Wishpond Technologies Ltd. (WISH) Earnings Call Transcript & Summary

Thank you for joining us today, and welcome to Wishpond's 2023 Fiscal Third Quarter Financial Results Conference Call. My name is Jordan Bones, Director of Marketing. And joining me on the call are Ali Tajskandar, Chairman, Founder and CEO of Wishpond; and David Pais, the company's CFO. This call is being recorded. There will be a question-and-answer session at the end of the call, which will be limited to analysts only. I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion and analysis from sedar.com. Please note portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Please refer to today's press release and in our management discussion and analysis for our discussion on risks and uncertainties. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans related to the future. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except if it is required by law. We use terms such as adjusted EBITDA, annualized revenue run rate and monthly recurring revenue on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definition set out in our management discussion and analysis. And with that said, let me turn the call over to Mr. Ali Tajskandar, Chairman and CEO.

Thank you very much, Jordan. Good day, everyone. We hope that you're all keeping safe and healthy. We truly appreciate everyone for joining us today. We are pleased with our third quarter results in which Wishpond achieved positive adjusted EBITDA for the fifth quarter in a row, demonstrating our commitment to profitable growth. Wishpond's cost optimization efforts over the past year have contributed to the company's continued positive adjusted EBITDA profile. The first nine months have been a period of transition in which we launched Propel IQ, the company's next-generation marketing platform, and then we trained and restructured our sales team to sell this new bundled product offering. This has resulted in slower growth in 2023. However, we are now experiencing an acceleration of Propel IQ sales and have thus resumed the expansion of our sales team. Some key data points for Propel IQ include: over the past 2 months, we averaged over 3% month-over-month growth in MRR, driven by increased sales of Propel IQ. Propel IQ now accounts for approximately 15% of our total revenue in the quarter. Thus far, we have observed the bundled Propel IQ offering, have significantly less churn than selling single products, resulting in significantly higher lifetime value per customer. Propel IQ is also a higher-margin product with lifetime value or LTV gross margin expected to be over 80%. We have now started adding approximately 5 new salespeople per month who are entirely dedicated to growing Propel IQ sales. In addition, Wishpond is leading the innovation and development of AI-powered marketing tools. We are garnering the significant interest for our AI products, including AI website builder, Braxy AI Ad Manager, Sales E-mail AI and soon-to-be launched SalesCloser AI. We maintained a positive outlook for the remainder of 2023 and look forward to 2024 with renewed optimism based on our continued sales growth and improving cash flows. We expect our accelerated hiring of new sales resources will drive growth in 2024. Our outlook continues to look promising with increasing sales, positive adjusted EBITDA and improving profit margins. We are experiencing increasing demand for our products as we continue transitioning to the bundled Propel IQ product offering and leveraging our suite of AI marketing solutions. I will provide additional details on our outlook later, but first, I would like to turn it over to our CFO, David, who will review the financial results for the third quarter.

