CS Disco, Inc.

Ladies and gentlemen, thank you for standing by and welcome to CSDisco's third quarter of fiscal year 2022 conference call. At this time, all participants are in 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star one again. I would like now 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 third quarter of 2022. With me on today's call are Kiwi Camera, Disco's co-founder and chief executive officer, and Michael LaFerre, Disco's chief financial officer. During today's call, we will review our financial results for the third quarter of fiscal year 2022 and discuss 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 fiscal year 2022, our market opportunity, market position, product strategy, and growth opportunities. In addition to our prepared remarks, our earnings press release, SAP 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 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 quarterly report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 12, 2022, and the company's upcoming Form 10-Q where the quarter ended September 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 Q3 2022 earnings call. Revenue for Q3 was $34.5 million above our guidance range. In Q3, adjusted EBITDA was negative $13.1 million, a substantial beat of our guidance. As we continue to invest in our business, we are finding ways to operate more efficiently. In 2022, we made many key investments across our company, including a large scale out of our go to market team. We believe that these investments enable us to remain focused on accelerating revenue growth, leverage our cost structure to drive increased operating discipline across the company, and improve EBITDA margin going forward. As a result, We expect EBITDA margins to improve in 2023, and we believe we are well positioned in our march toward profitability. We continue to add customers, growing customer count to 1,318 as of September 30, 2022. We continue to see improving productivity on our sales development representative and customer success teams, as measured by leads and opportunities they identify. We were thrilled to introduce new customers to every single Disco product this quarter. Recall that new customers are just one part of our growth strategy. Increasing multi-product usage, the number of matters with each customer, and the volume of data on the platform are other key factors that impact our growth. In Q3, Case Builder had the greatest quarter-to-quarter sequential increase in customers since its launch. We continue to be excited about Case Builder adoption. When customers use both eDiscovery and Case Builder, the Disco platform becomes a common repository for all types of evidence, including both documents and testimony. Disco Hold, which allows companies to efficiently implement, track, and manage legal holds, as well as retain and preserve enterprise data in the cloud, won long-term renewal contracts with three major technology companies and signed on new enterprise-scale customers in both the technology and health spaces. Our usage-based business model means that revenue in any given period is impacted by the volume and nature of customers' usage of each of our products. Last quarter, We explained that revenue was impacted by a shortfall in usage of our review product on large matters compared to high activity in the prior year, specifically on matters billing more than $1 million in review in the quarter. This shortfall continued in Q3. While this volatility in the timing and prevalence of large matters impacts usage and, given our usage-based business model, revenue, in any particular period, we are heartened by our continued ability to retain and add new customers to our platform. We continue to believe that long-term drivers, like the increase in the volume and variety of enterprise data and the velocity with which it is created, as well as companies' growing exposure to legal risk and legal disputes, is likely to result in increased usage of our platform. by new and existing customers over the long term across the full range of case sizes. We remain excited about the opportunity in front of us and our ability to delight customers with the Disco product experience, new features, and exceptional service. As we do in each earnings call, I'd like to highlight a few customer success stories from the quarter and then share some future rollouts we are excited about. We were delighted to have a long-standing Disco eDiscovery client, one of the largest law firms in the world, use Disco Review on five matters since discussions began in July about expanding their Disco product use beyond eDiscovery. Their feedback so far has been very positive, driving multi-product adoption across both new customers and our existing customer base. is a core part of our long-term growth strategy. Internationally, we began work with a new customer in the medical services industry. It was an inbound to DISCO after the company's leadership had heard of DISCO through their outside counsel, demonstrating the importance of good relationships with the lawyers of law firms who can introduce us to their clients. This customer had a large litigation matter and chose DISCO for collection, e-discovery, and review. DISCO AI significantly reduced the number of documents they needed to review to prepare for their trial that is set to begin next year. Not only is our customer happy, but their outside counsel have also expressed high customer satisfaction as they have been supported night and day by our EMEA team under tight deadlines. Another client of Disco's since 2019, with multiple matters on the Disco platform, wanted to expand