System1 Inc

NYSE:SST

Earnings Call Transcript

[Kyle Ostgaard, executive]

Thank you for standing by, and welcome to the Fourth Quarter 2024 Earnings Conference Call for System1. Joining me today to discuss System One's business and financial results are Co-Founder and Chief Executive Officer, Michael Blend; and Chief Financial Officer, Tridivesh Kidambi. A recording of this conference call will be available on our Investor Relations website shortly after this call has ended.

I'd like to take this opportunity to remind you that during the call, we will be making certain forward-looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects. We may also make statements regarding regulatory or compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors included in our annual report on Form 10-K for the fiscal year 2024 filed on March 10 as well as the current uncertainty and unpredictability in our business, the markets and the global economy generally.

You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on management's assumptions and beliefs as of the date hereof, and System1 disclaims any obligation to update any forward-looking statements, except as required by law. Our discussion today will include non-GAAP financial measures, including adjusted EBITDA and adjusted gross profit. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Historical performance and future estimates provided during this call exclude results from Total Security. Information regarding our non-GAAP financial measures, including a reconciliation of our non-GAAP financial measures to our most comparable historical GAAP financial measures may be found on our Investor Relations website. I would now like to turn the conference call over to System1's Co-Founder and Chief Executive Officer, Michael Blend.

[Michael Blend, executive]

Thanks, Kyle. Good afternoon, everyone, and thank you for joining System1 on our Q4 2024 earnings call. We wrapped up the year with solid execution across the business. For the fourth quarter, System1 delivered $76 million in revenue and $45 million in gross profit. Adjusted EBITDA came in at $17.9 million, which was a 79% year-over-year increase. It is good to see our financial performance starting to reflect the hard work and progress by our team over the past year. Although we performed well overall, our strong results were primarily driven by our owned and operated products, with revenue increasing 30% sequentially from Q3 and 60% compared to Q4 last year. Our products like Startpage, MapQuest and CouponFollow saw higher engagement benefiting from improvements in SEO, user experience and product expansion.

In contrast, our marketing-driven businesses continue to be negatively affected by fluctuations in our Google-related business. As I discussed during our remarks last quarter, we continue to see ongoing volatility due to changes in [indiscernible] by Google in their search Partner Network. These changes had the longer-term goal of improving advertiser conversions and [indiscernible] quality to the Google Partner network.

However, in the short term, they continue to cause significant volatility and lower payments by Google to Google partners like System1. As Google put out less for traffic, System1 makes corresponding adjustments to the amount we pay for traffic in order to ensure our marketing businesses remain profitable. Consequently, lower monetization from Google caused our advertising spend to decline [ 26% ] sequentially. Now Google has been implementing rapid fire changes to its search Partner Network products over the last 18 to 24 months. And frankly, keeping up with these changes has been a challenging process for our team. That said, we remain steadfast in our Google partnership.

We've continued to invest heavily in our ramp platform, and we have strategically positioned ourselves [indiscernible] in the Google network ultimately rebounds. On the technology front, our investment in AI part automation within RAMP has yielded very promising results. It's been increasing efficiency and scale across all of our marketing operations. In 2025, we are strengthening our focus on AI integrations across all facets of RAMP and our overall organization, and we expect to see continued improved efficiency.

Now let's go into more detail on our Owned & Operated segment, which includes both our marketing-driven businesses and our Owned & Operated properties. Total Owned & Operated revenue reached $65 million, reflecting a 19% year-over-year decline and a 9% sequential decrease. This decline was driven by a 40% year-over-year revenue decline in our marketing businesses, offset by a 60% increase in our Owned & Operated products. While revenue declined, adjusted gross profit was up at $32 million. This marks a 20% year-over-year increase and a 21% sequential rise from the third quarter. The gross profit expansion despite a revenue decline highlights our ability to drive efficiency and margin growth within this segment as well as the higher gross profit margins of our Owned & Operated products.

