System1’s outlook revised to negative at S&P amid business headwinds

Investing.com -- S&P Global Ratings has revised System1 Inc.’s outlook to negative from stable while affirming its ’CCC+’ issuer credit rating due to ongoing business challenges.

The ratings agency cited weak macroeconomic conditions, lower pricing for advertising inventory, and continued declines in Google (NASDAQ:GOOGL)’s Network business as factors affecting System1’s operating performance. Google’s Network business represents the majority of System1’s revenue source.

S&P Global Ratings expects System1’s adjusted gross leverage to remain elevated at approximately 8x in 2025 and about 7x in 2026. The agency also forecasts negative free operating cash flow (FOCF) of around $10 million in both 2025 and 2026, reflecting challenging operating performance and significant earnout payments related to the company’s past acquisition of CouponFollow.

System1’s System1-owned and operated products showed increased user sessions in the first quarter, but total revenue for the segment declined 16% year over year, driven by a 35% decrease in advertising spend.

The ratings agency noted that Google’s decision to opt out advertisers from AdSense for domains monetization in favor of its new RSOC product will likely cause volatility and disruption in coming quarters. This uncertainty, combined with broader macroeconomic challenges, is expected to limit System1’s top-line growth prospects in 2025.

S&P Global Ratings projects that System1’s adjusted EBITDA will increase to more than $30 million in 2025, though this improvement is largely attributed to lower expected restructuring costs compared to 2024. The agency still anticipates a 7% decline in revenue.

The company’s senior secured term loan, with $267.4 million outstanding and maturing in July 2027, currently trades at about 50 cents on the dollar. This steep discount increases the potential for a subpar debt exchange, according to S&P Global Ratings.

In January 2024, System1 repurchased over $58 million in principal value of its term loan for about 64 cents on the dollar and subsequently repurchased an additional $6 million at a similar valuation in April 2024.

As of March 31, 2025, System1 had approximately $44 million of cash on its balance sheet and full availability under its $50 million revolving credit facility. S&P Global Ratings believes this will provide sufficient liquidity to fund expected FOCF deficits of about $10 million and amortization payments of $20 million over the next 12 months.

The negative outlook reflects S&P Global Ratings’ expectation that System1’s leverage will remain elevated above 7x with negative FOCF over the next year amid ongoing business headwinds.

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