System1 Q3 net loss widens to $61.5M as revenue falls
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
System1, Inc. (SST) reported third-quarter 2026 revenue of $25.951 million, down 58% from $61.561 million a year earlier, and a consolidated net loss of $61.476 million versus $22.003 million. Marketing revenue fell 79% to $8.252 million and Products revenue fell 21% to $17.699 million. The quarter included $51.522 million of goodwill impairment and $12.083 million of long-lived-asset impairment.
For the first nine months, revenue was $93.385 million versus $214.189 million, and operating activities used $26.163 million of cash versus providing $6.491 million a year earlier. At September 30, 2026, cash and equivalents were $12.417 million and net working capital was $6.2 million. Management concluded the position raised substantial doubt about continuing as a going concern for the following 12 months; it had begun cost cuts but could not conclude the plans were probable of mitigating the conditions.
The lender exchange reduced priority-term-loan principal to $150.0 million and extended maturity to January 14, 2031. It included issuance to lenders of 39,250 Series A Preferred Stock shares, which accrue cumulative dividends at 7.0% per annum. System1 notified the NYSE of voluntary delisting and intended to file Form 25 on or about November 23, 2026.
1 point · 1 major2 major · 4 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Major pointThe lender exchange reduced priority-term-loan principal to $150.0 million and extended maturity to January 14, 2031. 10× market cap
Negative
- Major pointManagement concluded substantial doubt exists about continuing as a going concern for the next 12 months.
- Major pointThird-quarter goodwill impairment was $51.522 million. 3.5× market cap
- Moderate pointThird-quarter revenue declined 58% to $25.951 million year over year.
- Moderate pointNine-month operating cash flow was -$26.163 million, versus $6.491 million provided in 2025.
Filing Explained
The preferred stock creates a $40.7 million liquidation claim ahead of common and can convert or require cash redemption on January 14, 2031.
System1 completed its July debt exchange and issued 39,250 Series A preferred shares to lenders; as of
Holders may convert the preferred shares into Class A common shares using their then-current stated value, including unpaid dividends, divided by $
If not converted, all outstanding preferred shares must be redeemed for cash on
Separately, the company remained contractually obligated to spend $
Key Figures
Revenue: $25.951 million
Consolidated net loss: $61.476 million
Goodwill impairment: $51.522 million
+5 more
8 metrics
Revenue
$25.951 million
Three months ended September 30, 2026; $61.561 million in the prior-year period.
Consolidated net loss
$61.476 million
Three months ended September 30, 2026; $22.003 million in the prior-year period.
Goodwill impairment
$51.522 million
Three months ended September 30, 2026.
Operating cash flow
-$26.163 million
Nine months ended September 30, 2026; $6.491 million provided in the prior-year period.
Cash and cash equivalents
$12.417 million
As of September 30, 2026.
Priority-term-loan principal
$150.0 million
Principal after the lender exchange; maturity extended to January 14, 2031.
Series A Preferred Stock issued
39,250 shares
Issued to lenders in connection with the debt exchange.
Cumulative preferred dividend rate
7.0% per annum
Based on stated value; payable quarterly in arrears.
Key Terms
going concern, troubled debt restructuring, temporary equity, PIK dividends, +2 more
6 terms
going concern financial
"substantial doubt about our ability to continue as a going concern"
Going concern is the accounting assumption that a company will keep operating and meeting its obligations for the foreseeable future. The phrase matters most when a company or its auditors disclose substantial doubt about it, a formal warning that the business may not have enough resources to continue without raising money, restructuring, or selling assets. That language in a filing or press release signals elevated financial risk.
troubled debt restructuring financial
"gain on troubled debt restructuring"
temporary equity financial
"redeemable preferred stock (within temporary equity)"
Equity-like securities that accounting rules require to be reported separately from permanent shareholders’ equity because the holder can force or the issuer is obligated to settle them in cash or other assets (or they will be settled on a specified date). Examples include mandatorily redeemable shares and certain convertible instruments with required cash settlement; on the balance sheet they appear between liabilities and shareholders’ equity (often called mezzanine or temporary equity) rather than as part of common equity.
PIK dividends financial
"paid-in-kind (PIK) dividends on equity-classified preferred stock"
Pik dividends are dividend payments made not in cash but in additional shares or by increasing the amount owed to the investor, like getting extra slices of the same pie instead of money. They matter because they let a company conserve cash for operations or growth, while investors receive value that may dilute existing ownership or increase credit risk, so they affect future share count, earnings per share and the investor’s true cash return.
weighted average cost of capital financial
"weighted average cost of capital reflect the increases in market interest rates"
Weighted average cost of capital (WACC) is the average annual price a company pays for the money it uses, combining the cost of borrowed funds (debt) and the cost of owners’ funds (equity), with each source weighted by its share of the company’s financing. Investors use it as a benchmark to judge whether projects or a stock are likely to earn more than that blended price—think of it as a household’s combined interest rate on a mortgage and credit cards; a lower WACC usually makes future cash flows and valuation more attractive.
anti-dilutive financial
"their impact was anti-dilutive"
A claim, security feature, or action described as anti-dilutive prevents or does not cause a reduction in existing shareholders’ per-share values when additional shares could be issued. For example, certain convertible securities or corporate actions are treated as anti-dilutive for earnings-per-share calculations if including them would raise EPS rather than lower it; investors watch this because it affects reported per-share metrics, ownership percentages, and valuation comparisons, like keeping pie slices the same size instead of making them smaller.
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did SST report in the third quarter of 2026?
