System1, Inc 10-Q for FY2026 Q2
System1, Inc. (SST)
10-Q
2026-08-05
For: 2026-06-30
View Original
Added on
August 05, 2026
About this 10-Q
System1, Inc filed this 10-Q on August 5, 2026, covering the quarter ended June 30, 2026 (FY2026 Q2).
Headline figures
Quarter ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $30.2M
- down 61.3% from $78.12M a year earlier
- Net loss
- $12.6M
- compared with a net loss of $17.46M a year earlier
- Diluted EPS
- -$1.54
- compared with -$2.23 a year earlier
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 June 30, 2026
or
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
(310 ) 924-6037
(Registrant’s telephone number including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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 | ☐ | |||||||||||
| ☒ | 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 August 1, 2026 there were 8,708,922 shares of Class A common stock, $0.0001 par value per share, and 1,779,727 shares of Class C common stock, $0.0001 par value per share, outstanding.
Table of Contents
Page | ||||||||
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
System1, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except par value)
June 30, 2026 | December 31, 2025 | ||||||||||
| ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash, current | |||||||||||
Accounts receivable, net | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets | |||||||||||
Restricted cash, non-current | |||||||||||
Property and equipment, net | |||||||||||
Internal-use software development costs, net | |||||||||||
Intangible assets, net | |||||||||||
Goodwill | |||||||||||
Operating lease right-of-use assets | |||||||||||
Other non-current assets | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and other current liabilities | |||||||||||
Operating lease liabilities, current | |||||||||||
Debt, net | |||||||||||
Total current liabilities | |||||||||||
Operating lease liabilities, non-current | |||||||||||
Long-term debt, net | |||||||||||
Deferred tax liability | |||||||||||
Other non-current liabilities | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies (Note 7) | |||||||||||
Stockholders' equity: | |||||||||||
Class A common stock $ | |||||||||||
Class C common stock $ | |||||||||||
Additional paid-in capital | |||||||||||
Accumulated deficit | ( | ( | |||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost - | ( | ( | |||||||||
Total stockholders' equity attributable to System1, Inc. | ( | ||||||||||
Non-controlling interest | ( | ( | |||||||||
Total stockholders' equity | ( | ||||||||||
Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except for per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||
Salaries and benefits | |||||||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||
Impairment of long-lived assets | |||||||||||||||||||||||
Total operating expenses | |||||||||||||||||||||||
Operating loss | ( | ( | ( | ( | |||||||||||||||||||
Other expense: | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Change in fair value of warrant liabilities | |||||||||||||||||||||||
Total other expense, net | |||||||||||||||||||||||
Loss before income tax | ( | ( | ( | ( | |||||||||||||||||||
Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
Net loss | ( | ( | ( | ( | |||||||||||||||||||
Less: Net loss attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
Net loss attributable to System1, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Basic and diluted net loss per share: | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Weighted average number of shares outstanding - basic and diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation (loss) income | ( | ( | |||||||||||||||||||||
Comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
Comprehensive loss attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
Comprehensive loss attributable to System1, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(In thousands)
Class A Common Stock | Class C Common Stock | Treasury Stock, at cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In-Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2025 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Class A common stock repurchases | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Contribution from members | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2026 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Class C shares to Class A shares | — | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Contribution from members | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2026 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(In thousands)
Class A Common Stock | Class C Common Stock | Treasury Stock, at cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Additional Paid-In-Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2024 | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Distribution to members | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2025 | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Class C shares to Class A shares | — | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in private placement | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Class A common stock repurchases | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Distribution to members | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2025 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
System1, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30, | |||||||||||
2026 | 2025 | ||||||||||
Cash Flows from Operating Activities | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Stock-based compensation | |||||||||||
Impairment of long-lived assets | |||||||||||
Amortization of debt issuance costs | |||||||||||
Noncash lease expense | |||||||||||
Deferred tax benefits | ( | ( | |||||||||
Share-based compensation liabilities | |||||||||||
Other, net | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | ( | ||||||||||
Prepaid expenses and other current assets | ( | ( | |||||||||
Accounts payable | ( | ||||||||||
Accrued expenses and other current liabilities | ( | ( | |||||||||
Other non-current liabilities | ( | ||||||||||
Net cash (used in) provided by operating activities | ( | ||||||||||
Cash Flows from Investing Activities | |||||||||||
Capitalized software development costs | ( | ( | |||||||||
Other, net | ( | ||||||||||
Net cash used in investing activities | ( | ( | |||||||||
Cash Flows from Financing Activities | |||||||||||
Repayment of term loan | ( | ( | |||||||||
Proceeds from private placement of Class A common stock | |||||||||||
Other, net | ( | ( | |||||||||
Net cash used in financing activities | ( | ( | |||||||||
Effect of exchange rate changes in cash, cash equivalent and restricted cash | ( | ( | |||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
Cash, cash equivalents and restricted cash, beginning of the period | |||||||||||
Cash, cash equivalents and restricted cash, end of the period | $ | $ | |||||||||
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Supplemental cash flow information: | |||||||||||
Cash (refunds) paid for income taxes, net | $ | ( | $ | ||||||||
Cash paid for interest | $ | $ | |||||||||
Stock-based compensation included in capitalized software development costs | $ | $ | |||||||||
Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.Organization and Description of Business
System1, Inc. and its subsidiaries (the "Company", "we", "our" or "us") operates flagship internet utilities including CouponFollow, MapQuest, and Startpage, and a best-in-class marketing platform powered by artificial intelligence, enabling third party publishers ("Network Partners") to monetize and maximize the value of user traffic across a wide range of advertising category verticals.
Liquidity and Going Concern
We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.
We have experienced declining cash flows and financial performance primarily as a result of reductions in Advertising Partners and overall consumer demand for our marketing services. As of June 30, 2026, we had cash and cash equivalents of $40.5 million and negative net working capital, which we define as current assets less current liabilities, of $27.4 million. We had an aggregate principal amount outstanding of $50.0 million under our revolving facility (as defined in Note 5, Debt, Net) with a maturity date of January 27, 2027, and $245.1 million of term debt outstanding on our term loan which matures in July 2027. At our annual meeting of stockholders held on July 22, 2026, the stockholders approved an exchange agreement with all lenders under our existing credit agreement, satisfying settlement of the outstanding balance on our revolving facility which was due January 2027, reducing the principal of the term loan to $150.0 million and extending the maturity date to January 2031, and making a one-time cash payment of $20.9 million to the lenders. For information See Item 1, "Financial Statements — Note 5, Debt, Net".
Our principal sources of liquidity are expected to be from cash on hand and cash flows from financing activities. Our ability to fund future operating expenses and capital expenditures, and our ability to meet our future debt service obligations, will depend on our ability to execute on our operational strategy and may be affected by our profitability, as well as general economic, financial and other factors which are beyond our control.