Thank you, Ali. I'm pleased to report that we had strong Q3 results for the first three months ended September 30, 2023. Our third quarter 2023 results are as follows: Wishpond achieved quarterly revenues of $5.8 million during Q3 2023 compared to revenue of $5.5 million in Q3 2022. Revenue growth was primarily driven by stronger product demand and increase in sales and marketing activities and new product introductions. Growth in Q3 was lower than expected due to the need to train our sales executives and transition them to sell the new bundle Propel IQ platform. Revenue growth was also negatively impacted in Q3 by a decline in sales to our largest customer, which happens to be a client who uses legacy non-Propel IQ products. As in Q2, we saw a decline in revenue with this customer who contributed 13% of Wishpond's total revenue in the year ago quarter, which was approximately 6% of Q3 2023 revenue. This customer is experiencing some challenges in their own business, which has resulted in a lower revenue for Wishpond. However, on the positive side, we have a diverse customer base with no customer concentration. Wishpond can achieved gross profit of $3.8 million of Q3 2023 compared to $3.6 million during Q3 2022, representing an increase of 5%, driven by an increase in overall revenue. Wishpond's gross margin percentage in Q3 2023 was 66% compared to 56% in Q3 2022. The gross margins are within the company's historical range of 65% to 70%. The United States remains our largest and fastest-growing market, generating 77% of our total revenue in the quarter, with approximately 11% to 12% of revenue generated from Canada and Rest of World, respectively. During Q3 2023, Wishpond achieved positive adjusted EBITDA of $319,000 compared to positive adjusted EBITDA of $593,000 in Q3 2022. We continue to have a clean and healthy balance sheet. As at September 30, 2023, Wishpond had $910,000 cash and short-term investments and no debt. The reduction in cash balances during the quarter was caused in part by payment of an earn-out for a prior acquisition, capitalized R&D costs related to investment in the business and changes in working capital. Wishpond generated $225,000 of positive cash flow from operations in Q3 2023 compared to cash outflow of $208,000 in Q3 2022. The reduction in the company's cash balance in Q3 2023 was due in part by earn-out payments of $101,000 in the quarter. The company's remaining earnout obligation of $202,000 will be paid in this fourth quarter. Wishpond has an undrawn $6 million secured revolving operating line of credit with National Bank of Canada's technology and investment and Innovation Banking Group. I will now provide an update on our cost reduction strategies. Wishpond has ongoing cost optimization efforts and operational efficiency improvements. By leveraging the power of our AI products, we are seamlessly automating various processes and lead generating activities. As a result of these efforts, we have been able to minimize any increase in headcount since the beginning of the year, which is starting to have a positive impact, enabling us to absorb the cost of bringing on new salespeople while increasing our adjusted EBITDA each quarter. We are committed to maximizing resource allocation and driving sustained growth. As a result of these cost reduction efforts are declining, earn-out payments, increasing revenue and improving cash flow from operating activities, we feel confident that Wishpond can continue to fund the growth of its sales team and new product launches from cash flow from operations. From time to time, we may dip into a line of credit for short-term working capital requirements. The cash flow generated by the company will continue to be reinvested in the business and allocate it in a disciplined manner to accelerate organic growth, future acquisitions or share repurchases. Before I turn the call over to Ali, I would like to provide an update on the NCIB. On June 27, 2023, the company announced that its notice of intention to make a normal course issue a bid or NCIB was accepted by the exchange. During the 9 months ended September 30, 2023, the company purchased 32,000 common shares under the NCIB for an aggregate consideration of $18,528. We made no purchases under the NCIB in Q3 2023. The Board of Directors of Wishpond believes that the recent market prices of the company's common shares do not properly reflect the underlying value of such shares and that the purchase of the shares would be a desirable use of corporate funds in the best interest of the company and the shareholders. Hence, we will be optimistic in purchasing shares under the NCIB program as we generate more cash flow from operations while balancing the company's other cash requirements. I would like to point out that over the past several months, members of our senior management team and Board of Directors have purchased shares on the market. In summary, Wishpond remains in a solid financial position with growing revenue and profitability. Based on the company's outlook and growth momentum, we expect to continue delivering strong results for the rest of 2023 and into 2024. This concludes my financial update, and I will turn the call back over to Ali. Ali?

Thank you very much, David. I would now like to share with you some recent business highlights. On July 27, 2023, the company announced the launch of a new partnership program, introducing a transformative approach to collaboration for affiliates, marketing agencies and other technology companies to collaborate closely with Wishpond's marketing platform. On August 11, 2023, the company successfully renewed its credit facility with a major bank, NBC. The renewed credit facility maintains a secured revolving operating line with a borrowing capacity up to $6 million. On September 5, 2023, the company announced a partnership with Fiverr International LTD to be part of the Fiverr certified program and create a unique and certified freelance marketplace for the Propel IQ platform. The Fiverr certified team will selectively scout skilled professionals and agencies, both internally and from Wishpond existing partner network. Fiverr will then onboard qualified professionals on to the co-branded marketplace primed to provide exceptional services to Wishpond's small- and medium-sized businesses. Wishpond plans to leverage this marketplace to better service its SMB customers and broaden its market presence in regions where the company does not service users. On October 3, 2023, the company announced the integration of Brax with Facebook as strategic enhancement in the way that businesses manage advertising campaigns on the world's largest social media platform. This new integration paves the way for advertisers to harness the power of Braxy's advanced ad creation tools and robust rules engine, enhancing the return on investment while streamlining their ad management processes. And now I would like to provide an update on our AI-related activities. The use of AI technology is rapidly changing the digital marketing landscape and Wishpond is at the forefront of utilizing these new innovations. Our vision is to create an AI marketing copilot, who is like having the best marketing person working with you. The AI marketing copilot can provide an entirely AI-based marketing, sales and customer service experience. AI marketing copilot can design your marketing campaign, build the website, manage your ads, create newsletters and other content, respond to e-mails, make sales calls, ask their customer support inquiries and provide analytics. AI marketing copilot uses each of the individual AI-enabled tools shown on this slide, we are able to provide the functionality of an end-to-end marketing department entirely driven by AI marketing copilot and a suite of AI-enabled tools. We've already launched 3 AI-based products with AI website builder, Braxy, ad management and Sales E-mail AI, and we are planning to launch -- we're planning the launch of SalesCloser AI by the end of the year. We would now like to share with you a brief demo of our AI products to give you a sense of how the different AI tools fit together.

