CS Disco, Inc.

Please stand by, we're about to begin. Ladies and gentlemen, thank you for standing by and welcome to CFDISCO's second quarter of fiscal year 2022 conference call. At this time, all 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 the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to hand the conference over to your first speaker today, Lee Robinson, 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 of 2022. With me on today's call are Kiwi Camera, Disco's founder and chief executive officer, and Michael Affair, Disco's chief financial officer. During today's call, we will review our financial results for the second quarter of fiscal year 2022 and discuss our guidance for the third quarter and an update on full fiscal year 2022. Today's call will include forward-looking statements within the meaning of 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 fiscal year 2022, our market opportunity, market position, product strategy, and growth opportunities. In addition to our prepared remarks, our earnings release, press release, SEC filings, and a replay of today's call can be found on our investor relations 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, and the company's quarterly report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 13, 2022, and the company's upcoming Form 10-Q for the quarter ended June 30, 2022. 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.

Welcome and thank you for joining our Q2 2022 earnings call. We have just marked a big milestone, the completion of our first 12 months as a public company. In Q2, we brought on some amazing new hires. As mentioned in our last earnings call, we added our new Chief Human Resources Officer, Jignasha Grooms. We also brought on a new Chief Marketing Officer, Tom Furr, who joined us from MongoDB and will help drive Disco's brand awareness. We also welcome the new Vice President of Product Strategy, Katie DeBoerde, who formerly served as Global Chief Innovation Officer at the law firm Brian Cave. Katie brings deep domain expertise and insight into what lawyers want and need. In June, our inaugural class of associates and interns joined DISCO's Emerging Leaders Rotation Program. We brought in 39 top graduates and 10 interns from 17 different universities across the United States. Following an intensive onboarding program that included learning our industry and business, a mini law school experience, and a legal tech hackathon, these emerging leaders have joined every part of our company, including sales, marketing, product, finance, and HR. We are excited to develop this next generation of talent during their three-year associate program and see the impact that each of them will make at Disco. And now I'll talk about our Q2 results. Revenue for Q2 was $33.7 million, above the midpoint of our guidance range. Our Q2 revenue grew 14%, despite a very challenging comparison in Q2 2021, when revenue grew 88% and benefited from a small number of large reviews. In each of our earnings calls, we have explained how the usage-based nature of our business can result in revenue volatility as a result of changes in the timing and nature of usage on our platform. Activity or lack of activity in particular cases, especially in large cases, can drive increased volatility in our revenue. This is especially true for our review product. While we continued to see strong performance in eDiscovery in Q2, we experienced this volatility in our review business. As a reminder, this is one of the considerations that informs our guidance philosophy. We continued to add new customers at a steady pace, growing our customer count to 1,255 as of June 30, an increase of 27% year on year. Our steady growth in customer count reflects growing adoption of cloud computing and software-based solutions in the market. We believe our future growth will come both from continuing to add new customers and from expanding these customers by growing the percentage of their legal work that happens on our platform across all our products. We have talked extensively about scaling our go-to-market organization. I'd like to give you an update on how that is progressing. We are on track with hiring across quota-carrying salespeople, sales development representatives, and customer success. We continue to invest behind the success we are seeing with our sales development representatives and customer success teams, each of which has shown increasing productivity, both in the aggregate and on a per person basis. One of our learnings as we have scaled our go-to-market organization is that we can benefit from a higher ratio of lead generation to quota carrying sales capacity. especially now when more than half of our sellers have been at Disco for less than one year. We are achieving this increase in lead generation capacity by investing in sales development representatives, customer success, and marketing programs. Historically, marketing programs have accounted for a relatively small percentage of our leads. With the addition of our new CMO, Tom Furr, and with the early success we have seen in Q1 and Q2 for marketing programs, albeit at limited scale, we are preparing to accelerate our investment in marketing programs in the second half of the year. Across all our go-to-market investments, we continue to closely monitor performance, both in the aggregate and on a unit basis. We will continue to adjust the pace