Management determined, as a result of this evaluation, that our current cash and cash equivalents and net working capital position raise substantial doubt about our ability to continue as a going concern for the twelve month period following the date of this filing. Management has initiated cost-reduction programs consisting of reduction in force and reducing activities for businesses, which immediately reduced our cash burn rate. Management cannot conclude as of the date of this filing that its plans are probable of mitigating the conditions and events that raise substantial doubt. As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern.
Our condensed consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2.Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements and related disclosures are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Our condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation. Our fiscal year ends on December 31, 2026. These condensed consolidated financial statements should be read in conjunction with the
7
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 11, 2026.
In our opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2026 or future operating periods.
There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 that have had a material impact on our condensed consolidated financial statements and related notes.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management's estimates are based on historical information available as of the date of the condensed consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates.
Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, valuation of goodwill, intangible assets, and long-lived assets, valuation and recognition of stock-based compensation awards and income taxes. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.
Risks
We are subject to certain business and operational risks, including competition from alternative technologies, as well as dependence on key Advertising Partners, key employees, key contracts, and growth to achieve our business and operational objectives.
Concentrations
As of June 30, 2026, we had one paid search advertising partnership agreement with Google, and one paid search advertising partnership agreement with Microsoft. The agreement with Google (our largest Advertising Partner by revenue) is in effect through September 30, 2027. We had a second Google agreement that originally was scheduled to remain in effect through February 28, 2027, but was terminated for convenience by Google effective as of February 10, 2026. The agreement with Microsoft (our next largest Advertising Partner by revenue) is in effect through December 31, 2026. Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately, or with minimal notice.
Accounting Pronouncements Not Yet Adopted
In November 2024, the Financial Accounting Standards Board issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which improves the disclosures about a public business entity's expenses and requires detailed information about the types of expenses in commonly presented expense financial statement captions. This guidance will be effective for the annual periods beginning with the year ending December 31, 2027 and interim periods during the year ending December 31, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We are
8
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures.
In September 2025, the Financial Accounting Standards Board issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which amends certain aspects of the accounting for and disclosure of software costs. This guidance will be effective for the annual periods beginning with the year ending December 31, 2028 and interim periods during the year ending December 31, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures.
3.Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net
Goodwill
During the second quarter of 2026, the Partner Network reporting unit forecast was revised to reflect reduced revenue growth expectations and lower projected gross profit margins. The change constituted a triggering event under ASC 350 and we performed an interim quantitative goodwill impairment test as of June 30, 2026. Based on the results of the test, the estimated fair value of the Partner Network reporting unit exceeded its carrying amount and no 82.4
Internal-use Software Development Costs, Net and Intangible Assets, Net
During the first half of 2026, we significantly reduced our marketing activities for search monetization in our publishing business. The reduction in marketing activities constituted a triggering event under ASC 360 for both interim periods and we performed an analysis of the carrying value of the long-lived assets in our Marketing asset group. The asset group was tested for recoverability using the undiscounted cash flows over the remaining useful life of the primary asset in the asset group. The estimated net cash flows were determined utilizing internal forecasts. If forecasted net cash flows were less than the carrying amount of the asset group, an impairment expense would be measured by comparing the fair value of the asset group to its carrying amount. The carrying amount of an individual asset in the group cannot be reduced below its fair value.
During the first and second quarter of 2026, we concluded that the carrying amount of the Marketing asset group exceeded the undiscounted cash flows. Consequently, our Marketing asset group was no longer recoverable from future operations and we recognized an impairment to our Marketing asset group trademarks, the only asset in the group to which an impairment could be allocated under ASC 360. For the three and six months ended June 30, 2026, the impairment of long-lived assets expense recognized was $0.9 million and $37.7 million, respectively, presented in our condensed consolidated statements of operations.
During the first quarter of 2026, we implemented measures to optimize and improve operating efficiency in response to changes in products offered by Advertising Partners. As a result of these actions, we incurred $2.2 million of one-time costs which were presented within salaries and benefits expense in our condensed consolidated statements of operations. These actions impacted our publishing business by reducing future cashflows. There were no one-time costs recorded during the three months ended June 30, 2026.
9
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Internal-use software development costs and intangible assets consisted of the following (in thousands):
June 30, 2026 | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
Internal-use software development costs | $ | $ | ( | $ | |||||||||||||
Intangible assets: | |||||||||||||||||
Developed technology | $ | $ | ( | $ | |||||||||||||
Trademarks and trade names | ( | ||||||||||||||||
Software | ( | ||||||||||||||||
Customer relationships | ( | ||||||||||||||||
Total | $ | $ | ( | $ | |||||||||||||
December 31, 2025 | |||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
Internal-use software development costs | $ | $ | ( | $ | |||||||||||||
Intangible assets: | |||||||||||||||||
Developed technology | $ | $ | ( | $ | |||||||||||||
Trademarks and trade names | ( | ||||||||||||||||
Software | ( | ||||||||||||||||
Customer relationships | ( | ||||||||||||||||
Total | $ | $ | ( | $ | |||||||||||||
The internal-use software development costs include work in progress which is not being amortized of $2.6 million and $2.9 million as of June 30, 2026 and December 31, 2025, respectively.
Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Amortization expense for internal-use software development | $ | $ | $ | $ | |||||||||||||||||||
| Amortization expense for intangible assets | $ | $ | $ | $ | |||||||||||||||||||
Amortization expense was presented as follows in the condensed consolidated statements of operations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general, and administrative | $ | $ | $ | $ | |||||||||||||||||||
10
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
4.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30, 2026 | December 31, 2025 | ||||||||||
Accrued revenue share | $ | $ | |||||||||
Accrued payroll and related benefits | |||||||||||
Shared-based compensation liability | |||||||||||
Other current liabilities | |||||||||||
Accrued expenses and other current liabilities | $ | $ | |||||||||
CouponFollow Incentive Plan
In the first quarter of 2026, we paid $10.9 million and $2.1 million in cash for the last performance-based portion of the award and the discretionary bonus of the incentive plan, respectively. The remaining $0.4 million discretionary bonus will be settled at management's discretion.
5.Debt, Net
We entered into a term loan ("Term Loan") and revolving facility ("Revolving Facility" and, together with the Term Loan, " Existing Credit Agreement") with Bank of America, N.A., on January 27, 2022, providing for a 5.5 year term loan with a principal balance of $400.0 million and with the net proceeds of $376.0 million. The Revolving Facility provided for borrowing availability of up to $50.0 million. As of June 30, 2026, there was principal of $245.1 million outstanding on the Term Loan. Through December 31, 2025, $5.0 million of the Term Loan was payable quarterly. From March 31, 2026, $7.5 million of the Term Loan is payable quarterly. The Term Loan matures in July 2027.
