CS Disco, Inc.

Ladies and gentlemen, thank you for standing by and welcome to CSDISCO's fourth quarter and 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 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 1 again. I would now like to hand the conference call over to your first speaker today, Head of Investor Relations, Alexey Lakshakov. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss the financial results for DISCO's fourth quarter and fiscal year 2025. With me on today's call are Eric Friedrichson, DISCO's Chief Executive Officer, Aaron Barfoot, Discus Chief Financial Officer, and Richard Crum, Discus 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 and Form 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-market 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 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 September 30, 2025, followed with the SEC on November 5, 2025, and the company's upcoming annual report on Form 10-K for the year ended December 31, 2025. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are an addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliations 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 on our earnings release. And with that, I'd like to turn the call over to Eric.

Thank you, Alexi. And good morning, everyone. Thank you for joining us. Right here at the start, I want to welcome aboard Aaron Barfoot as Disco's Chief Financial Officer. Many of you saw our announcement in December, and we're thrilled to have Aaron on board. His deep experience in enterprise software and AI-driven business transformation at several industry-leading companies, along with his inspiring leadership approach, is a perfect match for Disco. Aaron has hit the ground running and has already become a great partner on Disco's journey to revolutionize the eDiscovery industry. Speaking of that journey, I can tell you that I have never been more confident of Disco's role as the disruptor in this industry and our ability to help our customers drive better outcomes for their clients and their litigation matters. Disco was built from the ground up on cloud-based AI native technology designed for the rigors of high stakes, complex litigation. Unlike general purpose AI tools, DISCO is built by lawyers for lawyers across massive volumes of complex and sensitive data with privilege controls, audit trails, and litigation specific workflows that lawyers can stand behind in court. In order to best understand this, you really need to draw a mental picture of the four of our AI native stack. At the foundation sits Disco's proprietary data layer, which is the result of a decade of innovation on data, machine learning, and artificial intelligence with inference engines that power the industry's fastest and most advanced eDiscovery platform. Built on top of that foundation is Disco's core eDiscovery solution with its integrated workflows that are purpose-built for litigation professionals and trusted across the most complex, high-stakes matters in the world. Our third layer brings in generative AI with Cecilia. It answers complex questions in natural language and surfaces key evidence in seconds, connecting complex and nuanced concepts across different types of data to dramatically accelerate evidence finding and document review. This is the layer where we recently announced agentic capabilities, such as advanced research, Cecilia allows lawyers to speak to the data like never before possible. At the top of the stack, Disco's managed services layer is powered by auto review, bringing generative AI to the work traditionally carried out by large human review teams, and thus delivering managed service expertise at software scale and economics. The result is a coherent AI native stack underpinned by the enterprise-grade security, compliance, and auditability that litigators require. Our opportunity to disrupt the industry was a key driver in the strategy we built and began executing after I joined DISCO in 2024. Coming into 2025, DISCO set high goals for progress against our new strategy, and I am very proud of the team's results. In Q4, Total revenue grew 11% year over year to $41.2 million, and software revenue grew 14% year over year to $35.1 million. This was the third consecutive quarter of accelerating growth of both total and software revenue, excluding the one-time contingent deal we recognized and called out specifically in the previous quarter. We are very pleased to be at the high end of the guidance range that we provided for both software and total revenue. Adjusted EBITDA was negative $2.2 million in Q4, representing an adjusted EBITDA margin of negative 5% compared to an adjusted EBITDA margin of negative 12% in Q4 of the prior year. Full year of 2025 total revenue was $156.8 million. up 8% year-over-year, while software revenue was $134 million, up 12% year-over-year. Full year 2025 adjusted EBITDA was negative $10.2 million, a margin of negative 7%, compared to a margin of negative 13% in 2024. While I continue to be proud of the end results, I'm even proud of how we got there as it continually reaffirms that our strategy is working as we drive to durable growth and sustainable profitability over time. The main contributors to our performance included overall growth in usage on our platform, increases in large matters, growth with large