Sessions across our Owned & Operated properties totaled $1.9 billion, down 8% from Q3 due to reduced adspend, but up 79% year-over-year. Our year-over-year growth reflects the increased scale of campaigns being run on RAMP as well as growth in our Owned & Operated products. International markets remain a key driver with international revenue representing 36% of total Owned & Operated revenue, up from 26% in Q4 2023. In Q4, we launched over 22,000 marketing campaigns at 5x year-over-year increase. This huge increase in marketing campaigns simply would not have been possible prior to our embrace of AI. Our medium-term goal for scaling marketing campaign launches is $130,000 per quarter for launching a new marketing campaign every minute of every day around the cloud.

As I mentioned, while we are confident in RAMP's ability to scale, we are being limited by fluctuations in the Google SPM performance. One recent change made by Google is worth highlighting, as it helps explain how Google changes directly impact our business. A few weeks ago, System1 was informed by Google that they plan to automatically opt out advertisers on a rolling basis from participating in their adsense for domains product known as AFD, beginning later this month. The practical effect of Google's pending change is that AFD monetization is likely to materially decline, making it significantly more difficult to profitably send our traffic to AFD powered websites. This AFD change will be both a short-term negative and medium-term positive for System1. In the short term, both our Owned & Operated and Partner Network lines do substantial AFD related business, and we expect that business to decline as Google rolls out this change on its AFD product.

On the flip side, Google is making this change to AFD to encourage adoption of its newer related search on content product, which is known in the industry as RSOC. Our company is well positioned to navigate this transition to RSOC as System1 has been allocating significant resources into our RSOC efforts for both Owned & Operated and Network Partners over the last 24 months. System1 is a leading partner with Google on this new and exciting product. So what we believe System1 is among the best position in the market to navigate this change from AFD to RSOC, Google's decision to opt out advertisers from AFD will likely cause significant business and product disruption.

We are rapidly shifting our remaining Owned & Operated and Partner Network AFD businesses over to the newer RSOC product while also keeping pace with rapid changes Google is making to RSOC as it continues to roll out this product offering. Now ultimately, we welcome this disruption to the Google Search Partner Network. It is aimed at weeding out bad actors from the ecosystem and ultimately is going to benefit the technology-driven companies who are focused on high-quality consumer and advertiser experiences.

While we expect the stormy weather will continue for a bit longer, we're looking forward to the sunny days ahead where we can return our focus on scaling our Google business back up.

With that, let's move on to some highlights from our Products group, which as I mentioned, is on a stellar run. First, let's go ahead and start with CouponFollow, our leading couponing and promote code service. CouponFollow had a very strong holiday shopping season and a great fourth quarter with the site continuing to perform well following Google's search algorithm updates in 2024. Our focus on a high-quality user experience and delivering verified real-time promotional codes continues to pay off. Organic sessions rose more than 20% sequentially from Q3 and and sessions were up 129% year-over-year. In addition to our growth in site traffic, our browser extension users have more than doubled year-over-year. We have a very nice flywheel going with CouponFollow. As our usage increases, we get better signals on which promo codes are currently working for users. That enables a higher-quality experience for users because of promo codes that the users try actually work.

This, in turn, brings in users and more users and more data and so on. And as CouponFollow continues to scale, we're able to land more direct deals or brands, which in turn improves the accuracy in deals found on CouponFollow. In 2025, we're going to aggressively capitalize on these great trends and with a continued focus on providing a better experience for both consumers and merchants.

Now I'm going to move on the Startpage, our privacy-focused search engine. Startpage continues to gain traction as global concerns around online privacy and data security showed no signs of lighting up. The regulations like [ GDPR ] in Europe and evolving U.S. privacy laws placed greater emphasis on consumer data protection, Startpage is very well positioned to provide an alternative to mainstream search engines. Startpage user sessions grew over 20% year-over-year as more users seek private search. And in addition, the Startpage private browser apps we launched last year already have more than 200,000 downloads across both Android and iOS. As usage and revenues grow in Startpage as more mainstream users seek private search engines, our 2025 is going to be about continuing to add the bells and whistles these users expect when they switch from Google or Bing or [indiscernible] go over to Startpage. We also intend to make AI integration of major folks in start page in 2025.