For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75 %. The Term Loan is amortized in quarterly installments on each scheduled payment date. The Term Loan comes with a leverage covenant, which goes into effect only if the utilization on the Revolving Facility exceeds 35 % of the $50.0 million Revolving Facility at each quarter-end starting the second quarter 2022, such that the first lien leverage ratio (as defined in the Existing Credit Agreement) should not exceed 5.40 . The Existing Credit Agreement has certain financial and nonfinancial covenants, including the "springing" leverage ratio covenant. The Existing Credit Agreement also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31. Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure. We were in compliance with the financial covenants under the Term Loan as of June 30, 2026.
The interest rate on the Revolving Facility is the adjusted SOFR plus 2.5 % with an adjusted SOFR floor of 0 %. During the fourth quarter of 2025, we borrowed $50.0 million under the Revolving Facility and the balance outstanding as of June 30, 2026 and December 31, 2025 was $50.0
11
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands):
June 30, 2026 | December 31, 2025 | ||||||||||
Term Loan 1 | $ | $ | |||||||||
Revolving Facility | |||||||||||
Total debt, net 2 | $ | $ | |||||||||
_______________ | |||||||||||
1 Includes unamortized discount of $ | |||||||||||
2 Estimated fair value of our debt was $ | |||||||||||
Debt exchange and settlement agreement
On May 29, 2026 we entered into an exchange agreement with all lenders under our Existing Credit Agreement ("Participating Lenders"), which was ratified by our shareholders at the annual shareholder meeting held on July 22, 2026. The Existing Credit Agreement shall be deemed repaid in full in exchange for: (i) a new $150.0 million term loan facility held by the Participating Lenders (the "Priority Term Loans"), maturing in January 2031 and bearing interest at Term SOFR plus 5.00 % (with up to 50 % of interest payable in kind at a plus 0.50 % margin premium), amortizing at 0.25 % of original principal per quarter, with a 75 % excess-cash-flow sweep and no financial maintenance covenants; (ii) the issuance of 39,250 shares of Series A Cumulative Convertible Preferred Stock, $0.0001 par value per share and initial stated value of $1,022.05 per share (the “Series A Preferred Stock”), assuming an initial conversion price of $10.40 , convertible up to 5,287,321 shares of our Class A Common Stock, and includes shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock in respect of accrued PIK Dividends to the Participating Lenders, with an aggregate initial stated value of $40.1 million (the "Share Consideration"); and (iii) a one-time cash payment to the Participating Lenders in the aggregate amount of $20.9 million. "PIK Dividends" mean preferential cumulative dividends accruing at a rate of 7.0 % per annum on the stated value of the Series A Preferred Stock and, unless paid in cash, compounded and added to the stated value of the Series A Preferred Stock each calendar quarter from July 23, 2026 until January 14, 2031.
6.Income Taxes
As of August 1, 2024, we are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings. System1 Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, System1 Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by System1 Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.
We recorded an income tax benefit of $0.1 million and $0.2 million for the three and six months ended June 30, 2026, respectively and $1.5 million and $1.9 million for the three and six months ended June 30, 2025, respectively. The effective tax rate was 0.5 % and 0.2 % for the three and six months ended June 30, 2026, respectively and 6.7 % and 4.5 % for the three and six months ended June 30, 2025, respectively. The provision for income taxes differs from the amount of income tax computed by applying the U.S. statutory federal tax rate of 21% to the loss before income taxes due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, the valuation allowance activity related to unrealizable deferred tax assets and outside basis adjustments. As of June 30, 2026, we had a full valuation allowance on our United States federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.
12
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the three and six months ended June 30, 2026 and 2025, inclusive of interest, no
7.Commitments and Contingencies
In June 2023, we entered into a multi-year agreement with a data cloud platform service provider whereby we are contractually obligated to spend $5.0 5.0
We also have various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.
Litigation
We are subject to various legal proceedings and claims that arise in the ordinary course of business. We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the condensed consolidated financial statements. There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows. We accrued for losses when the loss is deemed probable and the liability can reasonably be estimated.
In September 2025, certain lenders (the "Lenders") under our Credit Agreement, dated January 27, 2022 (the "Credit Agreement"), filed a lawsuit in the Supreme Court of the State of New York (the "New York Loan Matter") alleging (i) breach of contract against certain named subsidiaries of the Company that are parties to the Credit Agreement related to the corporate reorganization transactions undertaken by us in August 2024 to better align its corporate entity structure with its reportable business segments (the "Corporate Reorg Transactions"), (ii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with certain transactions undertaken by the Company related to the sale of its Total Security business in November 2023 (the "Total Security Transactions") and (iii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with the Corporate Reorg Transactions. Concurrently with the filing of the New York Loan Matter, the same Lenders under our Credit Agreement filed a lawsuit in California Superior Court (Los Angeles County) (the "California Matter" and, together with the New York Loan Matter, the "Creditor Lawsuits") alleging intentional and constructive fraudulent transfer against Openmail2, LLC, an entity controlled by our co-founders ("Openmail2") and certain trusts established for the benefit of the co-founders families (the "Co-founder Trusts") which are significant shareholders of the Company in connection with certain arm's-length negotiated loans that Openmail2 and the Co-founder Trusts extended to certain subsidiaries of the Company in fiscal year 2023 (the "Affiliate Loans") and which were repaid with a portion of the proceeds of the Total Security sale. On May 29, 2026, we entered into an Exchange Agreement with the Lenders to (i) exchange all of the outstanding indebtedness under our Credit and Guaranty Agreement, dated January 27, 2022 for a combination of cash, new term loan debt under a Financing Agreement dated July 23, 2026 and the issuance of Series A Cumulative Convertible Preferred Stock (the "Exchange Transactions") and (ii) settle all of the outstanding disputes with the Lenders under the Creditor Lawsuits. On July 23, 2026, we closed the Exchange Transactions and the parties to the Creditor Lawsuits (including the Lenders) filed a joint stipulation of settlement and dismissal with prejudice of the Creditor Lawsuits.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by
13
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
us, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, we believe the estimated fair value of these agreements was immaterial. Accordingly, we have no liabilities recorded for these agreements as of June 30, 2026 or December 31, 2025, respectively.
8.Net Loss Per Share
For the three and six months ended June 30, 2026 and 2025, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Basic and diluted net loss per share was calculated as follows (in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Basic and diluted net loss per share | |||||||||||||||||||||||
Net loss attributable to System1, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Numerator: | |||||||||||||||||||||||
Net loss attributable to System1, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Denominator: | |||||||||||||||||||||||
Weighted-average common shares outstanding used in computing basic and diluted net loss per share | |||||||||||||||||||||||
Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and Warrants outstanding for the three and six months ended June 30, 2026 and 2025, are considered potentially dilutive of the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive. For the three and six months ended June 30, 2026 and 2025, 16.8 0.5 1.3 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of June 30, 2026. See Note 10, Stock-Based Compensation, for additional details.