customers, and acceleration of adoption of our generative AI capabilities. In Q4, we set record highs in total terabytes on our platform with accelerated year-over-year growth. We finished the year with double-digit growth in multi-terabyte matters and with revenue growing over 30% from those matters year-over-year in Q4. We increased customers that generated more than $100,000 in total revenue during the last 12 months to 330. The revenue attributable to these customers totaled $119 million in 2025, representing 76% of total revenue. Additionally, we saw significant acceleration in the adoption of our generative AI capabilities, including Cecilia AI and Autoreview. This resulted in Q4 year-over-year growth of over 600% attributable to these features. And it's important to point out that when customers choose to use our GenAI capabilities, they're also choosing to use our integrated AI-native eDiscovery offering. So the impact is even greater. One year ago, we introduced our new customer value proposition, With You In Every Case. This approach prioritizes successful outcomes for our customers across the most important cases by leveraging the power of our platform AI capabilities, and expert services teams. We are bringing AI to lawyers and to the e-discovery industry that has for decades relied on inefficient, human-powered document review, which is often outsourced to armies of contract attorneys and paralegals. Our core DISCO platform with Cecilia AI, including our newly announced agentic capabilities and auto review, put the power of industry-leading technology back in the hands of the clients and their law firm partners. Think of Ingentic Cecilia as a senior investigator that lives inside your data. It reasons, it performs multi-step operations, it links nuanced concepts between different documents and topics to paint a story complete with sources, not just give simple answers. It moves you from the what of the case to the why. connecting dots between disparate information points to identify patterns and facts that a human might miss. And it does this across even the largest data sets. AutoReview, our GenAI document review, brings that concept to the next level by taking that legal intelligence and applying it across incredibly large data sets. It reviews millions of documents with precision and recall that consistently outperforms human teams. in a fraction of the time. I think it's always best to bring things into perspective when you hear how our customers are specifically benefiting from such a partnership with Disco. One example is of a long-term large law firm customer who recently chose Disco for a highly complex case for a large construction conglomerate under an urgent timeline. They chose Disco eDiscovery, Cecilia AI, and Autoreview. The data set is multiple terabytes, and after using Cecilia AI in concert with our other capabilities, narrowed the review population to about 550,000 documents. After the initial prompt setup, our AI-powered auto review completed the review in just two days, delivering 98% precision and 97% recall, results that are not only superior to industry-accepted human review standards, but provide the statistical defensibility our clients require for court mandated productions. To give a sense of the size of impact, in order to hit the same deadline with human reviewers, this would have taken a team of 70 people four weeks to complete. Instead, the client had the information they needed in record time with exceptional quality. This is a powerful example of how our Gen AI capabilities augment our core litigation platform and are transforming outcomes for our customers and why they decide to choose Disco time and time again for their most important matters. The second example that I want to mention is from one of the preeminent law firms, Osborne Clark. While they were already a fantastic customer when I joined Disco 22 months ago, they were using us primarily for smaller cases. They were very pleased with the Disco platform but were unaware of the service that we provide to help on their larger and more complex cases. Over the course of this past year, Disco has continued to build on the partnership with Osborne Clark by providing strong client service, exceptional results, and value for the money. We made sure that our enterprise-grade software, leading AI technology, and comprehensive services came through clearly in every interaction. So over the course of 2025, they more than doubled their matters with us began using Cecilia AI, tapped into auto review for the first time, and expanded their total spend with us by over four times their 2024 total. Osborne Clark is an innovation-focused law firm, and they are leveraging their partnership with Disco to help enable them to deliver better outcomes for their clients. The story of 2025 was one of executing on our strategy, investing in systems processes and teams critical for our future, innovating on our core platform, Cecilia AI and AutoReview, and accelerating growth and improving profitability. We've started to see the benefits of our new strategy in action. That said, there's much more upside to come, and to assure that, our focus will be very much the same in 2026. With that, I turn it over to Richard Crum, our Chief Product, Technology, and Strategy Officer, for some exciting updates. Thanks, Eric.