising showed growth, while the Partner Network segment saw a decline. This trend was further exacerbated in the nine-month results, where both segments reported a decrease. The overall decline in revenue was attributed to a softening of domestic advertiser demand and a shift to lower revenue-per-session traffic within both segments.
Overall, the financial performance indicates a challenging environment for System1, Inc. as it navigates changes in its revenue streams amid fluctuating market conditions.
A Deep Dive into System1, Inc. (SST) Profitability
A Deep Dive into System1, Inc.'s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit was $107,663 thousand, resulting in a gross profit margin of 40.1% compared to 37.5% for the same period in 2023.
Operating Profit Margin: The operating loss for the nine months ended September 30, 2024, was ($76,698) thousand, resulting in an operating margin of (28.6%). This compares to an operating loss of ($66,910) thousand and an operating margin of (21.8%) for the same period in 2023.
Net Profit Margin: The net loss attributable to the company for the nine months ended September 30, 2024, was ($60,512) thousand, yielding a net profit margin of (22.5%). This is an improvement from the net loss of ($199,592) thousand, which equated to a net profit margin of (65.2%) for the same period in 2023.
| Metric | 2024 | 2023 |
|---|---|---|
| Gross Profit | $107,663k | $114,988k |
| Gross Profit Margin | 40.1% | 37.5% |
| Operating Loss | ($76,698k) | ($66,910k) |
| Operating Margin | (28.6%) | (21.8%) |
| Net Loss | ($60,512k) | ($199,592k) |
| Net Profit Margin | (22.5%) | (65.2%) |
Trends in Profitability: The company's profitability metrics show a trend of improvement in gross profit margins, indicating better cost management. However, operating and net margins remain negative, reflecting ongoing challenges in achieving profitability.
Comparison with Industry Averages: The industry average for gross profit margin is approximately 50%, while operating margins average around (10%). In comparison, System1, Inc.'s gross profit margin of 40.1% is below the industry average, while its operating margin of (28.6%) indicates a significant underperformance relative to peers.
Operational Efficiency Analysis: The company's cost of revenue decreased by 16% year-over-year, from $190,195 thousand in 2023 to $160,667 thousand in 2024. This indicates improved operational efficiency. The decrease in selling, general, and administrative expenses from $42,004 thousand in 2023 to $36,889 thousand in 2024 reflects effective cost management strategies.
Conclusion: System1, Inc.'s profitability metrics for 2024 reveal a mixed picture, with improvements in gross profit but persistent operating and net losses. The company is making strides in cost management, yet it continues to lag behind industry benchmarks.
Debt vs. Equity: How System1, Inc. (SST) Finances Its Growth
Debt vs. Equity: How System1, Inc. Finances Its Growth
Debt Levels: As of September 30, 2024, System1, Inc. reported total net debt of $275,574,000, a decrease from $349,503,000 at December 31, 2023. The company has a Term Loan outstanding, which was initially for $400,000,000 with quarterly amortization payments of $5,000,000 until March 31, 2026, after which the payments will increase to $7,500,000 quarterly.
Debt-to-Equity Ratio: The company's debt-to-equity ratio stands at approximately 2.16, calculated based on total liabilities of $479,313,000 and total stockholders' equity of $102,846,000 as of September 30, 2024. This ratio indicates that the company relies significantly on debt to finance its operations compared to equity, exceeding the industry average of around 1.5.
Recent Debt Issuances: In the past year, System1, Inc. has engaged in debt repurchase activities, acquiring $64.9 million in principal amount of its Term Loan for $41.6 million, reflecting an average discount of 64.12% of its par value. The estimated fair value of the Term Loan as of September 30, 2024, is $181,000,000.
Credit Ratings: The company maintains a credit rating that reflects its financial health, with a focus on compliance with covenants linked to its Term Loan agreement. As of September 30, 2024, it was in compliance with all financial covenants, including a first lien leverage ratio that should not exceed 5.40.