9.Segment Reporting
We manage our business across two
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance. Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. The CODM measures and evaluates reportable segments based on segment adjusted gross profit. The CODM evaluates both potential future, as well as historical budget to actual variances, adjusted gross profit by segment on a quarterly basis to determine the allocation of capital for acquisition marketing, as well as technical and personnel resources. Adjusted gross profit is also used to determine variable compensation expense for certain employees. We have not presented segment assets as our CODM does not regularly use segment assets to evaluate or measure segment performance or allocate resources.
The tables below include the following operating expenses that are not allocated to the reportable segments presented to our CODM, such as other cost of revenue (total cost of revenue excluding traffic acquisition cost and
14
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
agency fees), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments. The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported condensed consolidated net loss before income tax and are included in the reconciliation that follows.
The following table summarizes revenue, segment cost of revenue and segment adjusted gross profit by reportable segments (in thousands):
Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||
Marketing | Products | Total | Marketing | Products | Total | ||||||||||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Less: segment cost of revenue | |||||||||||||||||||||||||||||||||||
Segment adjusted gross profit | |||||||||||||||||||||||||||||||||||
Other cost of revenue | |||||||||||||||||||||||||||||||||||
Salaries and benefits | |||||||||||||||||||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||||||||||||||
Impairment of long-lived assets | |||||||||||||||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||||||||||||||
Change in fair value of warrant liabilities | |||||||||||||||||||||||||||||||||||
Loss before income tax | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||
Marketing | Products | Total | Marketing | Products | Total | ||||||||||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Less: segment cost of revenue | |||||||||||||||||||||||||||||||||||
Segment adjusted gross profit | |||||||||||||||||||||||||||||||||||
Other cost of revenue | |||||||||||||||||||||||||||||||||||
Salaries and benefits | |||||||||||||||||||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||||||||||||||
Impairment of long-lived assets | |||||||||||||||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||||||||||||||
Change in fair value of warrant liabilities | |||||||||||||||||||||||||||||||||||
Loss before income tax | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
The following table summarizes revenue by geographic region (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
United States | $ | $ | $ | $ | |||||||||||||||||||
Other countries | |||||||||||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||||||||||
10.Stock-Based Compensation
We are authorized to issue and/or grant restricted stock, restricted stock units, stock options, SARs, and other stock-based and cash-based awards under our 2022 Incentive Award Plan.
15
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
We recorded the following stock-based compensation expenses for equity-classified awards included within salaries and benefits in the condensed consolidated statements of operations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
Restricted Stock Units
For the three and six months ended June 30, 2026, we recognized stock-based compensation of $1.5 million and $2.9 million, respectively, within equity. For the three and six months ended June 30, 2025 we recognized stock-based compensation of $1.6 million and $3.8 million, respectively, within equity.
Stock Appreciation Rights
On May 30, 2025 the SARs plan administrator certified that the trailing twelve month ("TTM") adjusted EBITDA exceeded the Tranche I performance threshold and the Tranche I awards vested ("Vested SARs").
On June 10, 2025 our stockholders approved an amendment to the System1, Inc. 2024 Stock Appreciation Rights Plan, (as amended, the "2024 SARs Plan") and the repricing ("Repricing") of certain outstanding SARs previously granted to our employees and consultants under the SARs Plan (collectively, the "SARs Plan Amendment and Repricing"). The strike price of the SARs granted changed from $1.44 to $0.44 and the adjusted EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $60 million ("Tranche II"), (ii) $70 million ("Tranche III") and (iii) $80 million ("Tranche IV") to (i) $55 million, (ii) $60 million and (iii) $65 million, respectively ("the Modification"). There were no changes to the other terms of the SARs Plan. At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the SARs option fair value.
As of June 30, 2026, achievement of the performance conditions associated with Tranches II, III and IV before the fifth, sixth and seventh anniversary dates of the grant date, respectively, remains not probable. No 3.1 million and $3.4 million in stock-based compensation expense, respectively, including $0.3 million of incremental expense as a result of the Modification, within equity relating to Tranche I awards which vested during the third quarter of 2025. During the three and six months ended June 30, 2026 and 2025, no
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context otherwise requires, references in this section to "the Company," "System1," "we," "us," "our" and other similar terms refer to System1, Inc and its subsidiaries.
The following discussion and analysis of the financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ending December 31, 2025. In addition to historical information, the following discussion and analysis contains forward-looking statements. Our actual results may differ significantly from those projected in such forward-looking statements. Factors that might cause future results to differ materially from those projected in such forward-looking statements include, but are not limited to, those discussed in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." included in our Annual Report on Form 10-K.
Company Overview
We operate flagship internet utilities including CouponFollow, MapQuest, and Startpage, and a best-in-class marketing platform powered by artificial intelligence, enabling third party publishers ("Network Partners") to monetize and maximize the value of user traffic across a wide range of advertising category verticals.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of the business is Gross profit. To help assess performance with this key indicator, the revenue metrics we use are Active Marketing Partners ("AMP"), Revenue per AMP, Products sessions and Products revenue-per-session ("Products RPS"). In addition, we also use Adjusted Gross Profit and Adjusted EBITDA as non-GAAP financial measures. We believe these non-GAAP measures provide useful supplemental information to investors to better evaluate ongoing business performance. These measures are not, and should not be viewed as, a substitute for accounting principles generally accepted in the United States of America ("GAAP") financial measures. Refer to the "Revenue Metrics", "Adjusted Gross Profit" and "Adjusted EBITDA" sections below.
Components of Our Results of Operations
Revenue
We earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our platform and additional services to monetize end-users for our Advertising Partners. For this revenue stream, we are the principal in the transaction and report revenue on a gross basis for the amounts received from Advertising Partners. We have determined that we are the principal since we direct the use of our owned and operating websites, and as such have a risk of loss on the user-traffic that we are acquiring for monetization with our Advertising Partners. Additionally, we maintain the website, provide the content and bear the cost and risk of loss associated with the digital online inventory available on our website.
Revenue is also earned from revenue-sharing arrangements with our Network Partners related to the use of our platform and additional services provided to them in order to direct advertising by our Advertising Partners to their digital online inventory. We have determined that we are the agent in these transactions and therefore report revenue on a net basis, because our network partner runs the campaign to acquire user-traffic including managing traffic acquisition cost. We report the revenue generated under our revenue-sharing arrangements on a net basis, based on the difference between amounts received by us from our Advertising Partners, less amounts remitted to the Network Partners based on the underlying revenue-sharing agreements.
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We recognize revenue as we deliver user-traffic to our Advertising Partners based on a cost-per-click, cost-per-action or cost-per-thousand impression basis. The payment terms with our Advertising Partners are generally 30 days.
Revenue may fluctuate from period to period due to a number of factors including seasonality and the shift in mix of user acquisition sources from Advertising Partners.
