CS Disco, Inc.

Ladies and gentlemen, thank you for standing by and welcome to CS Disco's third quarter of fiscal year 2025 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thanks. I would now like to turn the call over to Your first speaker today, Head of Investor Relations, Alexey Lakshakov.

Alexey, 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 fiscal year 2025. With me on today's call are Eric Friedrichson, DISCO's Chief Executive Officer, Michael LaFerre, DISCO's Chief Financial Officer, and Richard Crum, DISCO's Chief Product Technology and Strategy Officer. 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 and future performance, our future capital expenditures, market opportunity, market position, product and go-to-work strategies, and growth opportunities, and the benefits of our product offerings and developments in the legal technology industry. In addition to our prepared remarks, our earnings 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 of the SEC from time to time, including the section titled Risk Factors in the company's annual report on Form 10-K for the year ended December 31st, 2024, filed with the SEC on February 20th, 2025, and the company's upcoming quarterly report on Form 10-Q for the quarter ended September 30th, 2025. 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. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus our closest GAAP equivalent is available in our earnings release.

And with that, I'd like to turn the call over to Eric. Good afternoon, everyone. I am delighted to be here with you all today to report on another quarter of accelerated revenue growth and operational execution for Disco. Software revenue in Q3 was $35.2 million, up 17% year over year, while total revenue in Q3 was $40.9 million, up 13% year over year. Adjusted EBITDA for Q3 was negative $297,000. representing an adjusted EBITDA margin of negative 1%, which is a $4.2 million improvement over Q3 of 2024. Our results include $1.3 million of revenue related to a matter that was contingent on a successful outcome of the case. Michael will speak more to this later, but even without this bump, I am pleased to share that we exceeded the high end of our guidance range for software revenue, total revenue, and adjusted EBITDA. We finished the quarter with $113.5 million of cash and short-term investments and no debt. We ended Q3 with 326 customers who each contributed more than $100,000 in total revenue over the last 12 months. The proportion of revenue attributable to these customers is 76%. We're extremely excited about our performance this quarter. The growth acceleration coupled with our improved operational execution is a testament to our larger strategy. Last quarter, I discussed our focus of the growth of large multi-terabyte matters, and we've seen continued positive trends this quarter in that area. The usage patterns in our business have continued to give me optimism. This quarter, we saw continued growth in revenue from both large and small matters, with acceleration in revenue from multi-terabyte matters. We are also very pleased with the continued adoption that we are seeing related to our suite of generative AI capabilities, including Cecilia AI and our AI-driven auto review. The number of customers utilizing Cecilia AI over the quarter more than tripled year over year, and we've experienced consistent sequential growth in auto review adoption throughout 2025. Our overall positive performance continues to be driven by our relentless focus on delivering value to our customers through our value proposition of with you in every case. A great example of this is with a large multinational company involved in an industry transforming lawsuit. They selected Disco as their legal technology provider and services partner. The case involves more than 10 terabytes of data And this customer chose Disco because we demonstrated our end-to-end capabilities in handling very complex cases. This customer selected Disco because they valued the speed, scale, and ease of use of the Disco platform. They were able to reduce time to evidence while searching across hundreds of thousands of conversations spanning multiple communication forms and time periods. And in terms of support, They valued our onboarding and our in-house services capabilities. They appreciated their forensics team was on call to handle dozens of data sources, that we had a fully staffed project management team, and that we had leading review experts who could partner with them to deliver end results at an exceptional speed. This customer was sourced through our lead generation team, leveraging the new territory-based account orchestration model that I mentioned last quarter. This is just one example of that change already yearling results. The entire sales process for this customer was completed in roughly four months, a clear demonstration of the strength of our strategy and execution. Our results this year reflect a sharper focus on the right customers. Over the past year, we refined our approach to target those that we believe are the best fit for Disco based on their scale, industry, and complexity, as well as the specific matter types to best take advantage of the capabilities of the DISCO platform. This is further validated by IDC, who named DISCO a leader in the 2025 IDC Marketscape for worldwide end-to-end eDiscovery software. The IDC Marketscape noted that, with the ability to scale seamlessly from modest projects to multi-million document matters, DISCO's tools handle large data volumes effectively, facilitate thorough analytics, and support core workflows such as timeline creation, deposition summarization, and intelligent batching, all while maintaining accuracy and transparency for defensibility. This is a powerful statement by IDC that really encompasses what we strive to do here at DSCO. As you know, we have previously discussed how our platform is particularly beneficial for certain types of matters. One of these matter types is intellectual property litigation. This past quarter, we began a new initiative that highlights our strengths in IP litigation over our competitors, focusing a portion of our marketing and sales efforts specifically on IP litigation. Customers tell us that DISCO is an ideal fit for IP litigation for three key reasons. IP litigation cases are typically very large and highly technical, involving decades of research, product development files, technical specifications, emails, source code, CAD files, and other complex document types. Disco's ability to handle complex file types and deliberate scale makes us a key enabler of client success, and we shine brightest when building deep, trusted partnerships in these types of environments. The second reason is that these matters tend to be high stakes, that the company litigation, a company's entire business plan may hinge on the outcome. This goes AI embedded within our platform helps lawyers quickly identify and understand the most relevant materials seamlessly across diverse file types, providing a strategic case defining information advantage to the legal teams. Third, These cases typically involve aggressive timelines set by the courts and sheer volume of work that makes speed and precision critical. Our AI-assisted workflows with Cecilia AI and AutoReview significantly reduce time to evidence, enabling our customers to hit deadlines and develop an optimal case strategy without sacrificing accuracy or quality. Our unique capabilities make DISCO the natural solution for IP litigation that can deliver significant value for our customers while driving long-term growth for DISCO. As a matter of fact, this customer success story that I mentioned earlier is an IP-related matter that perfectly fits our strategy. In the future, you will see us roll out similar initiatives for other matter profiles where DISCO delivers immense value compared to our competitors. Finally, we are operating in a highly complex environment. The legal world is changing rapidly and Disco is in the prime position to be the disruptor in this technology revolution. We have a core platform that makes complex workflows look simple and effortless, which is then paired with AI capabilities that are transformational to how our customers approach their craft. I often get questions from you about Cecilia and our generative AI innovation and how Disco is different. With that in mind, I wanted to take some time for you to hear directly from Richard Crum, our Chief Product Technology and Strategy Officer on this specific topic. And I'm excited for you to hear from him. So with that, I'll turn it over to Richard.