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What changed in System1, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of System1, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+462 added−451 removedSource: 10-K (2024-03-15) vs 10-K (2023-06-06)

Top changes in System1, Inc.'s 2023 10-K

462 paragraphs added · 451 removed · 304 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

96 edited+15 added−26 removed40 unchanged
Biggest changeOur Competition Our industry is highly competitive and fragmented. We compete with other demand-side platform providers, some of which are smaller, privately-held companies and others are divisions of large, well-established companies such as Google and Microsoft. We believe that we compete primarily based on the performance, capabilities and transparency of our RAMP platform and our focus on the buy-side.
Biggest changeWe expect our revenue to continue to fluctuate based on seasonal factors that affect the industry as a whole. Our Competition Our industry is highly competitive and fragmented. We compete with other demand-side platform providers, some of which are smaller, privately-held companies and others that are divisions of large, well-established companies such as Google and Microsoft.
Compensation and Benefits We provide compensation and benefits programs to help meet the needs of our employees and reward their efforts and contributions. We seek fairness in total compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management compensation. In addition to salaries, we provide competitive compensation programs commensurate with our peers and industry.
Compensation and Benefits We provide compensation and benefits programs to help meet the needs of our employees and reward their efforts and contributions. We seek fairness in total compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management compensation. In addition to salaries, we provide competitive compensation programs commensurate with our industry peers.
This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising verticals.
This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising category verticals.
By continuing to execute on our successful track-record of identifying, evaluating, executing and integrating M&A targets, we believe that we will be able to continue plugging new acquisitions into our overall business strategy to enhance RAMP and expand the diversity and scope of our owned and operated properties. Our websites cover a diverse range of consumer demand and traffic.
By continuing to execute on our successful track-record of identifying, evaluating, executing and integrating M&A targets, we believe that we will be able to continue integrating new acquisitions into our overall business strategy to enhance RAMP and expand the diversity and scope of our owned and operated properties. Our websites cover a diverse range of consumer demand and traffic.
Our ability to continually develop new intellectual property and deliver new functionality quickly serves to protect us against competitors. We believe RAMP, along with our proprietary technology assets, is unique in the marketplace, difficult to replicate and would be expensive and time-consuming to build. Seasonality 14 In the advertising industry, companies commonly experience seasonal fluctuations in revenue.
Our ability to continually develop new intellectual property and deliver new functionality quickly serves to protect us against competitors. We believe RAMP, along with our proprietary technology assets, is unique in the marketplace, difficult to replicate and would be expensive and time-consuming to build. Seasonality In the advertising industry, companies commonly experience seasonal fluctuations in revenue.
We participate in several industry self-regulatory programs, mainly initiated by the Network Advertising Initiative, or NAI, the Digital Advertising Alliance, or DAA, and their international counterparts. Our efforts to comply with the self-regulatory principles of these programs include offering end users notice and choice when 17 advertising is served to them based, in part, on their interests.
We participate in several industry self-regulatory programs, mainly initiated by the Network Advertising Initiative, or NAI, the Digital Advertising Alliance, or DAA, and their international counterparts. Our efforts to comply with the self-regulatory principles of these programs include offering end users notice and choice when advertising is served to them based, in part, on their interests.
HowStuffWorks is a commercial website focused on helping people solve problems in their daily lives by using various types of digital media to easily breakdown and explain complex concepts, terminology and mechanisms. Startpage is the world’s most private search engine, allowing our users to browse and search the Internet in complete privacy.
HowStuffWorks is a commercial website focused on helping people solve problems in their daily lives by using various types of digital media to easily breakdown and explain complex concepts, topics, terminology and mechanisms. Startpage is the world’s most private search engine, allowing our users to browse and search the Internet in complete privacy.
In February 2022, the Belgium Data Protection Authority issued an order against IAB Europe that imposes specific remedies on IAB Europe and its operation of TCF. Further, other European regulators have questioned the framework’s viability and activists have filed complaints with regulators of alleged 16 non-compliance by specific companies that employ the framework.
In February 2022, the Belgium Data Protection Authority issued an order against IAB Europe that imposes specific remedies on IAB Europe and its operation of TCF. Further, other European regulators have questioned the framework’s viability and activists have filed complaints with regulators of alleged non-compliance by specific companies that employ the framework.
Intellectual Property The protection of our technology and intellectual property is an important driver of our success. We rely on intellectual property laws, including trade secret, copyright, patent and trademark laws in the U.S. and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.
Intellectual Property 13 The protection of our technology and intellectual property is an important driver of our success. We rely on intellectual property laws, including trade secret, copyright, patent and trademark laws in the U.S. and abroad, and use contracts, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.
Governing bodies throughout the United States (including state and local governments), the European Union and other jurisdictions continue to respond to these growing consumer concerns by proposing and enacting new laws and regulations that are reshaping industry standards regarding consumer privacy, data protection and information security.
Governing bodies throughout the United States (including state and local governments), the European Union and other jurisdictions continue to respond to these growing consumer concerns by proposing and enacting new laws and regulations that are reshaping industry standards 9 regarding consumer privacy, data protection and information security.
As the total available market for digital advertising expands, we believe we are well-positioned to deliver superior results and performance to advertisers and our network partners through our extensive relationships with leading advertisers and advertising networks, and to better match consumers with the products or services that match their intent.
As the total available market for digital advertising expands, we believe we are well-positioned to deliver superior results and performance to advertisers and our network partners through our extensive relationships with leading advertisers and advertising networks, and to better direct consumers to the products or services that match their intent.
The IAB Europe previously collaborated with the digital advertising industry to create a user-facing framework (the Transparency and Control Framework, or “TCF”) for establishing and managing legal bases under the GDPR and other U.K. and EU privacy laws including the ePrivacy Directive (discussed below).
The IAB Europe previously collaborated with the digital 15 advertising industry to create a user-facing framework (the Transparency and Control Framework, or “TCF”) for establishing and managing legal bases under the GDPR and other U.K. and EU privacy laws including the ePrivacy Directive (discussed below).
Since consumer 8 demand is cyclical, constantly evolving and difficult to identify, marketing strategies are often tied to particular channels or verticals, which in turn makes identifying intent-driven consumer demand at the appropriate decision point a challenge for advertisers.
Since consumer demand is cyclical, constantly evolving and difficult to identify, marketing strategies are often tied to particular channels or verticals, which in turn makes identifying intent-driven consumer demand at the appropriate decision point a challenge for advertisers.
Legacy mediums, including print, television and radio, represent a smaller and shrinking portion of media consumption than they have historically, as digital media formats, in particular those best served by mobile devices, have proliferated.
Legacy mediums, including print, television and radio, represent a smaller and shrinking portion of total media consumption than they have historically, as digital media formats, in particular those best served by mobile devices, have proliferated.
RAMP operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Facebook, Taboola and Zemanta.
RAMP operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Facebook, Zemanta, Taboola, and TikTok.
Website addresses referred to in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained on our website is not incorporated into, and does not form a part of this Annual Report on Form 10-K or any other report or documents we file with or furnish to the SEC. 18
Website addresses referred to in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained on our website is not incorporated into, and does not form a part of this Annual Report on Form 10-K or any other report or documents we file with or furnish to the SEC. 17
We are able to combine this dataset with historical information on ad spend across vertical categories, content and ad-creative automation, which is used to optimize monetization performance in order to provide a closed-loop view of the customer and advertising ecosystem.
We are able to combine this iterative dataset with historical information on ad spend across advertising categories, content and ad-creative automation, which is used to optimize monetization performance in order to provide a closed-loop view of the customer and advertising ecosystem.
This valuable first party data is used by RAMP to target specific consumer audiences based on millions of precedent interactions, and allows us to provide our clients with deeper insights into consumer habits as they continue to interact with our owned and operated websites.
This valuable first party data is used by RAMP to optimize specific consumer audiences based on millions of precedent interactions, and allows us to provide our clients with deeper insights into consumer habits as they continue to interact with our owned and operated websites.
There have been many class action lawsuits filed invoking the CCPA outside of the private right of action provided for by the law. It is unclear at this point whether any of these claims will be accepted by the courts.
There also have been many class action lawsuits filed invoking the CCPA outside of the private right of action provided for by the law, and it is unclear at this point whether any of these claims will be accepted by the courts.
Our goal is to continue to improve and extend the scope of RAMP by continuing to evolve and adapt to the ever-changing landscape of new sources of online user traffic, better monetization tools and growing areas of advertising demand.
Our goal is to continually improve and extend the scope of RAMP by continuing to evolve and adapt to the ever-changing landscape of new sources of online user traffic, better monetization tools and growing areas of advertising demand.
We believe we offer a differentiated platform, as we are channel and monetization-agnostic. We offer transparent measurement and real-time monitoring of return on advertising spend at a detailed level, which allows for purchase and sale decisions to be based on predictive modeling in order to drive superior results from our various advertisers.
We believe we offer a differentiated platform, as we are both channel and monetization-method-agnostic. We offer transparent measurement and real-time monitoring of return on advertising spend at a detailed level, which allows for purchase and sale decisions to be based on predictive modeling in order to drive superior results for our various advertisers.
Such compensation and benefit programs may include short term incentives, equity awards, 401(k) plans, healthcare and insurance benefits, flexible spending accounts, paid time off, family leave, family care resources, employee assistance programs and tuition assistance, among many others. Such programs and our overall compensation packages seek to facilitate retention of key personnel.
Such compensation and benefit programs may include short term incentives, equity awards, 401(k) plans with employer matching, healthcare and insurance benefits, flexible spending accounts, paid time off, family leave, family care resources, employee assistance programs and tuition assistance, among many others. Such programs and our overall compensation packages seek to facilitate retention of key personnel.
The CCPA created individual data privacy rights for consumers in the State of California (including rights to deletion of and access to, as well as rights to opt-out of the collection of, personal information), special rules on the collection of consumer data from minors, new notice obligations and new limits on, and rules regarding the “sale” of personal information (interpreted by many observers to include common advertising practices).
The CCPA created individual data privacy rights for consumers in the State of California (including rights to deletion of and access to, as well as rights to opt-out of the collection of, personal information), special rules on the collection of consumer data from minors, new notice obligations and new limits on, and rules regarding the collection, processing and “sale” of personal information (interpreted by many to include common digital advertising practices).
As the collection and use of data for digital advertising has received media attention over the past several years, some government regulators, such as the FTC, and privacy advocates have suggested creating a universally accepted “Do Not Track” standard that would allow Internet users to express a preference, independent of cookie settings in their browser, not to have their online browsing activities tracked and shared across websites or devices.
For example, as the collection and use of data for digital advertising has increasingly received negative media attention over the past several years, some government regulators, such as the FTC, and privacy advocates have suggested creating a universally accepted “Do Not Track” standard that would allow Internet users to express a preference, independent of cookie settings in their browser, not 16 to have their online browsing activities tracked and shared across websites or devices.
Our Opportunity Traditional advertising agencies are focused on creative services and allocating large advertising budgets across media platforms, but are often not as sophisticated in deploying the cutting-edge technology necessary to deliver responsive customers. While advertising consultants provide strategic advice, they are limited in their ability to deliver actual customers.
Our Opportunity Traditional advertising agencies are focused on creative services and allocating large advertising budgets across media platforms, but are often not as sophisticated in deploying the cutting-edge technology necessary to deliver responsive or intent-driven customers. While advertising consultants provide strategic advice, they are limited in their ability to deliver actual customers.
Collection and Use of Data; Privacy and Data Protection Legislation and Regulation We and our clients currently use pseudonymous data about Internet and mobile app users on our platform to manage and execute digital advertising campaigns in a variety of ways, including delivering advertisements to end users based on their geographic locations, the type of device they are using, their interests as inferred from their Internet search queries, web browsing or app usage activity or their relationships with our clients.
Collection and Use of Data; Privacy and Data Protection Legislation and Regulation We and our partners currently use pseudonymous data about Internet and mobile app users directed to our platform to manage and execute digital advertising campaigns in a variety of ways, including delivering advertisements to end users based on their geographic locations, the type of device they are using, their interests as inferred from their Internet search queries, web browsing or app usage activity or their previous relationships with our partners.
Omni-Vertical and Monetization Agnostic Service Offering —RAMP is designed to work across vertical consumer categories, leveraging consumer data efficiently matched to consumer intent on a real-time basis. RAMP is also integrated with multiple forms of monetization, facilitating display and search advertising, 11 lead generation, video, e-commerce and subscriptions.
Omni-Vertical and Monetization Agnostic Service Offering —RAMP is designed to work across vertical consumer categories, efficiently leveraging consumer intent data matched to advertiser demand on a real-time basis. RAMP is also integrated with multiple forms of monetization, facilitating display and search advertising, lead generation, video, e-commerce and subscriptions.
Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls 7 and exposure to currency exchange fluctuations.
Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, data privacy laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls and exposure to currency exchange fluctuations.
We work to provide an environment where talented individuals and teams can thrive in fulfilling careers. To set our global team up for success, we define key competencies for roles that are aligned to our values and extend to all levels of leadership regardless of experience and role.
We work to foster an environment where talented individuals and teams can thrive in fulfilling careers. To set our global team up for success, we define key core competencies for roles that are aligned to our values and extend to all levels of leadership regardless of experience and role.
As advertisers, marketing partners and publishers seek to remain compliant with this evolving regulatory landscape, while avoiding the reputational and financial costs of potential investigations or fines, financial 9 penalties or private actions, first party intent data (i.e. consumer intent and related data properly collected and used directly by the party offering the service or media content) becomes increasingly more valuable.
As advertisers, marketing partners and publishers seek to remain compliant with this evolving regulatory landscape, while avoiding the reputational and financial costs of potential investigations or fines, financial penalties or private actions, first party data regarding intent or trending topics (i.e. consumer intent and related data properly collected and used directly by the party offering the service or media content) becomes increasingly more valuable.
RAMP also allows third party advertising platforms and publishers (“Network Partners”) to send user traffic to, and monetize user traffic on, our owned and operated websites or throughout our monetization agreements.
RAMP also allows third party advertising platforms and publishers (“Network Partners”) to send user traffic to, and monetize user traffic on, our owned and operated websites or through our monetization agreements.
In the United States, both federal and state legislation govern activities such as the collection and use of data, and privacy in the advertising technology industry has frequently been subject to review by the Federal Trade Commission (the “FTC”), U.S. Congress, and individual state governments.
In the United States, both federal and state legislation govern activities such as the collection and use of personal data, and privacy matters impacting the advertising technology industry has frequently been subject to review by the Federal Trade Commission (the “FTC”), U.S. Congress, and individual state governments.
Our Strengths We believe that we are well positioned to continue to deliver high performance marketing solutions, including in the delivery of optimized bids and higher return on advertising spend, through the following strengths: Proprietary Technology —The technology powering RAMP was designed to provide a dynamic closed-loop platform that is able to operate efficiently at scale, while optimizing in real-time across several key advertising considerations, including dynamic ad pricing, consumer intent and historical consumer interaction with relevant ad content.
