Snap Inc.

Good afternoon, everyone, and welcome to Snap Inc's first quarter 2023 earnings conference call. At this time, participants are in a listen-only mode. I would now like to turn the call over to David Ometer, head of investor relations.

Thank you, and good afternoon, everyone. Welcome to Snap's first quarter 2023 earnings conference call. With us today are Evan Spiegel, chief executive officer and co-founder, Jerry Hunter, chief operating officer, and Derek Anderson, Chief Financial Officer. Please refer to our investor relations website at investor.snap.com to find today's press release, slides, investor letter, and investor presentation. This conference call includes forward-looking statements which are based on our assumptions as of today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent Form 10-K, particularly in the section titled Risk Factors. Today's call will include both GAAP and non-GAAP measures. Reconciliations between the two can be found in today's press release. Please note that when we discuss all of our expense figures, they will exclude stock-based compensation and related payroll taxes, as well as depreciation and amortization and non-recurring charges. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call. With that, I'd like to turn the call over to Evan.

Hi, everyone, and thank you all for joining us. We began the year with an intense focus on growing our community, accelerating our revenue growth, and leading in augmented reality. Our community continues to grow, reaching 383 million daily active users in Q1, and we are working to deepen engagement with our content platform while building innovative new features and services. Our focus on visual communication between friends and family has distinguished our platform from other internet platforms. And in Q1, we built on this core offering with the introduction of MyAI, our new AI-powered chatbot. At our annual Snap Partner Summit, we made MyAI available to Snapchatters around the world and launched a range of new features, including the ability to add MyAI to a conversation with friends, offer place recommendations from the Snap Map, and suggest more relevant AR lenses. We are excited about the opportunities we see for more innovation, especially as we look across our application at how AI can further enhance the Snapchatter experience. We are working to accelerate our revenue growth, and we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners. We generated revenue of $989 million in Q1, a decrease of 7% year-over-year, which was within the forecast range we shared entering the quarter. As expected, demanding Q1 was disrupted by the changes we made to our ad platform to drive more click-through conversions. While these changes are disruptive in the short term, we are optimistic that our ad platform improvements are laying the foundation for future growth. We believe that delivering stronger return on ad spend for advertising partners will enable us to increase our share of wallet over time in this highly competitive environment. We made progress diversifying our revenue through Snapchat Plus, our subscription service that offers exclusive, experimental, and pre-release features, which now has more than 3 million subscribers. We are excited about the launch of AR Enterprise Services with our first SaaS offering called Shopping Suite. which helps retailers use our augmented reality platform to drive sales and reduce returns on their own applications and websites. Diversifying our revenue growth is an important strategic initiative, and we believe our leadership in AR technology provides a strong foundation to build enterprise services and deliver a more holistic solution for businesses who are already using our AR technology for advertising. Despite the challenging operating environment this quarter, we continue to make progress on our path to sustainable profitability by achieving adjusted EBITDA of $1 million and generating $103 million of free cash flow in Q1. As we enter Q2, we reflect on the progress we have made in transforming our business to succeed in an operating environment that has been shaped by platform policy changes, a more challenging macroeconomic environment, and an intensely competitive landscape. We began this transition with the reprioritization of our business last summer to focus on growing our community and deepening engagement, diversifying and accelerating our revenue growth, and leading in augmented reality. As a part of the reprioritization, we took decisive action to reduce our cost structure, and we are pleased to share that we achieved the cost reduction targets we set in Q3 of last year. With our new COO structure, which unified our engineering, sales, and product teams, We have brought in three regional presidents across the Americas, EMEA, and APAC, with Ronan Harris leading EMEA, Ajit Mohan leading APAC, and our newest hire, Rob Wilk, leading the Americas. We have also brought in several new engineering and product leaders to accelerate progress with our advertising platform. As this structure has improved coordination and prioritization across each of these teams, we have identified clear opportunities to further invest in our business. For example, we've uncovered opportunities to make targeted investments in ML infrastructure to improve our recommendation systems for content and ads, and we have identified areas for incremental go-to-market investments that we believe will help us to accelerate revenue growth. Given the progress we have made with our ad platform, the experienced leadership team we have built, the work we have done to reprioritize our cost structure, and the strength of our balance sheet, we believe that we are now well-positioned to responsibly invest in the acceleration of our top-line revenue. While there is still a lot of work to be done, we believe that our large and growing community, track record of innovation, and the changes we have made to drive focus will enable us to make the right investments for our business and realize the long-term growth opportunity we see ahead. Thank you, and with that, we will begin our Q&A session.