Copperleaf Technologies Inc

TSX:CPLF

Earnings Call Transcript

[Operator]

Good afternoon and welcome to Copperleaf's Third Quarter 2023 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 8, 2023. Your hosts today are Paul Sakrzewski, Chief Executive Officer of Copperleaf and Chris Allen, the Company's Chief Financial Officer and Chief Operating Officer. Before we begin, I am required to provide the following statement respecting forward-looking information. During the call today the Company will make forward-looking statements that are based on assumptions and therefore subject to risk and uncertainties that could cause actual results to differ materially from those projected. The Company undertakes no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in regulatory filings that were filed earlier today.Also, the commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in the Company's regulatory documents, which are available on sedarplus.ca or on our website. In addition, commentary today will include key performance indicators that can help evaluate the business, measure performance, identify trends affecting the business, formulate business plans and make strategic decisions. Such key performance indicators may calculate in a manner different than similar key performance indicators used by other companies.And with that, I would like to turn the call over to Paul Sakrzewski. Please go ahead.

[Paul Sakrzewski, executive]

Thank you very much. Good afternoon, everybody. Thanks for joining us to discuss Copperleaf's third quarter performance. I'm excited to provide an update of our progress during Q3 and, of course, to share some of our plans for the future. As is our usual format, I will make opening remarks before passing it over to Chris to provide a detailed review of the financial results. Following our prepared remarks, we'll open the call as usual to questions.So first, let's dive into a summary of our third quarter financial results. Copperleaf's third quarter performance demonstrated continued momentum across all of our key financial metrics. We delivered a 26% year-on-year increase in annually recurring revenue, drove a 30% year-on-year increase in subscription revenue and ended the quarter with a record $114.2 million backlog.I believe these results underscore the effectiveness of our industry-leading decision analytic software, the strength of our refreshed operating model and the improved execution of our team in the context of our ongoing transition to SaaS. We also continue to make progress with the addition of new clients, adding one of the largest gas distribution companies in the United States declined in Q3, as well as one of Brazil's largest integrated power utilities. If [Technical Difficulty] of this new beachhead in Brazil, in particular, is another point of validation of our ongoing investment in expanding Copperleaf's reach into selected new geographies.Overall, I'm very proud of the progress we've made at the team in the first 9 months of the year, generating good growth despite continuing uncertain macroeconomic conditions in most of our markets. And on this topic, we do continue to see temporary headwinds like enhanced client sign-off requirements, limited client resources and RFP delays, which we expect to continue through the end of the year.However, we remain focused on continuing to improve our execution, while charting a clear path back to profitability. We emerged from Q3 with a renewed conviction that we have the industry-leading solutions, the right operating model, the right leadership and the right strategy to drive long-term growth. As part of that growth story, we continue to evolve our sales and marketing approach. And in July, we hosted our first asset investment planning and management forum in Paris. And in August, we hosted a similar AIPM symposium in Malaysia, where we bring the asset investment planning community together to network share and learn.These events are extremely well attended, and it's a good indication that we're making progress in establishing asset investment planning software as an essential component of our clients' digitized environment. Clients and prospective clients come together to discuss the importance of multi-criteria decision analysis that considers both financial and non-financial measures, including normally difficult to quantify sources of value, such as environmental impact, customer satisfaction, social justice investing and reputational benefit.These events serve as an important platform for us to emphasize the significance of value-based decision-making as a central part of an organization's overall strategic toolkit and further establish Copperleaf as a thought-leading organization and trusted adviser in this rapidly emerging space.One of the highlights of the symposium in Kuala Lumpur particularly was a keynote from an executive at Tenaga Nasional Berhad, a Malaysian multinational integrated electricity company. The presenter, an executive who has worked on TNB's Copperleaf implementation since the beginning, guided the audience through the company's transformative journey from risk-based decision-making to value-based decision-making.TNB Grid has now integrated the Copperleaf Decision Analytic solution into its digital landscape, resulting in a systematic and consistent approach to investment decision-making, greater transparency to the Malaysian energy regulator and a heightened focus on realizing value for every dollar they spend on their asset, all while proactively managing risk.These symposiums provide an incredible form for us to engage with some of the world's leading organization, while they share information and learn from each other's progress. At Copperleaf, we always believe that we are the clear leaders in the decision analytics software sector. During the third quarter, however, we received strong third-party validation of our position from Verdantix, a research and advisory firm that act as an essential thought leader and adviser on innovation to many of our clients and our prospective clients.Verdantix published its inaugural Green Quadrant report on asset investment planning with Copperleaf positioned as the clear leader in the segment. Their report echoed our view that when successfully deployed, firms achieve improved decision-making, reduce risk, stronger compliance with regulatory requirements and the ability to clearly evaluate investments in such initiatives as the mitigation of climate risk, all leading to material additional return on investment.Verdantix concluded that with Excel no longer viable with -- due to the ever-increasing complexity of the problem and existing asset management solutions failing to cover the space, AIP software has emerged as its own category, providing capabilities to create investment plans to take into consideration financial and non-financial objectives and drive superior ROI. We have a lot of respect for Verdantix as a trusted and technology adviser to our clients and we're obviously delighted to see them recognize Copperleaf placing us in the leading top right position in the Green Quadrant.In addition to this recognition by Verdantix, Q3 saw further progress in the development of our partner ecosystem, which is a key plank of their strategy. Further to the announcements in Q1 and Q2 regarding the developing global relationship with SAP under the Endorsed Apps program. Q3 saw the official commencement of cooperative go-to-market activities, resulting in material incremental pipeline for 2024 and beyond across all regions. Q3 also saw the deepening of Copperleaf's global relationship with Accenture to a more programmatic level. This is a direct reflection of the scale of the opportunity that Accenture sees with Copperleaf and is the next step towards a coordinated approach to cooperative go-to-market activities in the intelligent asset management space.Our partners play a crucial role in our global scaling strategy and we're pleased to see concrete progress resulting from the focus and resources we've recently dedicated to building our ecosystem. Copperleaf continues to innovate and extend the competitive advantages of our solution. In Q3, we were granted a new U.S. patent for an advanced software optimizer, which enhances our comprehensive asset management portfolio, particularly for large numbers of assets across all stages of the asset lifecycle.This patent highlights Copperleaf's dedication to R&D, developing pioneering solution that facilitate better investment decisions and higher ROI for our clients. Reminding everyone on the call that we maintain a cadence of 4 quarterly software releases per year, during Q3, Copperleaf released version 23.3 of its product suite, which included numerous new capabilities, including a new modeling for a module for complex asset relationships and asset interventions in the Copperleaf value model library, visualization of predictive analytics asset strategies in our interactive GIS experience option and significant enhancements to our popular dashboard library, which helps our clients to clearly communicate their value-based decision-making outcomes more effectively to their stakeholders.For the remainder of 2023, we will remain focused on executing our go-to-market strategy, while continuing to prudently manage company expenses, as we navigate uncertain economic conditions. We anticipate our growth in ARR and pipeline for the remainder of the year will be driven by our reputation for driving value for our clients, ongoing refinement of our go-to-market model, the maturation of our sales force and of course, our increasing partner traction.In summary, I'm very pleased with our progress and the way that our new operating model is starting to perform and I believe that we're on track to meet our strategic goals. We continue to focus on prudently managing cash and innovating across our whole business with the aim of driving execution in the near to medium-term and at the same time, laying down a sustainable global foundation for future profitable scaling and growth.I'll now turn the call over to Chris to review our financial results in some more detail. Chris?