Our Strengths We believe that we are well positioned to continue to deliver high performance marketing solutions, including in the delivery of optimized bids and higher return on advertising spend, through the following strengths: Proprietary Technology —The technology powering RAMP is designed to provide a dynamic closed-loop platform that operates efficiently at scale, while optimizing in real-time across several key digital advertising considerations, including dynamic ad pricing, consumer intent and historical user interaction with relevant ad content.
This seismic shift in and across digital advertising has placed a significant premium on advertising decisions that are based on actual consumer behavior and temporal data. We believe that the digital advertising market will continue to grow and evolve rapidly, and that advertisers will shift more of their advertising spend to these digital media channels.
This seismic shift in and across digital advertising has placed a significant premium on advertising decisions that are based on actual consumer behavior combined with temporal data. We believe that the digital advertising market will continue to grow and evolve rapidly, and that advertisers will shift more of their advertising spend to these quickly evolving digital media channels.
Our ability, like those of other advertising technology companies, to collect, process, augment, analyze, use and share data relies upon the ability to uniquely identify devices across websites and applications, and to collect data about user interactions with those devices for purposes such as serving relevant ads and measuring the 15 effectiveness of ads.
Our ability, like those of other advertising technology companies, to collect, process, augment, analyze, use and share data relies, in part, upon the ability to identify devices across websites and applications, and to collect and process data about user interactions with those devices for purposes such as serving relevant ads and measuring the effectiveness of ads.
We do not use this data to discover the identity of individuals, and we currently prohibit clients, data providers and inventory suppliers from importing data that directly identifies individuals onto our ad buying platform, though we do allow clients to share some directly identifying information, such as phone number and email address, with us for purposes of transforming that information into pseudonymous identifiers to use on our platform.
We do not use this data to discover the identity of individuals, and we currently prohibit partners, data providers and inventory suppliers from importing data onto our ad buying platform that directly identifies individuals, though we do allow partners to share some directly 14 identifying information, such as phone number and email addresses, with us for purposes of transforming that information into pseudonymous identifiers to use on our platform.
Regionally, North America and the rest of the world make up approximately 80% and 20% of our workforce, respectively. Diversity and Inclusion We are committed to fostering a culture of inclusion and belonging in which all employees are empowered to bring their whole, authentic selves to work every day.
Regionally, North America and the rest of the world make up approximately 99% and 1% of our workforce, respectively. Diversity and Inclusion We are committed to fostering a culture of diversity, inclusion and belonging in which all employees are empowered to bring their whole, authentic selves to work every day.
System1’s Focus on First Party Data —In addition to acquiring large volumes of user traffic via RAMP, upon reaching our websites, RAMP utilizes its proprietary access to our first party data in order to further qualify consumer intent and offer the most appropriate user experience and most effective monetization.
System1’s Focus on First Party Data —In addition to acquiring extensive amounts of our user traffic via RAMP, upon reaching our websites, RAMP utilizes its proprietary access to our first party data in order to further qualify consumer intent and offer the most appropriate user experience and most effective monetization.
Our leaders review the survey feedback and work with their teams to take action based on survey results. We demonstrate this commitment through a strategy of education, celebration, donations to the community, diversifying our talent, and creating forums for internal dialogue and listening. Our global leadership team is approximately 67% male and 33% female.
Our leaders review the survey feedback and work with their teams to take action based on survey results. We demonstrate this commitment through a comprehensive strategy that combines education, celebration, matching donations to the community, diversifying our talent, and creating forums for internal dialogue and listening. Our global leadership team is approximately 67% male and 33% female.
Such laws, regulations and industry standards may change from time to time, including those relating to the level of consumer notice, consent and/or choice required when a company employs cookies, pixels or other electronic tools to collect, process and share data about interactions with users online.
Such laws, regulations and industry standards may change from time to time, including those relating to the level of consumer notice, consent and/or choice required when a company employs cookies, pixels or other similar electronic identifiers or tags to collect, process and share data about users online interactions.
The components of RAMP include our programmatic buying platform, ad media interface, content and ad engine monetization decisioning, real-time revenue attribution, machine learning and data science algorithms, and back-end systems. As a result of the seamless integration of these proprietary technologies, we are able to continually improve performance as we incorporate additional data and evolving product enhancements.
The key components of RAMP include our programmatic buying platform, ad media interface, dynamic content and monetization serving, real-time revenue attribution, machine learning and data science algorithms, and back-end reporting systems. As a result of the seamless integration of these proprietary technologies, we are able to continually improve performance as we incorporate additional data and product enhancements.
For example, MapQuest is a web-based navigation software that delivers turn-by-turn direction services to users. Info.com is a metasearch engine that consumers can use to search for relevant information.
For example, MapQuest is a web-based navigation service that delivers turn-by-turn direction guidance to users. Info.com is a metasearch engine that consumers can use to search for relevant information.
We conduct an employee annual survey to give employees the opportunity to provide feedback on our culture. This survey is managed by a third-party vendor to encourage candor and solicit feedback on many aspects of engagement, including company 13 leadership, culture, inclusion, and career development.
We regularly conduct employee surveys to give employees the opportunity to provide feedback on our culture and direction. This survey is managed by a third-party vendor to encourage candor and solicit feedback on many aspects of engagement, including company leadership, culture, inclusion, and career development.
Network Partner Integrations —RAMP is seamlessly integrated with acquisition marketing channels, such as Google, Facebook, Zemanta, Taboola and Bing. This technical integration allows us to optimize our advertising campaigns and bids on a real-time basis, where RAMP processes over 28 million campaign optimizations per day.
Marketing Partner Integrations —RAMP is seamlessly integrated with leading acquisition marketing channels, such as Google, Facebook, Zemanta, Taboola, and TikTok. This technical integration allows us to continuously optimize our advertising campaigns and bids on a real-time basis, where RAMP processes over 187 million campaign optimizations per day.
We plan to expand the number of advertising partners that are utilizing or integrated with RAMP by continuing to attract and monetize users with commercial intent to our owned and operated web properties in high value vertical consumer categories. We will also continue to monetize users on behalf of our network partners. Expand Our Subscription Product Offerings .
We plan to expand the number of advertising partners that are utilizing or integrated with RAMP by continuing to attract and monetize users with commercial intent through our owned and operated web properties in high value vertical consumer categories. We will also continue to monetize users on behalf of our network partners. Continue Executing Strategic Acquisitions .
Additionally, Trebia’s ordinary shares and public warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.'s Class A common stock, $0.0001 par value per share ("Class A common stock" or "Class A Common Stock") and the public warrants (the "Public Warrants") began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.
Additionally, following the Merger, Trebia’s ordinary shares and Public Warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.s Class A common stock, $0.0001 par value per share (“Class A common stock”) and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.
The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock, Class C common stock, $.0001 par value per share ("Class C common stock" or "Class C Common Stock") and a combination of restricted stock units in System1 and cash awards.
The consideration paid to the existing equity holders of S1 Holdco and Protected in connection with the Merger was a combination of cash, Class A common stock, Class C common stock, $0.0001 par value per share ("Class C common stock") and, with respect to unvested equity S1 Holdco equity awards of the Closing Date, a combination of restricted stock units in System1 and cash awards.
Both digital audiences and consumer focused regulatory bodies and agencies are becoming increasingly focused on consumer and data privacy, including the collection and sharing of users' personal data, as advertisers, marketing partners and publishers place a premium on high-quality consumer intent data.
Both digital audiences and consumer focused regulatory bodies and agencies are becoming increasingly focused on consumer and data privacy, including the collection, processing, tracking and/or sharing of users' personal data or [consumer behavior/consumption habits] as advertisers, marketing partners and publishers place a premium on high-quality consumer intent data.
Refer to Note 3—MERGER of our consolidated financial statements included in this Annual Report on Form 10-K for additional information. Our Industry Today, advertisers seeking to reach their target consumers are confronted by significant operational and systemic challenges.
Refer to Note 3, Merger and Note 19, Discontinued Operations of our consolidated financial statements included in this Annual Report on Form 10-K for additional information. Our Industry Today, brands and advertisers seeking to effectively reach their target consumers or target audience are confronted by significant operational and systemic challenges.
The CPRA and new Colorado consumer privacy law similarly contemplate the use of technical opt-outs for the sale and sharing of personal information for advertising purposes, and allow for rulemaking to develop these technical signals.
The CPRA and new Colorado consumer privacy law similarly have been interpreted to require the use of technical opt-outs for the sale and sharing of personal information for advertising purposes, and allow for rulemaking to develop these technical signals.
The growing complexity and increasing speed of digital marketing and advertising decisions has increased the need for automation. Technology that enables fast, accurate and cost-effective decision-making through computer algorithms that use extensive (and iterative) data sets has become critical for the success of digital advertising campaigns.
The growing complexity and increasing high frequency speed of digital marketing and advertising decisions has significantly increased the need for constant and quicker automation. Technology that enables fast, accurate and cost-effective decision-making through computer algorithms that use extensive (and iterative) data sets has become critical for the long-term success of digital advertising campaigns.
Through our network of owned and operated websites, we have access to valuable first party intent data, which our platform combines with real-time feedback on the intent-driven consumer’s reaction to ads, thereby increasing the value of user traffic sent to advertisers and the publishers on which they are displayed. Automation of Ad Buying .
Through our portfolio of owned and operated websites, we have access to valuable first party intent data, which our platform combines with real-time feedback on the intent-driven consumer’s interaction with rendered ads, thereby increasing the value of user traffic sent to advertisers and the publishers on which such advertisements are displayed. Automation of Ad Buying .
Proven M&A Experience —We seek out complimentary or ancillary businesses where we can benefit from identified synergies by relying on our industry expertise, significant acquisition experience and in-house strategies to seamlessly integrate targets into RAMP.
Proven M&A Experience —We seek out complimentary or ancillary businesses where we can benefit from identified synergies through our industry expertise, significant acquisition experience and in-house strategies to seamlessly integrate targets onto our RAMP platform.
To ensure we live our values, and our culture stays unique and strong, our board of directors (the "Board" or the "Board of Directors") and executive team have put significant focus on our human capital resources. As of December 31, 2022, we had 500 full-time employees in 5 countries.
To ensure we live our values, and our culture stays unique and strong, our board of directors (the "Board" or the "Board of Directors") and executive team have put significant focus on our human capital resources. 12 As of December 31, 2023, we had approximately 300 full-time employees in 3 countries.
Advertising buying platforms are not able to offer our data-science and algorithmic driven optimization of real-time bids. Most digital marketing providers are confined to a few forms of monetization, like lead generation or display advertising, and are typically not agnostic as to which method of monetization they employ.
Advertising buying platforms are not able to offer our data-science and algorithmic driven optimization which we use to improve real-time bids. Most digital marketing providers are confined to a few forms of monetization, such as lead generation or display advertising services, and are not typically agnostic as to which method of monetization they employ or advertising category vertical reached.
The CCPA also includes a potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
The CCPA also includes a potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. The CCPA also offers the possibility to a consumer to recover statutory damages for certain violations related to data breaches.
Since launching, it has expanded to support additional advertising formats across numerous advertising platforms, and has acquired several leading websites, enabling it to control user acquisition and experience, and monetize user traffic on its behalf via its network of owned and operated websites.
Since launching, we have expanded to support additional advertising formats across numerous advertising platforms, and have acquired several leading websites, enabling us to control user acquisition and experience, and monetize user traffic on our behalf via our network of owned and operated websites.
We believe we are well positioned to address these challenges and match consumer demand with the appropriate advertiser, regardless of seasonality or economic cycle. Some of the key industry trends are as follows: Advertisers Have Significantly Shifted Their Budgets from Traditional Media to a Diverse Array of Digital Channels .
We believe we are well positioned to address these challenges and match consumer demand with the appropriate brand in a given advertising category vertical, regardless of seasonality or economic cycle. Some of the key industry trends include: Advertisers Have Significantly Shifted Their Budgets from Traditional Media to a Diverse Array of Digital Channels .
We believe that we are differentiated from our competitors in the following areas: • we are an independent technology company focused on serving advertisers on the buy-side of our industry; • our client relationships are primarily based on auction platforms, where our success is determined by the quality and performance of our users for our advertising partners; • our platform provides comprehensive access to a wide range of inventory types and third-party data vendors; and • our platform allows clients to build proprietary advantages by integrating custom features and interfaces for their own use through our application programming interfaces, or APIs.
We believe that we are differentiated from our competitors in the following areas: • we are an independent technology company focused on serving advertisers on the buy-side of our industry; • our network partner and advertising relationships are primarily based on the quality of our traffic, where our long-term success is determined by the quality and performance of our users for our advertising partners relative to our competition; • our platform provides comprehensive access to a wide range of inventory types across multiple advertising verticals; and • our platform allows clients to build proprietary advantages by integrating custom features and interfaces for their own use through our application programming interfaces, or APIs.
Additionally, spending on global digital advertising accounted for approximately 65% of total global advertising spend in 2021, a percentage that is expected to grow to almost 71% in 2025, continuing a trend of supplanting traditional advertising models to support advertisers’ customer acquisition efforts. Digital marketing has become an increasingly complex ecosystem due to several trends.
Additionally, spending on global digital advertising accounted for approximately 67% of total global advertising spend in 2022, a percentage that is expected to grow to almost 72% in 2026, continuing a steady trend of supplanting traditional advertising models to support bands and advertisers’ customer acquisition efforts. Digital marketing has become an increasingly complex ecosystem due to several trends.
Our platform analyzes user interactions, builds a 10 comprehensive view of the customer’s intent and enables advertisers to maximize return on their spend.
Our platform analyzes various user interactions, develops a comprehensive view of the 10 customer’s intent in real time and enables advertisers to maximize return on their spend.
Continue Executing Strategic Acquisitions . We believe we are operating in a target-rich environment for strategic acquisitions that will enhance RAMP and add to our portfolio of owned and operated websites and subscription offerings.
We believe that we operate in a target-rich environment for strategic acquisitions that will enhance RAMP and add to our portfolio of owned and operated websites and web-utility offerings.
By using programmatic inventory buying tools, advertisers are able to automate their campaigns, thereby providing them with better price discovery on an impression-by-impression basis.
By using programmatic inventory buying tools, advertisers automate their campaigns in order to provide them with better price discovery on an impression-by-impression basis.
The aggregate consideration under the BCA was $440,155 of cash and $411,453 of equity. Additionally, the aggregate Class B units in S1 Holdco retained by S1 Holdco equity holders at the Closing Date resulted in a non-controlling interest with an estimated value of $198,691.
The aggregate consideration under the Business Combination Agreement was $440.2 million of cash and $411.5 million of equity of System1. Additionally, the aggregate Class B units in S1 Holdco retained by S1 Holdco equity holders at the Closing Date resulted in a non-controlling interest with an estimated value of $198.7 million.
Such data is passed to us from third parties, including original equipment manufacturers, application providers and publishers.
Such data can be passed to us from various third parties, including device type original equipment manufacturers and application providers and publishers.
The first party intent data that we are able to capture from our owned and operated search and media sites is a differentiated element of our platform enabling more informed and targeted decision-making in the bid parameters that we provide to our network partners. Subscription Products —Our current subscription product, TotalAV, is a source of recurring subscription revenue.