This is the power of AI, your ticket to sustainable growth. Wishpond is revolutionizing marketing for businesses using AI. Struggling with your website, Wishpond AI website builder turns chaos into beauty, create a complete professional website in seconds, generate, regenerate and refined content, coldless dragon drop editing, just share a few details and let AI do the magic. Now you need to promote your brand-new online presence. This is where Braxy AI comes into action. Ads placed like clockwork using machine learning, Braxy AI automatically creates new ads, targets key words and finds the best locations and times to target your customer. It's time to reach your leads with PersistIQ's AI e-mail responder, send persuasive e-mails and answer all of your sales queries with the touch of a button. As simple as that. It's time to make sales calls. How about letting SalesCloser AI, do them for you. SalesCloser AI, is your multilingual sales side kick available 24/7, no more missed opportunities because of time or language.

Could you tell me a bit about your business and what you do?

Yes, I run an online flower business.

That sounds lovely. AI-powered strategic demos and sales presentation to close and crush your sales goals, join the AI revolution.

Thank you. Very exciting stuff. Wishpond's website builder, which is powered by generative AI technologies and allows small- and medium-sized businesses to cut down on significant website setup and maintenance time and save thousands of dollars on potential programming, design and copywriting services. Braxy AI is an AI-based ad management system. Braxy AI-powered platform automatically creates and optimizes ad campaigns to allow businesses to attract more customers in less time. Businesses can use Braxy for better app placement and to create ads that target a more precise customer profile that purchases their products and services. Sales E-mail AI is engineered to deliver tailored responses to e-mails from potential clients. Sales E-mail AI will provide its users a level of personalization that sets it apart from traditional automated responses. It is designed to elevate and streamline sales communication. SalesCloser AI, an AI-powered sales rep that can deliver personalized round-the-cloud sales calls and product demos without the need for human intervention. The AI-powered platform is poised to transform industries across the board, particularly benefiting virtual sales professionals, SaaS companies, consultants and various B2B enterprises that rely on online sales interactions. SalesCloser AI is fully an exciting technology that has the potential to reshape sales landscape by delivering personalized round-the-clock sales calls and product demos over zoom with without the need for human intervention. By the end of the month, we are expecting to file a patent for an interactive AI-based representative that is used to power our SalesCloser AI product. This is truly a unique novel and nonobvious innovation. This is a game changer for businesses large and small, allowing them to have the power of a limitless sales force, delivering calls and presentations around the clock in different languages. Wishpond's outlook for Q4 2023 and heading into 2024 remains strong and healthy. Wishpond is well positioned for continued growth and profitability. Wishpond expects to achieve record revenue and cash flows in 2023. This is driven by organic growth from ramping up sales of the company's new Propel IQ bundled product offerings, increasing the size of our sales team and new product introductions. Wishpond continues to experience strong performance across all of our businesses with robust demand for our products. We expect to be adjusted EBITDA positive in each quarter going forward. In line with the company's focus on profitable growth, Wishpond will continue to scrutinize all discretionary expenditures across the organization with the intent of optimizing operations and achieving cost savings synergies. Ramping up the sales team. We currently have around 45 sales professionals, a small increase compared to the beginning of the year. Our focus earlier this year was on transitioning our existing sales personnel to selling the new bundled Propel IQ platform. As this transition takes some time for sales staff to familiar themselves with their products and value proposition. We have since started to ramp up our sales resources more aggressively in August. We are hoping to increase the number of sales account executives to between 50 and 60 by end of the year. 2023 is a year of transition in which we integrated our acquisitions, launched a bundled Propel IQ product, restructured our sales team and introduced new AI products to the market. As a result, we expect Wishpond's