And lastly, let's talk about MapQuest, everybody's favorite, Oh that still exists, Internet service. Well, I'm happy to let you know that MapQuest is back. MapQuest continues to experience strong engagement with user sessions growing more than 45% year-over-year. The demand for alternative mapping and navigation solutions remain strong, especially as users seek more privacy-conscious and feature-rich alternatives to dominant platforms. Our team has revitalized MapQuest by introducing new functionality, enhancing our mobile experience and optimizing local mapping capabilities. Recently, we launched private maps, offering users enhanced control over their location data. And all these efforts are paying off and the renew MapQuest recently went viral, all over social media and MapQuest has called out in segments on CNN and Steven Kober.

Now I'll move on to our Partner Network performance. Partner Network revenue was $11 million and adjusted gross profit was $14 million, up 10%, both year-over-year and sequentially. Our Partner Network results included an accounting revenue adjustment, which lowered both revenue and COGS and had no impact on gross profit. We will be excluding the adjustment as we make comparisons to prior periods and report business metrics. Without the adjustment, revenue was $18 million, which represents an 8% year-over-year increase. In Q4, average revenue per partner decreased 6% versus the third quarter, while active and scale partners increase.

Total active partners increased 6% from Q3 to over 300 partners. At the end of Q4, we had 65 scale partners, a 12% increase from the third quarter. As a reminder, we consider a platform customer to be a skilled partner when they are generating at least $50,000 of revenue per quarter on RAMP. Now similar to our Owned & Operated business, our Partner Network team has had to navigate the rapidly changing Google landscape. The team has done a great job handling the volatility, and we are very well positioned as we ship business over to the new Google RSOC product.

Looking forward to the rest of 2025, we remain cautiously optimistic. Our Owned & Operated products continue to demonstrate strong fundamentals, and I'm excited to see us expand on our core platforms in couponing, private search and mapping. And on the marketing side, our investments in AI-driven optimizations are positioning us well for future growth. And I'm very glad we made the early decision to invest heavily in the new Google RSOC product.

To close, I want to reiterate, as I always do, System1's leadership team remains fully aligned with our shareholders. And as a group, we remain one of the company's largest shareholder base. As we continue our transition back to growth mode, we very much appreciate your continued support, and we look forward to delivering long-term value. With that, I'll hand it over to Tridi to go over our financials and provide Q1 guidance. Take it away, Tridi.

[Tridivesh Kidambi, executive]

Overall, we are pleased with our fourth quarter financial results with the highlight being our $17.9 million of adjusted EBITDA, representing year-over-year growth of 79%, quarter-over-quarter growth of 73%. For the year, we generated $38.6 million of adjusted EBITDA, representing year-over-year growth of 32% and demonstrating our ability to grow through a challenged marketplace.

Now let's dive into our operating results. Q4 revenue was $75.6 million, representing a 21% year-over-year decrease, a sequential decline of 15%. Owned & Operated advertising revenue was $64.7 million, down 19% year-over-year and 9% sequentially. The decrease in revenue is directly related to an $11.6 million sequential decline in advertising spend. Within the Owned & Operated advertising segment, our O&O products business generated $27.1 million of revenue, up 60% year-over-year and 30% sequentially as to be expected in a seasonally strong Q4. Our fourth quarter RPS was $0.03 and in line with the third quarter, CPS was $0.017, down 20% from $0.021 in the third quarter. As we lowered our advertising spend, we were able to shift towards lower CPS traffic sources. Overall, RPS and CPS were both down significantly year-over-year.