[Chris Allen, executive]

Thanks, Paul. Good afternoon, everyone. We're pleased to report that our third quarter 2023 results continued to deliver growth across our key financial metrics. Revenue for the quarter ended September 30th, 2023 was $19.9 million, an increase of 10% compared to $18.1 million in the comparative period, driven primarily by an increase in subscription and perpetual revenue and partially offset by a decrease in professional services revenue.Subscription revenue for the third quarter was $13 million, an increase of 30% from the prior year, representing 65% of Q3 total revenue as compared to 55% of total revenue in Q3 2022 and highlighting our continued transition to SaaS. In addition, this reflects the benefit of timing as we were able to recognize a full quarter of revenue from a few SaaS deals that closed late in Q2 and early in Q3. By contrast, we expect to see our deal timing more traditionally back end loaded in the fourth quarter.Professional services revenue for the third quarter was $6.1 million, compared to $7.6 million in the prior year and this segment represented 31% of our Q3, 2023 revenue. And finally, perpetual revenue for the third quarter was $0.8 million, a 100% increase compared to $0.4 million in the prior year and this segment represented 4% of our Q3 2023 revenue.Our annual recurring revenue at September 30th, 2023 was $53.3 million, a 26% year-over-year increase, compared to $42.3 million at September 30th, 2022. As of September 30th, 2023, our net revenue retention rate was 111%, reflecting expansion within our client base on our strong renewal history. Revenue backlog was a record $114.2 million at September 30th, 2023, a 23% increase from $93.1 million as at September 30th, 2022.Gross profit was $14.5 million, representing a gross margin of 73% for the quarter, a 9% increase from $13.3 million and a gross margin of 73% in Q3 2022. As is typical in Q3, we saw increased vacations through the summer months, fewer conferences and less travel, which resulted in a temporary decline in quarterly expenses, but we expect this to normalize in the fourth quarter back to Q2 levels.We had an adjusted EBITDA loss of $5.9 million for the quarter, compared to an adjusted EBITDA loss of $8.1 million in the prior year. Net loss for the quarter ended September 30th, 2023 was $5.2 million or a loss of $0.07 per share, compared to a net loss of $7.5 million or a loss of $0.11 per share in the prior year. We finished the quarter with a strong balance sheet with $46.3 million in cash and equivalents and $82.2 million in short-term and long-term investments, placing us in a strong financial position to build on our advantage and further penetrate the investment planning and decision analytics market. With our strong unit economics, we remain focused on making thoughtful, long-term investments that will drive accelerated growth through 2023 and beyond.As we continue to expand our reach, we're confident that our focus on operational excellence will drive best-in-class margins, expand our leadership position in the growing decision analytics market and accelerate our path to profitability. That concludes our prepared remarks. I'll now hand the call back over to the operator and open it up for questions. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Doug Taylor of Canaccord Ingenuity (sic) [ Genuity ].

