Michael Guthrie: I want to highlight one other nuance on efficiency. And this gets into what we’re doing on voice safety and voice moderation. We’re doing very sophisticated work to help with voice safety and civility, and we’re doing this on our own infrastructure. And there’s incredible efficiency by using the same infra that we use for real-time 3D simulation of all of our players, using that exact same infra for inference for voice safety.
Bernard McTernan: Understood, Thank you both.
Operator: Your next question comes from the line of Omar Dessouky from Bank of America. Please go ahead.
Omar Dessouky: Hey, guys. Thanks for taking the question. I actually wanted to double-click a little bit more on this infrastructure question, because the numbers are quite remarkable. So if I just look at your results it looks like your hours in the third quarter, your total engagement hours were up 15%, but your infrastructure cost per hour was down 18%. So that’s pretty strong and your infrastructure costs came in well below my estimates. So are there any onetime events that caused this very high cost savings on that line and how should we think about your infrastructure costs per hour kind of going forward? Would they be at a similar rate as they were in this quarter or will they kind of come back up to where they were in the second quarter? Then I have a follow-up.
David Baszucki: Omar, I actually feel the onetime event has happened in the past, which was on core data centers, a fair amount of CapEx to build out resiliency. And we’re through that now. And we have resiliency on core data centers, on edge data centers where we run simulation. Once again, we’ve got great efficiency there on that capacity. So I don’t think there’s a forward event reel. I think we’ve done a lot of that in the past.
Michael Guthrie: Yeah, and then Omar, as it relates to [indiscernible] so first thing, you had a comment about hours growing at 15%. I want to make sure I understood that. I think hours grew at 20%. But just…
Omar Dessouky: I’m just talking about quarter-on-quarter, Mike. Quarter-on-quarter your hours were up 15%. Yet, your cost per hour was down 18% quarter-on-quarter.
Michael Guthrie: Okay, understood. So we’re going to show some more data at Investor Day, but one of the factors is what Dave just talked about, which was investment, building a lot of capacity, not unlike building a factory or anything else, and now absorbing that capacity. The second one is, challenging the team to focus on a cost to serve target that declines over time and to get more efficient as an engineering organization. And they’ve done an incredible job and we believe have plenty in front of them, and they’re going to continue to drive down this metric of cost per 1,000 hours served. So we actually see continued leverage in the infrastructure line to answer your question, and that should be reflected in the future in lower numbers as a percentage — on the income statement, lower numbers as a percentage of either bookings or revenue.
Omar Dessouky: Okay, awesome. Okay, and then maybe just focusing on sort of your top line and your guidance. What was it that increased your confidence and your ability to guide accurately as compared to, let’s say, three to six months ago?
David Baszucki: Well, I want to do a shout out to the whole financial modeling team. We’ve always had a fair amount of confidence in our ability to model the future. So this is less about confidence. Mike maybe can comment to the real world.
Michael Guthrie: Well, first of all, you said the existing guidance, so we haven’t given any guidance yet. We’re going to guide for the fourth quarter. I merely commented on Q4. A number of reasons, there’s certainly demand. We talked to a lot of investors who would really like a deeper insight into our forecasting and the best way to do that is through guidance. And I think having gone through such a big cycle of COVID and coming out of COVID and the big investments that we’ve made. And now with margins and operating leverage coming out the other side, it actually does become easier to have that conversation and show people the models going forward. So I think it’ll be a healthy dynamic for everybody.
David Baszucki: Yeah, I want to highlight the complexity — not really complexity, but the breadth and the scope of our vision internally. We’re building a platform that is connecting people around the world in a bunch of different regions and different countries, a bunch of different age groups, and more and more moving to several economic models that support that, virtual currency, advertising, and more to come. And then on top of that, we have complexities on the GAAP revenue side, as Mike mentioned, as far as deferred revenue. The fairly broad ambitious vision, and we think guidance can help that complexity.
Omar Dessouky: Awesome. Thank you, guys.
Michael Guthrie: Thanks, Omar.
Operator: Your next question comes from the line of Clark Lampen from BTIG. Please go ahead.
Clark Lampen: Thanks. Good morning. I have a question on average spending rates. You guys highlighted a number of products throughout the prepared remarks that seem, whether in the late stages of, I guess, sort of pre-release or early release right now that seem likely to be accretive to spending. Are we at a point now where maybe those products collectively can offset some of the mix shift headwinds to monetization we see from international expansion and maybe average spending from here sort of lifts going forward? That’s question one.
Michael Guthrie: Hey, Clark. Good to talk to you. First thing I would like to highlight that in the third quarter of 2023, so the average payer monetized at $19.02 over the quarter, which was up from $18.11 prior Q3. So monetization on a payer basis has been creeping up over the last few quarters on a year-over-year basis and is basically catching up to those peak moments in the pandemic when monetization was incredibly high. Overall, if you look at it on a DAU basis, some of the discussion around the prepaid cards that I mentioned earlier has been a bit of a drag on it. So I think we’ll work through that as well. So yes, I do believe I’m strongly optimistic about monetization overall. In addition, as Dave just highlighted, the platform is built now 70 million daily active users with a virtual economy that is very large and growing at a very healthy clip.