We have two reportable segments:
•Marketing; and
•Products
Operating Expenses
We classify our operating expenses into the following categories:
We classify our operating expenses into the following categories:
Cost of revenue. Cost of revenue primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, domain name registration costs, licensing costs to provide mapping services to Mapquest.com and amortization related to our platform. We do not pre-pay any traffic acquisition costs, and therefore, such costs are expensed as incurred. Amortization related to our platform is recognized over the estimated useful life of the intangible asset.
Salaries and benefits. Salaries and benefits expenses consists of salaries, bonuses, stock-based compensation, and employee benefits costs.
Selling, general, and administrative. Selling, general, and administrative expenses consist of depreciation, general intangibles amortization, fees for software services, professional services, occupancy costs and travel and entertainment. Depreciation and general intangibles amortization expense are primarily attributable to our capital investment(s) and consist of property and equipment depreciation and amortization of intangible assets with finite lives.
Impairment of long-lived assets. Impairment of long-lived assets consists of the impairment of our general intangibles that are no longer recoverable from future operations.
Other Expenses or Incomes:
Other expenses or incomes consist of the following:
Interest expense, net. Interest expense consists of interest on our debt and the amortization of deferred financing costs and debt discount. Interest income consists of interest earned on our cash deposits.
Change in fair value of warrant liabilities. The mark to market of our liability-classified Warrants.
Income tax benefit
As of August 1, 2024, we are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings. System1 Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, System1 Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by System1 Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.
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Results of Operations
The following table sets forth our condensed consolidated results of operations and our condensed consolidated results of operations as a percentage of revenue for the periods presented (in thousands):
Three Months Ended June 30, | |||||||||||||||||||||||
2026 | Percentage of Revenue* | 2025 | Percentage of Revenue* | ||||||||||||||||||||
Revenue | $ | 30,200 | 100 | % | $ | 78,115 | 100 | % | |||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | 5,926 | 20 | % | 50,212 | 64 | % | |||||||||||||||||
Salaries and benefits | 17,113 | 57 | % | 26,297 | 34 | % | |||||||||||||||||
Selling, general, and administrative | 14,541 | 48 | % | 17,511 | 22 | % | |||||||||||||||||
Impairment of long-lived assets | 911 | 3 | % | — | — | % | |||||||||||||||||
Total operating expenses | 38,491 | 127 | % | 94,020 | 120 | % | |||||||||||||||||
Operating loss | (8,291) | -27 | % | (15,905) | -20 | % | |||||||||||||||||
Other expense: | |||||||||||||||||||||||
Interest expense, net | 7,116 | 24 | % | 7,116 | 9 | % | |||||||||||||||||
Change in fair value of warrant liabilities | — | — | % | 68 | — | % | |||||||||||||||||
Total other expense, net | 7,116 | 24 | % | 7,184 | 9 | % | |||||||||||||||||
Loss before income tax | (15,407) | -51 | % | (23,089) | -30 | % | |||||||||||||||||
Income tax benefit | (75) | — | % | (1,547) | -2 | % | |||||||||||||||||
Net loss | (15,332) | -51 | % | (21,542) | -28 | % | |||||||||||||||||
Less: Net loss attributable to non-controlling interest | (2,733) | -9 | % | (4,079) | -5 | % | |||||||||||||||||
Net loss attributable to System1, Inc. | $ | (12,599) | -42 | % | $ | (17,463) | -22 | % | |||||||||||||||
*Percentages may not sum due to rounding | |||||||||||||||||||||||
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Six Months Ended June 30, | |||||||||||||||||||||||
2026 | Percentage of Revenue* | 2025 | Percentage of Revenue* | ||||||||||||||||||||
Revenue | $ | 67,434 | 100 | % | $ | 152,628 | 100 | % | |||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | 19,786 | 29 | % | 96,289 | 63 | % | |||||||||||||||||
Salaries and benefits | 37,913 | 56 | % | 51,285 | 34 | % | |||||||||||||||||
Selling, general, and administrative | 31,330 | 46 | % | 34,085 | 22 | % | |||||||||||||||||
Impairment of long-lived assets | 37,733 | 56 | % | — | — | % | |||||||||||||||||
Total operating expenses | 126,762 | 188 | % | 181,659 | 119 | % | |||||||||||||||||
Operating loss | (59,328) | -88 | % | (29,031) | -19 | % | |||||||||||||||||
Other expense: | |||||||||||||||||||||||
Interest expense, net | 13,745 | 20 | % | 14,201 | 9 | % | |||||||||||||||||
Change in fair value of warrant liabilities | — | — | % | 100 | — | % | |||||||||||||||||
Total other expense, net | 13,745 | 20 | % | 14,301 | 9 | % | |||||||||||||||||
Loss before income tax | (73,073) | -108 | % | (43,332) | -28 | % | |||||||||||||||||
Income tax benefit | (150) | — | % | (1,934) | -1 | % | |||||||||||||||||
Net loss | (72,923) | -108 | % | (41,398) | -27 | % | |||||||||||||||||
Less: Net loss attributable to non-controlling interest | (13,257) | -20 | % | (8,052) | -5 | % | |||||||||||||||||
Net loss attributable to System1, Inc. | $ | (59,666) | -88 | % | $ | (33,346) | -22 | % | |||||||||||||||
*Percentages may not sum due to rounding | |||||||||||||||||||||||
Revenue Metrics
The key non-financial performance metrics we use to evaluate our business, track the effectiveness of our operations and measure our performance are Revenue per AMP, the number of Products sessions and Products RPS.
Marketing
We define AMP as partners who monetize user traffic on our platform and generate revenue above a predetermined minimum per quarter. We define Revenue per AMP as GAAP Revenue from Marketing Partners divided by AMP. We believe Revenue per AMP is a relevant measure to evaluate our effectiveness and efficiency in deploying capital to acquire monetizable traffic to our Marketing segment.
Products
We define Products sessions as the total number of monetizable user visits to our Products websites. Monetizable visits exclude those visits identified as spam, bot, or other invalid traffic. We define Products RPS as Products revenue divided by Products sessions. We believe Product sessions and RPS are relevant measures to evaluate our effectiveness and efficiency in converting monetizable traffic into revenue, which are key drivers of our Products reportable segment.
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Revenue
The following table presents our revenue by reportable segment (in thousands):
Three Months Ended June 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 10,723 | $ | 54,142 | $ | (43,419) | -80% | ||||||||||||||||
Products | 19,477 | 23,973 | (4,496) | -19% | |||||||||||||||||||
Total revenue | $ | 30,200 | $ | 78,115 | $ | (47,915) | -61% | ||||||||||||||||
Six Months Ended June 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 29,114 | $ | 106,392 | $ | (77,278) | -73% | ||||||||||||||||
Products | 38,320 | 46,236 | (7,916) | -17% | |||||||||||||||||||
Total revenue | $ | 67,434 | $ | 152,628 | $ | (85,194) | -56% | ||||||||||||||||
Marketing
Marketing revenue decreased for the three and six months ended June 30, 2026 compared to the prior periods, primarily due to the significant reduction in marketing activities for search monetization in our publishing business and the termination for convenience of our Adsense for Domains monetization arrangement with Google. For the three months ended June 30, 2026, compared to the prior period, AMP decreased by 74 to 59 from 133. Revenue per AMP increased by $0.03 million to $0.16 million from $0.13 million, or 16%. Similarly, for the six months ended June 30, 2026, compared to the prior period, AMP decreased by 91 to 65 from 156. Revenue per AMP increased by $0.10 million to $0.32 million from $0.22 million, or 45%.