System1 reported $25.951 million in revenue for the three months ended September 30, 2026, down 58% from $61.561 million a year earlier.
Why did SST report substantial doubt about continuing as a going concern?
Management said declining cash flows and financial performance, primarily tied to reductions in Advertising Partners and overall consumer demand, contributed to the concern. At September 30, 2026, cash and equivalents were $12.417 million and net working capital was $6.2 million. Cost-reduction programs had begun, but management could not conclude the plans were probable of mitigating the conditions.
What are the terms of System1's Series A preferred stock?
The 39,250 Series A Preferred Stock shares issued to lenders accrue cumulative dividends at 7.0% per annum, payable quarterly in arrears. To the extent declared by the board, dividends are paid in cash; unpaid dividends are added to stated value and accrue as paid-in-kind dividends. Holders may convert at stated value divided by $10.40, subject to limitations.
When is SST's NYSE delisting expected to take effect?
System1 said the delisting is anticipated to become effective 10 days after it files Form 25, which it intended to file on or about November 23, 2026.
AI-generated analysis. How Rhea-AI works. Not financial advice.
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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 September 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 November 6, 2026 there were 8,908,732 shares of Class A common stock, $0.0001 par value per share, and 1,778,219 shares of Class C common stock, $0.0001 par value per share, outstanding.
Table of Contents
Page | ||||||||
Part I - Financial Information | 1 | |||||||
Item 1. | Financial Statements (Unaudited) | 1 | ||||||
Condensed Consolidated Balance Sheets | 1 | |||||||
Condensed Consolidated Statements of Operations | 2 | |||||||
Condensed Consolidated Statements of Comprehensive Loss | 3 | |||||||
Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity | 4 | |||||||
Condensed Consolidated Statements of Cash Flows | 6 | |||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 | ||||||
Item 4. | Controls and Procedures | 31 | ||||||
Part II - Other Information | 33 | |||||||
Item 1. | Legal Proceedings | 33 | ||||||
Item 1A. | Risk Factors | 33 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 33 | ||||||
Item 3. | Defaults Upon Senior Securities | 33 | ||||||
Item 4. | Mine Safety Disclosures | 33 | ||||||
Item 5. | Other Information | 33 | ||||||
Item 6. | Exhibits | 34 | ||||||
Signatures | 35 | |||||||
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
System1, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except par value)
September 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, TEMPORARY EQUITY 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) | |||||||||||
Temporary equity: | |||||||||||
Series A preferred stock $ | |||||||||||
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, temporary equity 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||
Salaries and benefits | |||||||||||||||||||||||
Selling, general, and administrative | |||||||||||||||||||||||
Impairment of long-lived assets | |||||||||||||||||||||||
Impairment of goodwill | |||||||||||||||||||||||
Total operating expenses | |||||||||||||||||||||||
Operating loss | ( | ( | ( | ( | |||||||||||||||||||
Other (income) expense: | |||||||||||||||||||||||
Gain on troubled debt restructuring | ( | ( | |||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Change in fair value of warrant liabilities | ( | ||||||||||||||||||||||
Total other (income) expense, net | ( | ||||||||||||||||||||||
Loss before income tax | ( | ( | ( | ( | |||||||||||||||||||
Income tax expense (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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation income (loss) | ( | ( | |||||||||||||||||||||
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 Temporary Equity and Stockholders' Equity (Unaudited)
(In thousands)
Temporary Equity | Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Class A Common Stock | Class C Common Stock | Treasury Stock, at cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | 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 stock to Class A stock | — | — | — | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution from members | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2026 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Class C stock to Class A stock | — | — | — | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of convertible Series A preferred stock, net of issuance costs | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accretion of Series A preferred stock | — | — | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distribution to members | — | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 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 Temporary Equity and Stockholders' Equity (Unaudited)
(In thousands)
Temporary Equity | Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Class A Common Stock | Class C Common Stock | Treasury Stock, at cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | 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 stock to Class A stock | — | — | — | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures and shares withheld for taxes | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 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)
Nine Months Ended September 30, | |||||||||||
2026 | 2025 | ||||||||||
Cash Flows from Operating Activities | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Stock-based compensation | |||||||||||
Impairment of long-lived assets | |||||||||||
Impairment of goodwill | |||||||||||
Gain on troubled debt restructuring | ( | ||||||||||
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 | ( | ( | |||||||||
Repayment of revolver facility | ( | ||||||||||
Payment of fees for debt exchange | ( | ||||||||||
Proceeds from private placement of Class A common stock | |||||||||||
Payment of Series A preferred stock issuance costs | ( | ||||||||||
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 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 | $ | $ | |||||||||
Issuance of preferred stock to reduce carrying value of Existing Credit Agreement as part of troubled debt restructuring | $ | $ | |||||||||
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.
On November 12, 2026 we provided notice to the New York Stock Exchange (the "NYSE") of voluntary delisting of our Class A common Stock and intend to file a Form 25 with the U.S. Securities and Exchange Commission to effect the delisting on or about November 23, 2026. It is anticipated that the delisting will become effective 10 days after the filing of the Form 25.
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 September 30, 2026, we had unrestricted cash and cash equivalents of $12.4 million and net working capital, which we define as current assets less current liabilities, of $6.2 million. We entered into 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 to $150.0 million and extending the maturity date on our priority term loan to January 14, 2031. 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 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.
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.
7
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 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 nine months ended September 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 September 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.
