System1, Inc.

Vice President of Finance, you may begin.

Thank you for standing by, and welcome to the second quarter 2024 conference call for System 1. Joining me today to discuss System 1's business and financial results are our co-founder and CEO, Michael Blend, and our Chief Financial Officer, Tritivesh Kadambi. Recording of this conference call will be available on our investor relations website shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making certain forward-looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long-term growth, and overall future prospects. We may also make statements regarding regulatory compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially for those projected or applied during this call. In particular, those described in our risk factors included in our end report on 410K for the fiscal year 2023 filed on March 15th as well as the current uncertainty and unpredictability in our business, the markets, and the global economy generally. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on management's 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 adjusted EBITDA and adjusted gross profit. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Historical performance and future estimates provided during this call exclude results from total security. Information regarding our non-GAAP financial measures, including a reconciliation of our non-GAAP financial measures to our most comparable historical GAAP financial measures, may 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 Blend.

Thanks, Kyle. Good afternoon, everyone, and thanks for joining us on our Q2 2024 System 1 earnings call. We have a positive update for you today. I'm happy to announce that System 1 delivered financial results which exceeded the high end of guidance across our key financial metrics. System 1 delivered $95 million of revenue and $39 million of gross profit. Adjusted EBITDA was $9.9 million, which was 42% higher than the high end of our guidance range. These strong results were driven by the positive returns from the continued investment in our RAND platform, very strong international growth, significant progress in our owned and operated products, and a tight focus on reducing OPEX. Let's get into some of the financial details. I want to start with our owned and operated business. Total owned and operated revenue was $77 million, flat year-over-year and up 12% from last quarter. Adjusted gross profit was $27 million, up 22% from last quarter and flat year-over-year. Our quarterly growth was driven by 7% sequential growth in advertising spend, as well as a 21% quarter-over-quarter uptick in revenue from our owned and operated products. We generated over 2 billion sessions on our owned and operated properties, a 145% year-over-year increase, and a 66% quarter-over-quarter increase. Spread was approximately 1.5 cents per session. Revenue per session was down nearly 60% year-over-year. The decline was driven by lower cost-per-click rates in the United States, as well as a bigger mixed shift towards international markets, which naturally have lower monetization rates in the United States. Now, international growth continues to be a highlight, with international revenue presenting approximately 36% of owned and operated revenue. This is up from 29% in the first quarter. Our continued international growth demonstrates the power of RAMP's use of AI to very efficiently create content and advertising creatives in multiple languages. For example, When we see an opportunity like engineering jobs in India or checking accounts in the UK, we can very quickly move to capitalize on the opportunity. Our owned and operated products had another strong quarter, with continued favorable organic traffic trends on both Coupon Follow and MapQuest. In May, Coupon Follow benefited from a Google search algorithm update. The update was aimed at eliminating spammy coupon and promo code websites from Google search results. This was not only a long overdue and welcome change, but was also great for consumers, as the Google index was becoming polluted with copycat coupon-related sites. Coupon Follow is one of the most useful coupon websites, full of original content and thoroughly vetted promo codes, and Google appropriately gave Coupon Follow a positive boost. As a result, Coupon Follow saw a significant increase in site traffic and corresponding revenue. June organic sessions were up nearly 80% year-over-year, and on some days, Coupon Follow is the most trafficked coupon site in the world. On MapQuest, we saw a similar story, although not as dramatic. Q2 organic visits were up 10% year-over-year. We've been very focused on improving the customer experience on both MapQuest and Coupon Follow, and it's gratifying to see that we're paying dividends with increased users and revenue. StartPage, our private search engine, also had a very productive quarter. We launched our private browser app and have seen over 50,000 downloads with significantly positive user feedback, including over 2,000 five-star ratings to date across our iOS and Android app users. We have high hopes for the browsers for our loyal Startpage users, and we also hope to be able to profitably market them to new users in the coming quarters. Now let's move on to our Partner Network business. Partner Network revenue was $17 million, and adjusted gross profit was $13 million. Revenue decreased 12% year-over-year, but was up 8% sequentially. Adjusted gross profit decreased 9% year-over-year, but was up 24% sequentially. Total sessions were $2 billion, up 203% year-over-year, and up 33% sequentially, as we continued to add partners to the network. Partner network RPS declined 71% year-over-year and 19% quarter-over-quarter. The higher sessions and lower RPS were driven by the same trends that we saw in our owned and operated business. Lower pricing in the United States and a bigger mixed shift to international markets. Despite the decline in revenue, our partner network business continued to show solid demand from the market. In Q2, our total active partners grew 19% from the first quarter to almost 300 partners. Average revenue per partner decreased sequentially by 9% as new partners onboarded this quarter continue to scale up. At the end of Q2, we had 58 scale partners in line with the first quarter. As a reminder, we consider a platform customer to be a scale partner when they are generating at least $50,000 of revenue per quarter on-ramp. Before I hand things off to Triti, I wanted to outline our key initiatives that we expect to drive System One's growth over the next few years. First, we are continuing to invest in our ramp platform in three key areas. Buy-side efficiency is driven by AI. Second is opening up our buy side capabilities to our partners. And third