The first party intent data that we are able to capture from our owned and operated search and digital media sites is a differentiated element of our platform enabling more informed and targeted decision-making in the bid parameters that we use for our own traffic acquisition efforts and provide to our network partners.
In addition, the recently-passed California Privacy Rights Act (the "CPRA"), which updates and supplements the CCPA, as well as similar laws recently adopted in Virginia, Colorado, Connecticut and Utah, will impose additional notice and opt out obligations on the digital advertising space, including an obligation to provide a prominent opt out for behavioral advertising.
In addition, the California Privacy Rights Act (the "CPRA") (which amends and further implements the CCPA), as well as similar laws which have recently gone into effect in Virginia, Colorado, Connecticut and Utah, impose additional notice and opt out obligations in the digital advertising ecosystem, including an obligation to provide a prominent opt out for behavioral advertising.
We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform (“RAMP”). Operating seamlessly across major advertising networks and advertising category verticals to acquire users, RAMP allows us to monetize these acquired users through our relationships with third party advertisers and advertising networks (“Advertising Partners”).
Operating seamlessly across major advertising networks and advertising category verticals to acquire end-users, RAMP allows us to monetize these acquired users through our relationships with third party advertisers and advertising networks (“Advertising Partners”).
Spending on global digital advertising has grown rapidly, reaching an estimated $523 billion in 2021, and is projected to grow to an estimated $766 billion in 2025.
Spending on global digital advertising has grown rapidly, reaching an estimated $555 billion in 2022, and is projected to grow to an estimated $744 billion in 2026.
The shift to digital performance-based advertising models can be explained by mounting pressure on advertisers to demonstrate tangible results against their advertising efforts, and the corresponding shift of advertising budgets to distribution channels that facilitate the ability to better monitor results. We have designed RAMP to specifically address this constantly evolving landscape.
The shift to digital performance-based advertising models can be explained by mounting pressure on bands and advertisers (and their agencies) to demonstrate tangible results against their advertising efforts, and the corresponding shift of advertising budgets to distribution channels that facilitate the ability to better monitor results in real time.
As a result, we have built a robust and valuable asset consisting of proprietary first party data based on more than 550 million distinct search queries a month.
We have built a robust and valuable asset consisting of proprietary first party data that is continuously enhanced based on more than 570 million distinct search queries that run through RAMP each a month.
Media content and advertising is increasingly becoming digital due to rapid advances in technology, increasing distribution channels and changes in consumer behavior. This shift has facilitated an unprecedented array of options for advertisers to better target and measure their advertising campaigns across nearly every media channel and device-type.
Media content and advertising is increasingly consumed via digital channels or on digitally connected devices due to rapid advances in technology, increasing distribution channels and changes in consumer behavior. This shift has facilitated an unprecedented array of options for advertisers to better direct and measure the effectiveness of their advertising campaigns across media channels and device-types in real time.
Individual media consumption is becoming more individualized and fragmented, as the audience spends more time on an increasing number of personal devices while deciding what media to consume and search for rather than having those choices made for them in a large consistent platform.
Media consumption is becoming more individualized and fragmented, as the audience spends more time on an increasing number of personal devices while deciding what media to consume and when they consume it, including what products and services they may be searching information for, rather than having those choices made for them in on large legacy platform (i.e. linear television, radio, print media) to a single large audience.
The Merger On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022) (the "Business Combination Agreement" or “BCA”) by and among us, S1 Holdco and System1 SS Protected Holdings, Inc. (“Protected”).
The Trebia Merger 7 On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (“Business Combination Agreement”) by and among us, S1 Holdco and Total Security Limited, formerly known as Protected.net Group Limited (“Protected”) .
For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing.
For example, many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing and spending habits. Historically, the fourth quarter of the year reflects our highest level of advertising activity, while the first quarter reflects the lowest level of such activity.
On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the BCA. Following the consummation of the Merger, the combined company was organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco.
Following the consummation of the Merger, the combined company was organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco, and our combined business continues to operate through the domestic and foreign subsidiaries of S1 Holdco.
We have historically evaluated acquisition opportunities along several criteria, including building strong brands in advertising verticals, diversifying monetization capabilities, developing and augmenting new user acquisition channels, accelerating international growth and demonstrating expansion of our owned and operated properties. Experienced Management Team —Our management team is founder-led, with a deep bench across product, engineering, business & corporate development and compliance.
We have historically evaluated acquisition opportunities along several key criteria, including building strong brands in a broad group of 11 advertising verticals, diversifying monetization capabilities, developing and augmenting new user acquisition channels, accelerating international growth and opportunities for expansion of our owned and operated properties.
Monetizing User Traffic for Our Network Partners —We monetize user traffic on behalf of our more than 135 network partners, which include Yahoo!, WebMD and Publisher’s Clearing House. These network partners are companies that direct traffic to us in exchange for a share of advertising revenue. In 2022, we processed over 1.4 billion sessions.
Monetizing User Traffic for Our Network Partners —We also monetize user traffic on behalf of our more than 200 network partners, which include Yahoo!, WebMD and Publisher’s Clearing House. These network partners direct their acquired traffic through RAMP in exchange for a share of advertising revenue generated through the platform. In 2023, we processed over 2.7 billion network partner sessions.
References to “Notes” are notes included in our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. All figures are presented in thousands, except percentages, rates and unless otherwise noted. Overview We operate an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and marketing antivirus software packages to end user customers.
References to “Notes” are notes included in our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. Overview We operate an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers . We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform (“RAMP”).
This data is stored within our platform, so that it can be analyzed and iteratively enriched as consumers return to our websites and continue to interact with us. When this data is fed into our data science and machine learning algorithms, it becomes a powerful tool for identifying new monetization opportunities and increasing return on advertising spend.
When this data is fed into our data science and machine learning algorithms, it becomes a powerful tool for identifying new monetization opportunities and increasing return on advertising spend.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur remediation plan consists of the following: • Hiring additional senior level accounting personnel with applicable technical accounting knowledge, training and experience in accounting matters, supplemented by third-party resources; • Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls over segregation of duties; • Engaging an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting based on the criteria established in Internal Control 31 - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission; • Engaging third-party experts to assist with the preparation of technical accounting analyses and valuations associated with business combinations; • Designing and implementing controls related to accounting for acquisitions and other technical accounting and financial reporting matters, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, tax impacts, and ongoing recording of the financial statement results of the acquired businesses; • Designing and implementing formal accounting policies, procedures and controls supporting our period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, business performance reviews, foreign exchange gains/losses for intercompany transactions, and classification and presentation of accounts and disclosures, including the statement of cash flows; • Designing and implementing controls over the completeness and accuracy of accrued liabilities, stock-based compensation and equity transactions; • Designing and implementing controls related to accounting for complex financial instruments, including the earnings per share impacts; • Designing and implementing controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment; • Implementing an enhanced enterprise resource planning software for automation and enforcing segregation of duties across the organization; and • Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.
Biggest changeOur remediation plan consists of the following: • Assessing the need of additional senior level accounting personnel with applicable technical accounting knowledge, training, and experience in accounting matters, and hiring the appropriately skilled resources, supplemented by third-party resources; • Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls ensuring segregation of duties; • Engaged an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission; • Engaged third-party specialists to assist with the preparation of technical accounting analyses and valuations associated with business combinations, and ensuring adequate review by accounting personnel with applicable technical accounting knowledge, training, and experience in accounting for business combinations or dispositions; • Designing and implementing controls to address the financial reporting risks over the accounting for dispositions, acquisitions and other complex, non-routine transactions, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, tax impacts, and ongoing recording of the financial statement results of the acquired businesses; • Designing and implementing formal accounting policies with periodic reviews, procedures and controls supporting our period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, business performance reviews, foreign exchange gains/losses for intercompany transactions, appropriate determination of asset groups for impairment consideration and classification and presentation of accounts and disclosures, including the statement of cash flows; • Designing and implementing controls to address the financial reporting risks over accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest; 30 • Designing and implementing controls to address the financial reporting risks over the accounting for complex financial instruments, including the earnings per share impacts; • Designing and implementing controls to address the financial reporting risks over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment; • Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.
These material weaknesses resulted in the restatement of the Company's condensed consolidated financial statements: as of March 31, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and for the successor period from January 27, 2022 to March 31, 2022; as of June 30, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and for the successor periods for the three months ended June 30, 2022 and from January 27, 2022 to June 30, 2022; and as of September 30, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and for the successor periods for the three months ended September 30, 2022 and from January 27, 2022 to September 30, 2022.
These material weaknesses resulted in the restatement of the Company's condensed consolidated financial statements: as of March 31, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and for the successor period from January 27, 2022 to March 31, 2022; as of June 30, 2022 and the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended June 30, 2022 and from January 27, 2022 to June 30, 2022; and as of September 30, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended September 30, 2022 and from January 27, 2022 to September 30, 2022.
You may not be able to resell your shares at an attractive price due to a number of factors such as those listed in this section and the following: • our operating and financial performance and prospects; 49 • our quarterly or annual earnings or those of other companies in our industry compared to market expectations; • conditions that impact demand for our products; • future announcements concerning our business, our customers’ businesses or our competitors’ businesses; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • the size of our public float; • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; • market and industry perception of our success, or lack thereof, in pursuing our growth strategy; • strategic actions by us or our competitors, such as acquisitions or restructurings; • changes in laws or regulations that adversely affect our industry or us; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in senior management or key personnel; • issuances, exchanges or sales, or expected issuances, exchanges or sales, of our capital stock; • changes in our dividend policy; • adverse resolution of new or pending litigation against us; and • changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events.
You may not be able to resell your shares at an attractive price due to a number of factors such as those listed in this section and the following: • our operating and financial performance and prospects; • our quarterly or annual earnings or those of other companies in our industry compared to market expectations; • conditions that impact demand for our products; • future announcements concerning our business, our customers’ businesses or our competitors’ businesses; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • the size of our public float; • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; • market and industry perception of our success, or lack thereof, in pursuing our growth strategy; • strategic actions by us or our competitors, such as acquisitions or restructurings; • changes in laws or regulations that adversely affect our industry or us; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in senior management or key personnel; 49 • issuances, exchanges or sales, or expected issuances, exchanges or sales, of our capital stock; • changes in our dividend policy; • adverse resolution of new or pending litigation against us; and • changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events.
We anticipate continued growth would require substantial financial and other resources to, among other things: • develop our existing websites, invest in RAMP and our other software products, including by investing in our engineering team, creating, acquiring or licensing new products or features, and improving the availability and security of our platform and product offerings; • create new products and services to meet consumer and partner demands; • continue to expand internationally by and spend through RAMP by adding inventory and data from countries our clients are seeking; • improve our technology infrastructure, including investing in internal technology development and acquiring or licensing outside technologies; • cover general and administrative expenses, including legal, accounting, tax and other third party expenses necessary to support a larger organization; • cover sales and marketing expenses, including a significant expansion of our direct sales organization; • cover expenses related to data collection and consumer privacy compliance, including additional infrastructure, automation and personnel; and • explore strategic acquisitions.
We anticipate continued growth would require substantial financial and other resources to, among other things: • develop our existing websites, invest in RAMP and our other software products, including by investing in our engineering team, creating, acquiring or licensing new products or features, and improving the availability and security of our platform and product offerings; • create new products and services to meet consumer and partner demands; • continue to expand internationally by and spend through RAMP by adding inventory and data from countries our clients are seeking; • improve our technology infrastructure, including investing in internal technology development and acquiring or licensing outside technologies; 26 • cover general and administrative expenses, including legal, accounting, tax and other third party expenses necessary to support a larger organization; • cover sales and marketing expenses, including a significant expansion of our direct sales organization; • cover expenses related to data collection and consumer privacy compliance, including additional infrastructure, automation and personnel; and • explore strategic acquisitions.
The development and introduction of new subscription solutions involve a significant commitment of time and resources, and are subject to a number of risks and challenges, including, but not limited to: • Lengthy development cycles; • Continually evolving industry and regulatory standards and technological developments by our competitors; 22 • Rapidly changing customer preferences; • Evolving platforms, operating systems, and hardware products, such as the proliferation and rapid improvements of mobile devices; • Product and service interoperability challenges with customer’s multi-device technology needs and third-party vendors; • The integration of products or solutions from newly acquired offerings; • Entering into new or unproven markets and product verticals; and • Executing against new product, service and marketing strategies.
The development and introduction of new subscription solutions involve a significant commitment of time and resources, and are subject to a number of risks and challenges, including, but not limited to: • Lengthy development cycles; • Continually evolving industry and regulatory standards and technological developments by our competitors; • Rapidly changing customer preferences; • Evolving platforms, operating systems, and hardware products, such as the proliferation and rapid improvements of mobile devices; • Product and service interoperability challenges with customer’s multi-device technology needs and third-party vendors; • The integration of products or solutions from newly acquired offerings; • Entering into new or unproven markets and product verticals; and • Executing against new product, service and marketing strategies.
To the extent we are unable to effectively engage with non-U.S. advertising agencies or companies or international divisions of U.S. agencies or companies due to our limited sales force capacity, or we are unable to secure quality non-U.S. ad inventory and data on reasonable terms due to our limited inventory and data team capacity, we may be unable to effectively grow in international markets. • Our international operations subject us to a variety of additional risks, including: • increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations; • long payment cycles; • potential complications enforcing contracts and collections; • increased financial accounting and reporting burdens and complexities; • concerns regarding negative, unstable or changing economic conditions in the countries and regions where we operate; • increased administrative costs and risks associated with compliance with local laws and regulations, including relating to privacy and data security; 34 • regulatory and legal compliance, including with privacy and cybersecurity laws, anti-bribery laws, import and export control laws, economic sanctions and other regulatory limitations or obligations on our operations; • heightened risks of unfair or corrupt business practices and of improper or fraudulent sales arrangements; • difficulties in invoicing and collecting in foreign currencies; • foreign currency exposure risk; • difficulties in repatriating or transferring funds from or converting currencies; • administrative difficulties, costs and expenses related to various local languages, cultures and political nuances; • varied labor and employment laws, including those relating to termination of employees; • reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and • compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes.
To the extent we are unable to effectively engage with non-U.S. advertising agencies or companies or international divisions of U.S. agencies or companies due to our limited sales force capacity, or we are unable to secure quality non-U.S. ad inventory and data on reasonable terms due to our limited inventory and data team capacity, we may be unable to effectively grow in international markets. • Our international operations subject us to a variety of additional risks, including: • increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations; • long payment cycles; • potential complications enforcing contracts and collections; • increased financial accounting and reporting burdens and complexities; • concerns regarding negative, unstable or changing economic conditions in the countries and regions where we operate; • increased administrative costs and risks associated with compliance with local laws and regulations, including relating to privacy and data security; • regulatory and legal compliance, including with privacy and cybersecurity laws, anti-bribery laws, import and export control laws, economic sanctions and other regulatory limitations or obligations on our operations; • heightened risks of unfair or corrupt business practices and of improper or fraudulent sales arrangements; • difficulties in invoicing and collecting in foreign currencies; 33 • foreign currency exposure risk; • difficulties in repatriating or transferring funds from or converting currencies; • administrative difficulties, costs and expenses related to various local languages, cultures and political nuances; • varied labor and employment laws, including those relating to termination of employees; • reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and • compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes.