[Doug Taylor, analyst]

I'd hate for my first question on this call to be on something as mundane as operating cost, but it was an area of significant surprise in this quarter with OpEx down year-over-year. So, I mean, I guess my question is, despite everything you said about vacation and normalization in Q4, having expenses down year-over-year, does that speak to any change in your strategy toward spending levels in the current environment?

[Chris Allen, executive]

I'll take that one. No, I don't think it changes our view. I think through 2023, we've been actively managing our costs and our headcount down. So, I think, as we've said in prior calls and maybe you haven't been part of those, Doug, but we feel that we've got the right footprint in place basically now to effectively execute on our strategy. So we feel that the minimum global footprint, as we like to call it, is in place and is operating well. Again, as I said in my comments, Q3 was a little bit anomalous and that it was down because of fewer conferences, less travel, but we expect that to tick back up in Q4, more akin to what we saw in Q2 as a run rate.

[Doug Taylor, analyst]

Historically, Q4 has been a seasonally strong period for ARR build. So my question is, do you think that the macroeconomic headwinds and the slowing buyer behavior that you've referenced as extending into the new year would prevent this from being the case this year?

[Paul Sakrzewski, executive]

Hi, it's Paul. No, look, it's puts and takes. We've got terrific following wins in the space that we're in and as part of the remarks that I just made, I think highlighting some of the following wins that we've got. We don't see any, I mean, we're not economists, but we don't see any worsening of the environment and we get better and better at executing. So, we're always back end loaded into Q4 as are many software companies of a similar profile and we don't -- we don't see anything that's necessarily going to impede us from putting another good Q4 on the table.

[Doug Taylor, analyst]

And one more question for you then, Paul. I mean, you've confirmed here you're up and running within the SAP ecosystem with the Endorsed App and your go-to-market, cooperative go-to-market activities. You said you're already seeing pipeline build on the back of that. Can you perhaps expand upon that to talk about the geographies and potentially the markets where you're seeing that impact most, even though it's early days?

[Paul Sakrzewski, executive]

Yes, it is early days and it's worth reminding ourselves that our traditional deal gestation periods are pretty long in the order of a year and a half. So, with the early indications that we've seen are very positive. There is incremental pipeline over and above what we would normally seen ourselves build as a standalone. So, it's incremental benefit. It's pretty global in nature. You know, we've been engaged globally. The SAP teams and the Copperleaf teams as mismatched as they may be in size are globally engaged across EMEA, APJ, Americas and also LatAm. SAP operates a global organization and a global organization structure. They have specialists associated with product and industry and we're part of their landscape of what they're putting forward in the intelligent asset management space. And we're finding ourselves increasingly positioned in those deals and cooperating across the region.So, I couldn't pull out any one specific geography or even any one specific industry. Obviously, we're very strong in utilities, but one of the good things about SAP is their installed base is massive. It runs across most industries and they have reference ability and traction in industries that would take us a long time to penetrate and we are starting to see some movement in those places. So, good news in the early stages and we'll continue to drive it.

[Operator]

Your next question comes from Faith Brunner of William Blair.

[Faith Brunner, analyst]

A lot of good stuff here. Obviously, you guys have a lot of opportunity ahead of you. Going forward, can you just provide some color on how you guys are going to continue balancing, investing to capitalize on all the momentum, while also maybe accelerating or just moving towards that path of profitability, like you called out, those earlier investments are going to begin to scale, but what else can we expect in the coming quarters from maybe an operating margin perspective?

[Paul Sakrzewski, executive]

Chris can chime in, in a moment on operating margin, we've obviously got our long-term plans, but it's worth looking back a little bit in history, Faith. I mean, we saw an increasing adoption of asset investment planning, software and methodology so leading into the IPO in 2021. We know that we're on the -- somewhere on the third part of that asset in total adoption curve and we put in place a lot of capacity globally. We put in place that, that global footprint that we like to talk so much about. There's a lot of capacity in there for us to grow. So the lot of that investment is already in place and we're sticking to that strategy. The strategy was always to accelerate in a post-IPO. We think that we're starting to see that now and then we chart our path back towards profitability. But we've got pretty good capacity for this year and even next year.So, it's really about execution more than it is about additional investment in the near-term. And then when we get into the end of next year, obviously, we need to start looking at capacity for 2025. But in the short-term, we're certainly focused on ensuring that we're getting the ROI on the investment that we've already put in rather than putting in a lot more investment. So, we're driving to back towards profitability and that's probably a good place for Chris to chime in on operating margins.