8
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Recently Adopted Accounting Pronouncement
In April 2026, the Financial Accounting Standards Board issued ASU 2026-01, Equity (Topic 505): Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock ("ASU 2026-01"), which clarifies the initial measurement of paid-in-kind ("PIK") dividends on equity-classified preferred stock be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. This guidance applies to preferred stock classified as equity, including preferred stock that is classified as temporary equity. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within those annual periods, with early adoption permitted, and may be applied either prospectively or on a modified retrospective basis.
We early adopted ASU 2026-01 effective July 1, 2026, on a prospective basis, and applied the guidance to PIK dividends on our Series A Preferred Stock recognized on or after that date. We did not have PIK dividends on equity-classified preferred stock prior to July 1, 2026 and the adoption did not have a material impact on our condensed consolidated financial statements. For additional information regarding our PIK dividends, see Item 1, "Financial Statements — Note 11, Temporary Equity".
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 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 third quarter of 2026, we identified indicators of impairment at our Partner Network reporting unit. These indicators included impairment of the Partner Network asset group, lower-than-projected operating results for the reporting unit driven by macroeconomic changes in the online advertising industry and a reduction in management's long-term forecasts for the Partner Network reporting unit. As a result, we concluded that a triggering event had occurred and performed an interim quantitative impairment test as of September 30, 2026.
We estimated the fair value of the Partner Network reporting unit by weighting a discounted cash flow model and a reference transaction model which include inputs developed using both internal and market-based data. Our key assumptions in the discounted cash flow model included, but are not limited to, the weighted average cost of capital, revenue growth rates (including long-term growth rates), and operating margins. The weighted average cost of capital reflect the increases in market interest rates. Our reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry. Key assumptions in these models include, but are not limited to, the selection of comparable transactions, revenue and "EBITDA" is defined as net income or loss, interest, income tax expense or benefit, and depreciation and amortization multiples and
8
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
EBITDA margins from those transactions. Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.
As a result of the interim impairment test, the carrying amount of the Partner Network reporting unit exceeded its estimated fair value, and we recorded goodwill impairment of $51.5 million during the three months ended September 30, 2026. The impairment of goodwill is presented within operating expenses in the condensed consolidated statements of operations. Following the impairment, $30.9 million of goodwill remains allocated to the Partner Network reporting unit, and the reporting unit's carrying value equals its fair value. Accordingly, any further deterioration in the assumptions described above could result in additional impairment in future periods.
Internal-use Software Development Costs, Net and Intangible Assets, Net
During 2026, we significantly reduced our marketing activities for search monetization in our publishing business and experienced lower-than-projected operating results. The reduction in marketing activities constituted a triggering event under ASC 360 for the Marketing asset group during each interim period in 2026. Our Partner Network asset group experienced lower-than-projected operating results which was identified as a triggering event for the Partner Network asset group during the third quarter of 2026. Accordingly, we performed an analysis of the carrying value of the long-lived assets in the respective asset groups. The asset groups were tested for recoverability using the undiscounted cash flows over the remaining useful life of the primary asset in the respective 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 for each asset group 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 each of the first three quarters of 2026, we concluded that the carrying amount of the Marketing asset group exceeded the undiscounted cash flows and was not recoverable. We recognized impairment charges in each of the first three quarters of 2026 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 nine months ended September 30, 2026, we recognized impairment expense of $4.9 million and $42.6 million, respectively, within impairment of long-lived assets in our condensed consolidated statements of operations. As of September 30, 2026, the remaining carrying amount of the long-lived assets of the Marketing asset group was $5.6 million. Further deterioration in the assumptions described above could result in additional impairment in future periods. In addition, as part of the recoverability test performed during the third quarter of 2026, we completed a review of the estimated useful life of the primary asset in our Marketing asset group and revised the estimated remaining useful life of our trademarks from five to three years . The revision was based on the projected cash flows of the Marketing asset group following the reduction of our publishing business activities. The change in useful life is applied prospectively resulting in an increase in amortization expense of $0.2 million for the remainder of 2026, $0.8 0.3 million for 2029, and a reduction in amortization expense of $1.0 million for 2030 and $1.1 million thereafter.
During the third quarter of 2026, we concluded that the carrying amount of the Partner Network asset group exceeded the undiscounted cash flows and was not recoverable. We recognized an impairment charge to our Partner Network asset group trademark and fixed assets, the only assets in the group to which an impairment could be allocated under ASC 360. For the three and nine months ended September 30, 2026, we recognized impairment expense of $7.2
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 cash flows. There were no one-time costs recorded during the three months ended September 30, 2026.
10
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):
September 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 $2.7 million and $2.9 million as of September 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Amortization expense for internal-use software development | $ | $ | $ | $ | |||||||||||||||||||
| Amortization expense for intangible assets | $ | $ | $ | $ | |||||||||||||||||||
11
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Amortization expense was presented as follows in the condensed consolidated statements of operations (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general, and administrative | $ | $ | $ | $ | |||||||||||||||||||
4.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
September 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 (the "Term Loan") and revolving facility (the "Revolving Facility" and, together with the Term Loan, the "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. 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 was payable quarterly. The Term Loan was scheduled to mature in July 2027. For every interest period, the interest rate on the Term Loan was the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75 %. The Term Loan was amortized in quarterly installments on each scheduled payment date. The Term Loan had a leverage covenant, which went into effect only if the utilization on the Revolving Facility exceeded 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 had certain financial and nonfinancial covenants, including the "springing" leverage ratio covenant. The interest rate on the Revolving Facility was 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 December 31, 2025 was $50.0 million, presented within current liabilities.