The Warrant Agreement provides that in the following circumstances holders of Warrants who seek to exercise their Warrants will not be permitted to do so for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the shares of Common Stock issuable upon exercise of the Warrants are not registered under the Securities Act in accordance with the terms of the Warrant 51 Agreement; (ii) if we have so elected and the shares of Common Stock are at the time of any exercise of a Warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the Public Warrants for redemption.
The Warrant Agreement provides that in the following circumstances holders of Warrants who seek to exercise their Warrants will not be permitted to do so for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i) if the shares of common stock issuable upon exercise of the Warrants are not registered under the Securities Act in accordance with the terms of the Warrant Agreement; (ii) if we have so elected and the shares of common stock are at the time of any exercise of a Warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected and we call the Public Warrants for redemption.
These changes could affect: • the liability of online service providers for actions by customers, including fraud, illegal content, spam, phishing, libel and defamation, hate speech, infringement of third-party intellectual property and other abusive conduct; • other claims based on the nature and content of Internet materials; • user data privacy and security issues; • consumer protection risks; • digital marketing aspects; • characteristics and quality of services; • our ability to automatically renew the premium subscriptions of our users; • cross-border e-commerce issues; and • ease of access by our users to our product offerings, including RAMP.
These changes could affect: • the liability of online service providers for actions by customers, including fraud, illegal content, spam, phishing, libel and defamation, hate speech, infringement of third-party intellectual property and other abusive conduct; • other claims based on the nature and content of Internet materials; • user data privacy and security issues; • consumer protection risks; • digital marketing aspects; • characteristics and quality of services; 37 • our ability to automatically renew the premium subscriptions of our users; • cross-border e-commerce issues; and • ease of access by our users to our product offerings, including RAMP.
Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or obtaining the financing for the acquisition, and our due diligence may fail to identify all of the problems, risks, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or technology infrastructure and architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or client issues, and other issues including, but not limited to, the following: • regulatory requirements or delays; • anticipated benefits and synergies may not materialize; • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • retention of key employees from the acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s products and technology; 35 • integration of the acquired company’s accounting, management information, human resources and other administrative systems; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • coordination of product development and sales and marketing functions; • liability for activities of the acquired company before the acquisition, including relating to privacy and data security, patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
Even if we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms or obtaining the financing for the acquisition, and our due diligence may fail to identify all of the problems, risks, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or technology infrastructure and architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or client issues, and other issues including, but not limited to, the following: • regulatory requirements or delays; • anticipated benefits and synergies may not materialize; • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • retention of key employees from the acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s products and technology; • integration of the acquired company’s accounting, management information, human resources and other administrative systems; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • coordination of product development and sales and marketing functions; 34 • liability for activities of the acquired company before the acquisition, including relating to privacy and data security, patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
While the material weaknesses identified remain unremediated, or if we identify additional weaknesses or 32 fail to timely and successfully implement new or improved controls, our ability to assure timely and accurate financial reporting may be adversely affected, and we could suffer a loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our shares of common stock, result in lawsuits being filed against us by our stockholders, or otherwise harm our reputation.
While the material weaknesses identified remain unremediated, or if we identify additional weaknesses or fail to timely and successfully implement new or improved controls, our ability to assure timely and accurate financial reporting may be adversely affected, and we could suffer a loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our shares of common stock, result in lawsuits being filed against us by our stockholders, or otherwise harm our reputation.
There are numerous federal, state and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other current or pending rules.
There are numerous federal, state and local laws in the United States and around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, cross-border transfer and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which 20 may be costly to comply with, may result in regulatory fines or penalties, and may be inconsistent between countries and jurisdictions or conflict with other current or pending rules.
District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement 52 action”), and (y) having service of process made upon such Warrant holder in any such enforcement action by service upon such Warrant holder’s counsel in the foreign action as agent for such Warrant holder.
District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such Warrant holder in any such enforcement action by service upon such Warrant holder’s counsel in the foreign action as agent for such Warrant holder.
Our ability to attract and retain advertisers, and to generate advertising revenue from them, depends on a number of factors, including: • the ability of our advertisers to earn an attractive return on investment from their spending with us; • our ability to increase the number of consumers using our websites; • our ability to increase return on investment for advertisers that place advertisements on our platform; • our ability to provide a seamless, user-friendly advertising platform for our advertisers; • our ability to compete effectively with other media for advertising spending; and • our ability to keep pace with changes in technology and the practices and offerings of our competitors.
Our ability to attract and retain advertisers, and to generate advertising revenue from them, depends on a number of factors, including: • the ability of our advertisers to earn an attractive return on investment from their spending with us; • our ability to increase the number of consumers using our websites; • our ability to increase return on investment for advertisers that place advertisements on our platform; 25 • our ability to provide a seamless, user-friendly advertising platform for our advertisers; • our ability to compete effectively with other media for advertising spending; and • our ability to keep pace with changes in technology and the practices and offerings of our competitors.
The Privacy Shield Framework, however, was struck down in July 2020 by the EU Court of Justice (a decision referred to as “Schrems II”) as an adequate mechanism by which EU companies may pass personal data to the United States, and other EU mechanisms for adequate data transfer, such as the standard contractual clauses, were questioned by the Court of Justice and whether and how standard contractual clauses can be used to transfer personal data to the United States is in question.
The Privacy Shield Framework, however, was struck down in July 2020 by the EU Court of Justice (a decision referred to as “Schrems II”) as an adequate mechanism by which EU companies may pass personal data to the United States, and other EU 40 mechanisms for adequate data transfer, such as the standard contractual clauses, were questioned by the Court of Justice and whether and how standard contractual clauses can be used to transfer personal data to the United States is in question.
Subject to limited exceptions, these covenants limit our ability to, among other things: • sell assets or make changes to the nature of our business; • engage in mergers or acquisitions; • incur, assume or permit additional indebtedness; • make restricted payments, including paying dividends on, repurchasing, redeeming or making distributions with respect to our capital stock; • make specified investments; 23 • engage in transactions with our affiliates; and • make payments in respect of subordinated debt.
Subject to limited exceptions, these covenants limit our ability to, among other things: • sell assets or make changes to the nature of our business; • engage in mergers or acquisitions; • incur, assume or permit additional indebtedness; • make restricted payments, including paying dividends on, repurchasing, redeeming or making distributions with respect to our capital stock; • make specified investments; • engage in transactions with our affiliates; and • make payments in respect of subordinated debt.
If we are unable to cost-effectively acquire users or provide value to our advertising partners based on their traffic acquisition costs, they may decline to utilize us to acquire and monetize users, which would harm our revenue and operating results. A meaningful portion of our revenue is attributable to our agreements with Google, and therefore is subject to their practices.
If we are unable to cost-effectively acquire users or provide value to our advertising partners based on their traffic acquisition costs, they may decline to utilize us to acquire and monetize users, which would harm our revenue and operating results. A meaningful portion of our revenue is attributable to our agreements with Google, and therefore is subject to its practices.
We are currently subject to a variety of, and may in the future become subject to additional, international, federal, state and local laws that are continuously evolving and developing, including laws regarding Internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the CAN-SPAM Act, the Digital Millennium Copyright Act and the Communications Decency Act.
We are currently subject to a variety of, and may in the future become subject to additional, international, 39 federal, state and local laws that are continuously evolving and developing, including laws regarding Internet-based businesses and other businesses that rely on advertising, as well as privacy and consumer protection laws, including the CAN-SPAM Act, the Digital Millennium Copyright Act and the Communications Decency Act.
If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected. Additionally, we must continually address the challenges of dynamic and accelerating market 26 trends and competitive developments. Customers may require features and capabilities that our current solutions do not have.
If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected. Additionally, we must continually address the challenges of dynamic and accelerating market trends and competitive developments. Customers may require features and capabilities that our current solutions do not have.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control, including seasonality, 27 fluctuations in digital advertising demand and costs and the number, severity, and timing of threat outbreaks and cyber security incidents.
Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of a variety of factors, some of which are outside of our control, including seasonality, fluctuations in digital advertising demand and costs and the number, severity, and timing of threat outbreaks and cyber security incidents.
If a website publisher decides not to make advertising inventory available to us, or decides to demand a higher revenue share or places significant restrictions on the use of such inventory, we may not be able 37 to find advertising inventory from other websites that satisfy our requirements in a timely and cost-effective manner.
If a website publisher decides not to make advertising inventory available to us, or decides to demand a higher revenue share or places significant restrictions on the use of such inventory, we may not be able to find advertising inventory from other websites that satisfy our requirements in a timely and cost-effective manner.
In addition, we cannot predict or estimate the amount of additional costs we may incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses. These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly.
In addition, we cannot predict or estimate the amount of additional costs we may 50 incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses. These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly.
We use device identifiers to help us achieve our advertisers’ campaign goals, including to limit the 43 instances that an Internet user sees the same advertisement, report information to our advertisers regarding the performance of their advertising campaigns, and detect and prevent malicious behavior and invalid traffic throughout our network of inventory.
We use device identifiers to help us achieve our advertisers’ campaign goals, including to limit the instances that an Internet user sees the same advertisement, report information to our advertisers regarding the performance of their advertising campaigns, and detect and prevent malicious behavior and invalid traffic throughout our network of inventory.
We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the initial public offering of Trebia; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our Common Stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th in which case we would no longer be an emerging growth company as of the following December 31.
We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the initial public offering of Trebia; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th in which case we would no longer be an emerging growth company as of the following December 31.
If we fail to build and maintain our brands, our ability to expand the use of our websites and software products by advertisers and consumers, respectively, may be adversely affected. 33 Our future success depends upon our ability to create and maintain brand recognition and a reputation for delivering easy, efficient and personal technology solutions.
If we fail to build and maintain our brands, our ability to expand the use of our websites and software products by advertisers and consumers, respectively, may be adversely affected. Our future success depends upon our ability to create and maintain brand recognition and a reputation for delivering easy, efficient and personal technology solutions.
Certain of these metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business. In addition, the metrics we provide may differ from estimates published by third parties or from similar metrics of our competitors due to differences in methodology.
Certain of these metrics are subject to inherent challenges in 22 measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business. In addition, the metrics we provide may differ from estimates published by third parties or from similar metrics of our competitors due to differences in methodology.
In addition, third parties, including operating systems and Internet browser companies, may take steps to further limit the interoperability of our solutions with their own products and services, in some cases to promote their own offerings. This could delay the development of our solutions or our solutions may be unable to operate effectively.
In addition, third parties, including operating systems and Internet browser companies, may take steps to further limit the interoperability of our solutions with their own products and services, in some cases to promote their own offerings. This could delay the development of 27 our solutions or our solutions may be unable to operate effectively.
Anti-corruption laws have been enforced with great rigor in recent years and are interpreted broadly and prohibit companies and their employees and their agents from making or offering improper payments or other benefits to government officials 40 and others in the private sector.
Anti-corruption laws have been enforced with great rigor in recent years and are interpreted broadly and prohibit companies and their employees and their agents from making or offering improper payments or other benefits to government officials and others in the private sector.
We may experience outages and disruptions on RAMP, our websites and other software products if we fail to maintain adequate security and supporting infrastructure as we scale RAMP, websites and other software products, which may harm our reputation and negatively impact our business, financial condition and operating results.
We may experience outages and disruptions on RAMP, our websites and other software products if we fail to maintain adequate security and supporting infrastructure as we scale RAMP, websites and other software 31 products, which may harm our reputation and negatively impact our business, financial condition and operating results.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws).
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws).
If some investors find the securities less attractive as a result of reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
If some investors find the securities less attractive as a result of reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a 48 less active trading market for our securities and the trading prices of our securities may be more volatile.
Digital advertising mostly relies on the ability to uniquely identify devices across websites and applications, and to collect data about user interactions with those devices for purposes such as serving relevant ads and measuring the effectiveness of ads.
Digital advertising mostly relies on the ability to uniquely identify devices across websites and applications, and to collect data about user interactions with those devices for purposes such as serving relevant ads and 42 measuring the effectiveness of ads.
Debt securities convertible into 48 equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
We collect, process, store, share, disclose and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business and operating results. 20 Use of our technology solutions involves the storage and transmission of certain consumers’ information, including limited amounts of personally identifiable information.
We collect, process, store, share, disclose and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business and operating results. 19 Use of our technology solutions involves the storage and transmission of certain consumers’ information, including limited amounts of personally identifiable information.
While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code 45 or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous.
While we monitor our use of open source 44 software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous.
Enforceability of the non-compete agreements that we have in place is not guaranteed, and contractual restrictions could be breached without discovery or adequate remedies. While the Company has a few legacy patents, we may not be able to obtain any further patents, and our pending applications may not result in the issuance of patents.
Enforceability of the non-compete agreements that we have in place is not guaranteed, and contractual restrictions could be breached without discovery or adequate remedies. While we have a few legacy patents, we may not be able to obtain any further patents, and our pending applications may not result in the issuance of patents.
If we raise additional funds through future issuances 24 of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
If we raise additional funds through future issuances 23 of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Our revenue is tied to the effectiveness and performance of our Responsive Acquisition Marketing Platform. 19 If RAMP does not acquire users with the relevant commercial intent to our websites via acquisition marketing channels, we may not be able to profitability monetize users.
Our revenue is tied to the effectiveness and performance of our Responsive Acquisition Marketing Platform. 18 If RAMP does not acquire users with the relevant commercial intent to our websites via acquisition marketing channels, we may not be able to profitability monetize users.
If we are unable to anticipate or react to these continually evolving conditions, or if we make bad decisions regarding investments, we could lose market share and experience a decline in our revenues that could adversely affect our business and operating results.
If we are unable to anticipate or react to these continually evolving conditions, or if we make bad decisions regarding investments, we could lose market share and experience a decline in our revenue that could adversely affect our business and operating results.
In addition, we did not design and maintain effective controls relating to the oversight and ongoing recording of the financial statement results of the acquired businesses. • We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over (i) the preparation and review of business performance reviews, account reconciliations and journal entries, and (ii) maintaining appropriate segregation of duties.
In addition, we did not design and maintain effective controls relating to the oversight and ongoing recording of the financial statement results of the acquired businesses. • We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over (i) the preparation and review of business performance reviews, account reconciliations journal entries, and identification of asset groups and (ii) maintaining appropriate segregation of duties.
In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance that there will be a corresponding increase in our business.
In addition, the expansion and improvement of our IT systems may require us to commit substantial financial, operational and technical resources, with no assurance that there will be a corresponding increase in our business.
If we fail to respond to continuing technological changes or to adequately maintain, expand, upgrade and develop our systems and infrastructure in a timely fashion, our growth prospects and results of operations could be adversely affected.
If we fail to respond to continuing technological changes or to adequately maintain, expand, upgrade and develop our IT systems in a timely fashion, our growth prospects and results of operations could be adversely affected.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our existing credit facility in an amount sufficient to fund our working capital needs. Accordingly, we may need to undertake or seek out additional equity or debt financings to secure additional capital.
We cannot be certain that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our existing credit facility in an amount sufficient to fund our working capital needs. Accordingly, we may need to undertake or seek out additional equity or debt financings to secure additional capital.