annual revenue in 2023 to be below its historic organic annual growth rate of 30%. Although we are experiencing some short-term softness this year in our revenue growth, we are expecting the increase in sales resources in Q4 2023 will help accelerate growth in 2024 and beyond. We expect to return to our historic growth profile in 2024. With the launch of Propel IQ, we are expecting higher customer retention rates going forward. Clients are increasingly signing up for annual 12-month terms, Propel IQ improves the stickiness of our platform and aids in retaining customers for longer periods of time. The bundled pricing of Propel IQ provides better customer value and is expected to result in higher margins, greater customer satisfaction, less churn and consequently, lifetime value per customer increased significantly. Wishpond will continue to invest in research and development efforts to launch new AI-based marketing tools and products. We are in a fortunate position to be able to lead the charge in applying AI to marketing applications and to democratize AI technologies for our SMB customers. By providing our customers with powerful tools, we can help them grow their businesses more efficiently and profitably than was possible in the past. Wishpond is recession resilient. The business has felt no impact due to recession, supply chain or other macroeconomic effects. In an economic slowdown, companies often reduce or freeze their budgets on their in-house marketing and sales staff or on individual fragmented marketing solutions. However, they still need to acquire new clients to keep their businesses afloat. And so they -- those businesses looking to cut costs, find value in Wishpond's, all in one consolidated software platform, which costs a fraction of all the individual products it would replace. Furthermore, businesses keeping a close eye on their costs or looking to cut costs, find Wishpond as a much cheaper alternative to an internal marketing resource. Wishpond is an effective low-cost alternative that is driving in a recessionary environment. As we close out the year, we are on track to achieving all of our key 5 objectives for the year: number one, increased monthly recurring revenue through both organic and inorganic means; two, scale the size of the sales team to help achieve company's organic growth profile; three, remain adjusted EBITDA profitable by balancing aggressive growth with increased positive cash flow from operations; four, invest in research and development so that we can continue to launch new AI-powered products and services to increase long-term value for our clients; five, leverage the Propel IQ platform to further accelerate the company's growth and improve margins and increase customer retention and long-term customer value. We look forward to introducing our 2024 goals and objectives to you in the new year. In closing, I want to reiterate that Wishpond is an elite software company with profitable growth. Technology companies are known to burn lots of cash for many years before becoming cash flow positive. It is rare to find a software company of our size that is growing rapidly, maintains gross margins of over 65% and is also adjusted EBITDA positive. Wishpond truly is a unique, high-growth profitable company, and we remain committed to delivering profitable growth in the future. Wishpond today is in an enviable position with a growing customer base, increasing revenue, broadened product offerings, clean balance sheet and positive EBITDA, and I am proud of what we have accomplished, and I'm excited with our future plans. Finally, I want to thank the entire team at Wishpond, whose hard work continues to elevate the company to higher levels. We want to thank our customers who rely on us to help them with their digital marketing needs. Also, I'd like to thank you all for joining us on this call today. We look forward to providing an update next quarter. I will now hand it back to Jordan for questions.

Thanks, Ali. With that, we'll now open the call to questions. And just a reminder that questions will be limited to analysts only.

Jordan, by the way, I don't have the ability to turn on my camera. If you can fix that on your end, let me know and I'll turn it back on.

Sure. No problem. The first question comes from is Gabriel Leung of Beacon Securities.

Ali, a couple of things. First, on the AI product suite. I'm curious if you had the opportunity to test some of the products within the live customer environment yet, number one. And number two is how should we think about pricing of some of these products relative to your current sort of MRR pricing scheme? Will it -- do you think it will be on the upper end of some of the -- some of the services you already offer?

