System1, Inc.

Thank you for standing by, and welcome to the first quarter 2022 conference call and webcast for System 1. On today's call are Michael Blinn, co-founder and chief executive officer of System 1, Trudevesh Kadambi, chief financial officer of System 1, and Kyle Osgard, vice president of finance. I will now turn the call over to Kyle Osgard.

Thank you. Welcome to the System 1 earnings call for the quarter ended March 31st, 2022. Joining me today to discuss System 1's operational financial results are our co-founder and CEO, Michael Bland, and our chief financial officer, Tritavesh Kadambi. A recording of this conference call will be available on our investor relations website at ir.system1.com shortly after this call has 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 businesses, future financial results and guidance, strategy, long-term growth, and overall future prospects. We may also make statements regarding regulatory or compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our registration statement on Form S-1, filed on April 13, 2022. In our Form 10-K for the fiscal year 2021, filed on March 31, 2022. and in our Form 10Q for the first quarter of 2022 that will be filed shortly, as well as certain uncertainty and unpredictability in our business, the markets, and the global economy generally. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and System 1 disclaims any obligation to update any forward-looking statements except as required by law. Our discussion today will include non-GAAP financial measures, including pro forma revenue, pro forma gross profit, and pro forma adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of a historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our form, aka filed today with the SEC, and may also be found on our investor relations website. I would now like to turn the conference call over to System 1's co-founder and chief executive officer, Michael Blund. Michael?