Debt Exchange and Settlement Agreement
On May 29, 2026 we entered into a private debt exchange agreement with all lenders (the "Participating Lenders"). Consummation of the exchange was subject to customary closing conditions, which were not satisfied until July 2026. The exchange was completed on July 23, 2026 (the "Exchange Closing Date), and we accounted for the transaction during the third quarter of 2026. We exchanged in full $295.1 million in aggregate principal amount
12
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
of the Existing Credit Agreement for: (i) a new $150.0 million term loan facility, maturing on January 14, 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 (the "Priority Term Loan"); (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 (collectively, the "Debt Exchange").
The Debt Exchange was accounted for as a Troubled Debt Restructuring ("TDR") in accordance with ASC 470-60, Troubled Debt Restructuring by Debtors. On the Exchange Closing Date, the carrying value of the exchanged Term Loan and Revolving Facility was $243.4 million and $50.3 million, respectively. We recognized the Priority Term Loan at a carrying value of $227.3 million. Under the TDR accounting treatment, the carrying value of the Priority Term Loan was comprised of the total future undiscounted cash flows, which included the principal of $150.0 million, maximum interest of $69.8 million and $7.4 million in Priority Term Loan origination fees. We recognized a gain of $13.4
The carrying values of our debt consisted of the following (in thousands):
September 30, 2026 | December 31, 2025 | ||||||||||
Priority Term Loan | $ | $ | |||||||||
Term Loan 1 | |||||||||||
Revolving Facility | |||||||||||
Total debt, net | $ | $ | |||||||||
_______________ | |||||||||||
1 Includes unamortized discount of $ | |||||||||||
6.Income Taxes
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 expense of $0.3 million and $0.1 million for the three and nine months ended September 30, 2026, respectively and an income tax benefit of $0.5 million and $2.5 million for the three and nine months ended September 30, 2025, respectively. The effective tax rate was (0.5 )% and (0.1 )% for the three and nine months ended September 30, 2026, respectively and 2.4 % and 3.7 % for the three and nine months ended September 30, 2025, respectively. The provision for income taxes differs from the amount of income tax computed by applying
13
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 September 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.
During the three and nine months ended September 30, 2026 and 2025, inclusive of interest, no
7.Commitments and Contingencies
In June 2026, we entered into a multi-year agreement with a data cloud platform service provider whereby we are contractually obligated to spend $5.0 13.3 million towards this commitment.
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
14
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 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 September 30, 2026 or December 31, 2025, respectively.
8.Net Loss Per Share
Net loss attributable to common stockholders is computed using the two-class method when shares are issued that meet the definition of participating securities. Our Series A Preferred Stock is a participating security because these shares contractually entitle their holders to potentially participate in certain dividends, defined in the stock purchase agreement, but do not contractually require the holders to participate in our losses.
The two-class method is an earnings allocation formula that requires undistributed earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all net income for the period had been distributed. During the periods when there is a net loss, no amounts of undistributed losses are allocated to the participating securities. Due to the elected accretion method for the Series A Preferred Stock, the adjustments to remeasure redeemable preferred stock to its redemption amount represent deemed dividends that must be reduced from net loss in arriving at net loss available to Class A common stockholders.
For the three and nine months ended September 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Net loss attributable to System1, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Less: Accretion on Series A Preferred Stock | ( | ( | |||||||||||||||||||||
Net loss available to Class A common stockholders | ( | ( | ( | ( | |||||||||||||||||||
Weighted-average number of Class A common shares | |||||||||||||||||||||||
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 nine months ended September 30, 2026 and 2025, are considered potentially dilutive of the shares of Class A common stock and are included in the computation of diluted net loss per share, except when the effect would be anti-dilutive. Shares of Series A Preferred Stock for the three and nine months ended September 30, 2026 are considered potentially dilutive of the shares of Class A common stock and are included in the computation of diluted net loss per share, except when the effect would be anti-dilutive.
For the three and nine months ended September 30, 2026, 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 September 30, 2026. See Note 10, Stock-Based Compensation, for
15
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
additional details. Further, 39,250 shares of Series A Preferred Stock were excluded from the computation of net loss per share as they are anti-dilutive. See Note 11, Temporary Equity, for additional details.
For the three and nine months ended September 30, 2025, 16.8 0.5 1.5 million SARs were excluded as they were contingently issuable upon the achievement of certain performance conditions, which were not achieved as of September 30, 2025.
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 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 September 30, 2026 | Three Months Ended September 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 | |||||||||||||||||||||||||||||||||||
Impairment of goodwill | |||||||||||||||||||||||||||||||||||
Gain on troubled debt restructuring | ( | ||||||||||||||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||||||||||||||
Change in fair value of warrant liabilities | ( | ||||||||||||||||||||||||||||||||||
Loss before income tax | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
16
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Nine Months Ended September 30, 2026 | Nine Months Ended September 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 | |||||||||||||||||||||||||||||||||||
Impairment of goodwill | |||||||||||||||||||||||||||||||||||
Gain on troubled debt restructuring | ( | ||||||||||||||||||||||||||||||||||
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 September 30, | Nine Months Ended September 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.
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
Stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
Restricted Stock Units
For the three and nine months ended September 30, 2026, we recognized stock-based compensation of $1.3 million and $4.3 million, respectively, within equity. For the three and nine months ended September 30, 2025 we recognized stock-based compensation of $2.1 million and $6.0 million, respectively, within equity.
17
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 September 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 0.8 million and $4.4 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 nine months ended September 30, 2026 and 2025, an immaterial
11.Temporary Equity
Redeemable Preferred Stock
In connection with the Debt Exchange, we issued 39,250 shares of newly designated Series A Preferred Stock to the lenders. Our Series A Preferred Stock is classified as redeemable preferred stock (within temporary equity) outside of stockholders' equity within our condensed consolidated balance sheets due to redemption at a fixed or determinable price on a fixed or determinable date or upon a change of control that is not solely within our control. The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for securities or other assets of the entity in the future.