their usage of Disco. They have historically used both eDiscovery and Revu, so we worked with them to package a three-year comprehensive multi-product bundle to best address their needs. This new package has a built-in commitment with room for growth and the addition of more products. Longer-term enterprise deals like this can increase our revenue visibility over time. We also hosted a client summit with one of our largest corporate clients and their outside counsel teams focused on maximizing the value of AI in their Disco experience, diving more deeply into the Disco products, and planning how Disco can best serve their needs. Our client and their outside counsel got to meet the broader Disco team who act as champions for them every day to provide optimal outcomes and are key partners in their use of Disco. These summits and quarterly business reviews are a great way for us to educate a customer on the latest features and best practices as well as hear client feedback on what we can build to best serve client needs. This is all part of our comprehensive customer relationship and assurance strategy to uphold the customer satisfaction and longevity over time. I would like to touch on new product releases during the quarter. We rolled out initial phases of our organization metrics feature set, which provides managers up-to-date metrics on their usage and data volumes on DISCO and allows self-service reporting for customers. This is particularly attractive to our corporate customers and general counsels who want to see how many gigabytes of data are uploaded for particular matters if a database is active and who has access to the databases. Organization metrics includes visibility into overall data usage across all matters and review databases and insight into activities impacting billable data usage. We are also excited to have recently announced Collect for Slack within our whole product. With the continued rise of enterprise messaging and collaboration applications, cat data like Slack can be difficult, expensive, and risky for organizations to preserve, collect, and review for compliance investigations or litigation. That's why we've built Collect for Slack to enable legal teams to seamlessly preserve in place collect and promote Slack legal hold data for review all in the same interface. Collect for Slack's integration with the Slack Discovery API enables collection of only the data needed for a legal matter and collection of that data only when it is actually needed, minimizing storage costs and security risks related to having company data live on in third party applications. More broadly, Disco Hold centralizes the Hold Collect review workflow in a single interface, making custodian notifications and tracking, in-place preservation, and now collection faster for legal and IT teams. With the release of Collect for Slack, we are delighted to grant legal teams additional visibility into and control of their legal hold and e-discovery collections processes to get to evidence more efficiently. Building on these critical capabilities, we plan to expand our hold connectors to additional enterprise collaboration solutions that legal and enterprise professionals rely on in their day-to-day work. Within our go-to-market organization, we previously announced the transition of Andrew Schimmick, our former Chief Revenue Officer. Andrew has been with Disco for nearly five years. He helped us scale our go-to-market organization, grow from a startup company to a public company, and cross the $100 million revenue milestone. We appreciate Andrew's commitment to Disco and wish him well on his next career endeavor. The team leaders for sales, marketing, and services who had reported to Andrew will now report directly to me. which is the original organizational structure at Disco. The current leaders of these teams came to Disco with incredible experience. Disco's Senior Vice President of Global Sales, Luke McNeil, joined us in 2021 with impressive enterprise software sales leadership experience. Prior to Disco, Luke helped scale the enterprise businesses at Amazon Web Services and Facebook. Melanie Antone, Senior Vice President of Professional Services, started with DISCO in 2019 and helped launch our review and services offerings. Melanie has deep legal domain and process implementation expertise, having led teams at Inventus, Huron Consulting, and Catalyst. Tom Herr, our Senior Vice President, Chief Marketing Officer, has extensive B2B enterprise marketing experience and expertise in building enterprise brands, having previously led marketing teams at MongoDB and Vonage. Additionally, we recently promoted one of our own, Lauren Caruso, to be Vice President of Field Sales in North America, given her tremendous success as a regional sales leader, and before that as a first-line sales manager at Disco. Our immediate focus areas as a go-to-market leadership team include deal-level coaching and pipeline rigor, ensuring we cross-sell in every deal, and a focus on customer success in growing accounts to multi-product, full enterprise adoption. In 2022, we invested heavily to scale out every part of our business, especially our go-to-market organization that is focused on driving continued revenue growth. Now that we have made those investments, Our focus in 2023 and beyond will be on driving organizational effectiveness and efficiency. I look forward to working with the rest of the management team to leverage what we have built to both accelerate revenue growth and make steady progress toward profitability in the coming years. I'll now turn it over to Michael to discuss our financial results and guidance.