As throughout the year, we have called certain acquisition channels that had both higher RPS and higher CPS. RPS was down 55% year-over-year and CPS was down 65% year-over-year. The spread between RPS and CPS in Q4 was $0.017 or 98% margin compared to $0.013 or 59% in Q3. Network revenue was $10.9 million, but adjusted for our net revenue adjustment was $18 million, which was up 8% year-over-year and in line with Q3. Total sessions were [ $1.9 billion ], up 46% year-over-year and down 20% sequentially. Partner Network RPS, after adjusting for the out of grade revenue adjustment decreased 26% year-over-year but increased 24% quarter-over-quarter.

Adjusted gross profit was $44.7 million, up 19% year-over-year and sequentially. Revenue less advertising spend for our O&O advertising segment increased 21% sequentially to $32 million. Revenue less advertising spend for our O&O products was $25.6 million, up 62% year-over-year and 27% sequentially. Network revenue less agency fees was $14.4 million, up 10% year-over-year and sequentially. Total sessions processed by RAMP in the most recent quarter was $3.8 billion, up 61% year-over-year and down 14% sequentially.

On to operating expenses and EBITDA, in Q4, operating expenses net of [indiscernible] was $26.8 million, down $0.5 million quarter-over-quarter and down $700,000 year-over-year. We continue to focus on reducing OpEx to create operating leverage. Adjusted EBITDA was $17.9 million in Q4 versus $10 million in the same quarter last year, representing a 79% year-over-year increase. With respect to liquidity, we ended the quarter with $63.6 million of unrestricted cash on our balance sheet and an outstanding balance of $280 million of term loan debt under our credit agreement. Our net consolidated leverage at quarter end was approximately 5.6x.

Now on to Q1 guidance. We are estimating Q1 revenue to come in between $69 million and $71 million, down 18% year-over-year at the midpoint. Despite the revenue decline [indiscernible], we are estimating adjusted gross profit to grow 25% year-over-year at the midpoint and come in between $38 million and $40 million. We estimate Q1 adjusted EBITDA to come in between $9 million and $11 million, up over $9.5 million year-over-year at the midpoint. The adjusted EBITDA guidance also assumes a benefit from the reversal of the majority of the prior period partner payment balances related to fraudulent traffic on our network from Q2 of last year. For the reasons outlined by Michael during his remarks, specifically around Google volatility, we will not be providing full year guidance at this time.

As we mentioned during our last earnings call, we have continued to see significant volatility in our marketing-driven businesses due to ongoing cell site product and policy updates. However, our core product utilities, such as private search, mapping and couponing, provide a strong foundation that allow us to navigate these challenges effectively. Looking ahead, 2025 presents an opportunity to further scale these products, driving consistent user acquisition and engagement. By continuing to attract and retain users through differentiated, high-value services, we not only mitigate market fluctuations, but also create sustained monetization opportunities. Additionally, our RAMP platform remains instrumental in generating gross profit and EBITDA. As we refine our AI-driven strategies to optimize traffic quality and advertising yield, AI-driven advancements to our platform and processes will also allow us to continue to optimize our operating expenses throughout the year. Our ability to balance growth in Owned & Operated with a disciplined approach to our marketing businesses will be a key focus in the year ahead. Thank you for joining us today.

[Kyle Ostgaard, executive]

Thank you, Tridi. We're now going to open the line for some questions. The first question comes from Tom Forte with the Maxim Group.

[Thomas Forte, analyst]

Great. So first off, Michael and Tridi, I hope you and your colleagues are okay when it comes to the California wildfires. Second, congrats on the improvement in the adjusted EBITDA for both the fourth quarter and full year. So I have 3 questions. I'll go one at a time. Michael, as experts on AI and one of the early users of the technology to advance your business, would love your thoughts on DeepSeek and in general, your ability to invest in RAMP at much lower CapEx than your tech peers.