On the Exchange Closing Date we estimated the fair value of the Series A Preferred Stock using the binomial lattice model (Level 2 fair value inputs) to be $32.1 million. Costs of issuance of the Series A Preferred Stock of $1.2 million were offset against the fair value on initial recognition. We elected to subsequently measure the Series A Preferred Stock using the accreted redemption amount method, presented in our condensed consolidated statements of changes in temporary equity and stockholders' equity.
Conversion: The shares of the Series A Preferred Stock are convertible at the option of the holders, subject to certain limitations, into shares of Class A Common Stock at a rate equal to the then-current stated value of the applicable shares of Series A Preferred Stock, including any accrued and unpaid dividends, divided by $10.40 .
Dividends: The shares of Series A Preferred Stock accrue cumulative preferential dividends at a rate of 7.0 % per annum on the stated value, payable quarterly in arrears. To the extent declared by the Board, dividends will be paid in cash. Any dividends that are not paid in cash will automatically be added to the then stated value of the outstanding Series A Preferred Stock and thereafter accrue PIK dividends at a rate of 7.0 % per annum each calendar quarter from the Exchange Closing Date until January 14, 2031.
Redemption: Unless converted earlier, we must redeem all outstanding shares of Series A Preferred Stock in cash on January 14, 2031, or earlier if Priority Term Loan repayment is accelerated. The redemption price is the then applicable liquidation value of $55.0 million. Upon a change of control, holders may require us to redeem their
18
System1, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
shares in cash at 101 % of the then applicable liquidation value. Other than the January 14, 2031 maturity redemption, no redemption requirements fall within the five years following September 30, 2026.
Liquidation Rights: In the event of a liquidation, holders of our Series A Preferred Stock will be entitled to a distribution before any distribution to the holders of our common stock and any existing or future secured or unsecured indebtedness and other liabilities, including trade payables. The liquidation preference consists of the Share Consideration and cumulative preferential dividends immediately prior to such liquidation event. As of September 30, 2026, cumulative preferred dividends accrued but unpaid were $0.5 million and the aggregate minimum liquidation preference was $40.7 million.
Other Rights: The holders of a majority of the Series A Preferred Stock have the right to appoint and elect one director to the Board for so long as at least 19,625 shares of Series A Preferred Stock remain outstanding and consent rights with respect to certain corporate actions for so long as at least 9,812 shares of Series A Preferred Stock remain outstanding.
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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.
On November 12, 2026 we provided notice to the New York Stock Exchange ("the NYSE") of voluntary delisting of our Class A common Stock and intend to file a Form 25 with the U.S. Securities and Exchange Commission to effect the delisting on or about November 23, 2026. It is anticipated that the delisting will become effective 10 days after the filing of the Form 25.
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
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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.
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 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.
Impairment of goodwill. Impairment of goodwill consists of the impairment of our goodwill when the carrying amount of a reporting unit exceeds its fair value.
Other Expenses or Incomes:
Other expenses or incomes consist of the following:
Gain on troubled debt restructuring. Gain on troubled debt restructuring consists of the gain resulting from our debt exchange, as the carrying value of the debt exceeded the total future outflows under the terms of the exchange agreement.
Interest expense, net. Interest expense consists of interest, the amortization of deferred financing costs and debt discount on the existing credit facility prior to the debt exchange transaction. 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.
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Income tax expense (benefit)
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.
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 September 30, | |||||||||||||||||||||||
2026 | Percentage of Revenue* | 2025 | Percentage of Revenue* | ||||||||||||||||||||
Revenue | $ | 25,951 | 100 | % | $ | 61,561 | 100 | % | |||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | 5,325 | 21 | % | 38,819 | 63 | % | |||||||||||||||||
Salaries and benefits | 15,896 | 61 | % | 21,354 | 35 | % | |||||||||||||||||
Selling, general, and administrative | 14,012 | 54 | % | 16,953 | 28 | % | |||||||||||||||||
Impairment of long-lived assets | 12,083 | 47 | % | — | — | % | |||||||||||||||||
Impairment of goodwill | 51,522 | 199 | % | — | — | % | |||||||||||||||||
Total operating expenses | 98,838 | 381 | % | 77,126 | 125 | % | |||||||||||||||||
Operating loss | (72,887) | -281 | % | (15,565) | -25 | % | |||||||||||||||||
Other (income) expense: | |||||||||||||||||||||||
Gain on troubled debt restructuring | (13,395) | -52 | % | — | — | % | |||||||||||||||||
Interest expense, net | 1,685 | 6 | % | 7,052 | 11 | % | |||||||||||||||||
Change in fair value of warrant liabilities | — | — | % | (71) | — | % | |||||||||||||||||
Total other (income) expense, net | (11,710) | -45 | % | 6,981 | 11 | % | |||||||||||||||||
Loss before income tax | (61,177) | -236 | % | (22,546) | -37 | % | |||||||||||||||||
Income tax expense (benefit) | 299 | 1 | % | (543) | -1 | % | |||||||||||||||||
Net loss | (61,476) | -237 | % | (22,003) | -36 | % | |||||||||||||||||
Less: Net loss attributable to non-controlling interest | (10,200) | -39 | % | (3,487) | -6 | % | |||||||||||||||||
