System1 Group Q2 and H1 FY26 Trading Update: Revenue Dip Offset by Innovation and US Growth

• US revenue grew 3% in reported terms (8% in USD).
• Innovation revenue rose 26%, with Innovation platform revenue up 107%, offset by weaker ad-testing.
• Continental Europe fell 36% versus H1 FY25, though improved quarter on quarter.
• The UK trended broadly in line with the Group.

The Innovation surge and US growth are doing a lot of work here. Europe remains the standout weak spot and ad-testing softness is still a headwind, but the shift to platform-led Innovation revenue is strategic and margin friendly.

Margins, costs and profit: high gross margin, lower H1 profit

Gross profit hit £14.9m at an 87% margin, unchanged from last year’s 87% and a healthy level for a data platform business. Operating expenditure increased by £0.9m (+7%) year on year, mainly from growth investments over the past 18 months, partly offset by lower variable pay.

On the bottom line, H1 Pre-Tax Adjusted Profit is expected at £0.2–£0.3m, down from £2.5m in H1 FY25. That drop reflects the revenue decline, the mix shift away from consultancy, and higher fixed costs. It also sets up a heavier H2 weighting if the full year guidance is to be met.

Cash and dividends: balance sheet remains supportive

Cash at 30 September 2025 was £10.8m, up from £8.9m at the prior half year end, and after paying all FY25 bonuses. That figure is before the approximately £1.4m dividend paid in October. The combination of a strong gross margin and a solid cash balance gives the company room to keep investing while navigating client spending cycles.

Guidance unchanged and October off to a strong start

Management kept full year guidance unchanged from 23 September 2025:

• FY26 revenue expected to be broadly in line with the £37m achieved in FY25.
• Full year Adjusted Profit Before Tax expected in a £2.0–£2.5m range.

The comment that October is “looking strong” backs up the guidance and points to momentum into H2.

What looks positive in this update

• Innovation engine firing: Innovation revenue up 26% and Innovation platform revenue up 107% is the highlight. It indicates product-market fit and higher-quality, repeatable revenue.
• US growth despite macro: Up 3% reported and 8% in USD, showing resilience in System1’s key growth market.
• Platform mix up to 95%: The business is more platform-led than ever, supporting high gross margins and scalability.
• Record £3.4m from new platform clients: Encouraging for future cohorts and net revenue retention.
• Healthy cash of £10.8m: Provides a buffer and optionality, even after bonuses and before the October dividend.

Where investors should be cautious

• Revenue still down: Q2 revenue fell 6% and H1 was down 7%. Consultancy was notably weak.
• Profit compression in H1: Adjusted PBT of £0.2–£0.3m is much lower than last year, implying a bigger H2 delivery is required to meet guidance.
• European softness: Continental Europe was 36% lower year on year, albeit improving quarter on quarter.
• Large-client spend remains subdued: Management again flagged lower spend from many of its biggest customers, a reminder of external macro risks and potential concentration.

Jargon buster

• Platform Revenue: Subscription-like or data-driven sales delivered through System1’s technology platform, typically higher margin and more repeatable than traditional consultancy.
• Innovation revenue: Work related to new product development testing, which in System1’s case is increasingly delivered via its platform.
• Adjusted PBT: Profit before tax excluding certain items such as share-based payment charges or credits, used as a cleaner measure of underlying performance.
• Gross margin: Gross profit divided by revenue. An 87% margin indicates strong unit economics on data sales.

My take and what to watch next

This is a steadier-than-it-looks update. Yes, revenue and H1 profit are down, but the company is getting the bits that matter moving in the right direction. The Innovation platform is growing fast, US momentum is intact, and cash is healthy. Keeping guidance unchanged and flagging a strong October suggests management sees a clearer runway into H2.

The flip side is that consultancy continues to shrink, Europe is weak, and the reliance on a stronger second half raises execution risk. Watch for continued Innovation growth, stabilisation in ad-testing, and whether new blue-chip client wins translate into larger, repeatable data contracts.

• Q3 trading cadence and any colour on October and November bookings.
• Ad-testing trajectory to see if the drag is easing.
• European recovery signs beyond quarter-on-quarter improvement.
• Cost discipline versus growth investment, given the H1 profit dip.
• Cash evolution after the October dividend and through H2.

Net-net, System1 is inching through a soft demand patch while deepening its platform roots. If Innovation and the US keep compounding and client spend normalises, the unchanged guidance looks achievable. Execution in H2 now carries the load.