[Chris Allen, executive]

Obviously, we don't provide guidance on any kind of specific point in time where we're going to break even, but just as Paul was saying, we -- looking at our performance, we believe 2023 will be our biggest loss year. And in 2024, with the investments that have already been made and the acceleration I'd say of the machine that we've built now, the minimum global footprint, we'll take big strides back on our path to profitability in 2024. I can tell you that we're absolutely committed to that internally. And just as a reminder, I mean, that's where we live most of our life prior to the IPO. We were -- spent a decade effectively break even and growing at nearly a 50% CAGR. So I think that's -- that is our history and we're all eager to get back there and yeah, that's we're there.

[Operator]

Your next question comes from Maxim Matyshansky of RBC Capital Markets.

[Maxim Matushansky, analyst]

Just following-up on the SAP partnership, it's great to see an improvement to the incremental pipeline. Just wondering whether you or SAP have a higher confidence in closing these leads given SAP's go-to-market expertise or potentially Copperleaf coming into the process at a later date. Is that the case or is there just as much uncertainty about these incremental deals to close it is for the ones you source yourself?

[Paul Sakrzewski, executive]

So, the -- if you look at a little bit into the history of things, I mean, we used to effectively in a strange way kind of compete with SAP. So we would quite often walk into deals and SAP would be very confident because they're a big company with lots of software on their books and they would tick the functional specs and then we would -- we'd have the argument as to which company was better suited to solving the problem. That doesn't happen anymore. So SAP, when they're confronted with an AIP-shaped problem, point directly towards Copperleaf and say, look, you should use this. And in addition to that, we're more integrated with their thinking on either side of us. So, you know, they're very strong in EAM. They're very strong in PPM. They have an emerging APM sector and obviously the backbone of a lot of these companies is driven by SAP and the FICO space.So being part of that environment and being part of a buying process where the incumbent solution across a lot of the digitized environment of the client is SAP and they're used to buying that and buying things that fit in with that landscape can only help us. So I think to the extent that we get past this point where it's like, Copperleaf, you know, who are you and where do you fit in and we're actually part of that bigger environment. I think it will help us to accelerate. We certainly hope so. You know, we're cautiously optimistic about that, but we're working hard on ensuring that SAP are fully educated as to what we do, where we fit, how they position us and how they advocate for us.And, yeah, we're pretty confident that, that will bear fruit in due course. I do think that it will accelerate our closes. I think it will definitely accelerate our entry into some of those market sectors where we're not traditionally strong and aren't fully referenced. And so, you know, in terms of shortening the sales cycle, particularly in those newer industries and also ensuring that we're not scaling our internal resources directly in line with our growth and we're starting to see some leverage out of that, I think it's going to be very useful, [ early data ].

[Maxim Matushansky, analyst]

And just, I guess, on the partnerships other than SAP, can you maybe provide an update as how those are going? I know you mentioned you deepened the relationship with Accenture, but just in general, are the consulting partners growing the pipeline or maybe even at this point closing deals at the pace that you expected? And do you feel that you have mostly the right partners in place in order to do that now just about deepening and kind of expanding the existing partner base?

[Paul Sakrzewski, executive]

Yeah, another good question. We tend to announce things that are concretely announceable to the milestone events and the milestone event with Accenture is a good one. You know, we've -- in Accenture's estimation, we have done enough deals with them and we have enough forward-looking pipeline for them to give us a partner manager and introduce to a much more programmatic approach to building a practice around Copperleaf and going to market together. So that's a big milestone for us, rather than the part which was a very good relationship, but it was a little bit more ad hoc around specific accounts. So, that is moving forward. We have other partnerships that are building and we have a partnership strategy. We can't be all things to all people and there's a limit to how much we can do with how many partners. We want to avoid channel conflict because that's always an issue. But with so much TAM and so much white space and to the extent that we're penetrated at the moment, it's a really good blank canvas for us to build strong partners at the top end of town, really, really credible partners like SAP and Accenture, just third tier companies that we're working with and not have them overlap.And in fact, those two things converge because Accenture is one of SAP's biggest partners globally and they're strong implementers of the intelligent asset management landscape particularly and that includes a lot of SAP software and it now includes Copperleaf. So, all of these things come together and we have a strategy for ensuring that we're getting the best out of that. We're not putting massive resources into trying to be everywhere at all times and we've been very, very selective about who we work with and where we put our enablement resources. Does that answer your question?