We cannot assure you that we will be successful in addressing these and other challenges we may face in the future. If we are unable to do so, our business may suffer, our revenue and operating results may decline and we may not be able to achieve further growth or sustain profitability.
We cannot be certain that we will be successful in addressing these and other challenges we may face in the future. If we are unable to do so, our business may suffer, our revenue and operating results may decline and we may not be able to achieve further growth or sustain profitability.
If we fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations. If our internal control over financial reporting is not effective, it may adversely affect investor confidence in us and the price of our common stock.
If we continue to fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations. If our internal control over financial reporting continues to not be effective, it may adversely affect investor confidence in us and the price of our common stock.
We may need to change our pricing models to compete successfully. 36 The intense competition we face, in addition to general and economic business conditions, can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or provide offerings, we may need to lower prices in order to compete successfully.
The intense competition we face, in addition to general and economic business conditions, can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or provide offerings, we may need to lower prices in order to compete successfully.
Security breaches could expose us to a risk of loss or exposure of this information, which could result in potential liability, litigation and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results.
Security breaches could expose us to a risk of loss or exposure of this information, which could result in potential liability, litigation (including class action litigation) and remediation costs, as well as reputational harm, all of which could materially adversely affect our business and financial results.
Our business, financial condition or results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the impact of ongoing health and safety concerns from a pandemic.
Our business, financial condition or results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the impact of ongoing health and safety concerns from a public health crisis.
Today, digital advertising, including RAMP, makes significant use of cookies to store device identifiers for the advertising activities described above. When we utilize or deploy cookies and similar tracking or recording means, they are usually first-party cookies, which are cookies deployed by the Company on its own and operated websites or other domains which we operate through RAMP.
Today, digital advertising, including RAMP, makes significant use of cookies to store device identifiers for the advertising activities described above. When we utilize or deploy cookies and similar tracking or recording means, they are usually first-party cookies, which are cookies deployed by us on our own and operated websites or other domains which we operate through RAMP.
Furthermore, we cannot assure you that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
Furthermore, we cannot be certain that the market for online marketing services will continue to grow. If the market for online marketing services fails to continue to develop or develops more slowly than we anticipate, the success of our business may be limited, and our revenue may decrease.
The market for talent in our key areas of operations, including California, Washington, Ontario, Canada and Great Britain, United Kingdom where we have offices, is competitive. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards.
The market for talent in our key areas of operations, including California, Washington and Ontario, Canada where we have offices, is competitive. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits and compensation expenses related to equity awards.
Unfavorable global economic conditions, including as a result of political or social conflict or unrest or health and safety concerns related to a global pandemic, could adversely affect our business, financial condition or results of operations.
Unfavorable global economic conditions, including as a result of political or social conflict or unrest or health and safety concerns related to a public health crisis, could adversely affect our business, financial condition or results of operations.
We have identified material weaknesses in our internal control over financial reporting as of December 31, 2022.
We have identified material weaknesses in our internal control over financial reporting as of December 31, 2023.
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the USA PATRIOT Act, U.S. Travel Act, the U.K. Bribery Act 2010 and Proceeds of Crime Act 2002, and possibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities.
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the USA PATRIOT Act and U.S. Travel Act, and possibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities.
In addition, the California Privacy Rights Act of 2020, or CRPA, which became operative January 1, 2023, expands the CCPA’s requirements, including applying to personal information of business representatives and employees and establishing a new regulatory agency to implement and enforce the law.
In addition, the California Privacy Rights Act of 2020, or CRPA, which became operative January 1, 2023, expands the CCPA’s requirements, including applying to personal information of business representatives and employees and establishing a new regulatory agency to implement and enforce the law which could result in increased privacy and information security enforcement.
As we grow our business, we expect to continue to invest in technology services and equipment, including data warehousing, network infrastructure and cloud-based services and database technologies, as well as potentially increase our reliance on open source software.
As we grow our business, we expect to continue to invest in IT systems, including data warehousing, network infrastructure and cloud-based services and database technologies, as well as potentially increase our reliance on open source software.
Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the consolidated financial statements, including the statement of cash flows. • We did not design and maintain effective controls over the completeness and accuracy of accrued liabilities, stock-based compensation and equity transactions. • We did not design and maintain effective controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment.
Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the consolidated financial statements, including the statement of cash flows. • We did not design and maintain effective controls over accounting for accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest. • We did not design and maintain effective controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment.
The legal and regulatory environment pertaining to the Internet, however, is uncertain and may change. 38 New laws may be passed, courts may issue decisions affecting the Internet, existing but previously inapplicable or unenforced laws may be deemed to apply to the Internet or regulatory agencies may begin to rigorously enforce such formerly unenforced laws, or existing legal safe harbors may be narrowed, both by U.S. federal or state governments and by governments of foreign jurisdictions.
New laws may be passed, courts may issue decisions affecting the Internet, existing but previously inapplicable or unenforced laws may be deemed to apply to the Internet or regulatory agencies may begin to rigorously enforce such formerly unenforced laws, or existing legal safe harbors may be narrowed, both by U.S. federal or state governments and by governments of foreign jurisdictions.
We cannot assure you that we would be able to locate additional financing on commercially reasonable terms or at all.
We cannot be certain that we would be able to locate additional financing on commercially reasonable terms or at all.
We operate in a highly competitive environment. If we fail to innovate and make the right investment decisions in our offerings and platform, we may not attract and retain advertisers, and our competitors may gain market share in the markets for our solutions that could adversely affect our business and cause our revenues and results of operations to decline.
If we fail to innovate and make the right investment decisions in our offerings and platform, we may not attract and retain advertisers, and our competitors may gain market share in the markets for our solutions that could adversely affect our business and cause our revenue and results of operations to decline.
In the U.S., the Federal Trade Commission, or FTC, uses its enforcement powers under Section 5 of the Federal Trade Commission Act (which prohibits “unfair” and “deceptive” trade practices) to investigate companies engaging in online tracking.
Regulatory investigations and enforcement actions could also impact us. In the U.S., the Federal Trade Commission, or FTC, uses its enforcement powers under Section 5 of the Federal Trade Commission Act (which prohibits “unfair” and “deceptive” trade practices) to investigate companies engaging in online tracking.
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, (a) at a price of $0.01 per Warrant, provided that (i) the last reported sales price of the Class A ordinary shares for any twenty (20) trading days within the thirty (30) trading-day period ending on the third trading day prior to the date on which notice of the redemption is given (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) and (ii) there is an effective registration statement covering the issuance of the Class A ordinary shares issuable upon exercise of the Warrants, and a current prospectus relating thereto, available throughout the 30-day Redemption Period (as defined in the Warrant Agreement), or (b) provided that the Reference Value equals or exceeds $10.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) .
We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, (a) at a price of $0.01 per Warrant, provided that (i) the last reported sales price of the Class A ordinary shares for any twenty (20) trading days within the thirty (30) trading-day period ending on the third trading day prior to the date on which notice of the redemption is given (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) and (ii) there is an effective registration statement covering the issuance of the Class A ordinary shares issuable upon exercise of the Warrants, and a current prospectus relating thereto, available throughout the 30-day Redemption Period (as defined in the Warrant Agreement), or (b) provided that the Reference Value equals or exceeds $10.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like). 52 If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
The user interfaces implemented across our websites and advertising offerings are currently simple and straightforward. In the future, operating system providers, such as Microsoft or Apple, or any other provider of Internet browsers, could introduce new features that would make it difficult to use our websites or interact with our advertising offerings.
In the future, operating system providers, such as Microsoft or Apple, or any other provider of Internet browsers, could introduce new features that would make it difficult to use our websites or interact with our advertising offerings.
The security measures we use internally, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect against certain attacks. Additionally, we may face delays in identifying or responding to security breaches or other security incidents.
The security measures we use internally, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect against certain attacks.
In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as other search related services. For the period January 27, 2022 through December 31, 2022, 68% of our total revenue was attributable to our agreements with Google.
In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as other search related services. For the year ended December 31, 2023, 85% of our total revenue was attributable to our agreements with Google.
Such issues may harm our business, results of operations and financial condition. Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included viruses and phishing.
Although we are not aware of any material information security incidents to date, we have detected common types of attempts to attack our information systems and data using means that have included viruses and phishing.
In addition to laws regulating the processing of personal information, we are also subject to regulation with respect to political advertising activities, which are governed by various federal and state laws in the U.S., and national and provincial laws worldwide. Online political advertising laws are rapidly evolving, and in certain jurisdictions have varying transparency and disclosure requirements.
In addition to laws regulating the processing of personal information, we are also subject to regulation with respect to political advertising activities, which are governed by various federal and state laws in the U.S., and national and provincial laws worldwide.
As of December 31, 2022, the net carrying value of other intangible assets represented $1,008.3 million, or 87% of our total assets. Indefinite-lived intangible assets, such as goodwill, are evaluated for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Finite-lived intangible assets totaling $492.7 million are amortized up to 10 years.
As of December 31, 2023, the net carrying value of other intangible assets represented $379.4 million, or 63% of our total assets. Indefinite-lived intangible assets, such as goodwill, are evaluated for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Finite-lived intangible assets totaling $297.0 million are amortized up to 10 years.
These material weaknesses also resulted in immaterial misstatements to substantially all of the S1 Holdco, LLC accounts, which were recorded prior to the issuance of the 30 consolidated financial statements as of December 31, 2021, 2020, 2019 and 2018 and for the years then ended; as of March 31, 2021 and 2020 and for the three-month periods then ended; as of June 30, 2021 and 2020 and for the six-month periods then ended; and as of September 30, 2021 and 2020 and for the nine-month periods then ended. • We did not design and maintain effective controls over the accounting for complex financial instruments, including the impact of these instruments on earnings per share.
These material weaknesses also resulted in immaterial misstatements to substantially all of the S1 Holdco, LLC accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021, 2020, 2019 and 2018 and for the years then ended; as of March 31, 2021 and 2020 and for the three-month periods then ended; as of June 30, 2021 and 2020 and for the six-month periods then ended; and as of September 30, 2021 and 2020 and for the nine-month periods then ended.
The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision or adding or changing any other provisions with respect to matters or questions arising under the Warrant Agreement as the parties to the Warrant Agreement may deem necessary or desirable and that the parties deem not to adversely affect the interest of the holders of the Warrants.
The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision or adding or changing any other provisions with respect to matters or questions arising under the Warrant Agreement as the parties to the Warrant Agreement may deem necessary or desirable and that the parties deem not to adversely affect the interest of the holders of the Warrants. 51 All other amendments require the approval by the holders of at least 65% of the then-outstanding Public Warrants, including any change that adversely affects the rights of the registered holders of Public Warrants.
Likewise, the capital and credit markets may be adversely affected by the recent conflict between Russia and Ukraine, and the possibility of a wider European or global conflict, and global sanctions imposed in response thereto.
Likewise, the capital and credit markets may be adversely affected by fears of war, such as the war between Russia and Ukraine, and the conflict in the Middle East involving Israel and Hamas and the possibility of a wider European or global conflict, and global sanctions imposed in response thereto.
We are included in third party search results as a result of both paid search listings, where we purchase placements based on specific search terms, and separately, organic searches listings which depend upon third party search algorithms to index and return the content on our sites within such organic search listing results.
We are included in third party search results as a result of both paid search listings, where we purchase placements based on specific search terms, and separately, organic searches listings which depend upon third party search algorithms to index and return the content on our sites within such organic search listing results. 35 Search engines, social media platforms and other online sources often revise their algorithms and introduce new advertising products.
We may be involved from time to time in various additional legal proceedings, including, but not limited to, actions relating to breach of contract, breach of federal and state privacy laws, and intellectual property infringement that might necessitate changes to our business or operations.
Litigation could distract management, increase our expenses or subject us to material monetary damages and other remedies. 38 We may be involved from time to time in various additional legal proceedings, including, but not limited to, actions relating to breach of contract, breach of federal and state privacy laws, and intellectual property infringement that might necessitate changes to our business or operations.
Such cyber and ransomware attacks could include denial-of-service attacks impacting service availability (including the ability to deliver ads) and reliability, tricking company employees into releasing control of their systems to a hacker, or the introduction of computer viruses or malware into our systems with a view to steal confidential or proprietary data.
Such cyber and ransomware attacks could include denial-of-service attacks impacting service availability (including the ability to deliver ads) and reliability, social engineering/phishing or the introduction of computer viruses or malware (including ransomware) into our IT Systems with a view to steal confidential or proprietary data or personal information.
If consumers do not perceive our portfolio websites or our software products offer a better user experience or offer good value for the services, or if advertisers do not perceive RAMP as a more effective platform, our reputation and the strength of our brand may be adversely affected.
If consumers do not perceive our portfolio websites or our software products offer a better user experience or offer good value for the services, or if advertisers do not perceive RAMP as a more effective platform, our reputation and the strength of our brand may be adversely affected. 32 Some of our competitors have more resources than we do and can spend more advertising their brands and technology solutions.
If we do not have all requisite licenses and approvals, or do not comply with applicable statutory and regulatory requirements, the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us, which could have a material adverse effect on our business, results of operations and financial condition. 39 We cannot predict whether any proposed legislation or regulatory changes will be adopted, or what impact, if any, such proposals or, if enacted, such laws could have on our business, results of operations and financial condition.
If we do not have all requisite licenses and approvals, or do not comply with applicable statutory and regulatory requirements, the regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us, which could have a material adverse effect on our business, results of operations and financial condition.
If any analyst that may cover us ceases covering us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our Common Stock and Warrants to decline. 50 Moreover, if one or more of the analysts who cover us downgrades our Common Stock or Warrants, or if our reporting results do not meet their expectations, the market price of our Common Stock and Warrants could decline.
If any analyst that may cover us ceases covering us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock and Warrants to decline.
We rely on large-scale acquisition marketing channels, such as Google, Facebook and Taboola, as well as our network partners, for a significant portion of our consumer Internet traffic. 21 Consumer Internet traffic acquired and/or referred through acquisition marketing channels also provides a significant amount of the first party data that improves the predictive power of RAMP, which we leverage to deliver relevant users to our advertisers.
Consumer Internet traffic acquired and/or referred through acquisition marketing channels also provides a significant amount of the first party data that improves the predictive power of RAMP, which we leverage to deliver relevant users to our advertisers.
Our failure to prevent outages or security breaches resulting from API use could result in government enforcement actions against us, claims for damages by consumers and other affected individuals, costs associated with investigation and remediation damage to our reputation and loss of goodwill, any of which could harm our business, financial condition and operating results. 25 The market for paid traffic is extremely competitive, and we may not be able to compete successfully with our current or future competitors.
Our failure to prevent outages or security breaches resulting from API use could result in government enforcement actions against us, claims for damages by consumers and other affected individuals, costs associated with investigation and remediation damage to our reputation and loss of goodwill, any of which could harm our business, financial condition and operating results. 24 We operate in a highly competitive environment.
These obligations and scrutiny will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations.
These obligations and scrutiny will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations. Legal and Compliance Risks Our business could be affected by the enactment of new governmental regulations regarding the Internet.