Good afternoon, everyone, and welcome to System 1's first earnings call as a public company. As Kyle mentioned, I'm Michael Blind, and I'm the co-founder and CEO of System One. Joining me today is Triti Kadambi, our longtime CFO. To begin, I want to say a quick thank you to our System One shareholders, including our great employees and our new public investors. Thank you for taking the time to learn our story and for supporting our company. We're going to do our absolute best to reward your belief in System One. So we had a great quarter financially, and Triti is going to walk you through the details. Before we get to the numbers, I would like to provide you with some color about how we're doing operationally at System 1, where we're seeing good opportunities, and also what our challenges are. My goal is for you to hold System 1 as a long-term investment, and the better you understand our company, I think the more excited you're going to be about it. So Q1 was pretty momentous for us. After eight years as a private company, we went public, completed our merger with Protected.net, made a couple acquisitions, and we even got popular on the Reddit stock boards. Throughout all of it, our team did what they've always done. They ignored the noise, executed on the business, and focused on the long term. I'm proud of the team for making a very smooth transition into a public company. So on the business front, both of our major business lines, advertising and subscription, had really good momentum in Q1. Advertising saw nice revenue growth across the board, and we don't see any signs of that slowing down. Now, as you know, some of the other public advertising companies have had mixed results because of shifting consumer demand and some privacy-related initiatives by Apple. The beauty of our model is that we aren't dependent on any particular category or vertical, and we can shift to meet changing consumer demand. We also are a privacy-forward advertising platform. In many ways, economic downturns or shifts in the advertising markets help us. We're able to step in and purchase more traffic volume, often at cheaper prices. Now, our biggest challenge in the advertising business is ensuring our Rant platform can scale to handle our very ambitious goals. We're spending currently about $650 million annually on advertising, and we'd like to scale that to at least $2 billion over the next several years. Achieving that growth is going to entail expanding RAMP into new advertising markets and making ever-increasing use of our enormous amounts of first-party data. Our team is ready for the challenge. It's going to be a lot of hard work. It's also going to mean substantially scaling our engineering team. Now, in our subscription business, Q1 offers some very nice pockets of opportunity to scale marketing spend. As our TotalAV product matures, we think we have a new hit on our hands with our Total Adblock product. That product's gone from zero subscribers at the beginning of 2021 to over 200,000 at the end of this quarter. These subscribers are behaving and renewing as we expected and in line with TotalAV customers. Similar to our diversification advertising, we like having multiple subscription services that complement each other. Our longer-term goal here is to have at least 10 hit products, which we define as a product with over a million subscribers. With total AV and total ad block, we believe we have our first two. Our biggest challenge in subscription is continuing to develop and scale these new products to add to our mix. Like on the advertising side, this requires great engineers and product managers. Ultimately, we believe System 1 is almost uniquely positioned to offer a bundle of subscription products all lumped into a single payment. For example, why would people want to pay $10 a month for 10 different products when they can get all these bundled together for $30? Similar to our advertising business, our goals here are ambitious and will require a lot of hard work, but we're going to see enormous upside when we pull it off. On the M&A front, it's really business as usual. Concurrent with our D-SPAC, System One merged with Protected.net. We took a majority investment in Protected four years ago and have been close with their management for over a decade. So our Protected acquisition was more like a marriage after a long engagement. I'm happy to say the honeymoon is over and we remain happier than ever. Our integration with Protected has mainly been focused on combining our marketing efforts. and we are starting to see really good early progress there. We also have begun coordination on product development, and I expect to see our joint product initiatives start to roll out later in the year. Now, in Q1, we acquired two fantastic founder-led companies in Road Warrior and Coupon Follow. Our strategic rationale for these acquisitions are very straightforward. In the case of Road Warrior, We added a route planning mobile app sold as a subscription service that is a perfect tuck-in to our MapQuest business. With Coupon Follow, we're accelerating our efforts in the direct-to-consumer shopping vertical, as well as our reach with direct advertisers. The integration of both these companies is going well. Our first step in any acquisition is getting the teams working together as one company. Role Warrior was a smaller team and already is working hand-in-hand with our MapQuest team, so we consider the first step of that integration complete. We're now moving on to focusing on using RAMP to scale that product. Coupon Follow is a much larger and more dispersed organization, and with any bigger acquisition, the integration post-acquisition is always a risk. I'm very happy to report that the Coupon Follow team, led by the efforts of their founder, Mark Mazzocca, has embraced joining the System 1 organization. System 1 has multiple synergies with Coupon Follow in both advertising and subscription, and our biggest challenge is making sure we focus on the right opportunities. As a first step, we're working to integrate the Coupon Follow codes throughout our network of properties. Now we have a really good track record at acquisitions. I like to think we're good at predicting how well they're going to go after the deal closes, but you don't always get it right. With Coupon Follow and Road Warrior, we've been dead on, so welcome to their teams. We also last week acquired Answers.com. This deal was a little bit different for us in that the company was struggling, and we purchased the assets for an immaterial price. However, within those assets, we believe we've identified a crown jewel. Answers.com has millions and millions of user-generated answers to questions. We intend to integrate these throughout our properties and search engines. We believe we can provide a much richer experience on our existing network of websites, and we also will use RAMP to substantially increase the traffic to Answers.com. So for a very attractive price, we've got some really good potentially asymmetric upside on that deal. Regarding future acquisitions, nothing is imminent. We remain on the lookout for companies that we can integrate into our existing network and accelerate using RAMP. There are literally hundreds of prospects out there, and as always, we're going to be very disciplined in our approach. Looking ahead to the rest of the year, I wanted to share our major corporate goals with you. As I mentioned, our top priority is to continue developing RAMP to ensure we have a path to tripling our scale. This is going to entail entry into new markets, scaling our engineering and product teams, and potentially doing some bolt-on acquisitions. On our subscription side, we want to start showing real progress towards our subscription bundle. We're going to keep rolling out new independent subscription products, and we're going to start building the links between them such that we can offer an integrated bundle. I can't promise that you will see tangible results on the bundle this year, but the behind-the-scenes work is going to be ongoing. Regarding our System 1 team, we want to continue making major strides such that by the end of the year, all of our companies are operating as a single team. This doesn't happen overnight, and it requires real work from the people involved. But as I mentioned, we're seeing great progress with our most recent acquisitions. And we also intend to keep investing in our product and engineering teams. We have so many potential opportunities, and the more technical talent we have, the more opportunities we can go after. And finally, we want to work with you, our new shareholders, to start building our long-term shareholder base. This is going to involve helping you get a really deep understanding of our business and also how we operate. So before I hand things off to Triti, I wanted to give you a brief overview of our operating philosophy and how we measure our progress. While we always want to meet and exceed our short-term financial targets, System 1 is not the kind of company that operates quarter by quarter. We look at the longer term and we will make sacrifices if we believe increased, shorter-term investments are going to pay off big in the future. We almost definitely will have quarters where we decide to invest more in market near technology because a longer term payoff is so obvious to us. When we do that, we're going to explain to you exactly what our reasoning is. And remember, when we make bets, we are very aligned with you because management owns so much of the company. For every dollar System 1 invests today, 70 cents of that comes from management's pockets. So we like to bet big on ourselves, and it's paid off really well for our shareholders in the past. We encourage you to get a deep understanding of System 1 and come along for the ride. And with that, I'd like to hand things off to Triti to discuss this quarter's results.