SYSTEM1 INC C/WTS 27/01/2027 (TO PUR COM) | 10-Q: FY2026 Q1 Revenue: USD 37.23 M

Revenue: As of FY2026 Q1, the actual value is USD 37.23 M.

EPS: As of FY2026 Q1, the actual value is USD -5.82.

EBIT: As of FY2026 Q1, the actual value is USD -51.04 M.

Segment Revenue

System1, Inc. reported total revenue of $37,234 thousand for the three months ended March 31, 2026, a decrease of -50% compared to $74,513 thousand in the prior period.

Marketing Segment Revenue: Revenue for the Marketing segment decreased by - $33,859 thousand, or -65%, to $18,391 thousand for the three months ended March 31, 2026, from $52,250 thousand in the prior period, primarily due to the termination of the Adsense for Domains monetization arrangement with Google and a significant reduction in marketing activities.
Products Segment Revenue: Products segment revenue decreased by - $3,420 thousand, or -15%, to $18,843 thousand for the three months ended March 31, 2026, from $22,263 thousand in the prior period, mainly due to a shift from higher Revenue Per Session (RPS) sessions to lower RPS sessions.

Operational Metrics

Cost of Revenue: Total cost of revenue decreased by - $32,217 thousand, or -70%, to $13,860 thousand for the three months ended March 31, 2026, from $46,077 thousand in the prior period, correlated with the decrease in revenue. Amortization expense for the platform included in cost of revenue decreased by - $8,142 thousand, or -62%, to $4,908 thousand.
- Segment Cost of Revenue (Marketing): $5,862 thousand in 2026 compared to $30,463 thousand in 2025.
- Segment Cost of Revenue (Products): $1,526 thousand in 2026 compared to $1,309 thousand in 2025.
Gross Profit: Gross profit was $23.3 million for the three months ended March 31, 2026, compared to $28.4 million in the prior period.
Adjusted Gross Profit: Total adjusted gross profit decreased by - $12,895 thousand, or -30%, to $29,846 thousand for the three months ended March 31, 2026, from $42,741 thousand in the prior period.
- Marketing Segment Adjusted Gross Profit: Decreased by - $9,258 thousand, or -42%, to $12,529 thousand in 2026 from $21,787 thousand in 2025.
- Products Segment Adjusted Gross Profit: Decreased by - $3,637 thousand, or -17%, to $17,317 thousand in 2026 from $20,954 thousand in 2025.
Salaries and Benefits: Expenses decreased by - $4,188 thousand, or -17%, to $20,800 thousand for the three months ended March 31, 2026, from $24,988 thousand in the prior period, driven by a reduction in payroll, bonus expenses, and a decline in stock-based compensation, partially offset by a $1.5 million increase in severance-related expenses.
Selling, General, and Administrative (SG&A): SG&A expenses increased by $215 thousand, or 1%, to $16,789 thousand for the three months ended March 31, 2026, from $16,574 thousand in the prior period, due to an increase in software and subscription services, partially offset by a decrease in professional services and consulting fees.
Impairment of Long-Lived Assets: An impairment expense of $36,822 thousand was recognized for the three months ended March 31, 2026, due to the Marketing asset group’s carrying amount exceeding its undiscounted cash flows.
Operating Loss: Operating loss increased to - $51,037 thousand for the three months ended March 31, 2026, from - $13,126 thousand in the prior period.
Net Loss: Net loss was - $57,591 thousand for the three months ended March 31, 2026, compared to - $19,856 thousand in the prior period.
Adjusted EBITDA: Adjusted EBITDA was $2.7 million for the three months ended March 31, 2026, a decrease from $12.1 million in the prior period.

Cash Flow

Net Cash Used in Operating Activities: - $26,134 thousand for the three months ended March 31, 2026, primarily due to net income adjustments and unfavorable changes in working capital, including - $13.0 million for CouponFollow earnout obligations, compared to - $15,949 thousand in the prior period.
Net Cash Used in Investing Activities: - $2,175 thousand for the three months ended March 31, 2026, primarily from capitalized software development costs, compared to - $1,548 thousand in the prior period.
Net Cash Used in Financing Activities: - $7,743 thousand for the three months ended March 31, 2026, mainly due to - $7.5 million in term loan repayments and - $0.2 million in share repurchases, compared to - $5,304 thousand in the prior period.

Unique Metrics

Marketing Segment - Active Marketing Partners (AMP): AMP decreased by approximately -93 to 56 for the three months ended March 31, 2026, from 149 in the prior period, largely due to the termination of the Google Adsense for Domains arrangement.
Marketing Segment - Revenue per AMP: Revenue per AMP increased by approximately $0.1 million to $0.2 million for the three months ended March 31, 2026, from $0.1 million in the prior period.
Products Segment - Products Sessions: Products sessions increased by approximately 178.0 million to 653.7 million for the three months ended March 31, 2026, from 475.7 million in the prior period.
Products Segment - Products Revenue Per Session (RPS): Products RPS decreased by approximately - $0.02 to $0.03 for the three months ended March 31, 2026, from $0.05 in the prior period.

Future Outlook and Strategy

System1, Inc. has identified substantial doubt about its ability to continue as a going concern for the next twelve months due to declining cash flows, negative net working capital of - $14.1 million, and upcoming debt maturities. The company plans to explore options for refinancing its debt obligations, but cannot assure successful implementation or sufficient liquidity. The operational strategy focuses on expanding advertising partners, optimizing bids for higher returns on advertising spend, and reducing cash operating expenses and debt service obligations.