Products
Products revenue decreased for the three and six months ended June 30, 2026 compared to the prior periods, primarily due to a change in mix shift from higher RPS sessions to lower RPS sessions. For the three months ended June 30, 2026, compared to the prior period, Products sessions increased by 164.4 million to 686.9 million from 522.5 million while Products RPS decreased by $0.02 to $0.03 from $0.05. Similarly, for the six months ended June 30, 2026, compared to the prior period, Products sessions increased by 342.3 million to 1.3 billion from 998.2 million while Products RPS decreased by $0.02 to $0.03 from $0.05.
Cost of revenue
Cost of revenue decreased for the three and six months ended June 30, 2026 compared to the prior periods primarily due to a decrease in advertising spend and agency fees which is correlated with the decrease in revenue. This was primarily related to the significant reduction in marketing activities for search monetization in our publishing business.
Amortization expense for our platform recorded in cost of revenue decreased $11.9 million and $20.0 million for the three and six months ended June 30, 2026, respectively, compared to the prior periods primarily due to our developed technology reaching the end of its estimated useful life.
Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenue and segment adjusted gross profit. We define and calculate segment adjusted gross profit as revenue less traffic acquisition costs incurred to acquire users. The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties, fees and amortization related to our platform. We exclude the following items from segment adjusted gross profit: other cost of revenue (total cost of revenue excluding traffic
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acquisition cost), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments.
The following table presents our segment adjusted gross profit by reportable segment (in thousands):
Three Months Ended June 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 9,534 | $ | 19,633 | $ | (10,099) | -51 | % | |||||||||||||||
Products | 17,547 | 22,697 | (5,150) | -23 | % | ||||||||||||||||||
Total adjusted gross profit | $ | 27,081 | $ | 42,330 | $ | (15,249) | -36 | % | |||||||||||||||
Six Months Ended June 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 22,063 | $ | 41,420 | $ | (19,357) | -47 | % | |||||||||||||||
Products | 34,864 | 43,652 | (8,788) | -20 | % | ||||||||||||||||||
Total adjusted gross profit | $ | 56,927 | $ | 85,072 | $ | (28,145) | -33 | % | |||||||||||||||
See the Revenue and Cost of revenue discussions above for the changes to adjusted gross profit.
Salaries and benefits
Salaries and benefits expense decreased for the three and six months ended June 30, 2026 compared to the prior periods.
For the three months ended June 30, 2026, the $9.2 million decrease is primarily driven by a $5.0 million reduction in payroll, bonus, severance, and employment benefits expenses due to our reduction in workforce, a $3.2 million reduction in stock-based compensation resulting from no stock appreciation rights expense, a $0.7 million reduction in CouponFollow share-based liability expense due to the liability being fully accrued as of December 31, 2025, and a $0.3 million net reduction of other immaterial expense items.
For the six months ended June 30, 2026, the $13.4 million decrease is primarily driven by a $6.2 million reduction in payroll, bonus, severance, and employment benefits expenses due to our reduction in workforce, a $4.6 million reduction in stock-based compensation resulting from less restricted stock units outstanding and no stock appreciation rights expense, a $1.3 million increase in capitalized internally developed software costs and a $1.4 million reduction in CouponFollow share-based liability expense due to the liability being fully accrued as of December 31, 2025. This was offset by a $0.1 million net increase of other immaterial expense items.
Selling, general, and administrative
Selling, general, and administrative expense decreased for the three and six months ended June 30, 2026 compared to the prior periods.
For the three months ended June 30, 2026, the $3.0 million decrease is primarily driven by a $1.8 million reduction in amortization expense resulting from long-lived assets impairment in the first quarter of 2026 or reaching the end of their estimated useful life since the prior period, a $0.4 million reduction in professional services and consulting fees, a $0.2 million reduction in software and subscription services and a $0.6 million net decrease of other immaterial expense items.
For the six months ended June 30, 2026, the $2.8 million decrease is primarily driven by a $2.1 million reduction in depreciation and amortization expense resulting from to long-lived assets impairment in the first quarter of 2026 or reaching the end of their estimated useful life since the prior period, a $1.5 million reduction in
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professional services and consulting fees and a $0.2 million reduction in rent expense. This was offset by a $1.0 million increase in software and subscription services.
Impairment of long-lived assets
Impairment of long-lived assets increased $0.9 million and $37.7 million for the three and six months ended June 30, 2026, compared to the prior periods due to the recognition of long-lived assets impairment expense at our Marketing asset group during the first and second quarter of 2026. There was no impairment of long-lived assets during 2025.
Other expense:
Interest expense, net
Interest expense, net was flat for the three months ended June 30, 2026 and decreased $0.5 million for the six months ended June 30, 2026 compared to the prior periods primarily due to lower average interest rates in 2026 compared to 2025, offset by a higher loan balance primarily due to the drawdown of our Revolving Credit Facility at the end of 2025.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities was flat for the three and six months ended June 30, 2026 compared to the prior periods due to the fair value remeasurement of our Warrants which have been delisted from the New York Stock Exchange.
Income tax benefit
The difference between the effective tax rates for the periods presented and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, increases to the valuation allowance activity related to unrealizable deferred tax assets and outside basis adjustments.
Non-GAAP Financial Measures
In addition to our results being determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
Adjusted Gross Profit
Adjusted Gross Profit is defined as gross profit plus depreciation and amortization recorded in cost of revenues.
The following table reconciles Revenue to Gross Profit and Adjusted Gross Profit for the periods presented (in millions):
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Three Months Ended June 30, | |||||||||||||||||||||||
2026 | 2025 | ||||||||||||||||||||||
Revenue | $ | 30.2 | $ | 78.1 | |||||||||||||||||||
Less: Cost of revenue | (5.9) | (50.2) | |||||||||||||||||||||
Gross profit | 24.3 | 27.9 | |||||||||||||||||||||
Add: amortization related to cost of revenue | 1.2 | 13.1 | |||||||||||||||||||||
Adjusted Gross Profit | $ | 25.5 | $ | 41.0 | |||||||||||||||||||
The decrease in adjusted gross profit for the three months ended June 30, 2026, compared to the prior period is primarily related to our decrease in revenue, offset by less amortization as our developed technology reached the end of its estimated useful life. See "Revenue Metrics" and "Cost of revenue" for discussion of the changes in our revenue and cost of revenue.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, and other cash and non-cash based income or expenses that we do not consider indicative of our core operating performance, including, but not limited to impairment expense, deferred compensation, gain (loss) on extinguishment of debt, non-cash revaluation of warrant liability and acquisition and restructuring costs. We believe that the use of Adjusted Gross Profit and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, investors should be aware that when evaluating Adjusted Gross Profit and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because not all companies may calculate Adjusted EBITDA in the same fashion.