In addition to settlement costs, we may be responsible for our own litigation costs, which can be expensive. Risks Related to Our Common Stock and Warrants Our issuance of additional shares of Common Stock, Warrants or other convertible securities may dilute your ownership interest in us and could adversely affect our stock price.
Risks Related to Our Common Stock and Warrants Our issuance of additional shares of common stock, Warrants or other convertible securities may dilute your ownership interest in us and could adversely affect our stock price.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We maintain our principal offices in Marina Del Rey, California. We also maintain office and data center space in various cities within the United States, the UK and Canada.
Biggest changeItem 2. Properties We maintain our principal offices in Marina Del Rey, California. We also maintain office and data center space in various cities within the United States, Netherlands and Canada.
We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, we will be able to secure additional space to accommodate expansion of our operations. 54
We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, we will be able to secure additional space to accommodate expansion of our operations. 55

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company continues to deny liability and will defend vigorously against any claims. Information in response to this Item is included in “Part II — Item 8. — Note 11—COMMITMENTS AND CONTINGENCIES ” and is incorporated by reference into Part I of this Annual Report on Form 10-K. 55 Item 4. Mine Safety Disclosures Not applicable. 56 Part II
Biggest changeInformation in response to this Item is included in “Part II — Item 8. — Note 10, Commitments and Contingencies and is incorporated by reference into Part I of this Annual Report on Form 10-K. 56
Removed
On or around March 30, 2023, the Company received a letter from counsel for Alta Partners, LLC (“Alta”), which purports to be a holder of certain Public Warrants of the Company (“Demand Letter”).
Removed
The Demand Letter alleges that the Company breached the terms of the Warrant Agreement, and that Alta is entitled to approximately $5.7 million in damages, plus prejudgment interest, as a result. On April 20, 2023, counsel for the Company responded to the Demand Letter, denying that any breach occurred or that Alta is entitled to any damages (“Response Letter”).

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNo. 333-262608). 2022 Repurchase Program In August 2022, the Company's Board of Directors authorized up to $25 million for the repurchase of the Company's Class A common stock and Public Warrants (the “ 2022 Repurchase Program ” ). As of December 31, 2022, the Company had a remaining balance of approximately $24 million under the 2022 Repurchase Program.
Biggest changeRecent Sales of Unregistered Securities None Repurchase of Equity Securities 2022 Repurchase Program In August 2022, our Board of Directors authorized up to $25 million for the repurchase of our Class A common stock and Public Warrants (the “ 2022 Repurchase Program ” ).
The actual number of stockholders of our Class A common stock and the actual number of holders of our warrants is greater than the number of record holders and includes holders of our common stock or warrants whose shares of common stock or warrants are held in street name by brokers and other nominees.
The actual number of stockholders of our Class A common stock and the actual number of holders of our Warrants is greater than the number of record holders and includes holders of our Class A common stock or Warrants whose shares of Class A common stock or Warrants are held in street name by brokers and other nominees.
Securities Authorized for Issuance Under Equity Compensation Plans Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K. Recent Sales of Unregistered Securities On March 4, 2022, in connection with the Company's acquisition of NextGen Shopping, Inc.
Securities Authorized for Issuance Under Equity Compensation Plans Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
Holders of Record As of April 20, 2023, there were approximately 447 holders of record of our Class A common stock, 72 holders of record of our Class C common stock and 2 holders of record of our warrants.
Holders of Record As of March 8, 2024, there were approximately 396 holders of record of our Class A common stock, 67 holders of record of our Class C common stock and 2 holders of record of our Warrants.
Removed
(d/b/a "CouponFollow"), the Company issued 2,000 shares of its Class A common stock with a total fair value of $25,500 in a private placement, which shares were subsequently registered on our Registration Statement on Form S-1, originally filed with the SEC on April 1, 2022, as subsequently amended (Reg.
Added
During the fourth quarter of 2023 there were no repurchases under the 2022 Repurchase Program and, as of December 31, 2023, we had a remaining balance of approximately $24 million under the 2022 Repurchase Program. Item 6. Reserved 58
Removed
Below is a summary of the share repurchases that were traded and settled during the three months ended December 31, 2022: 57 Period (in thousands, except share price) Total Number of Shares Purchased 1 Average Price Paid per Share 2 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Program October 1, 2022 to October 31, 2022 190 $ 5.91 190 $ 23,878 November 1, 2022 to November 30, 2022 $ — — $ 23,878 December 1, 2022 to December 31, 2022 $ — — $ 23,878 1 All of the shares were purchased in open market transactions. 2 The average price paid per share was calculated on a settlement basis and includes commissions.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeOther Information 136 Item 9 C . Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 136 Part III Item 10. Directors, Executive Officers and Corporate Governance 137 Item 11. Executive Compensation 142 Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters 149 Item 13. Certain Relationships and Related Transactions, and Director Independence 152 Item 14.
Biggest changeOther Information 138 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 138 Part III Item 10. Directors, Executive Officers and Corporate Governance 139 Item 11. Executive Compensation 139 Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters 140 Item 13. Certain Relationships and Related Transactions, and Director Independence 140 Item 14.
Item 6. [ Reserved ] 58 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 59 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 76 Item 8. Financial Statements and Supplementary Data 77 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 132 Item 9A. Controls and Procedures 133 Item 9B.
Item 6. [ Reserved ] 58 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 59 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 75 Item 8. Financial Statements and Supplementary Data 76 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 134 Item 9A. Controls and Procedures 135 Item 9B.
Principal Accounting Fees and Services 155 Part IV Item 15. Exhibits, Financial Statement Schedules 156
Principal Accounting Fees and Services 140 Part IV Item 15. Exhibits, Financial Statement Schedules 141

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

89 edited+79 added−61 removed8 unchanged
Biggest changeSuccessor Predecessor Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 (in thousands) Revenue $ 773,940 $ 52,712 $ 688,389 Operating costs and expenses: Cost of revenues (excluding depreciation and amortization) 538,779 41,507 521,113 Salaries and benefits 194,976 31,181 66,747 Selling, general, and administrative 63,478 15,665 35,813 Depreciation and amortization 118,652 1,000 13,885 Impairment of goodwill 366,309 — — Total operating costs and expenses 1,282,194 89,353 637,558 Operating income (loss) (508,254) (36,641) 50,831 Other expense: Interest expense 32,050 1,049 16,870 Change in fair value of warrant liabilities 3,751 — — Total other expense 35,801 1,049 16,870 Income (loss) before income tax (544,055) (37,690) 33,961 Income tax (benefit) provision (101,976) (629) 965 Net income (loss) $ (442,079) $ (37,061) $ 32,996 Net loss attributable to non-controlling interest (105,682) — — Net income (loss) attributable to System1, Inc. $ (336,397) $ (37,061) $ 32,996 63 Successor Predecessor Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 Revenue 100 % 100 % 100 % Operating expenses: Cost of revenues (excluding depreciation and amortization) 70 % 79 % 76 % Salaries and benefits 25 % 59 % 10 % Selling, general, and administrative 8 % 30 % 5 % Depreciation and amortization 15 % 2 % 2 % Impairment of goodwill 47 % — % — % Total operating expenses 166 % 170 % 93 % Operating income (loss) (66) % (70) % 7 % Other expense: Interest expense 4 % 2 % 2 % Change in fair value of warrant liabilities — % — % — % Total other expense, net 5 % 2 % 2 % Income (loss) before income tax (70) % (72) % 5 % Income tax (benefit) provision (13) % (1) % — % Net income (loss) (57) % (70) % 5 % Net loss attributable to non-controlling interest (14) % — % — % Net income (loss) attributable to System1, Inc.
Biggest changeResults of Operations The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented (in thousands). 62 Successor Predecessor Year Ended December 31, 2023 Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Revenue $ 401,971 $ 612,229 $ 52,712 Operating expenses: Cost of revenue (excluding depreciation and amortization) 248,745 438,839 41,507 Salaries and benefits 106,505 138,045 31,181 Selling, general, and administrative 54,307 50,831 15,665 Depreciation and amortization 78,403 69,469 1,000 Impairment of goodwill — 372,728 — Total operating expenses 487,960 1,069,912 89,353 Operating loss (85,989) (457,683) (36,641) Other expense (income): Interest expense, net 48,745 31,609 1,049 Loss on extinguishment of related-party debt 2,004 — — Change in fair value of Warrant liabilities (5,109) 3,751 — Total other expense 45,640 35,360 1,049 Loss before income tax (131,629) (493,043) (37,690) Income tax benefit (20,371) (108,680) (629) Net loss from continuing operations (111,258) (384,363) (37,061) Net loss from discontinued operations, net of tax (174,327) (56,959) — Net loss (285,585) (441,322) (37,061) Less: Net loss from continuing operations attributable to non-controlling interest (25,531) (99,841) — Less: Net loss from discontinued operations attributable to non-controlling interest (32,833) (11,089) — Net loss attributable to System1, Inc. $ (227,221) $ (330,392) $ (37,061) 63 Successor Predecessor Year Ended December 31, 2023 Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Revenue 100 % 100 % 100 % Operating expenses: Cost of revenue (excluding depreciation and amortization) 62 % 72 % 79 % Salaries and benefits 26 % 23 % 59 % Selling, general, and administrative 14 % 8 % 30 % Depreciation and amortization 20 % 11 % 2 % Impairment of goodwill — % 61 % — % Total operating expenses 121 % 175 % 170 % Operating loss (21) % (75) % (70) % Other expense (income): Interest expense, net 12 % 5 % 2 % Loss on extinguishment of related-party debt — % — % — % Change in fair value of Warrant liabilities (1) % 1 % — % Total other expense 11 % 6 % 2 % Loss before income tax (33) % (81) % (72) % Income tax benefit (5) % (18) % (1) % Net loss from continuing operations (28) % (63) % (70) % Net loss from discontinued operations, net of tax (43) % (9) % — % Net loss (71) % (72) % (70) % Less: Net loss from continuing operations attributable to non-controlling interest (6) % (16) % — % Less: Net loss from discontinued operations attributable to non-controlling interest (8) % (2) % — % Net loss attributable to System1, Inc.
We typically pay suppliers in advance of collections from our clients. Our collection and payment cycles can vary from period to 70 period. In addition, seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year.
We typically pay suppliers in advance of collections from our clients and our collection and payment 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.
RAMP operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Facebook, Taboola and Zemanta.
RAMP operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Facebook, Zemanta, Taboola, and TikTok.
Operating seamlessly across major advertising networks and advertising category verticals to acquire users, RAMP allows us to monetize these acquired users through our relationships with third party advertisers and advertising networks (“Advertising Partners”).
Operating seamlessly across major advertising networks and advertising category verticals to acquire end-users, RAMP allows us to monetize these acquired end users through our relationships with third party advertisers and advertising networks (“Advertising Partners”).
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.
The quantitative impairment test involves comparing the estimated fair value of a reporting unit with its respective carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, goodwill is considered not to be impaired.
The quantitative impairment test involves comparing the estimated fair value of a reporting unit with our respective carrying amount, including goodwill. If the estimated fair value exceeds carrying amount, goodwill is considered not to be impaired.
RAMP also allows third party advertising platforms and publishers (“Network Partners”) to send user traffic to, and monetize user traffic on, our owned and operated websites or throughout our monetization agreements.
RAMP also allows third party advertising platforms and publishers (“Network Partners”) to send user traffic to, and monetize end user traffic on, our owned and operated websites or through our monetization agreements.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Critical Accounting Policies and Estimates 72 The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America.
We perform our annual goodwill impairment test on December 31. We have the option (i) to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or (ii) to perform the quantitative impairment test.
We have the option (i) to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than our carrying amount or (ii) to perform the quantitative impairment test.
The accompanying financial information include a Predecessor period, which include the periods through January 26, 2022 concurrent with the Merger, and a Successor period from January 27, 2022 through December 31, 2022.
The accompanying financial information include a Predecessor period, which include the periods through January 26, 2022 concurrent with completion of the Merger, and a Successor period from January 27, 2022 through December 31, 2022, and thereafter.
The Term Loan comes with a leverage covenant, which goes into effect only if the utilization on the Revolving Facility exceeds 35% of the $50,000 Revolving Facility at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40.
The Term Loan comes with a leverage ratio covenant, which goes into effect only if the utilization on the 2022 Revolving Facility exceeds 35% of the total availability under the 2022 Revolving Facility at each quarter-end starting from the first full quarter after the effective date of the Merger, such that the first lien leverage ratio (as 68 defined in the credit agreement) should not exceed 5.40.
For non-employees, the expected life equals the contractual term of the option. • Risk-free Interest Rate: The risk-free interest rate is based on published U.S.
For non-employees, the expected life equals the contractual term of the award, (iii) The risk-free interest rate is based on published U.S.
The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following: • Fair Value of Common Stock: S1 Holdco’s equity was not publicly traded, therefore the fair value was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist. • Expected Term: The expected life of the option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate.
The assumptions used in the Black-Scholes model to value equity in the Predecessor period are based upon the following; (i) The fair value of S1 Holdco’s equity was determined by S1 Holdco’s Board of Directors, with input from management and contemporaneous valuation reports prepared by a third-party valuation specialist, as the equity was not publicly traded, (ii) The expected term of the award is estimated by considering the contractual term and vesting period of the award, the employees’ expected exercise behavior and the post-vesting employee turnover rate.
As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger; and (ii) the consolidated results of the Company, including S1 Holdco and Protected following the closing of the Merger.
As a result, the financial statements included in this report reflect (i) the historical operating results of S1 Holdco prior to the Merger; and (ii) our consolidated results, including S1 Holdco and Protected following the closing of the Merger (see Note 3, Merger) .
The Company was deemed the accounting acquirer in the Merger, and S1 Holdco was deemed to be the predecessor entity. Accordingly, the historical financial statements of S1 Holdco became the historical financial statements of the Company, upon the consummation of the Merger.
We were deemed the accounting acquirer in the Merger, and S1 Holdco was deemed to be the predecessor entity. Accordingly, the historical financial statements of S1 Holdco became our historical financial statements, upon the consummation of the Merger.
We define total advertising spend as the amount of advertising that is spent by us to acquire traffic to our websites. We define O&O sessions as the total number of monetizable user visits to our Owned & Operated Advertising websites. We define Network sessions as the number of monetizable user visits delivered by our network partners to RAMP.
We define total advertising spend as the amount of advertising that is spent by us to acquire traffic to our owned and operated websites. We define O&O sessions as the total number of monetizable user visits to our Owned & Operated Advertising websites.
In August 2022, our Board of Directors authorized up to $25,000 for the repurchase of our Class A common stock and Public Warrants ("2022 Repurchase Program"). During the year ended December 31, 2022 we repurchased 190 shares for an aggregate purchase price of $1,122 under the 2022 Repurchase Program.
In August 2022, our Board of Directors authorized up to $25.0 million for the repurchase of our Class A common stock and Public Warrants ("2022 Repurchase Program"). During the fiscal year ended December 31, 2023 we repurchased 190 thousand shares of our Class A common stock for an aggregate purchase price of $1.1 million under the 2022 Repurchase Program.