is launching new products. Let me take this opportunity to walk you through each of these in more detail. First, let's talk about AI. As I mentioned in the last couple of quarters, we've been hard at work integrating AI capabilities into RAMP. AI enables us to create advertising campaigns and associated content at a scale, at least an order of magnitude greater than we could have in the past. This scale, combined with our improved bidding and optimization algorithms, has enabled our owned and operated advertising business to reach a size only a handful of other companies can match. Maintaining ramp and constantly adding improvements requires a large engineering and product team, laser-focused on AI integration, machine learning, optimizations, and speed. Traditionally, our network partners have relied on System 1 solely for sell-side monetization. They have their own buy-side capabilities to purchase traffic, and they rely on System 1 to monetize that traffic. This strategy works well for many partners after a certain level, but typically partners cap out in size as their own buy-side capabilities and technology hit certain limitations. Simply put, it is very difficult to buy traffic of the scale System 1 does. It requires a sophisticated buy-side platform, And while our network partners are highly skilled at buying traffic, they typically just don't have a large enough team to scale beyond a certain point. By opening up the system-run buy-side platform to our partners, we expect to enable many of them to scale far beyond what they currently do. In addition to better buying capabilities, we also are integrating new monetization products into RAMP. Each of these products follows a similar pattern. We build the product feature or enhancement into RAMP, We utilize our owned and operated properties and our own team to figure out how to scale the product. And once we have all the kinks worked out, we open it up to partners. Over the last year, our focus has been on launching and scaling a new product offering by Google called Related Search on Content. This product requires sending high quality traffic to content very highly tailored to specific advertising verticals. Google advertising is integrated directly into the content. While similar to Google-related products we've worked with in the past, the new product requires System 1 to develop new technology to ensure we can scale it while maintaining very high quality. It took us some time, but now we're at the point where we are confident we have the technology and processes in place to scale this new product. System 1 is generating over seven figures of monthly revenue from the product. Google is very pleased with the results, and we now are in the process of rolling it out to partners. So we've done what we always do. use our owned and operated scale to explore and then scale a new market, and then offer our new capabilities to our partners. The next two areas we are planning to invest in are two segments we currently are under-indexed, shopping and subscription products. Both of these areas are huge consumer markets where we currently are not scaled. We have slightly different approaches for each of them. For shopping, we likely will partner with large shopping-focused advertising networks, similar to our current approach of partnering with Google, Bing, and Yahoo. We are still exploring these partnerships, but we believe partnering with networks is a better option than attempting to build out our own direct advertising network in commerce. We might take a different approach with subscription. We already operate two successful subscription products associated with MapQuest, and we have shown in the past that we know how to scale subscription into the hundreds of million dollars of revenue. We also already operate businesses in some huge consumer categories that could be ripe for subscription. We operate search engines, we have browsers that we run, we have big mapping services, and we're also big in shopping. So while we will consider partnering with existing subscription businesses, we also are exploring building out our own products. The good thing is that RAMP will support these efforts with only minimal increase in OpEx or R&D. We built RAMP to be very flexible in supporting new buy-side and sell-side capabilities, and plugging in these new products will be pretty straightforward. I also wanted to take a few minutes talking about our organic products specifically. We traditionally have focused our earnings comments on our marketing driven businesses and our ability to scale our overall business by purchasing traffic and marketing can drive very fast scale in our business. But as we saw in 2022 and parts of 23, it can also cause volatility. Now in contrast, our product businesses are comprised of utilities that consumers seek out and use every day. For example, Coupon Follow helps people find promo codes that save them money when they're shopping. Start Page enables its users to search the web in privacy. MapQuest provides mapping for people who prefer it over Google or Apple Maps. And Roll Warrior helps delivery drivers drop off packages more efficiently. And each one of these properties is supported by related products, whether it be our Sently browser extension, which is part of Coupon Follow, our Starpage private browsers, or the MapQuest and Road Warrior mobile apps. Because these products do not require marketing to generate usage, they are distinct from our marketing-driven businesses in two primary ways. First, their revenues are more consistent and less tied to shifts in the overall digital advertising market. Second, they are much higher margin businesses, as we spend a much lower percentage of our revenues on marketing them. The dynamics of these product lines are different enough that we plan to begin presenting them independently from our marketing businesses. Triti will go into more detail about this reporting change in his remarks. Overall, I'm very pleased with our performance in the second quarter. Our System 1 team has been executing very well over the last year, and it's gratifying to see that execution starting to show up in our financial performance. We aren't yet where we want to be, but things are moving in the right direction. To close my section of our call, I would like to once again remind you that management is the largest shareholder group in System 1, and our interests are very highly aligned with yours. We appreciate your overwhelming support of our new equity plan tied to hitting EBITDA targets, and we intend to hit those targets. As our business gets back into growth mode, we're excited to have you along for the ride. I'll now hand things off to Triti to discuss our quarterly results in more detail, as well as our Q3 guidance. Take it away, Triti.