[Maxim Matushansky, analyst]

Yeah, that helps. And it leads me to my next question, a more broader, but just in terms of how you position yourself and brand yourself in the marketplace, the value framework methodology is clearly a very sticky part of that product for customers, customers that are more advanced in their asset management programs. I can see how that would be attractive. I'm wondering does this any, in your view revenue being left on the table from customers that maybe aren't mature enough to want to sign up for a new way of doing business with a value framework and are not sophisticated enough for that at the moment? I'm just curious how you think about that and is that something that maybe it's a more rapid start solution that might be able to address, but curious how you think about it.

[Paul Sakrzewski, executive]

Yes and it's a great question and it's always a very tempting thing to try and go top to bottom in the market. At the moment, we're largely -- largely a large enterprise sales company and we work with big critical infrastructure companies and that is still largely white space for us, even in our core. So even in power, the integrated power utilities or the component pieces of that in generation, transmission or distribution, we're still single digit penetrated, even in our core markets. So we don't want to distract ourselves. But the second part of your question is a really interesting one and you have seen things like the Copperleaf H2O solution which was very specifically tailored as a low configuration rapid deployment solution for the UK and Ireland water utilities. That has given us quite a lot of experience in that area and we've been able to take that on the road.Similarly, the CNAIM methodologies for asset risk modeling, which was originated in the UK through Ofgem, the regulator there, that's been a very, very popular methodology and we've built some rapid start solutions for that, which have been adopted in many countries globally as well. So that, in addition to increasingly a phased approach to implementation and also sales, so going to clients and diagnosing the highest value minimum spend place to start, using that as a phase 1 and then employing a land and expand approach to phase 2, 3, 4 and getting our clients more and more and more value as we go, but giving them a place to start, which is a consumable buy for them.You know, those things are definitely on our agenda and they're actually now successful strategies across Copperleaf. Going after the mid-market or the lower end of the market is probably a step for later. We really do need to focus on our core market segments and we're pretty clear about what those are.

[Operator]

Your next question comes from Thanos of BMO Capital.

[Thanos Moschopoulos, analyst]

Paul, it's the case for a lot of enterprise software companies that pipelines are skewing more towards expansion opportunities versus net new logos, just as a function of the macro. Is that a dynamic that you're seeing in your business as well or not as much given where you are in your growth cycle?

[Paul Sakrzewski, executive]

No, as well, I think you kind of answered the question for me at the end there, Thanos. I mean, we're largely white space and we need to be very, very focused on bringing new logo deals into the pipeline. I mean, that's the lifeblood and the future of Copperleaf. We have a lot of opportunity in the installed base for cross-sell and upsell and we constantly develop more software as well. So, there's a big opportunity in the installed base, but we're very, very focused on new logos and we're not seeing a skew towards having to sell into the installed base to make up our numbers.We are very focused though on ensuring that the installed base is happy, retained and engaged with us and continues to develop their Copperleaf environment. We've got specific resources allocated to those efforts internally. So, as we scale, you start to get into that classic model of having a dedicated group of salespeople that are focused more on cross-sell, upsell and increasing the value that we're getting our installed base clients and others that are very, very specifically focused on bringing new logos in to -- to feed the front end of that future revenue pipeline. But we're not seeing -- we're not seeing with our point in the evolution and all of the white space that we have in our TAM and SOM. We're not seeing an issue like you're describing. What you're describing is super recognizable, but it's more in the mature businesses.

[Thanos Moschopoulos, analyst]

Can you update us with respect to the key prospects you tend to encounter in a sales cycle, so to the extent you have a good prospect and you can't get that to a deal that's closed, it's often you just have to do with a bunch of availability. Is it still that there's a lot of vacation that's began to persuade the customer value proposition since you're kind of unique in what you do or just what are some of the hurdles that you're encountering most commonly?

[Paul Sakrzewski, executive]