The following discussion and analysis should also be read together with the section entitled “Organization and description of business” as of December 31, 2022 (Successor) and for the period from January 1, 2022 through January 26, 2022 (Predecessor), the period from January 27, 2022 through December 31, 2022 (Successor) and for the year ended December 31, 2021 (Predecessor).
The following discussion and analysis should also be read together with the section entitled “Organization and description of business” as of December 31, 2023 (Successor), and for the periods from January 1, 2022 through January 26, 2022 (Predecessor) and from January 27, 2022 through December 31, 2022 (Successor).
The Lenders are also entitled to (i) an unused commitment fee equal to 1.0% per annum of the actual daily amount of total unfunded Commitments under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a closing fee equal to 12.0% of each Lender’s Commitment under the 2023 Revolving Note, payable within 180 days of April 10, 2023.
The Lenders are also entitled to (i) an unused commitment fee equal to 1.0% per annum of the actual daily amount of total unfunded commitments under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a closing loan fee equal to 12.0% of each Lender's commitment under the 2023 Revolving Note, or $2.4 million in total.
The key assumptions in the discounted cash flow model included, but were 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 reflected the increases in market interest rates.
The key assumptions in a discounted cash flow model include, 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 reflects the increases in market interest rates.
We also earn revenue by directly acquiring traffic to its owned and operated websites and utilizing its RAMP platform and related services to connect its Advertising Partners to its owned and operated websites. For this revenue stream, we are the principal in the transaction and reports revenue on a gross basis for the amounts received from our Advertising Partners.
We also earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our RAMP platform and additional services to generate 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.
Expense contributions from our recent acquisitions for each of the respective period comparisons generally were not separately identifiable due to the integration of these businesses into our existing operations.
Expense contributions from our 2022 acquisitions for each of the respective comparison periods generally were not separately identifiable due to the integration of these businesses into our existing operations.
The Company does not have sufficient liquidity to settle the outstanding principal balances should they be called, nor has the Company identified sufficient alternative sources of capital. As a result, this matter raises substantial doubt about the Company’s ability to continue as a going concern.
We did not have sufficient liquidity to settle the outstanding principal balances should they be called, nor had we identified sufficient alternative sources of capital. As a result, this matter raised substantial doubt about our ability to continue as a going concern.
For this revenue, we have determined that it is the principal since it has a risk of loss on the traffic that it is acquiring for monetization with our Advertising Partners, and, in the case of our owned and operated websites, we maintain the website, provide the content and bear the cost and risk of loss associated with our websites’ advertising space.
For this revenue, we have determined that we are the principal since we have a risk of loss on the user-traffic that we are acquiring for monetization with our Advertising Partners, and, in the case of our owned and operated websites, 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.
In the period from January 1, 2022 to January 26, 2022 (Predecessor), cash used in operating activities of $10,603 resulted primarily from a decrease in accounts payable of $67,600 due to the Merger and a net loss of $37,061.
During the period from January 1, 2022 through January 26, 2022 (Predecessor), cash used in operating activities of $10.6 million resulted primarily from a net loss of $37.1 million, including a decrease in accounts payable of $67.6 million due to the Merger.
The following discussion and analysis of the financial condition and results of operations of System1 should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, as well as our prospectus, dated April 13, 2022, filed with the Securities and Exchange Commission, or SEC.
The following discussion and analysis of the financial condition and results of operations of System1 should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K or SEC.
Going Concern As of June 1, 2023, the Company had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan (refer to Note 12 – DEBT, NET).
As of June 1, 2023, we had not delivered audited financial statements for the fiscal year ended December 31, 2022 to Bank of America as required by the covenants of the Term Loan.
Monetizable visits exclude those visits identified by our advertising partners as spam, bot, or other invalid traffic. We define CPS as advertising spend divided by O&O sessions. We define O&O RPS as O&O Revenue divided by O&O sessions. We define Network RPS as Partner Network revenue divided by Network sessions.
We define Network sessions as the number of monetizable user visits delivered by our Network Partners to RAMP. Monetizable visits exclude those visits identified by our Advertising Partners as spam, bot, or other invalid traffic. We define CPS as advertising spend 64 divided by O&O sessions. We define O&O RPS as O&O Revenue divided by O&O sessions.
We have determined it is the agent in these transactions and reports revenue on a net basis, because (a) we do not control the underlying advertising space, (b) we do not acquire the traffic and do not have risk of loss in connection therewith, and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement.
We have determined that we are the agent in these transactions and therefore report revenue on a net basis, because (a) we do not control the underlying digital online inventory, (b) we do not acquire the corresponding user-traffic and do not have risk of loss in connection therewith, and (c) the pricing is in the form of a substantively fixed-percentage revenue-sharing arrangement.
This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising verticals.
This context-enriched data, combined with our proprietary and data science driven algorithms, creates a closed-loop system that is not reliant on personally identifiable information or information obtained through third-party cookies, but which allows RAMP to efficiently match consumer demand with the appropriate advertiser or advertising experience across advertising category verticals. 59 S1 Holdco, LLC ("S1 Holdco") was founded in 2013 with a focus on monetizing user traffic acquired by our Network Partners.
Contractual Obligations and Known Future Cash Requirements Service Agreements In June 2021, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $8,000 between July 2022 and June 2023. As of December 31, 2022 (Successor), we remain contractually obligated to spend $4,115 towards this commitment.
Contractual Obligations and Known Future Cash Requirements Service Agreements In June 2021, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $5.0 million annually between July 2023 and June 2026 . As of December 31, 2023, we remain contractually obligated to spend a remaining $11.1 million towards this commitment.
We report this revenue on a net basis with respect to the amount retained under our revenue-sharing arrangements, which represents the difference between amounts received by us from the Advertising Partners, less amounts remitted to the Network Partners based on underlying contracts.
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.
Cash Flows The following table summarizes our cash flows for the periods presented: Successor Predecessor (in thousands) Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 Net cash provided by (used in) operating activities $ 3,317 $ (10,603) $ 60,705 Net cash used in investing activities $ (454,009) $ (441) $ (6,535) Net cash used in financing activities $ (27,729) $ — $ (34,585) Operating Activities Our cash flows from operating activities are primarily influenced by growth in our operations, timing of collections from our clients and related payments to our suppliers for advertising inventory and data.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): 70 Successor Predecessor December 31, 2023 Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Net cash provided by (used in) operating activities $ (24,742) $ 3,317 $ (10,603) Net cash provided by (used in) investing activities $ 203,179 $ (454,009) $ (441) Net cash used in financing activities $ (74,072) $ (27,729) $ — Operating Activities Our cash flows from operating activities are primarily impacted by growth in our operations, timing of collections from our partner and related payments to our suppliers for advertising inventory and data.
This was partially offset by an increase in accrued expenses of $57,488, non-cash stock-based compensation of $23,705 and a decrease in accounts receivable of $11,118 due to the Merger.
This was partially offset by an increase in accrued expenses of $57.5 million, noncash stock-based compensation of $23.7 million and a decrease in accounts receivable of $11.1 million due to the Merger.
The failure to timely deliver the audited financial statements is an event of default under the Term Loan and provides Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430,000, as of the date of this filing, at the request of, or with the consent of, the required majority of lenders until such time that the audited financial statements are delivered to Bank of America.
The failure to timely deliver the audited financial statements resulted in an event of default under the Term Loan and provided Bank of America the ability to immediately call the outstanding principal balances of the Term Loan and Revolving Facility of $430.0 million, at the request of, or with the consent of, the required majority of lenders until the time that the 2022 audited financial statements were delivered to Bank of America.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash used in investing activities of $454,009 resulted primarily from the acquisitions of S1 Holdco, Protected, RoadWarrior, CouponFollow and Answers of $444,074. In the year ended December 31, 2021 (Predecessor), cash used in investing activities of $6,535 resulted primarily from costs capitalized for internally developed software.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash used in investing activities of $454.0 million resulted primarily from the acquisitions of S1 Holdco, Protected, RoadWarrior, CouponFollow and Answers. 71 In the period from January 1, 2022 to January 26, 2022 (Predecessor), cash used in investing activities of $0.4 million resulted from costs capitalized for internally developed software.
We have elected to treat stock-based payment awards with time-based service condition(s) only as a single award and recognizes stock-based compensation expense on a straight-line basis over the vesting period, which is generally four years.
We have elected to treat stock-based payment awards with time-based service condition(s) only as a single award, with the related compensation expense recognized on a straight-line basis.
Our combined business continues to operate through the subsidiaries of S1 Holdco and Protected. Additionally, Trebia’s ordinary shares and public warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1 Inc.s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.
Additionally, following the Merger, Trebia’s ordinary shares and Public Warrants ceased trading on the New York Stock Exchange (“NYSE”), and System1, Inc.'s Class A common stock and the Public Warrants began trading on the NYSE on January 28, 2022 under the symbols “SST” and “SST.WS,” respectively.
Since launching, it has expanded to support additional advertising formats across numerous advertising platforms, and has acquired several leading websites, enabling it to control user acquisition and experience, and monetize user traffic on its behalf via its network of owned and operated websites.
Since launching, it has expanded to support additional advertising formats across multiple advertising platforms, and has acquired several leading websites, enabling it to control the entire flow of the user acquisition experience, while monetizing user traffic through our network of owned and operated websites.
Credit Facilities In connection with the Merger discussed above, Orchid Merger Sub II LLC (a subsidiary of S1 Holdco) entered into a new loan (“Term Loan”) and revolving facility (“Revolving Facility”) on January 27, 2022, providing for a 5.5 year Term Loan with a principal balance of $400,000 and with the net proceeds of $376,000, of which a portion of the proceeds were used by S1 Holdco, to settle the outstanding debt of $172,038 with Cerberus Business Finance, LLC.
Credit Facilities Term Loan In connection with the Merger, we entered into a new loan (“Term Loan”) and revolving facility (“2022 Revolving Facility” and, together with the Term Loan "Credit Agreement") with Bank of America, N.A. as administrative agent, on January 27, 2022, providing for a 5.5 year Term Loan with an initial principal balance of $400.0 million and with the net proceeds of $376.0 million , of which a portion of the proceeds were used by us, to settle the outstanding debt of $172.0 million with Cerberus Business Finance, LLC.
For every interest period, the interest rate on the Term Loan is the adjusted Term Secured Overnight Financing Rate (“Term SOFR”) plus 4.75%. The Term Loan is amortized in quarterly installments on each scheduled payment date.
From March 31, 2026, $7.5 million of the Term Loan is payable quarterly. The Term Loan matures in 2027. For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate (“SOFR”) plus 4.75%. The Term Loan is amortized in quarterly installments on each scheduled payment date.
Cost of revenues primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to the Company’s websites and services, as well as content, publishing, domain name registration costs, licensing costs to provide mapping services to Mapquest.com, and costs related to the utilization of antivirus engine licensing related to APIs for the antivirus product.
Cost of revenue (excluding depreciation and amortization) primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, as well as domain name registration costs and licensing costs to provide mapping services to Mapquest.com.
On January 26, 2022 (the “Closing Date”), the Company consummated the business combination (the “Merger”) pursuant to the Business Combination Agreement. Following the consummation of the Merger, the combined company was organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco.
Following the consummation of the Merger, the combined company was organized via an “Up-C” structure, in which substantially all of the assets and business operations of System1 are held by S1 Holdco, and our combined business continues to operate through the domestic and foreign subsidiaries of S1 Holdco.
Investing Activities Our primary investing activities consist of acquisitions of businesses, such as the acquisition of S1 Holdco, Protected, RoadWarrior, CouponFollow and Answers in 2022 as well as costs capitalized for internally developed software.
Investing Activities Our primary investing activities consisted of the sale of our Protected business segment on November 30, 2023, acquisitions of businesses, which included the first quarter 2022 acquisitions of S1 Holdco, Protected, CouponFollow and RoadWarrior, and the second quarter 2022 acquisition of Answers, as well as costs capitalized for internally developed software.
The facility has certain financial and nonfinancial covenants, including a leverage ratio. The facility also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31. Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure.
The Credit Agreement has certain financial and nonfinancial covenants, including the "springing" leverage ratio covenant described above. The Credit Agreement also requires that we deliver our audited consolidated financial statements to our lenders within 120 days of our fiscal year end, December 31.
Comparisons of Results of Operations for the period from January 1, 2022 through January 26, 2022 (Predecessor) and for the period from January 27, 2022 through December 31, 2022 (Successor) and the year ended December 31, 2021 (Predecessor) Revenue The following tables set forth our revenue by reportable segment.
Comparisons of Results of Operations for the year ended December 31, 2023, to the periods from January 1, 2022 through January 26, 2022 (Predecessor) and January 27, 2022 through December 31, 2022 (Successor).
Change in fair value of warrant liabilities relates to the mark to market of our liability-classified public and private warrants. Income tax (benefit) provision The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in its consolidated financial statements.
Change in fair value of Warrant liabilities. The mark to market of our liability-classified Public and Private Warrants. Income tax benefit We are the sole managing member of S1 Holdco and, as a result, consolidate the financial results of S1 Holdco. S1 Holdco is treated as a partnership for U.S. federal and most applicable state and local income tax purposes.
We exclude the following items from segment adjusted gross 65 profit: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments. The following supplemental tables set forth our adjusted gross profit by reportable segment.
The remaining cost of revenue consists of non-advertising expenses such as set-up costs, royalties and fees. We exclude the following items from segment adjusted gross profit: depreciation and amortization of property, equipment and leasehold improvements, amortization of intangible assets and, at times, certain other transactions or adjustments.
Treasury Department interest rates for the expected terms of the underlying options. • Volatility: The volatility was based on the expected unit price volatility of the underlying units over the expected term of the option which is based upon historical share price data of an index of comparable publicly traded companies. 74 Subsequent to the Merger, the fair value of our RSUs is derived from the market price of our Class A common stock, which is traded on the NYSE.
Treasury Department interest rates for the expected term of the underlying award and (iv) The volatility was based on the expected unit price volatility of the underlying units over the expected term of the award which is based upon historical share price data of an index of comparable publicly traded companies.
S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, S1 Holdco is not subject to U.S. federal and certain state and local income taxes.
Income Taxes We are the sole managing member of S1 Holdco and, as a result, consolidate the financial results of S1 Holdco. S1 Holdco is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, S1 Holdco is not subject to U.S. federal and certain state and local income taxes.
(43) % (70) % 5 % * Percentages may not sum due to rounding The comparability of our operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 was impacted by the Merger, as discussed above, and the acquisitions discussed in Note 4—ACQUISITIONS .
(57) % (54) % (70) % * Percentages may not sum due to rounding The comparability of our operating results for the year ended December 31, 2023 (Successor) compared to the period ended December 31, 2022 (Successor) is impacted by the Merger.
Refer to Note 3—MERGER and Note 6 — GOODWILL , INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, AND INTANGIBLE ASSETS, NET — for additional information. 60 Components of Our Results of Operations Revenue Revenue is earned from revenue-sharing arrangements with our Network Partners for the use of our RAMP platform and related services provided to them to direct advertising by the Advertising Partners to their advertising space.
Components of Our Results of Operations Revenue Revenue is earned from revenue-sharing arrangements with our Network Partners related to the use of our RAMP platform and additional services provided to them in order to direct advertising by our Advertising Partners to their digital online inventory.