[Michael Blend, executive]

Thanks, Tom. Thanks for joining and for the questions. Good to see you. So I would say, as far as DeepSeek goes, I don't have a specific opinion about what they're doing except that it has been very nice to see that DeepSeek along with a lot of some of the other open source providers as well as the general competition in the AI marketplace is really bringing costs down substantially for us. What we're seeing is that price -- the price to use these tools has been coming down really every couple of weeks or so. And we're also seeing advances in a lot of the code-assist tools that we're building where we've been quite heavy users of AI, and I'll talk about that interest in a second. But what we're seeing is like every 2 weeks, people are leapfrogging the other products. And so the level of pace at which these tools are developing is pretty extraordinary. The way that AI is specifically affecting our business here at System1 on a couple of different ways. So first of all, as we've discussed, I think on our last few quarterly earnings calls, AI is really perfectly built for a lot of the marketing that we do. So just tactically doing things like producing better ads, using AI and machine learning to do things like really rapidly change bid pricing on advertising, but also produce better tag line, make better advertising, better content. Our entire advertising flow has been improved.

So on the first side, you've got AI helping our operations, which has been good. But what I would say more recently is what we're seeing are some really dramatic changes in the way that we're able to do product and engineering at our company. What we're seeing is that as engineers and product folks are adopting the AI tools, we're seeing like 2 to 4x improvements in efficiency and productivity from our team. So we made the decision relatively early as the code-assist tools has been coming out and maturing to really go full force into them, are we able to do that given the size of our company and how adaptive our engineering and product teams are. So we're seeing just really great efficiency improvements, but also on the -- I want to wrap up on the business side, some really cool things are happening as well. We're pushing our -- not only the product and engineers but also the -- our entire company to adopt these tools.

And so we're seeing our people on the business side that have never developed code, never written a line of software in their lives are actually turning out products themselves. One interesting thing that we had kind of a fun thing a few weeks ago, one of our business heads on the MapQuest side, for instance, came up with an idea for just an interesting [indiscernible] product one night a few weeks ago, worked on it that night, built it himself, the next morning and worked with one of our engineers to productize it. And I think about 14 to 15 hours on business concept, we had a product launched. And a few days later, that product was a funnel viral product, got featured on [indiscernible] and CNN. That kind of stuff would have never happened before without these code-assist tools where someone can come up with a product and build them at a pace that we've really never seen before. So AI, at least at our company is increasing our efficiency and productivity, but it's also kind of unleashing creativity, which is nice to see.

[Thomas Forte, analyst]

Excellent. All right. So then my second question is the question I get most often from investors, can you talk about, at least at a high level, your balance sheet and your efforts to improve your capital structure, including managing your debt?

[Michael Blend, executive]

Sure. Something we focus on quite carefully. Tridi, do you want to go ahead and answer that question?

[Tridivesh Kidambi, executive]

Sure. Tom, thanks for being here. Thanks for the question. So obviously, we think about our balance sheet and capital structure, a fair amount in August of this past year, we did some work around our corporate restructuring that aligned our corporate structure with how we actually manage the business and think about our Owned & Operated business, specifically between the advertising and the products businesses. That being said, as I mentioned in my prepared remarks, our net leverage at the end of the year was 5.6x, which frankly is higher than we'd like it to be probably, higher than our lenders would like it to be and definitely higher than we thought it would be. We started down the path a couple of years ago.

That being said, for all the reasons that we talked about in our prepared remarks that Michael just mentioned around AI, we feel very bullish about the prospects of the business to continue to grow and for us to grow into a net leverage position that we were comfortable with. And specifically, we still have about 2.5 years left on the term of our credit agreement and we believe we'll be in a strong position to refinance that when we get there.

[Thomas Forte, analyst]

Great. All right. So then my last question. That was very helpful, Tridi. I appreciate that. Michael, can you remind me of how periods of heavy political advertising spending impact your business model, like we had essentially all of '24. And now that we're on the other side of the presidential election, can I assume it's a much easier operating environment for you?