Net loss attributable to System1, Inc. | $ | (51,276) | -198 | % | $ | (18,516) | -30 | % | |||||||||||||||
*Percentages may not sum due to rounding | |||||||||||||||||||||||
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Nine Months Ended September 30, | |||||||||||||||||||||||
2026 | Percentage of Revenue* | 2025 | Percentage of Revenue* | ||||||||||||||||||||
Revenue | $ | 93,385 | 100 | % | $ | 214,189 | 100 | % | |||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Cost of revenue | 25,111 | 27 | % | 135,108 | 63 | % | |||||||||||||||||
Salaries and benefits | 53,809 | 58 | % | 72,639 | 34 | % | |||||||||||||||||
Selling, general, and administrative | 45,342 | 49 | % | 51,038 | 24 | % | |||||||||||||||||
Impairment of long-lived assets | 49,816 | 53 | % | — | — | % | |||||||||||||||||
Impairment of goodwill | 51,522 | 55 | % | — | — | % | |||||||||||||||||
Total operating expenses | 225,600 | 242 | % | 258,785 | 121 | % | |||||||||||||||||
Operating loss | (132,215) | -142 | % | (44,596) | -21 | % | |||||||||||||||||
Other (income) expense: | |||||||||||||||||||||||
Gain on troubled debt restructuring | (13,395) | -14 | % | — | — | % | |||||||||||||||||
Interest expense, net | 15,430 | 17 | % | 21,253 | 10 | % | |||||||||||||||||
Change in fair value of warrant liabilities | — | — | % | 29 | — | % | |||||||||||||||||
Total other (income) expense, net | 2,035 | 2 | % | 21,282 | 10 | % | |||||||||||||||||
Loss before income tax | (134,250) | -144 | % | (65,878) | -31 | % | |||||||||||||||||
Income tax expense (benefit) | 149 | — | % | (2,477) | -1 | % | |||||||||||||||||
Net loss | (134,399) | -144 | % | (63,401) | -30 | % | |||||||||||||||||
Less: Net loss attributable to non-controlling interest | (23,457) | -25 | % | (11,539) | -5 | % | |||||||||||||||||
Net loss attributable to System1, Inc. | $ | (110,942) | -119 | % | $ | (51,862) | -24 | % | |||||||||||||||
*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 AMP, 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 Products 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 September 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 8,252 | $ | 39,065 | $ | (30,813) | -79% | ||||||||||||||||
Products | 17,699 | 22,496 | (4,797) | -21% | |||||||||||||||||||
Total revenue | $ | 25,951 | $ | 61,561 | $ | (35,610) | -58% | ||||||||||||||||
Nine Months Ended September 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 37,366 | $ | 145,457 | $ | (108,091) | -74% | ||||||||||||||||
Products | 56,019 | 68,732 | (12,713) | -18% | |||||||||||||||||||
Total revenue | $ | 93,385 | $ | 214,189 | $ | (120,804) | -56% | ||||||||||||||||
Marketing
Marketing revenue decreased for the three and nine months ended September 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 September 30, 2026, compared to the prior period, AMP decreased by 53 to 55 from 108. Revenue per AMP increased by $0.02 million to $0.14 million from $0.12 million, or 17%. Similarly, for the nine months ended September 30, 2026, compared to the prior period, AMP decreased by 81 to 63 from 144. Revenue per AMP increased by $0.12 million to $0.45 million from $0.33 million, or 35%.
Products
Products revenue decreased for the three and nine months ended September 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 September 30, 2026, compared to the prior period, Products sessions increased by 82.9 million to 667.6 million from 584.7 million while Products RPS decreased by $0.01 to $0.03 from $0.04. Similarly, for the nine months ended September 30, 2026, compared to the prior period, Products sessions increased by 425.3 million to 2.0 billion from 1.6 billion while Products RPS decreased by $0.01 to $0.03 from $0.04.
Cost of revenue
Cost of revenue decreased for the three and nine months ended September 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 $12.1 million and $32.2 million for the three and nine months ended September 30, 2026, respectively, compared to the prior periods primarily due to our developed technology reaching the end of its estimated useful life.
Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenue and segment adjusted gross profit. We define and calculate segment adjusted gross profit as revenue less traffic acquisition costs incurred to acquire users. The remaining cost of revenue consists of non-
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advertising expenses such as set-up costs, royalties, fees and amortization related to our platform. We exclude the following items from segment adjusted gross profit: other cost of revenue (total cost of revenue excluding traffic acquisition cost), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments.
The following table presents our segment adjusted gross profit by reportable segment (in thousands):
Three Months Ended September 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 7,819 | $ | 16,648 | $ | (8,829) | -53 | % | |||||||||||||||
Products | 15,523 | 21,218 | (5,695) | -27 | % | ||||||||||||||||||
Total adjusted gross profit | $ | 23,342 | $ | 37,866 | $ | (14,524) | -38 | % | |||||||||||||||
Nine Months Ended September 30, | Change | ||||||||||||||||||||||
2026 | 2025 | ($) | (%) | ||||||||||||||||||||
Marketing | $ | 29,882 | $ | 58,068 | $ | (28,186) | -49 | % | |||||||||||||||
Products | 50,387 | 64,870 | (14,483) | -22 | % | ||||||||||||||||||
Total adjusted gross profit | $ | 80,269 | $ | 122,938 | $ | (42,669) | -35 | % | |||||||||||||||
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 nine months ended September 30, 2026 compared to the prior periods.
For the three months ended September 30, 2026, the $5.5 million decrease is primarily driven by a $3.2 million reduction in payroll and bonus expenses due to our reduction in workforce, a $1.6 million reduction in stock-based compensation resulting from less restricted stock units outstanding and no stock appreciation rights expense and a $0.7 million reduction in CouponFollow share-based liability expense due to the liability being fully accrued at the end of the prior year.