We do not engage in hedging activities to mitigate our exposure to fluctuations in foreign currency exchange rates. The Merger On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (the “Business Combination Agreement”) by and among us, S1 Holdco and Protected.
The Trebia Merger On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), (“Business Combination Agreement”) by and among us, S1 Holdco and Total Security Limited, formerly known as Protected.net Group Limited (“Protected”) .
Changes in estimates are recorded in periods 72 which they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the consolidated financial statements. Business combinations The results of a business acquired in a business combination are included in our consolidated financial statements from the date of acquisition.
Changes in estimates are recorded in periods when they become known. However, actual results from the resolution of such estimates and assumptions may vary from those used in the preparation of the consolidated financial statements. Business Combinations We allocate the consideration transferred to the fair value of assets acquired and liabilities assumed based on their estimated fair values.
Stock-based compensation Compensation cost related to stock-based payments is measured based on the fair value of the units issued and recognized within salaries and benefits expenses in our consolidated statements of operations.
Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results. Stock-Based Compensation 73 Compensation cost related to stock-based payments is measured based on the fair value of the units issued and recognized in salaries and benefits expenses on our consolidated statement of operations.
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.” All figures are presented in thousands, except percentages, rates and unless otherwise noted.
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.” References to “Notes” are notes included in our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Separate from the default under the Term Loan and Revolving Facility , in the third and fourth quarters of 2022, the Company experienced declining cash flows and financial performance as a result of deteriorating macroeconomic conditions, resulting in reductions in both advertiser and overall consumer demand for our marketing services.
Accordingly, Bank of America no longer had the ability to call the outstanding principal balances on the Term Loan and Revolving Facility. 67 Starting in the third quarter of 2022 and continuing into 2023, we experienced declining cash flows and financial performance as a result of deteriorating macroeconomic conditions, resulting in reductions in both advertiser and overall consumer demand for our marketing services.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash provided by operating activities of $3,317 resulted primarily from non-cash impairment of goodwill of $366,309, non-cash depreciation and amortization expense of $118,652 non-cash stock-based compensation of $106,943, and an increase in deferred revenue of $9,008.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash provided by operating activities of $3.3 million resulted primarily from noncash items including an impairment of goodwill of $372.7 million, depreciation and amortization expense of $118.7 million, stock-based compensation of $108.3 million, amortization of debt issuance costs of $4.8 million and a change in fair value of warrants of $3.8 million, and an increase in deferred revenue of $9.0 million and a decrease in accounts receivable of $4.6 million.
The process for estimating the fair values of the acquired business involves the use of significant estimates and assumptions, including estimating average industry multiples, customer and service attrition rate, forecasted revenue and revenue growth rates, discount rates, technology migration rates, royalty rates and estimating future cash flows.
The excess of the consideration transferred over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, including estimating average industry multiples, customer and service attrition rate, forecasted revenue and revenue growth rates, discount rates, technology migration rates, royalty rates and future cash flows.
Successor Predecessor Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 2022 vs. 2021 change (%) Segment Adjusted Gross Profit: Owned and Operated Advertising $ 138,560 $ 8,768 $ 143,284 3% Partner Network 42,291 3,012 35,505 28% Subscription 78,220 — — 100% Total Adjusted Gross Profit $ 259,071 $ 11,780 $ 178,789 51% Refer to the Revenue and Cost of revenues discussions above.
The following table presents our adjusted gross profit by reportable segment (in thousands). 65 Successor Predecessor Year Ended December 31, 2023 Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 2023 vs. 2022 change (%) Owned and Operated Advertising $ 107,696 $ 138,560 $ 8,768 (27)% Partner Network 53,420 42,291 3,012 18% Total adjusted gross profit $ 161,116 $ 180,851 $ 11,780 (16)% Refer to the Revenue and Cost of revenue (excluding depreciation and amortization) discussions above.
If, however, the fair value of the reporting unit is less than carrying amount, an impairment loss is recognized in an amount equal to the excess. The fair values of our reporting units were computed by weighting a discounted cash flow model and a reference transaction model which included inputs developed using both internal and market-based data.
The fair values of our reporting units are computed through weighting a discounted cash flow model and a reference transaction model which include inputs developed using both internal and market-based data.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash used in financing activities of $27,729 resulted primarily from redemptions of Trebia Class A ordinary shares of $510,469, repayment of existing term loan of $187,488, and payment of debt financing costs related to the Term Loan of $24,845, partially offset by proceeds from the Term Loan and Revolving Facility of $450,000 and the Cannae Backstop of $246,484. 71 In the year ended December 31, 2021 (Predecessor), cash used in financing activities of $34,585 resulted primarily from tax distributions to members of $14,579, repayments of debt of $11,636, payment of acquisition related contingent consideration of $5,000 related to the acquisition of Startpage, $1,715 related to the acquisition of Concourse, and related party loan of $1,500.
In the period from January 27, 2022 to December 31, 2022 (Successor), cash used in financing activities of $27.7 million resulted primarily from redemptions of Trebia Class A ordinary shares in the amount of $510.5 million and repayment of existing term loan of $187.5 million, partially offset by proceeds from the Term Loan and 2022 Revolving Facility of $450.0 million and the Cannae Backstop of $246.5 million.
Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York plus 3.15%.
Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate of SOFR plus 3.15%.
The reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry. Key assumptions in this model included, but were not limited to, the selection of comparable transactions, revenue and EBITDA multiples and EBITDA margins from those transactions.
The reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry.
Operations outside the United States are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, and exposure to currency exchange fluctuations.
Operations outside the United States are subject to risks inherent in operating under different legal systems as well as various political and economic environments.
Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from S1 Holdco based on the Company's economic interest in S1 Holdco.
As a partnership, S1 Holdco is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by S1 Holdco is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.
Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenues as well as adjusted gross profit and other measures. We define and calculate adjusted gross profit as revenue less advertising expense to acquire users. The remaining cost of revenues consist of non-advertising expenses such as set-up costs, royalties and fees.
For the year ended December 31, 2023, compared to prior year, our CPS decreased $0.05 to $0.06 from $0.11. Our chief operating decision maker measures and evaluates reportable segments based on segment operating revenue as well as adjusted gross profit and other measures. We define and calculate adjusted gross profit as revenue less advertising expense incurred to acquire users.
Refer to Note 6 — GOODWILL , INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, AND INTANGIBLE ASSETS, NET — Goodwill Impairment for additional information.
Impairment of goodwill Impairment of goodwill decreased by $372.7 million in 2023 , primarily due to impairment of goodwill recorded during the period ended December 31, 2022. Refer to Note 6, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net for additional information.
Financing Activities Our financing activities consisted primarily of borrowings and repayments of our debt, distributions to members related to tax obligations, acquisition related contingent consideration and proceeds from the sale of assets. In the period from January 1, 2022 to January 26, 2022 (Predecessor), there was no cash provided or used in financing activities.
In the period from January 1, 2022 to January 26, 2022 (Predecessor), there was no cash provided or used in financing activities.
We estimate the fair value based on assumptions which we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Stock-based compensation expense is included in the salaries and benefits expenses on the consolidated statements of operations. Recently Issued Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. 75
We recognize both accrued interest and penalties, when appropriate, in the provision for income taxes on the accompanying consolidated statements of operations. Recently Issued Accounting Pronouncements For information regarding recent accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies . 74
We recognize revenue upon delivering traffic to our Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment term with our Advertising Partners is typically 30 days. We, through Protected.net, are also engaged in selling security software solutions to customers.
We recognize revenue upon delivering user-traffic to our Advertising Partners based on a cost-per-click or cost-per-thousand impression basis. The payment terms with our Advertising Partners is typically 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.
The Revolving Facility was for $50,000. As of December 31, 2022, $50,000 was outstanding on the Revolving Facility and principal of $385,000 was outstanding on the Term Loan. Through December 31, 2025, $5,000 of the Term Loan is payable quarterly. From March 31, 2026, $7,500 of the Term Loan is payable quarterly. The Term Loan matures in 2027.
The 2022 Revolving Facility provided borrowing availability of up to $50.0 million. As of December 31, 2023, there was no balance outstanding on the 2022 Revolving Facility and principal of $365.0 million was outstanding on the Term Loan. Through December 31, 2025, $5.0 million of the Term Loan is payable quarterly.
Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents of $24,606. To date, our available liquidity and operations have been financed through cash from the Merger, credit facilities, and cash flows from operations.
To date, our available liquidity and operations have been financed through cash received in the Merger, indebtedness available under our credit facilities, other indebtedness, sale of our Protected business segment, and cash flows from operations.
As of December 31, 2022, S1 Holdco owns and operates approximately 40 websites, including leading search engines like info.com and Startpage.com, and publishing digital media sites and utilities, such as HowStuffWorks, MapQuest, CouponFollow and ActiveBeat. 59 We, through Protected.net, also provide antivirus and consumer privacy software solutions, offering our customers a single packaged solution that provides protection and reporting to the end user.
As of December 31, 2023, S1 Holdco owns and operates approximately 40 websites, including leading search engines like info.com and Startpage.com, and digital media publishing websites and internet utilities, such as HowStuffWorks, MapQuest, CouponFollow and ActiveBeat. Our primary operations are in the United States; and we also have operations in Canada and the Netherlands.
References to “Notes” are notes included in our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. Company Overview We operate an omnichannel customer acquisition platform, delivering high-intent customers to advertisers and selling antivirus software packages to end user customers. We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform (“RAMP”).
Company Overview We operate an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers . We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform (“RAMP”).
Change in fair value of warrant liabilities The changes in fair value of warrant liabilities of $3,751 in 2022 was driven by the fluctuations in the market value of our Class A common stock since the Merger. 67 Income tax (benefit) provision Successor Predecessor Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 2022 vs. 2021 change (%) Income tax (benefit) provision $ (101,976) $ (629) $ 965 Effective tax rate 19 % 2 % 3 % The difference between the effective tax rates for the periods presented above and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling income (loss), effects of predecessor flow through income allocations, changes in unrecognized tax benefits and outside basis adjustments.
Income tax benefit 66 The difference between the effective tax rates for the periods presented above and the federal statutory tax rate of 21% was primarily due to the exclusion of non-controlling income (loss), effects of predecessor flow through income allocations, changes in unrecognized tax benefits, valuation allowance and outside basis adjustments.
Through RAMP, we process approximately 28 million daily advertising campaign optimizations and ingest approximately 5 billion rows of data daily across more than 40 advertising categories as of December 31, 2022. We are able to efficiently monetize user intent by linking data on consumer engagement, such as first party search data, with data on monetization and advertising spend.
We are able to efficiently monetize user intent by linking data on consumer engagement, such as first party search data like traffic sources, device type and search queries, with data on monetization rates and advertising spend.
Successor Predecessor Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 Year Ended December 31, 2021 2022 vs. 2021 change (%) Revenue: Owned and Operated Advertising $ 556,303 $ 49,249 $ 652,884 (7)% Partner Network 55,926 3,463 35,505 67% Subscription 161,711 — — 100% Total Revenue $ 773,940 $ 52,712 $ 688,389 20% Owned and Operated Advertising 64 The decrease in Owned and Operated Advertising revenues for the year ended December 31, 2022, compared to the same prior year period, was primarily due to deteriorating macroeconomic conditions and reductions in both advertiser and overall consumer demand , partially offset by an increase due to acquisitions.
Successor Predecessor Year Ended December 31, 2023 Period from January 27, 2022 through December 31, 2022 Period from January 1, 2022 through January 26, 2022 2023 vs. 2022 change (%) Owned and Operated Advertising $ 328,934 $ 556,303 $ 49,249 (46)% Partner Network 73,037 55,926 3,463 23% Total revenue $ 401,971 $ 612,229 $ 52,712 (40)% Owned and Operated Advertising Owned and Operated Advertising revenue decreased by $276.6 million, or 46%, primarily due to deteriorating macroeconomic conditions, such as reductions in both advertiser and overall consumer demand, which led to a decreased supply of consumer sessions available to be acquired.
This was partially offset by a net loss of $442,079, non-cash tax benefit of $107,798, a decrease in other long-term liabilities of $28,395, a decrease in Protected.net incentive plan liability of $20,000, and a decrease in accrued expenses and other current liabilities of $13,478.
This was partially offset by a net loss of $441.3 million, a noncash deferred tax benefit of $118.0 million, a decrease in other long-term liabilities of $18.1 million, a payment of long-term earnout liabilities of $20.0 million and a decrease in accrued expenses and other current liabilities of $22.0 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+4 added−2 removed0 unchanged
Biggest changeThe interest rate on our Revolving Facility is the Term SOFR plus 2.5%. As of December 31, 2022 (Successor), $415,000 aggregate face value was outstanding on our Term Loan and $50,000 was outstanding on our Revolving Facility. We have not used any derivative financial instruments to manage our interest rate risk exposure from our Term Loan and Revolving Facility.
Biggest changeAs of December 31, 2023, $365.0 million was outstanding on our Term Loan. We have not used any derivative financial instruments to manage our interest rate risk exposure with respect to our Term Loan.
Interest Rate Risk We are exposed to market risk from changes in interest rates on our Term Loan and our Revolving Facility, which accrues interest at a variable rate. The interest rate on our Term Loan is the adjusted Term Secured Overnight Financing Rate (“Term SOFR”) plus 4.75%.
Interest Rate Risk We are exposed to market risk from changes in interest rates on our Term Loan and our 2022 Revolving Facility, both of which accrue interest at a variable rate. The interest rate on our Term Loan is the adjusted Secured Overnight Financing Rate (“SOFR”) plus 4.75%.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk Figures are presented in thousands, except percentages, rates and unless otherwise noted. We have operations within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange risk.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk We have operations within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange risk.
Based upon the short-term investment amount as of December 31, 2022, a hypothetical one percentage point increase or decrease in the interest rate of our Term Loan and our Revolving Facility would result in a corresponding increase or decrease in interest expense of approximately $4,150 annually.
As of December 31, 2023, a hypothetical one percentage point increase or decrease in the variable interest rate of our Term Loan and our 2022 Revolving Facility would result in a corresponding increase or decrease in interest expense of approximately $3.7 million annually.
Removed
Foreign Currency Exchange Rate Risk We have foreign currency exchange risk related to transactions denominated in currencies other than the U.S. Dollar, principally the Canadian Dollar. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
Added
Foreign Currency Exchange Rate Risk The majority of our revenue is denominated in U.S. dollars; however, we do earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, primarily the Euro and Canadian dollar.
Removed
As of December 31, 2022, an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts would result in a foreign currency loss of approximately $13,065. In the event our non-U.S. Dollar denominated sales and expenses increase, our operating results may be more greatly affected by exchange rate fluctuations. 76
Added
Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period.
Added
Therefore, increases or decreases in the value of the U.S. dollar against other currencies will affect our statements of operations and the value of balance sheet items denominated in foreign currencies.
Added
We generally do not mitigate the risks associated with fluctuating exchange rates because we typically incur expenses and generate revenue in these currencies and the cumulative impact of these foreign exchange fluctuations are not deemed material to our financial performance. 75

Other SST 10-K year-over-year comparisons