We adjust for nonoperating expenses and income, such as nonrecurring special projects, including for related consultant expenses, nonrecurring gain on the sale of assets, expenses associated with financing activities, and reorganization and severance expenses that result from the elimination or rightsizing of specific business activities or operations.
Because of the limitations described above, Adjusted Gross Profit and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted Gross Profit and Adjusted EBITDA on a supplemental basis. Investors should review the reconciliation of Gross profit to Adjusted Gross Profit and net income (loss) to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
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The following table reconciles net loss to Adjusted EBITDA for the periods presented (in millions):
Three Months Ended June 30, | |||||||||||||||||||||||
2026 | 2025 | ||||||||||||||||||||||
Net loss | $ | (15.3) | $ | (21.5) | |||||||||||||||||||
Adjustments: | |||||||||||||||||||||||
Income tax benefit | (0.1) | (1.5) | |||||||||||||||||||||
Interest expense | 7.1 | 7.1 | |||||||||||||||||||||
Depreciation and amortization | 6.8 | 20.6 | |||||||||||||||||||||
Impairment of long-lived assets | 0.9 | — | |||||||||||||||||||||
Other expense | (0.1) | 0.1 | |||||||||||||||||||||
Stock-based compensation & distributions to members | 1.4 | 4.5 | |||||||||||||||||||||
Non-cash revaluation of warrant liability | — | 0.1 | |||||||||||||||||||||
Acquisition and restructuring costs | 1.2 | 2.3 | |||||||||||||||||||||
Adjusted EBITDA | $ | 1.9 | $ | 11.7 | |||||||||||||||||||
Liquidity and Capital Resources
To date, our principal sources of liquidity have historically been from the sale of Total Security Limited (formerly known as Protected. net Group Limited), indebtedness available under our credit facilities, other indebtedness, and cash flows from operations.
We have experienced declining cash flows and financial performance primarily as a result of reductions in Advertising Partner and overall consumer demand for our marketing services. As of June 30, 2026, we had unrestricted cash and cash equivalents of $40.5 million, negative net working capital, which we define as current assets less current liabilities, of $27.4 million. We have an aggregate principal amount outstanding of $50.0 million under our revolving facility with a maturity date of January 27, 2027, and $245.1 million of term debt outstanding on our term loan which matures in July 2027. At our annual meeting of stockholders held on July 22, 2026, the stockholders approved an exchange agreement with all lenders under our Existing Credit Agreement, satisfying settlement of the outstanding balance on our revolving facility which was due January 2027, and reducing the principle and extending the maturity date on our Term Loan. For information See Item 1, "Financial Statements — Note 5, Debt, Net".
Our principal sources of liquidity are expected to be from cash on hand and cash flows from financing activities. Our ability to fund future operating expenses and capital expenditures, and our ability to meet our future debt service obligations, will depend on our ability to execute on our operational strategy and may be affected by our profitability, as well as general economic, financial and other factors which are beyond our control. Our revenue is dependent on two key Advertising Partners, which are Google and Microsoft. See our concentration with customers discussion at Item 1 "Financial Statements — Note 2, Summary of Significant Accounting Policies" for additional information.
Management determined, as a result of this evaluation, that our current cash and cash equivalents and net working capital position raise substantial doubt about our ability to continue as a going concern for the twelve month period following the date of this filing. Management has initiated cost-reduction programs consisting of reduction in force and reducing activities for businesses, which immediately reduced our cash burn rate. Management cannot conclude as of the date of this filing that its plans are probable of mitigating the conditions and events that raise substantial doubt. As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern.
Our main focus is executing on our operational strategy, which includes continued focus on expanding the number of advertising partners that are utilizing or integrated with our platform by continuing to attract and
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monetize users with commercial intent on our Products and on behalf of our Network Partners as well as optimizing bids and driving higher returns on advertising spend. Additionally, we are focused on our current cost structure by reducing our cash operating expenses. Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could have a negative impact on our financial condition and operating results.
Credit Facilities
See Item 1, "Financial Statements — Note 5, Debt, Net" of this Quarterly Report on Form 10-Q.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Six Months Ended June 30, | |||||||||||
2026 | 2025 | ||||||||||
Net cash (used in) provided by operating activities | $ | (28,169) | $ | 8,543 | |||||||
Net cash used in investing activities | $ | (3,540) | $ | (3,107) | |||||||
Net cash used in financing activities | $ | (15,237) | $ | (8,094) | |||||||
Operating Activities
Our cash flows from operating activities are primarily impacted by growth in our operations, timing of payments to our suppliers for advertising inventory and data and related collections from our partners. Payment and collection cycles can vary from period to period. In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.
In the six months ended June 30, 2026, cash used in operating activities of $28.2 million resulted primarily from unfavorable changes in net income, excluding the impact of non-cash items offset by unfavorable changes in working capital balances. The unfavorable changes in working capital balances included $13.0 million in outflows related to the payment of an earnout obligation for the CouponFollow acquisition offset by an decrease in account receivable balances.
In the six months ended June 30, 2025, cash provided by operating activities of $8.5 million resulted primarily from the timing of revenue share payments to our partners.
Investing Activities
In the six months ended June 30, 2026 and 2025, cash used in investing activities of $3.5 million and $3.1 million resulted primarily from capitalization of software development costs.
Financing Activities
Our financing activities consisted primarily of borrowings and repayments of our indebtedness under our credit facilities.
In the six months ended June 30, 2026, cash used in financing activities of $15.2 million resulted primarily from $15.0 million repayment of principal and interest on our Term Loan which increased by $2.5 million on March 31, 2026, offset by other immaterial items.
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In the six months ended June 30, 2025, cash used in financing activities of $8.1 million resulted primarily from a $10.0 million repayment of principal and interest on our Term Loan, offset by $2.3 million of cash received from the private placement with our founders family foundation.
Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We did not have any other off-balance sheet arrangements during the periods presented other than the indemnification agreements.
Contractual Obligations and Known Future Cash Requirements
Commitments
In June 2023, we entered into a multi-year agreement with a data cloud platform service provider whereby we are contractually obligated to spend $5.0 million in each annual period between July 2023 and June 2026. As of June 30, 2026, we have fulfilled our contractual obligation towards this commitment. A new agreement was signed with the same service provider with obligated spend of $5.0 million in each annual period through June 2029.