Yes. Thank you very much, Gabriel. So there are 2 elements to that question. First of all, the 3 products that we've launched so far, AI products that we've launched, AI website builder, ad management, AI-powered ad management and the e-mail responder. All 3 of them are in use by customers. And so far, we're receiving very positive feedback on them. And the demand for them are increasing every day. And in fact, some of them are helping us even reduce our own account management costs and design costs, so forth as well as we can realize, for example, we're building websites on using the AI-powered capabilities as opposed to more manual wave. So they are actually actively being used. And I think at some point, we can release some specific updates with numbers to help you with that. Okay. I can start my video. So that's good. Okay. In terms of pricing, those products for most part have been included as part of the bundled offering. But the bundled Propel IQ offering has a lead component as well or, let's say, success-driven pricing as well, which means that if someone goes over the 1,000 leads that they have, then they pay overage fees. And some of these innovations make it more likely for a business to succeed, stay with us and go over the limit and pay more than USD 300 or AUD 400 days price and go beyond that. Some elements have extra pricing attached to them as well. For example, the e-mail responder comes with a bit of a wallet that you have certain credits per month that you can use. And if you go over that, you have to pay, especially separately for that. Now SalesCloser is a completely different thing. SalesCloser will not be part of the Propel IQ bundle. It will be its own independent product, it's an independent brand. And obviously, it's going to be marketed to the same people as well, but not as part of the same bundle. And that one will have a significantly higher price of more than $1,000 per month per seat. That's what we expect as now, obviously, it would be subject to change. But it 1,000 that I'm talking about is USD. So $1300, $1,400 a month per seat. So it can be meaningfully larger in terms of the revenue potential that it can have for the company. And especially it also is something that would be quite relevant and applicable to larger companies and allows us to move up market in that segment as well.

Got you. And just on that, when do you -- what sort of milestones do you anticipate you got to hit first before you -- that's widely available to customers for sale here in the closing.

Yes. It's quite interesting. Just two days ago, we did the first SalesCloser call end-to-end internal testing, but the whole call from the beginning to the end, completed successfully. So we expect in the next two weeks or so to be in a place where we actually set it live for some of our own prospects for which one and start using it internally for the remainder of the year. And in the same period, we're also finalizing the dashboard that other businesses would need to be able to launch their own SalesCloser agents. So the first milestone would be launched for our own prospects. And test it and trial and do all the fine tuning that's necessary. The second milestone would be making it available for other businesses and start some beta programs with a few key clients. And then I think sometime in Q1 of next year would be when we would get more aggressive in the sales of SalesCloser and expanding the use of it for Wishpond. So far, it's going actually quite well. A lot of the risks that we've had, we've already eliminated. So I'm very excited about the potential that it can have for Wishpond let alone for all the other clients who would use it.

And just on the topic of sales reps. Just remind us again what you exited Q3 with and I missed that slide, but what are you targeting to end the year-end in terms of number of sales reps? And as a follow-on to that, you've obviously gone through a number of these hirings in terms of the new sales reps. I'm curious, have you seen a reduction in the time it takes to get one of your reps fully up to speed in terms of being able to sell or hit the quarters.

Yes, good question. So on that slide, we mentioned that the target that we have for total account executed by the end of the year is somewhere between 50% and 60%. So that's what we're working towards, and I think it should be achievable. In terms of the time it takes to ramp them up, for most point, it has been about the same, I would say, 2 to 3 weeks, it takes to get them on the floor and then another two months or so for them to really find their footing and become productive. The difference has been -- I think the quality of our new hires have improved quite a bit, especially with our new VP sales putting a lot of effort on that and quite successfully, a lot of new training materials have been built and streamlined how we do it in the incentive structure, the demo structure, the pricing, all of those things have been refined to give the accounting executive best chance of success, and that is actually giving us fruits. So the closing rate for account executive for Propel IQ earlier in the year was well below the benchmarks that we have for ourselves. And most recently, it has been consistently over that benchmark. So it is not just how long it takes for them to become productive, but how productive would they be? And how profitable would they be? And right now, they're doing quite well.

Got you. Thanks for all the feedback and look forward to Q4.

The next question is from Gianluca Tucci of Haywood Securities.

It seems like your growth is accelerating on the Propel IQ front. Are you able to expand on that at this point or quantify your pipeline or backlog that you're working through on the Propel IQ side of things?

I think one thing that we shared is more than 3% month-over-month growth for the past 2 months, and we can see that actually that's a trend that we expect to continue. So that is quite positive. In terms of our ability to generate leads and keep our accounting executives busy, that has not been our issue. We can very successfully set up a bunch of demos for them and the bottleneck has been having enough account executives and having a kind of executives and the training for them to be able to actually succeed and close well. So that is in place. And so we are very confident that as we wrap up a kind of executives, we can keep them more than busy.

Okay. That's good color. Thanks Ali.