[Michael Blend, executive]

Yes. Good question, Tom. So we're a little bit contrary to a lot of the advertising businesses out there where in Q4 when political was pretty hot. What that does for us is it affects the buy side. So it drives up pricing a bit for us when we're buying our advertising. So we actually are happy that political quarter past us. And for us, the buy side opens up a bit, and we see pricing come down a little bit. So it's a good question. But as I said, it's -- and as you mentioned, the political season being behind us is a favorable thing for System1.

[Operator]

The next question is from Dan Kurnos with Benchmark.

[Daniel Kurnos, analyst]

Michael, there's a lot to unpack in here. So maybe at the expense of potentially getting a little deeper in the weeds on the RSOC shift. I'm just curious, maybe a higher level for investors how well you're positioned? You already talked about investing in the shift. It sounds like you're ahead of the curve. We've been talking to a lot of the other premium publishers and some of the agencies about this. And interesting to see when this happens because I don't think they're going to be [ ready ], but can you just talk about your readiness and kind of where you still need to invest? Obviously, it's going to create some havoc in the marketplace, which we thought was going to happen with the cookie deprecation we're getting this instead. So maybe just kind of talk through what you're seeing and where you guys are positioning yourselves as we make this pretty big shift.

[Michael Blend, executive]

Yes, sure. Also good to see you. So it's a little bit in the weeds for people, but because Google is such a major part of our business on the revenue side, probably worth expanding a little bit. So essentially, just to reiterate from my earlier remarks, Google has got a few different products, a few different advertising products that we use in people and kind of the Google partner ecosystem use to monetize their traffic. And one of them historically was a product called AFD, another one is a product called AFS. And then related to AFS is a product called RSOC. And I don't know, 18 months ago or so, Google introduced a new -- this new product called RSOC and it was a pretty small product at the time, not one that had a lot of revenue on it. Google was putting a fair amount of focus on it internally. And so we made the decision as System1 to really invest pretty heavily in it.

I think we made the right decision because fast forward 18 months, Google has been kind of informed us and informed the advertising market that we would expect that the AFD product that they offer. Over time, it's going to be a much less important product for Google and that they're going to be shifting a lot of their emphasis into having Google partners such as ourselves, promote the RSOC product, which stands for related search on content. We -- as I said, we've been putting a lot of our product and engineering efforts behind this, a lot of our marketing efforts behind RSOC.

And we think we're quite well positioned. We were the market leader in this product or at least certainly, we're one of the market leaders in the product. And so in the short term, we expect to see some bumpiness as AFD, the revenue that we generate from AFD kind of begin shifting over more heavily to RSOC. But over the medium to long term, we're actually quite supportive of it. RSOC, we think, is a really good product for consumers and for advertisers and it happens to be one that we're quite well positioned for here at System1. So we're happy to see the shift happening a little bit more quickly than I think anybody in the market would have expected. But we think that we're in the right position for it. I think you're on mute, Dan.

[Daniel Kurnos, analyst]

There we go, sorry about that. Tricky in the back end here. So no, Michael, super helpful. Appreciate it, and I can confirm you guys are definitely leading the charge on our stock, at least based on my conversations. So we'll see how that plays out. But to what you guys guided in Q1, like your -- let's just call it, revenue ex TAC, which is basically what it is, is you've guided it up pretty strongly. And I know that's -- a lot of that due to your O&O properties. But can you guys just talk through -- I mean the spread is huge in Q4. You guys crushed it on spread and I'm just curious how you guys are thinking about your ability to grow in this uneven environment, adjusted gross profit, revenue ex TAC, whatever you want to call it.

[Michael Blend, executive]

Let's start with that, Tridi, and then I'll take over if you want.