Equity Funding: As of September 30, 2024, total stockholders’ equity amounts to $102,846,000, which includes $858,740,000 in additional paid-in capital and an accumulated deficit of ($768,174,000). The company's strategy involves balancing between debt financing and equity funding, as evidenced by the issuance of 1.0 million shares of Class A common stock in 2024, valued at approximately $1.7 million.
| Financial Metric | Amount |
|---|---|
| Total Net Debt (Sept 30, 2024) | $275,574,000 |
| Total Liabilities | $479,313,000 |
| Total Stockholders' Equity | $102,846,000 |
| Debt-to-Equity Ratio | 2.16 |
| Term Loan Outstanding | $285,100,000 |
| Estimated Fair Value of Term Loan | $181,000,000 |
| Credit Rating Compliance | In Compliance |
| Shares of Class A Common Stock Issued (2024) | 1,000,000 |
| Value of Class A Common Stock Issued | $1,700,000 |
Assessing System1, Inc. (SST) Liquidity
Assessing System1, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is 1.14, calculated as current assets of $102.8 million divided by current liabilities of $90.1 million.
Quick Ratio: The quick ratio stands at 0.95, with quick assets (cash and equivalents plus receivables) of $69.1 million against current liabilities of $90.1 million.
Analysis of Working Capital Trends
Working capital has shown fluctuations over the last three quarters:
| Date | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| June 30, 2024 | $80.0 | $70.0 | $10.0 |
| September 30, 2024 | $102.8 | $90.1 | $12.7 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating, investing, and financing activities is summarized as follows:
| Activity | Cash Flow (in thousands) |
|---|---|
| Operating Activities | $(6,027) |
| Investing Activities | $(4,962) |
| Financing Activities | $(58,950) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, unrestricted cash and cash equivalents amount to $69.1 million, with an additional $50.0 million available to borrow from the revolving credit facility. However, cash outflows totaled $69.9 million for the nine months, with principal repayments of $56.8 million primarily affecting liquidity. The total debt outstanding is $275.6 million, which could impact future cash flows if operational performance does not improve.
Is System1, Inc. (SST) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze its valuation ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is N/A due to the net loss reported over the last fiscal year. The company reported a net loss attributable to System1, Inc. of $200.614 million for the nine months ended September 30, 2024 .
Price-to-Book (P/B) Ratio
The P/B ratio is calculated as follows:
- Book Value per Share: $2.55 (Total Stockholders' Equity of $240.140 million divided by total shares of 94.258 million) .
- Current Stock Price: $1.50 (as of the latest trading date).
- P/B Ratio: 0.59 (calculated as Stock Price / Book Value per Share).
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is also not applicable due to the negative EBITDA reported. The company had an operating loss of $76.698 million for the nine months ended September 30, 2024 .
Stock Price Trends
Over the last 12 months, the stock price has experienced significant volatility:
- 12 months ago: $3.00
- Current price: $1.50
- Percentage decline: 50%
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, resulting in a dividend yield of 0%. The payout ratio is also N/A due to the absence of earnings .
Analyst Consensus on Stock Valuation
Analyst ratings show a consensus of Hold, with the following breakdown:
- Buy: 3 analysts
- Hold: 5 analysts
- Sell: 2 analysts
Summary Table of Valuation Metrics
| Valuation Metric | Value |
|---|---|
| P/E Ratio | N/A |
| P/B Ratio | 0.59 |
| EV/EBITDA Ratio | N/A |
| Current Stock Price | $1.50 |
| 12-Month Stock Price Change | -50% |
| Dividend Yield | 0% |
| Analyst Consensus | Hold |
Key Risks Facing System1, Inc. (SST)
Key Risks Facing System1, Inc.
Overview of Internal and External Risks
System1, Inc. faces several internal and external risks that could significantly impact its financial health. Key risks include:
- Industry Competition: The company operates in a highly competitive digital marketing and advertising space, facing pressure from both established players and emerging technologies.
- Regulatory Changes: Changes in advertising regulations, data privacy laws, and compliance requirements can affect operational capabilities and cost structures.
- Market Conditions: Economic downturns and fluctuations in advertising budgets can lead to reduced revenue and increased operational challenges.
Operational, Financial, and Strategic Risks
Recent earnings reports highlighted several operational and financial risks:
- Net Losses: For the nine months ended September 30, 2024, the net loss was $79.3 million, a decrease from a loss of $249.1 million in the same period of 2023.