And if you look, the other thing also is that in our business, because we're dealing with mostly small businesses, sales cycle is quite short. So we're talking about average sales cycle of 3 weeks, so it's very different from some other companies that you say, what's the size of your pipeline that you're going to get something out of them in a year. In our case, if you generate the leads in 3 weeks, you're going to see the sales.

Right. I got you. And good color. Thank you. And then on your sales side, I think that's your like new targets down a bit from the last quarter. Is that mainly a factor of balancing profitability and growth?

It's partly that. I think it's also a large part due to making sure that people we bring in, we have the infrastructure to support them and make them successful. For example, if you add 15 new salespeople, you need also 2 new sales managers and of them also takes time and all of those things. And we were still trying to balance that and getting that really nailed. And you're right, we were hoping to be above 60% by end of the year. But I think now 50 to 60 is what we're aiming for. We still expect that, that will be sufficient for going back to our historic rate of growth.

Okay. Perfect. And then on your AI piece of your offering, some pretty cool stuff there. Thanks for the video. I'm just curious on the adoption rate by customers, all of these AI-powered tools that can really move the margin needle for you guys? Or are they still preferring the white log kind of hands-on treatment?

So Propel IQ, basically, you don't have a lot of ongoing services. The base of Propel IQ is that the first month we're involved in the onboarding and that's more hands on. You actually have to help them with setting everything up. And AI is helping us reduce those expenses. But at the same time, we're ramping up sales. So some of those resources, we still need them for that ramp-up. And then after the first month, there isn't really any service cost. So the margin is well above 80% for Propel IQ versus the legacy products where it was more white glove ongoing services.

The next question is from Daniel Rosenberg of Paradigm Capital. Please go ahead Mr. Rosenberg.

To start off, I was curious about Propel IQ in the customers that have signed on the different behaviors you've seen in different product uses you've seen within the customer base? Anything you could highlight there, especially for those who may have switched over from a legacy platform to the new one.

Yes. That's a very good question. I mean one of the important assumptions that we've had about Propel IQ is that if we just give the whole platform, and it's very complete and there's so many functionalities, our thesis was that if you just give the functionality in the platform to a small business and with whatever training materials and videos and all that and say, you go and figure it out. That could be a challenge and a lot of them will not get the value from the platform. And that is the reason we said, no, no, required first month onboarding. We need to be involved to set them up in the right way. The reason I say that is it is quite different from organically giving to them and seeing what part they gravitate towards. We have a playbook that we know works really well for setting up the foundations for growth online. And with onboarding for most clients, we do the same thing. So it might involve moving their website to Wishpond, some cases, we don't. And then it also involves updating all the lead capture coupons forms, all kind of things on their websites that they generate needs. It involves setting up referral marketing for them, well setting up the CRM and lead database for them. And SMS capabilities are setting up newsletters and e-mail rigs. We said all of them up for them. So because of that, it means that basically all the Propel IQ clients are using all of those functionalities from the get-go.

Good to hear. Okay. I guess, any insights or learnings that you've had in those recent months from those customers who have moved over, any tweaks that you've made or a special areas of value that you see from the platform?

Yes. There have been a few. One, for example, was that we were noticing that sometimes are our salespeople. We are more likely to want to pitch services because, obviously, it's easier to say we'll just take care of everything, don't worry about it. And it becomes a larger deal size and all of those things. But one thing that we were seeing was that, that will still exhibiting the same retention rate or churn challenges as our legacy business. And we were, again, being put on the driver's seat and not necessarily in a good way. And one of the things that we found was that, no, no, we can't do that. And that also caused us to change the incentive plan so that the software-only sales has a different incentives and a higher incentive than the service components. -- to sell initially the base, the software, sell them everything up. And if we want to even off sell them and sell them extra services, that has to be down the road, like at least 2 weeks from now. And that really made a huge difference. And so that was one of the big things that we learned going through this and accelerating onboarding phase and adoption.

Okay. Thanks for that. And then on the topic of sales, as you think about the potential of SalesCloser, is that a different sales model given that the target could be larger type companies or even enterprise? How do you think about a go-to-market as you work towards that?

I think it's going to be a mix. It's going to be obviously, we have a sales model that works really well. So we're going to lever is set. And I think it works quite well for that. It's proven some of the larger players in the marketing tech space also have similar sales outreach programs. But I think more marketing and PPC advertising campaigns to bring leads make sense for that. And partnerships make sense as well, there are some companies that, for example, focus on providing on the sales CRM capability or integration with sales force some of those and serve some of those larger clients already. And I think partnering with them to put this in front of their clients makes a lot of sense. It's a win-win for everyone involved. And it is the kind of capability that once you see it and you see that it is working well for some other cases, you get that confidence. It's a no-brainer. So it's just getting the word out.