[Tridivesh Kidambi, executive]

Yes. No. I mean, again, we are guiding to some growth this year. Again, it comes down to -- I mean you've seen a little bit of stability in the marketplace here to start the year. And when we see stability, that's good for us. That's kind of what RAMP is built to take advantage of. So sitting here kind of, again, in the third month of the quarter, we feel pretty good about our guidance and how the quarter is going to end up, and it's a function of RAMP working the way that it's supposed to work. And yes, I mean, there isn't much -- there isn't much more to say other than it's execution.

[Michael Blend, executive]

Yes. I would say that in general, as we've kind of mentioned in our earlier remarks, our organic products are doing quite well. We're seeing nice growth there. And we probably would have a little bit more confidence about the overall year if we weren't faced with this product transition on the Google side. So we're really waiting to see how that plays out. And I think back half of the year, we're going to have a lot more confidence in what numbers are going to look like. But for now, we feel good. And we're coming off 2024, I think, was a year in which we started turning the corner and we're, I think, starting to feel increasingly confident about '25.

[Daniel Kurnos, analyst]

I know, Michael, you would be mad at me if I didn't ask you my standard international questions. So it was obviously a good quarter for international. It's moving ahead. We continue to hear actually some pretty good things out of APAC. Europe is kind of coming back up a little bit, although we maybe hit a little bit of a bump now. It seems like a real greenfield opportunity for you guys. I know you kind of keep pushing me off saying, "hey, we're attacking it 36% now." How are you thinking about the TAM there? And how do you think about that contributing to growth this year?

[Michael Blend, executive]

Well, I mean, we're -- I think we're making pretty good progress year-over-year. You're seeing an increasing percentage of our revenue coming internationally. So we're feeling really good. Our efforts are pretty focused. We're split domestic and international on internal efforts, but one thing that our AI tools have enabled us to do is very quickly moving into international markets. It's actually been doing things like translation, making sure images are better. Advertising copies are better internationally has become much, much easier for us. And we also have, we think, some growth on our shopping vertical with CouponFollow has very little international presence. MapQuest has almost no international presence. So if you look on the organic product side, those are a couple of areas where we could be going international as well. So we're not going to slow down. TAM is obviously huge domestically, but we've got a huge TAM international as well. And what I suspect is that you're going to continue seeing an increasing percentage of our gross profit from international?

[Daniel Kurnos, analyst]

Got it. And I'll bug you with one more and I'll take the rest offline because I have plenty. But maybe just for Tridi, you called out items in Q1 just around the adjusted EBITDA margin. How should we just think about the trajectory for adjusted EBITDA margin this year? Should it be up? And if you're calling for some growth in adjusted gross profit, and I know there's no crystal ball here, but just how do we think about your ability to generate incremental leverage going forward?

[Tridivesh Kidambi, executive]

Yes. So I would expect kind of the bulk of our gross profit to flow through down to adjusted EBITDA. So as I mentioned, we're continuing to look at OpEx, be very maniacal about making sure kind of every dollar we spend, we're getting a good ROI on it. And so we would expect that our gross profit growth throughout the year should slow down at a very high flow-through, which should lead to expanded EBITDA margins as a percentage of gross profit.

[Michael Blend, executive]

Yes. I would reiterate to that. What we're seeing from our team is going back to the question of Tom, had the ability of our team to execute and -- on the engineering and product and business side, a lot of it driven by the new AI-related products that we've been using is pretty impressive. And so we would expect that we're going to be able to continue with -- around our current OpEx levels, execute better, roll out more products quicker with relatively stable OpEx. So you're going to see -- you should see as our gross profit expands a lot of leverage from that.

[Daniel Kurnos, analyst]

Got it. Super helpful. It was a lot of fun playing with the Gulf of America on MapQuest.

[Michael Blend, executive]

Glad you enjoyed it. We had a few hundred thousand other people enjoy that as well. Well, I think it's all of our questions, I believe, I want to thank everybody for joining us this quarter. We look forward to chatting with you next quarter where we hope to have some good news in. Thank you very much.