Contingencies
From time to time, we are subject to contingencies that arise in the ordinary course of business. We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We do not currently believe the resolution of any such contingencies will have a material adverse effect upon our condensed consolidated financial statements.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
Our critical accounting policies and estimates are described in our Annual Report on Form 10-K filed with the SEC on March 11, 2026. During the first half of 2026, we identified triggering events that required us to evaluate long-lived assets for impairment. As a result, we determined that impairment of long-lived assets should be included as a critical accounting estimate. Accordingly, we believe the estimates, assumptions, and judgments associated with our most critical accounting policies are those relating to valuation of goodwill, intangible assets, impairment of long-lived assets, stock-based compensation and income taxes. The impairment of long-lived assets policy is described as follows:
Impairment of Long-Lived Assets
We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events or changes in circumstances may include a significant adverse change in the extent or manner in which a long-lived asset is being used; significant adverse changes in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset; current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of our previously estimated useful life. We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash
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flows of other assets and liabilities. We assess recoverability of our long-lived assets by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives inclusive of an estimated residual value. If the carrying amount of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized and measured as the amount by which the carrying amount exceeds the estimated fair value. An impairment loss is recognized in the statement of operations in the period in which management determines such impairment has occurred.
Recently Issued Accounting Pronouncements
For information regarding recent accounting pronouncements, see Item 1, "Financial Statements — Note 2, Summary of Significant Accounting Policies."
Item 3. Quantitative and Qualitative Disclosure about Market Risk
As a "smaller reporting company", as defined by Rule 10(f)(1) of Regulation S-K, we are not required to provide this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that, as of June 30, 2026, our disclosure controls and procedures were effective to ensure that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended June 30, 2026 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II—OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various legal proceedings and claims that arise the ordinary course of business. We believe the ultimate liability, if any, with respect to these actions will not materially affect the unaudited condensed consolidated financial position, results of operations, or cash flows reflected in the unaudited condensed consolidated financial statements. There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our unaudited condensed consolidated financial position, results of operations, or cash flows. We accrue for losses when the litigation and claim, including legal costs, is deemed probable and the liability can reasonably be estimated.
For information in response to this item, see Part I, Item I, "Financial Statements — Note 7, Commitments and Contingencies", within the notes to our unaudited condensed consolidated financial statements and for a summary of material legal proceedings see Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K filed with the SEC on March 11, 2026.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K Part I, Item "1A. Risk Factors" for the year ended December 31, 2025 filed with the SEC on March 11, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
None.
Issuer Purchases of Equity Securities
2022 Repurchase Program
On August 11 2022, our Board of Directors authorized and we announced up to $25.0 million for the repurchase of our Class A common stock and Warrants (the "2022 Repurchase Program"). The 2022 Repurchase Program does not expire. During three months ended June 30, 2026, no repurchases of our equity securities were made by us. As of June 30, 2026, we had $22.8 million available under this authorization remaining.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
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Item 6. Exhibits
Incorporated by Reference | Filed or Furnished Herewith | |||||||||||||||||||||||||||||||||||||
Exhibit No. | Description | Form | File No. | Exhibit | Filing Date | |||||||||||||||||||||||||||||||||
2.1(a) | 8-K | 001-39331 | 2.1 | 6/29/2021 | ||||||||||||||||||||||||||||||||||
2.1(b) | S-4 | 333-260714 | 2.2 | 12/1/2021 | ||||||||||||||||||||||||||||||||||
2.1(c) | 8-K | 001-39331 | 10.1 | 1/20/2022 | ||||||||||||||||||||||||||||||||||
2.1(d) | 8-K | 001-39331 | 10.1 | 1/26/2022 | ||||||||||||||||||||||||||||||||||
2.2 | 8-K | 001-39331 | 2.1 | 12/4/2023 | ||||||||||||||||||||||||||||||||||
3.1 | 8-K | 001-39331 | 3.1 | 2/2/2022 | ||||||||||||||||||||||||||||||||||
3.2 | 8-K | 001-39331 | 3.1 | 3/1/2023 | ||||||||||||||||||||||||||||||||||
3.3 | 8-K | 001-39331 | 3.1 | 6/14/2024 | ||||||||||||||||||||||||||||||||||
3.4 | 8-K | 001-39331 | 3.1 | 6/11/2025 | ||||||||||||||||||||||||||||||||||
4.1 | 8-K | 001-39331 | 4.1 | 6/2/2020 | ||||||||||||||||||||||||||||||||||
4.2 | 10-K | 001-39331 | 4.2 | 6/6/2023 | ||||||||||||||||||||||||||||||||||
10.1^ | 8-K | 001-39331 | 10.2 | 2/2/2022 | ||||||||||||||||||||||||||||||||||
10.2# | 10-K | 001-39331 | 10.7 | 6/6/2023 | ||||||||||||||||||||||||||||||||||
10.3 | S-1 | 333-262608 | 10.3 | 2/9/2022 | ||||||||||||||||||||||||||||||||||
10.4 | 8-K | 001-39331 | 10.2 | 6/22/2020 | ||||||||||||||||||||||||||||||||||
31.1* | X | |||||||||||||||||||||||||||||||||||||
31.2* | X | |||||||||||||||||||||||||||||||||||||
32.1** | X | |||||||||||||||||||||||||||||||||||||
32.2** | X | |||||||||||||||||||||||||||||||||||||
101.INS* | XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||||||||||||||||||||
101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||||||||||||||||||||||||||||||||||
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||||||||||||||||||||||||||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||||||||||||||||||||||||||
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document. | |||||||||||||||||||||||||||||||||||||
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||||||||||||||||||||||||||||||
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||||||||||||||||||||||||||||||
* | Filed herewith. | |||||||
** | This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. | |||||||
^ | Indicates management contract or compensatory plan. | |||||||
# | Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant will furnish copies of any such schedules and exhibits to the SEC upon request. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
System1, Inc. | ||||||||
Date: August 5, 2026 | By: | /s/ Michael Blend | ||||||
Michael Blend | ||||||||
Chief Executive Officer | ||||||||
Date: August 5, 2026 | By: | /s/ Tridivesh Kidambi | ||||||
Tridivesh Kidambi | ||||||||
Chief Financial Officer | ||||||||
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Michael Blend, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of System1, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Michael Blend
Michael Blend
Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 2026
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Tridivesh Kidambi, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of System1, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Tridivesh Kidambi
Tridivesh Kidambi
Chief Financial Officer
(Principal Financial Officer)
Date: August 5, 2026
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2026 of System1, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Blend, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael Blend
Michael Blend
Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 2026
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (the “SEC”) or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2026 of System1, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tridivesh Kidambi, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Tridivesh Kidambi
Tridivesh Kidambi
Chief Financial Officer
(Principal Financial Officer)
Date: August 5, 2026
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (the “SEC”) or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.