Yes, it's a great question and I think the -- the point of objection vary depending on where you are in the pipeline. We very rarely have a bad conversation in the early stages. People are intrigued of the -- about the possibilities that value-based decision-making present them. They're all wrestling with the problem. They're generally using Excel and a team of people to try to solve the problem. They inherently know that they're not doing it as well as they possibly could be. And so the early stages, it's more about who are you? What do you do? How do you -- can you -- how do you convince me that you can actually optimize across large sets of assets and huge portfolio of investment and make that a practical thing. How do you actually come in and help our CapEx committee to make better decision. And we're pretty good at that discussion. It sometimes then pivots into a data conversation. It's like, okay, well, how much data do we feed this.And Copperleaf is in a very good situation with our bottom mark approach, which is largely around that asset data, but also the ability to implement the top-down approach, which is really portfolio optimization. So it's effectively making the processes that they currently have better and more effective and taking the bias out of the decision-making and payment complexity for them. We can start that straight away.So there's a couple of elements there where people kind of think that there's some kind of companies think that there's some kind of a precursor event around either process or data that they need to get to before they can start a Copperleaf implementation and that largely isn't true. We meet them where they are and we immediately generate value. And the software is so configurable and so flexible that we can then add more complexity as we go and more data as we go and their pay off in terms of ROI or the benefit that they get from the system just increases, which is a little bit counter intuitive for many clients.And to the data point, it's quite an interesting feature at Copperleaf that we design the algorithms and calculation into the value framework that help them make decisions. Those algorithms obviously require input and perversely, if you actually design those algorithms upfront and then you go back and you start to implement EAMS systems or ATM systems, you can be very surgical about how you deploy those systems in order to make better decisions later on.So starting with the question and the -- and effectively the mechanism for answering those questions clearly define, really focuses their processes around collecting data and putting systems in place, which is more a system of record for investments upstream of us and also asset. So doing us first is probably better and saves them a lot of money and time when they're deploying their downstream or their upstream systems from us and also the downstream systems.So we get those objections quite a lot of the time. Obviously, price comes up and we have to position value as a function. So we certainly don't like putting price on the table until we've made a clear value statement that's associated with the specifics of our client. So value engineering, which we've started to starting to build and fund internally is a key mechanism for that. So those are the kind of stages of the cycle.And then closing are some of the things that you talked about. It's -- they've got budgetary requirements and quite often they budget annually. So you need to be part of the budgeting cycle, so there's money put aside for what we do. We're not usually naturally part of that. So because we're quite a new solution, so we need to get way upstream of that and make sure that we're positioning ourselves well to be budgeted for before we can close the deal.And then as part of -- it's just competitive, you need to get through the RFPs, respond appropriately and outsell the competition, which is often not directly in competition with us, but just to outsell the competition in terms of being a better solution across more of the space.So what I'm describing is a large enterprise software sale, it takes a village, you've got to have multipoint contacted with the client. You can't be single thread on any one specific champion in the client, that's too big for that. It tends to be a transformative event taking on couple if they transform their culture from a kind of my project at all costs to much more of a value-based portfolio optimized approach, which is quite a shift for many of our clients. And so it involves a cultural shift which takes leadership and you need that leadership to be aligned up around it before it truly gets across the line.Again, which is true for many of the big ERP companies and other large enterprise software companies. So it's a recognizable track and I've been down at many times before and Copperleaf is a little different, other than the fact that we really don't have too much direct competition. And it's -- once you get to the point where the client has bought in, it tends to be quite good.

[Operator]

Your next question comes from Koji Ikeda of Bank of America.

[Koji Ikeda, analyst]

I got a couple here. So in your prepared remarks, you called out a couple of big deals the U.S. natural gas distribution company and a integrated power company, utility company in Brazil. So can you talk a little bit about how long those sales cycles were? And how are you thinking about overall sales cycle today and the -- maybe the ability or the potential to shorten them in the future?

[Paul Sakrzewski, executive]

I mean its -- if there was a key focus of Copperleaf I'd say that particularly on the go-to-market side, it would be that one. We are doing everything we can to shorten sales cycles and it's not like our clients don't want what we do. They do want what we do. We just need to be the highest priority thing for them to do next, particularly in the constrained environments that we're living in and that's on us. We need to prove value and just prove that a Copperleaf implementation is going to be of higher value strategically in the long-term, but also monetarily in the short-term than the other things that they could potentially do. And I think we're getting good at value engineering. I think we've got a very strong industry team now that speaks the language of the client. We're collecting up our references and our installed base clients are working for us. We're completely humbled by the presentations that are made by our clients to our prospective clients about the value that we generate. That's a key thing for us.The fact that we've never churned a client, so everybody who's actually deployed and switched on the software has started to use it, it's still using it, is a good endorsement for us and we're making much of that. And it's a key focus for us to try to shorten those sales cycles. I don't want to necessarily comment on those two in terms of how long they took. No longer than average, I would say. Huge congratulations to our team in LatAm. They're getting Brazil done and getting off the mark with the first core utility and providing that as a reference point in Brazil, will accelerate our progress in Latin America and the team has done an amazing job getting that done. So a big shout out to the LatAm team.

[Operator]

Your next question comes from Gavin Fairweather of Cormark.

[Gavin Fairweather, analyst]

If I'm understanding your commentary right, it does sound like the sales environment has gone much better or much worse, but you feel better equipped kind of execute in this environment. So I guess I'm curious what's driving that is that to global growth office is that what you're seeing in the sales force productivity data, maybe just unpack your feeling about the ability to execute in the current macro?