and direction of our investments as needed as we scale out our go-to-market team. We remain committed to and excited about capturing the unique opportunity in front of us to build a technology system of record and engagement for the legal function. This quarter, we won a three-year eDiscovery subscription deal with a large, well-known technology advisory firm. We were up against a number of vendors in the RFP and successfully unseated the incumbent provider. The customer needed self service ability and was impressed with this goes Ai capabilities and how our platform understands concepts and context improves time to evidence and reduces review time. They liked disco university with its user friendly content and the ability to easily learn through the use of on demand training modules. We have been pleased with the excitement around and feedback on the expansion of our product portfolio with the hold and request products that we acquired in Q1 of 2022. In Q2, we had existing hold and request customers renew, and we're excited to see the interest from new and existing customers during the period. These are large enterprises, including a notable company in the consumer tech space. We are very excited to see hold and request get Disco in the door of enterprises early on in the legal value chain and complement the other Disco products in accelerating a company's legal work. Part of our value proposition is our laser focus on providing the most intuitive and effective user experience for our customers, a direct result of combining our deep domain expertise with a commitment to world-class engineering. In Q2, we continued to roll out new features that help lawyers get to evidence faster, while also investing in platform performance and capabilities. One of the highly anticipated innovations we are proud to announce and have our customers use is topic clustering with automatic indexing. This feature capitalizes on our proprietary AI to allow users to quickly gain insight into groups of documents with an AI-generated outline that works like a table of contents for an entire document universe. The index is generated from the documents themselves before any human lawyer review. Topic clustering with automatic indexing labels groups of documents with phrases extracted directly from the records to help lawyers quickly find relevant content. This helps lawyers quickly learn the language of a case and use that language to inform further searching and exploration of large data sets. Users are able to quickly identify the topical content of documents, drill down to explore subtopics, cluster similar subject matter together, and the organized topic clusters into an easily navigable list. We are always making incremental improvements to our platform that ultimately help lawyers get to evidence faster and improve their quality of life. We understand there is great interest in understanding how macroeconomic factors like inflation and the risk of a slowing economy may impact our business. As these questions are frequently raised in investor conversations, we thought it would make sense to share with you what we are seeing as well as how we plan to manage through this environment. While we didn't exist during the global financial crisis over a decade ago, what you'll find if you analyze the historical market data is that the e-discovery market was relatively resilient. As a matter of fact, according to an industry report, the eDiscovery market experienced healthy growth between 2008 and 2011, while many categories of software experienced much more tepid growth. We believe that eDiscovery will continue to be in demand during periods of economic contraction as our customers deal with less cyclical parts of the law, primarily litigation and disputes, as compared to areas of law such as corporate transactions or capital markets. There will always be disputes and investigations, regardless of the macroeconomic environment. While we have all seen reports of potentially moderated growth in IT spending, our customers' budgets are not only IT budgets, but legal ones. We provide critical technology to lawyers that is required in all kinds of complex disputes and investigations. We will continue to tout the benefits of using technology like DISCO to make legal work more efficient for both a time and cost perspective for legal departments and law firms. We have heard from customers that our focus on delivering a more efficient way of handling large volumes of legal work is of particular interest in the current climate. I'd like to conclude on Disco's overall outlook and investment philosophy before Michael gets into the numbers. We see a large market for Disco and intend to continue to go after the opportunity ahead of us. While we are moderating guidance for the fiscal year, primarily on account of the volatility in review that I previously discussed, we remain committed to investing in our product and in the scaling of our go-to-market organization. Using technology to transform the way legal departments and lawyers work is a long-term vision to which we are deeply committed. We are as excited as ever about the opportunity in front of us, and we are resolute in our belief that the products and team we have built position us well to build a large and enduring business as software transforms the legal industry. I'll now turn it over to Michael to discuss our financial results and guidance.