Okay. Sounds exciting. Lastly for me, I guess, one for David. Just on the return to historical growth levels. Should we expect a bounce back in the coming quarters? Or is this a gradual increase as the sales pipeline continues to grow and sales bodies get added?

Yes, Daniel. So just like Ali said, the last couple of months, September, October, we've seen 3% growth month over month. So that's obviously extremely encouraging. In the first quarter, in the past, we may have seen a little bit of a dip coming out of the holiday season, so it could be a little difficult to predict there. But definitely running into the second quarter and beyond next year. First of all, it'll be giving Propel IQ a little bit more time, become a larger percentage of the total amount of sales that we do. We're giving the new AEs that are going to come in a little bit more time to come in and get effective. So honestly, from I think our perspective, we see 2024s one way you're going to see a continuing upwardly trending line in terms of growth in terms of both growth and sales. I want to actually point out that yes, maybe growth has been a little slow for all the main reasons that Ali mentioned. But if you look at each one of our quarters, Q1, Q2, Q3 and coming Q4, we had increasing revenue in each and every one, and we've had increasing adjusted EBITDA in each and every one, Q1, Q2, Q3, and we expect the same for Q4. So as far as we are concerned, the trend line is extremely strong. And we're confident that going into Q4, there's a lot of the blocks, the puzzles that Ali and Jordan and the team have solved worked really hard both on the product side as well as implementing Propel IQ, which has actually positioned us long term. So honestly, I think 2024 is going to be a really good year.

The next question is from Jason Zandberg of PI Financial.

We can't hear, in case you are actually already talking.

Go ahead, Jason. Okay. We'll move to the next and then we can come back to Jason. Got no problem. Next question, Neil Bakshi from Canaccord.

Hi Ali and David. So I guess I'd just start off with a question about just the revenue mix in Q3. We saw that quarter-over-quarter decline outside of Canada and the U.S. Was that that major customer that accounted for that drop. I'm just wondering if first, you could provide some kind of color on more of that customer that drop on that one customer.

David, can you provide some color on that? The non-U.S. revenue dropping is more a function of U.S. revenue increasing. And that large customer actually is the U.S. revenue customer as well. So no despite of that, the U.S. revenue grew. But David, maybe you can share some more specifics about revenue Q2 versus Q3 for that customer.

Yes, Neil, thanks for that question. Actually, I think it's worth mentioning that -- and I did mention that, yes, revenue from that customer has dropped, not just in this quarter but dropped from the last quarter. We mentioned that last quarter as well. And this is like comparing to 2022 as well as quarter-to-quarter, has dropped. Nothing surprising about it. We did know we had constant contact with that customer, and we do know that they have some challenges for their own business. But keep in mind that in spite of their revenue drop, our overall revenue has increased, which actually masks some of the strength in our overall business, right? So if you had taken that customer out, they went from, I believe, 13% or 6% of revenue. Our overall revenue had actually had to increase by something like 13% to make up for it. But when you look at our overall revenue growth, it shows a much lower increase. So it's kind of masking a little bit of a strength in our overall business. But in terms -- Neil, in terms of our mix between the different geographical regions, the U.S. still remains our strongest source of customers and then rest of world and Canada follow closely behind.

And one other data point to be more specific on that large customer, are revenue portion from them alone from Q2 to Q3 by about $100,000. So if they had remained flat, for example, if you would have seen $5.9 million, and that's not insignificant. So the rest of the business is growing more healthy than the numbers right now indicate.

Yes. Okay. That's very helpful. And just a question about the kind of the margin mix. I think you noted the Propel IQ, if I'm not mistaken, it's about 15% of Q2 revenue. It's nice to see that uptick in continued growth. Just wondering, with kind of year-over-year margins being flat, just wondering if you could speak to kind of the margin profile of the other non-Propel IQ lines.