[Paul Sakrzewski, executive]

The team is settling in. We talked about -- we grew pretty fast from 2021 for 18 months or so, brought a lot of new people in. This is large enterprise sales in general, but particularly Copperleaf is something you need to -- you need to build some muscle memory on and settle in and tenure is important. We haven't been hiring aggressively over the past 12 months. And the people that we have are starting to get more and more tenure. They're starting to work it out. In conjunction with that, we put a new operating model in place, as you know, for the company and that includes the go-to-market side.The Global Growth Office is a big enabler of the field. The ability for a single account executive to have all industries, all product, the ability to value engineer and the ability to leverage partners. It's not a reasonable expectation on an account executive and you do need to build in those mechanisms to ride to the aid of the account executive when they need those specific things.So all of those things are starting to gather a bit of tenure and gel together. It was a new operating model in January, with new personnel at the heads of the many of those things and those people are kind of hitting that stride now. And it's been very good for us to have a consolidation year where we haven't been introducing a huge number of new people into the organization and giving that team time to come together.In conjunction with that, our marketing organization has been building new collateral around the new operating model. So we've got new and refreshed industry collateral. We're running our AIPM forums. We're a little bit bigger. So there's a bit of critical mass there where we can run specific -- we used to run one big client forum globally and we bring all of our people together. We can now do that in markets and in industries as well. We have a pipes forum and a wires forum, where people come together to discuss much more granular elements, which just gets us more and more embedded as trusted advisers into specific segments of the market. And all of that comes with a bit of scale and size. We're still pretty small compared to most ERP companies, but it doesn't stop us from having those elements in place in some form to ensure that we're covering all of those places and I think that we've got that now.

[Gavin Fairweather, analyst]

And then just on the partner side. I'm curious how many of your deals would be kind of partner influence now? And do you have any thoughts about where that might be able to go over the kind of medium term, maybe kind of the next 2, 3, 4 years?

[Paul Sakrzewski, executive]

Yes, I wouldn't like to necessarily throw out a number, but it's an accelerating -- it's an accelerating proportion. And our partners come in different flavors. We've got the GSI, the general system integrators. We've got the ISVs, the independent software vendors on either side of us. We've got very specific what we call content providers, people who help with asset risk models and the specifics around doing regulatory submissions and more and more companies are building practices in their own way around the Copperleaf platform, which is exactly what we want. The recognition amongst a big group and a much broader group of trusted adviser to our clients advocating for Copperleaf in specific and different use cases. And that's much more powerful than us going and trying to sell software.So we're seeing more and more of that and we intend to pursue that, like I said, in a plan for way, we can't be everywhere all at once. But we seem to have hit a certain level of critical mass and notoriety in our space, where we are the go-to solution. So we are starting to get some of those first-tier players interested in what we're doing and building material resources and practices on their side, specifically focused on Copperleaf.So I think we can only expect that the proportion of partner influenced and hopefully partner-led deals will increase, more of the services will be taken up by partners, which is good for us, it moves the resource requirements. We will always have an internal customer group, field services group doing that work. But it's good if we've got that as a core group at the tip of the sphere and we've got a big ecosystem wrapped around us doing that work, it just makes us much, much more scalable. And you can just expect that to increase over time. So hopefully, what that means is that software sales and subscription particularly becomes a much bigger proportion of our revenue over time. While, of course, the dollar number on those services is going to grow, it just want to grow in proportion to the software number.

[Operator]

Your next question comes from John Shao of National Bank.

[Meng Shao, analyst]

It looks like your partnership ecosystem is gaining momentum this quarter and Paul, you already mentioned the channel conflict earlier. So I'm just curious if that have anything to do with this quarter's year-over-year decline in professional services?

[Paul Sakrzewski, executive]

No, not, not, not really.

[Chris Allen, executive]

I can jump in on that one, John. No, it's nothing to do with partners. This actually goes back to some of the commentary that we made in Q2, just talking about some of the delays that we're seeing, not only with deals, but actually even closed deals where client resource availability has pushed some services out and delayed a little bit and that's the big driver for the reduction in services this quarter.

[Meng Shao, analyst]

And regarding your new customers in the U.S. and Brazil, maybe could you give us some additional colors regarding their size of deployment and maybe their current spending relative to their wallet share potential?

[Paul Sakrzewski, executive]

Yes, we don't throw out numbers around specific clients, but it's -- both of those deals are land and expand deals, we'll get through our first phase. Generally speaking, we have a proportion of the software, not everything in a proportion of their business not everywhere. And so there's lateral opportunities for us to grow either across their lines of business and in more and more of their spend and hopefully to the point where we're competing everything that they want to do for share of wallet on a value basis at the enterprise level like some of our clients have got to, that's nirvana for us. And hopefully, we end up managing their existing asset fleet and running through predictive analytics and long-term asset life cycle management in conjunction with the top-down portfolio optimization of the project that they want to do on a shorter-term basis. That's where we want to go. But both of those clients are land and expand clients and it prevents -- it provides us with big opportunity in the installed base going forward, as is true with almost every client that we brought on board.