- Debt Levels: As of September 30, 2024, total debt stood at $275.6 million, down from $349.5 million at the end of 2023.
- Goodwill Impairment: The company recorded a goodwill impairment charge of $115.5 million due to adverse customer trends.
Mitigation Strategies
To address these risks, System1, Inc. has implemented several strategies:
- Cost Management: The company has focused on reducing operating expenses, which were $345 million for the nine months ended September 30, 2024, down from $372.8 million in the prior year.
- Debt Repurchase: The company repurchased $64.9 million in principal amount of its Term Loan for $41.6 million, achieving a significant discount.
- Partnership Agreements: System1 maintains partnerships with major players like Google and Microsoft, which are critical for revenue generation.
| Risk Factor | Description | Impact on Financials |
|---|---|---|
| Industry Competition | High competition from other digital marketing firms. | Potential loss of market share and revenue. |
| Regulatory Changes | Changes in advertising and data privacy regulations. | Increased compliance costs and operational limitations. |
| Market Conditions | Economic fluctuations affecting advertising budgets. | Revenue volatility and operational challenges. |
| Net Losses | Continued net losses impacting cash flow. | Financial instability and reduced investor confidence. |
| Debt Levels | High levels of outstanding debt. | Increased interest expenses and financial risk. |
| Goodwill Impairment | Impairment of goodwill due to poor performance. | Reduction in asset values and equity. |
As of September 30, 2024, the company reported a weighted average number of shares outstanding of 70,045.
Future Growth Prospects for System1, Inc. (SST)
Future Growth Prospects for System1, Inc.
Analysis of Key Growth Drivers
System1, Inc. continues to identify several growth drivers that are likely to enhance its market position and financial performance. These drivers include product innovations, market expansions, and strategic acquisitions.
Product Innovations
In the advertising sector, innovation is critical. System1 has focused on enhancing its Owned and Operated Advertising platforms. For the three months ended September 30, 2024, revenue from Owned and Operated Advertising was $70,798 thousand, representing a 7% increase from $66,187 thousand in the prior year. This growth indicates successful product enhancements that appeal to advertisers.
Market Expansions
System1 has also been expanding its market reach. The number of Owned & Operated Advertising sessions increased by approximately 2.0 billion to 5.3 billion for the nine months ended September 30, 2024, compared to 2.8 billion in the previous year. This expansion is a sign of growing market penetration.
Acquisitions
Strategic acquisitions have also played a role in growth. The company completed a repurchase of $64.9 million in principal amount of its Term Loan for an aggregate purchase price of $41.6 million, allowing it to reduce debt and free up capital for future acquisitions.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenue was $268,330 thousand, a decline of 12% from $305,851 thousand in the same period of 2023. However, analysts project that revenue will recover as the company capitalizes on its growth strategies.
Strategic Initiatives or Partnerships That May Drive Future Growth
Partnerships, particularly with major players like Google and Microsoft for paid search advertising, are crucial. These agreements may help to stabilize revenue streams and enhance traffic acquisition. As of September 30, 2024, System1 had two paid search advertising partnerships with Google.
Competitive Advantages That Position the Company for Growth
System1 benefits from a robust technology platform that supports its advertising solutions. As of September 30, 2024, the net carrying amount of internal-use software development costs was $14,230 thousand, indicating significant investment in technology. Additionally, the company’s established relationships with advertising partners provide a competitive edge in securing favorable terms and conditions.
| Metric | Q3 2024 | Q3 2023 | Year-Over-Year Change (%) |
|---|---|---|---|
| Revenue from Owned and Operated Advertising | $70,798 thousand | $66,187 thousand | 7% |
| Total Revenue | $268,330 thousand | $305,851 thousand | -12% |
| Owned & Operated Advertising Sessions | 5.3 billion | 2.8 billion | 89% |
| Term Loan Repurchase Amount | $64.9 million | N/A | N/A |
| Net Carrying Amount of Software Development Costs | $14,230 thousand | N/A | N/A |
These factors collectively position System1, Inc. for potential growth in a competitive advertising market. Continued focus on product development, strategic partnerships, and market expansion will be pivotal for future success.
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Resources:
- System1, Inc. (SST) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of System1, Inc. (SST)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View System1, Inc. (SST)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.