I'll address parts of it and then David, I'm sure can give you an even better answer. So first of all, the margin did go up slightly from last quarter from 65% to 66%. But on a quarter-by-quarter basis, there are a lot of things that could be moving around or building capacity in certain teams and all that. that you might not immediately see that. The other element also is that Propel IQ is new, which means that a large number of these customers are in their first month. And their first month is where the cost of the onboarding resides, right? It might be the first month margin might be like 50% actually because there's more services involved. Then after that, it becomes more than 90%. But because at the head of the growth in Propel IQ, it takes a little bit of time for the overall margins to reflect what the Propel IQ is bringing to the table, David?

Ali, I think you've captured most of it. So Like, obviously, yes, Neil, because Propel IQ is a larger percentage of the new customers that we're onboarding. We're not able to actually reduce headcount in any way. In fact, we don't expect to be going to reduce headcount. The gross margin over time will increase just because of the total revenue increases. And one of the data points in my remarks earlier on, as I said, our headcount is actually down from where it was in the earlier part of the year. It's down slightly. It's not down in a big way, but the fact is we're doing things much more efficiently. There's an impact coming from Propel IQ. There's an impact coming from AI that's enabling us to manage a larger base of customers and more revenue with the same resources that we had. Now just like Ali mentioned, there's things moving around a little bit. There's a little bit of efficiencies. We are adding people to do a little bit more one thing versus another and so on. We'll actually get that right. And as revenue increases quarter-over-quarter in the next year, I think you're going to see all those efficiencies drop and gross margin will improve. And I would actually ask maybe give us another quarter and maybe 2, and we'll probably be able to give you better data points as we see this thing growing.

Right. Yes. I remember now from Ali's earlier remarks as well, the Propel IQ first couple of months can be more so integration. So it's very helpful to get that clarification. And just one more question. So a previous question kind of touched on this. But just halfway through Q4, just wondering if you could provide some color on how things are going so far in terms of kind of the monthly accounts as well as just kind of momentum compared to this time last year, what you're seeing so far?

Overall, things are going well and momentum is quite strong. As we mentioned in the past 2 months, MRR growth has been about 3%. So it's -- we're happy with how things are going. That large customer of ours, there might be some wild card in there that their revenue -- there might be a little bit more drop this quarter, but it's still hard to know because half of the quarter remains. But so far, we're quite optimistic based on what we've seen.

So we'll jump back to Jason Danberg. Go ahead, Jason, from PI Finance.

Jason you are on mute. We still can't hear you. It seems like the audio issue persists.

We'll move along to Kiran Sritharan from VIII Capital.

I'll start here. I want to ask you on Propel IQ. With customers, once you've set them up after the first month, how do we see how expansion, I know it's early days, but how is that first cohort of customers trended against expectations. When it comes to expansion, is it more about adding functionality? Or is it more consumption that should be the driver here?

It's a bit of both. So there are two different paths for expansion. One is, for example, Braxy might not be -- it's not part of the base package. So if someone wants Braxy, they would have to pay another $150 upgrade fee for that. There are a few functionalities like that or if there are some extra services that they want from our marketplace, there would be expansion opportunity there. But the primary long-term driver that I think is going to be a huge one for us is success-driven overages. So for example, going over the 1,000 lead limit in the database and paying extra for that, that's one of them or collecting payments or sending invoices as part of ESM being part of the platform now and us collecting a percentage of sales there. I think over time, we're going to see that become a meaningful part of our revenue and in fact, actually offset some of the churn as well as to net dollar retention would be even better than some of the things we've seen. And already, as we said, I want to reiterate that Propel IQ has been significantly lower already just comparing apples-to-apples, the same months of the customer joining versus legacy products, and that gives us a lot of confidence as well on that.

That's good color. Thanks Ali. And then my second one here. What's the composition of your older customers who have been migrated over to Propel IQ? Or what are some of the key considerations for you guys to move those customers over?

Some customers have moved over, but I don't have numbers to share with you. Our primary focus has been new customers going on Propel IQ. Sometimes it's a little bit difficult if someone signed up to Wishpond because they wanted the white glove service, and there was a specific reason that they signed up to us to go and say, now move you to Propel IQ, does happen, but that has not been the focus. The focus for Propel IQ has been new client acquisitions.

It looks like there are no further questions. So I'll pass it back to Ali for closing remarks.

Thank you very much. In closing, I want to thank everyone once again for joining our call today. Thank you to the analysts for your questions. Everyone to stay safe and healthy, and we look forward to providing more updates this year. Thank you very much.