[Operator]

Your next question comes from Todd Coupland of CIBC.

[Thomas Ingham, analyst]

My question is, I guess, a little bit of a derivative to the last one, with the 30% increase in subscription revenue in Q3, it sounded like that you said that took some from Q2. Did it also take some from Q4?

[Chris Allen, executive]

No, yes, what might -- I'll jump in there, Todd. My comment on that was really to illustrate the timing. So what I was trying to illustrate there was, we did have a couple of SaaS deals that closed right at the end of Q2 2023. So obviously, we see no revenue from that SaaS in Q2, but we managed to get a full quarter of it in Q3, right? And likewise, if we can close a SaaS deal right at the beginning of Q3, we also get a full quarter of it. And that's what we were fortunate enough to see in Q3 was, like I said, just a couple of SaaS deals and that's really all it takes, if they're large enough, a full quarter of it. And in contrary to that or the opposite of that is what typically happens and more or less what we generally see every quarter, which is most of our deals do close at the end of the quarter. So we just typically don't see a full quarter's revenue recognition from those SaaS deals and that's, as I mentioned in my comments, probably what we'll see in Q4.

[Thomas Ingham, analyst]

Lots of question on the pipeline, so I'll take all the comments that have been made. I wanted to talk about the product a little bit. Just wondering, you've had now a couple of quarters to think about how generative AI might impact your customers and your product line. Maybe just talk a little bit more about that? I think you talked last quarter about how you got everyone in account. But I'm just curious, how does it affect product demand in the market? Is it disruptive? Is it additive to what you're doing? Does it bring on new competitors? Just give us your thoughts on that.

[Paul Sakrzewski, executive]

Yes, it's -- look, we are progressing with our plans like we said, we introduced everybody to it early in the year and that happened very quickly after the year, the year opened and generative AI was generating a lot of press. Since then, we formed a team internally, we've done a review of our product road map and various elements of the product road map include generative AI and the ability to leverage that to our clients' advantage. We did flag as a risk internally that we might see our clients kind of sit still and sit on their hands a little bit while they try to work out with the generative AI would come in and solve their problems, which we're very confident knowing something about the technology that it won't replace us in any way.But I -- we haven't seen that quite honestly, everything is moved ahead and we're seeing very little objections associated with and we're going to wait and see whether the generative AI can solve this on its own, which would have been a completely misguided path for our clients to be on, but a very naturally expected situation with the hype that was surrounding it. We think it's going to be really additive and it will enhance particularly the user experience for Copperleaf as we go forward. And we're actively working on releasing features that we'll leverage that. And many of these features are -- come with the migration to being a very strongly differentiated cloud-first solution, which is our direction, which I'm sure doesn't come as a surprise, it's the direction of every software company. So as we get more into that, we'll build in more features around generative AI and it's just going to enhance the usability of the solution for our clients.

[Thomas Ingham, analyst]

Thinking about it a little bit more long-term, if you don't see it as disruptive, do you see it as an accelerant to helping your clients ultimately see the benefit of the product? If you think about what it might do to your platform over time?

[Paul Sakrzewski, executive]

Yes, I definitely think so. We deal with a very complex problem and one of the interesting things about AI is that can obtain complexity quite nicely and it's set up in the right way. You can use natural language requests to ask very complicated problems, which would take a super user to sort of interpret into normal enterprise software speak. And I think that we'll bridge that gap substantially and it will just open up the power of Copperleaf to many, many more users who aren't necessarily technically savvy enough to be able to use the more complex -- the complex solution by themselves.

[Thomas Ingham, analyst]

Any idea when you might pilot something like that?

[Paul Sakrzewski, executive]

I wouldn't like to say, but we're well aware that if we take too long about it, all of that benefit will arbitrate itself out and we'll find our self behind the market. So we're trying not to be in that situation.

[Thomas Ingham, analyst]

Yes, from -- I guess, from our perspective, any color along -- I mean, natural language definitely moves, it moves a lot of things a long way. So helping us understand that leverage would...

[Paul Sakrzewski, executive]

And generative -- generative AI aside, it's worth remembering that we do have artificial intelligence and machine learning inherent in the current set of solution. So we've been on this stack now for a while and we've got some pretty good expertise internally on it. So generative AI and large language models are getting a lot of press, but the enhancement that are brought by the incorporation of more traditional AI and ML is substantial and we've been on -- we've been baking that into the product for some years.

[Operator]

There are no further questions at this time. I would hand over the call to Paul Sakrzewski, please proceed.

[Paul Sakrzewski, executive]

Yes. I'll just close the call by saying thank you for your interest in Copperleaf. We always really appreciate the questions and the attendance and looking forward to presenting you again once we put Q4 in the bag. We'll look forward to catching up again there.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.