CS Disco, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the CSDISCO second quarter of fiscal year 2021 conference call. At this time, our participants are in a listen only mode. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your touchstone keypad. If for any reason you would like to repeat a question, please press the pound key. I would like to now hand the conference over to your first speaker today, April C. with CS Disco Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Disco's second quarter fiscal year 2021. With me on today's call are Kiwi Camera, Disco's co-founder and CEO, and Michael LaFerre, Disco's chief financial officer. During today's call, we will review our financial results for the second quarter, fiscal 2021, and discuss our guidance for the third quarter and full year of fiscal 2021. Today's call will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook, including our guidance for the third quarter and full year of 2021, our market opportunity, market position, and growth opportunities. In addition to our prepared remarks, our earnings press release, SEC filings, and a replay of today's call can be found on our IR website at ir.csdisco.com. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the Company's Perspectives Filed with the SEC Pursuant to Rule 424B on July 22, 2021. Additional information will be made available in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2021. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release. And with that, I'd like to turn the call over to Kiwi.

Thanks, April. Good afternoon and welcome to our first earnings call as a public company. I am incredibly excited to be speaking with all of you and introducing Disco to those of you unfamiliar with us. I will spend some time discussing our company, our market, and our strategy. But first, I wanted to point out a few financial highlights. We had an excellent Q2 with revenue of $29.5 million, up 88% year over year, driven both by strong usage across our customer base and an increase in new customers. With this rapid growth, we continue to demonstrate operational efficiency with Q2 adjusted EBITDA margins of negative 5% compared to negative 28% in Q2 of the prior year, up over 2200 basis points. For those of you new to DISCO, I would like to provide a little bit of background on what we are working to achieve. Before launching DISCO in 2013, my partners and I were building a corporate litigation practice in Houston, Texas. As a lawyer, I was struck by how antiquated the entire legal process was. If you walk the halls of legal departments or law firms, you will notice that the vast majority of time is spent on tasks that do not require any human legal judgment. And so the idea was born to create a modern AI-powered solution that would allow lawyers to automate away the parts of the practice that don't require human legal judgment. If you look at any company's P&L, regardless of industry, they all invest in core operational functions, engineering, marketing, sales, HR, IT, finance, and legal. Almost all of these functions have corresponding software companies that power them, but that is not true for legal. Our goal is to become the software company that powers the work of legal departments. Today, in every major legal matter, corporations have to go through large collections of enterprise data to figure out what really happened and to find the evidence they need to prove it so they can comply with the regulatory requirements and achieve optimal legal outcomes. This is the problem that our solution solves. Think about the massive amounts of data created every day. PDFs, Word documents, Excel spreadsheets, emails, instant messages, video and voice recordings, to name a few. Lawyers have to be able to extract only the most relevant information from that mountain of data. A gap exists between that raw data and the work lawyers need to do, such as producing documents for regulators and executing a litigation strategy. Before DISCO, that gap was bridged by an expensive, complicated, opaque, and insecure set of on-premise point solutions and professional service vendors. We are disrupting that status quo. We have built a software system of record that allows for handling enterprise data in legal matters. This solution has three basic parts. The first is a data lifecycle engine that allows legal industry participants to collect enterprise data from all enterprise systems of record, process and enrich that data, and store it through the life of multiple legal matters. The second is a review platform that allows lawyers to organize the work of conducting legal document review to determine what the facts are. And the third lets lawyers take a legal action, for example, by producing relevant data to regulators and complying with discovery obligations. We have built three products on this platform. First is Disco eDiscovery, which is both a system of record for enterprise data used in legal matters and a system of engagement where legal professionals engage in all the work related to reviewing, organizing, and producing documents. Second is Disco Review, where we use Disco AI to automate the process of legal document review. And third is Disco Case Builder, which is a system of record and engagement for all non-document evidence. This is a way for lawyers to prepare and organize witness statements, deposition testimony, and transcripts of court hearings, among other things. Together, these products enable lawyers to focus on practicing law and providing the best outcomes for their clients, not dealing with enterprise data. Today, our solution manages the document discovery process for mission critical and well-known legal matters and for some of the largest corporations and law firms in the world. Our customers find tremendous value in our solution. A great example of what has driven the acceleration and growth this quarter is a well-known consumer brand that in Q4 of last year hired a new deputy general counsel from a major technology company that had been a longstanding Disco customer. He ran a sole source procurement for eDiscovery when he started his new job, and between the fourth quarter of 2020 and the first quarter of 2021, his new company migrated their eDiscovery program to Disco eDiscovery. Then in the second quarter of 2021, this company experienced a series of major legal issues that caused them to accelerate their adoption of our second product, Disco Review. So in three quarters, we saw this company ramp from zero to a multi-million dollar level of spend. That journey has historically taken our customers several years. This is a great example of the impact that lawyer mobility can have on our business. Lawyers who have been through the DISCO adoption journey at one company can accelerate DISCO adoption in their new company. Another example of rapid adoption is a leading global travel company, that joined our solution in Q2 and grew to be a million-dollar-plus customer in the quarter. We are a key partner for these customers, a mission-critical solution, and we are proud to help them through some of their most difficult moments. We are attacking a large and growing market. According to Statista, total spend on legal services is expected to be $767 billion in 2021. The e-discovery market is about $15 billion, according to IDC. By our internal bottom-up calculation, we believe the total addressable market for our solution is $42 billion. Overall, we believe that growth of regulation around the world, global operational complexity, enterprise data growth, as well as the rise of a new generation of legal professionals are all driving the demand. for modern AI-powered solutions to help with these challenges in a scalable and sustainable way. As a company, Disco combines world-class engineering with a deep understanding of the law and how lawyers work and think in order to build product experiences that feel magical to lawyers. We prioritize legal workflow and intuitive user interface in everything we create. Our rapid growth to date demonstrates how our product vision resonates with customers. We are very early in our growth cycle in a very large market. Our priorities are to win new customers, expand Disco usage within existing customers, and expand adoption of Disco Review and Disco Case Builder. To close it off, our IPO and this first earnings call are only the beginning for Disco. Although we already have a category-defining solution, we believe our work has just begun to develop technology that strengthens the rule of law. Now I'll turn it over to Michael to go through our financial results.