For the nine months ended September 30, 2026, the $18.8 million decrease is primarily driven by a $9.7 million reduction in payroll, bonus, severance, and employment benefits expenses due to our reduction in workforce, a $6.2 million reduction in stock-based compensation resulting from less restricted stock units outstanding and no stock appreciation rights expense, a $2.0 million reduction in CouponFollow share-based liability expense due to the liability being fully accrued at the end of the prior year, a $0.4 million increase in capitalized internally developed software costs and a $0.5 million net decrease of other immaterial expense items.
Selling, general, and administrative
Selling, general, and administrative expense decreased for the three and nine months ended September 30, 2026 compared to the prior periods.
For the three months ended September 30, 2026, the $2.9 million decrease is primarily driven by a $1.9 million reduction in amortization expense resulting from long-lived assets impairment in the first and second quarter of 2026 or reaching the end of their estimated useful life since the prior period and a $1.0 million reduction in professional services and consulting fees.
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For the nine months ended September 30, 2026, the $5.7 million decrease is primarily driven by a $4.0 million reduction in depreciation and amortization expense resulting from long-lived assets impairment in the first and second quarter of 2026 or reaching the end of their estimated useful life since the prior period, a $2.5 million reduction in professional services and consulting fees and a $0.3 million reduction in rent expense. This was offset by a $0.8 million increase in software and subscription services and a $0.3 million increase in business taxes.
Impairment of long-lived assets
Impairment of long-lived assets increased $12.1 million and $49.8 million for the three and nine months ended September 30, 2026, compared to the prior periods due to the impairment of long-lived assets at our Marketing and Partner Network asset groups during 2026. There was no impairment of long-lived assets during 2025.
Impairment of goodwill
Impairment of goodwill increased $51.5 million for the three and nine months ended September 30, 2026 compared to the prior periods due to the recognition of goodwill impairment expense at our Partner Network reporting unit during the third quarter of 2026. There was no impairment of goodwill during 2025.
Other (income) expense:
Gain on troubled debt restructuring
Gain on troubled debt restructuring increased $13.4 million for the three and nine months ended September 30, 2026, compared to the prior periods due to the recognition of gain from the debt exchange that was executed during the third quarter. There was no restructuring of debt during 2025.
Interest expense, net
Interest expense, net decreased $5.4 million and $5.8 million for the three and nine months ended September 30, 2026 compared to the prior periods due the Debt Exchange recognized as a troubled debt restructuring which requires no interest expense to be recorded over the term of the Priority Loan.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities was flat for the three and nine months ended September 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 expense (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.
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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):
Three Months Ended September 30, | |||||||||||||||||||||||
2026 | 2025 | ||||||||||||||||||||||
Revenue | $ | 26.0 | $ | 61.6 | |||||||||||||||||||
Less: Cost of revenue | (5.3) | (38.8) | |||||||||||||||||||||
Gross profit | 20.7 | 22.8 | |||||||||||||||||||||
Add: Amortization related to cost of revenue | 1.2 | 13.3 | |||||||||||||||||||||
Adjusted Gross Profit | $ | 21.9 | $ | 36.1 | |||||||||||||||||||
The decrease in adjusted gross profit for the three months ended September 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 September 30, | |||||||||||||||||||||||
2026 | 2025 | ||||||||||||||||||||||
Net loss | $ | (61.5) | $ | (22.0) | |||||||||||||||||||
Adjustments: | |||||||||||||||||||||||
Income tax expense (benefit) | 0.3 | (0.5) | |||||||||||||||||||||
Interest expense | 1.7 | 7.1 | |||||||||||||||||||||
Depreciation and amortization | 6.7 | 20.8 | |||||||||||||||||||||
Impairment of long-lived assets | 12.1 | — | |||||||||||||||||||||
Impairment of goodwill | 51.5 | — | |||||||||||||||||||||
Gain on troubled debt restructuring | (13.4) | — | |||||||||||||||||||||
Other expense | 0.1 | (0.2) | |||||||||||||||||||||
Stock-based compensation & distributions to members | 1.2 | 2.8 | |||||||||||||||||||||
Non-cash revaluation of warrant liability | — | (0.1) | |||||||||||||||||||||
Acquisition and restructuring costs | 0.6 | 2.0 | |||||||||||||||||||||
Adjusted EBITDA | $ | (0.7) | $ | 9.9 | |||||||||||||||||||
Liquidity and Capital Resources
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 Existing Credit Agreement, other indebtedness, and cash flows from operations.
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 September 30, 2026, we had unrestricted cash and cash equivalents of $12.4 million and net working capital, which we define as current assets less current liabilities, of $6.2 million. We entered into 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 to $150 million and extending the maturity date on our priority term loan to January 14, 2031. 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):
Nine Months Ended September 30, | |||||||||||
2026 | 2025 | ||||||||||
Net cash (used in) provided by operating activities | $ | (26,163) | $ | 6,491 | |||||||
Net cash used in investing activities | $ | (4,547) | $ | (5,096) | |||||||
Net cash used in financing activities | $ | (44,431) | $ | (13,107) | |||||||
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 nine months ended September 30, 2026, cash used in operating activities of $26.2 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 nine months ended September 30, 2025, cash provided by operating activities of $6.5 million resulted primarily from the timing of revenue share payments to our partners.
Investing Activities
In the nine months ended September 30, 2026 and 2025, cash used in investing activities of $4.5 million and $5.1 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 nine months ended September 30, 2026, cash used in financing activities of $44.4 million resulted primarily from $15.0 million repayment of principal on our Existing Credit Agreement, $20.8 million repayment to our lenders in relation to the debt exchange agreement and $8.3 million in legal expenses and other fees related to the debt exchange agreement and other immaterial items.
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In the nine months ended September 30, 2025, cash used in financing activities of $13.1 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 2026, 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 2026 and June 2029. As of September 30, 2026, we remain contractually obligated to spend $13.3 million towards this commitment.
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. During the third quarter of 2026, we issued newly designated Series A Preferred Stock in connection with the Debt Exchange and recognized the shares at their issuance-date fair value. As a result, we determined that Series A Preferred Stock 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, Series A Preferred Stock, stock-based compensation and income taxes. The impairment of long-lived assets and Series A Preferred Stock policies are 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
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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 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. For information regarding current period impairment of long-lived assets and potential future period impairments, see Item 1, "Financial Statements — Note 3, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net".
Temporary Equity
We entered into our debt exchange transaction and issued shares of newly designated Series A Preferred Stock to the lenders as consideration for the partial repayment of outstanding loan balances. The outstanding debt was reduced by the initial fair value of the Series A Preferred Stock. The initial measurement of the Series A Preferred Stock exchange consideration required significant estimates related to initial fair value measurement of the Series A Preferred Stock issued and we engaged an independent valuation specialist to assist with determination of the fair value of the Series A Preferred Stock.
The estimate for the initial fair value of the Series A Preferred Stock was based on market-observable and management-determined unobservable inputs, using the binomial lattice model. Observable inputs include the active market price of our Class A common stock on the NYSE and the risk-free interest rate curve extracted from public U.S. Treasury yields. Significant unobservable inputs include expected volatility and debt yield. Changes in certain assumptions underlying the fair value determination of the Series A Preferred Stock could affect the initial fair value of the Series A Preferred stock and carrying amount of the new loan balance.
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 September 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.
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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 September 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 the three months ended September 30, 2026, no repurchases of our equity securities were made by us. As of September 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) | Business Combination Agreement, dated as of June 28, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto. | 8-K | 001-39331 | 2.1 | 6/29/2021 | |||||||||||||||||||||||||||||||||
2.1(b) | Amendment No. 1 to the Business Combination Agreement, dated as of November 30, 2021, by and among Trebia Acquisition Corp., S1 Holdco, LLC, System1 SS Protect Holdings, Inc., and the other parties that are signatory thereto. | S-4 | 333-260714 | 2.2 | 12/1/2021 | |||||||||||||||||||||||||||||||||
2.2 | Share Purchase Agreement, dated November 30, 2023, by and among System1, Inc., Orchid Merger Sub II, LLC, Sonic Newco, LLC, JDI Antarctica Limited and JDI Antarctica Sub II Limited | 8-K | 001-39331 | 2.1 | 12/4/2023 | |||||||||||||||||||||||||||||||||
3.1 | Certificate of Incorporation of System1, Inc. | 8-K | 001-39331 | 3.1 | 2/2/2022 | |||||||||||||||||||||||||||||||||
3.2 | Second Amended and Restated Bylaws of System1, Inc. | 8-K | 001-39331 | 3.1 | 3/1/2023 | |||||||||||||||||||||||||||||||||
3.3 | Amendment to the System1, Inc. Certificate of Incorporation | 8-K | 001-39331 | 3.1 | 6/14/2024 | |||||||||||||||||||||||||||||||||
3.4 | Amendment to the System1, Inc. Certificate of Incorporation | 8-K | 001-39331 | 3.1 | 6/11/2025 | |||||||||||||||||||||||||||||||||
4.1 | Warrant Agreement, dated June 19, 2020, by and between Trebia Acquisition Corp. and Continental Stock Transfer & Trust Company, as warrant agent. | 8-K | 001-39331 | 4.1 | 6/2/2020 | |||||||||||||||||||||||||||||||||
4.2 | Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | 10-K | 001-39331 | 4.2 | 6/6/2023 | |||||||||||||||||||||||||||||||||
10.1^ | System1, Inc. 2022 Incentive Award Plan. | 8-K | 001-39331 | 10.2 | 2/2/2022 | |||||||||||||||||||||||||||||||||
10.2# | Exchange Agreement, dated as of May 29, 2026, among S1 Holdings Finco, LLC, Bank of America, N.A. and the lenders from time to time party thereto. | 8-K | 001-39331 | 10.1 | 6/1/2026 | |||||||||||||||||||||||||||||||||
10.3 | Registration Rights Agreement, dated January 27, 2022, by and among System1, Inc. and the other parties that are signatory thereto. | S-1 | 333-262608 | 10.3 | 2/9/2022 | |||||||||||||||||||||||||||||||||
10.4 | Registration Rights Agreement, dated June 19, 2020, among the Company, the Sponsors and certain other security holders named therein. | 8-K | 001-39331 | 10.2 | 6/22/2020 | |||||||||||||||||||||||||||||||||
31.1* | Certification of principal executive officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||||||||||||||||||||||||||
31.2* | Certification of principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||||||||||||||||||||||||||
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 | X | ||||||||||||||||||||||||||||||||||||
32.2** | Certification of principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 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: November 12, 2026 | By: | /s/ Michael Blend | ||||||
Michael Blend | ||||||||
Chief Executive Officer | ||||||||
Date: November 12, 2026 | By: | /s/ Tridivesh Kidambi | ||||||
Tridivesh Kidambi | ||||||||
Chief Financial Officer | ||||||||
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