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spk02: Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the KL Discovery Q3 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. I would now like to turn the call over to Dawn Wilson, Chief Financial Officer. Please go ahead.
spk01: Thank you, operator. Welcome to KL Discovery Q3 2023 Conference Call. Today's call contains forward-looking statements. These statements are not guarantees of future performance. Actual results may differ materially from these forward-looking statements due to assumptions, risks, and uncertainties that are described in more detail in our earnings press release issued yesterday and filings with the SEC. KAL Discovery undertakes no obligation to amend, update, or clarify these forward-looking statements made up today unless required by law. During this call, we will also present non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which were not prepared in accordance with GAAP. Reconciliation to the most directly comparable GAAP measure to the non-GAAP financial measures are shown in detail in our press release issued last night, along with definitions for those terms and a discussion of certain limitations. Management believes that our presentation of non-GAAP financial measures provides useful information to investors regarding our results of operations. Our non-GAAP financial measures should only be considered in addition to and not as a substitute for or superior to any GAAP measure. Please refer to our press release on how to access the replay of this call. I will now turn the call over to our CEO, Chris Weiler.
spk03: Thanks, Dawn, and thanks for joining us today for KL Discovery's third quarter 2023 financial results conference call. My name is Chris Weiler, and I'm the CEO and co-founder of KL Discovery. As the legal tech landscape continues to evolve rapidly, we believe our third quarter results truly reflect our strategic alignment with the burgeoning demands in this dynamic industry. Our momentum is the reflection of years of planning, hard work, and execution, and I am thankful to work with this incredible team of professionals from around the globe. As I'll cover in a few moments, our flagship e-discovery platform, Nebula, has experienced significant growth and adoption amongst our client base. Nebula is a comprehensive and fully integrated proprietary technology platform that spans across the EDRM lifecycle. Likewise, our client portal is a powerful business development enabler as it provides unparalleled case management and business intelligence in real time for our clients. It helps provide transparency in critical areas our competition is lacking in. When coupled with a global team united behind a common purpose and sharing a mindset dedicated to providing world-class 24-7, 365 customer service, we believe our value proposition becomes even more compelling and difficult for others to match. As you will also learn in today's call, the momentum of the last several quarters has led to the continuation of exceptional results as the KLD team continues to demonstrate a tremendous commitment to excellence. Our dedication to client service and purpose-built technology are translating into tangible business results. They are not only making a difference to our existing global clients, but also helping us attract new clients in every region of the world. We now serve over 6,200 legal technology clients. We saw an 8% growth in clients in Q3 2023 over Q3 2022, and as of the end of Q3 2023, have a net revenue retention rate of 104%. Our commitment to delivering innovative technology solutions is driving both customer satisfaction and great financial results. Client Portal and our Nebula ecosystem are changing the way our clients manage their data for legal matters. For KLD, this is resulting in increased revenue and improved bottom line. In the first nine months of 2023, we generated a record $216 million in revenue, which is up 12% compared to the same period last year. Our third quarter revenue of $79.3 million was up 6% year over year. Excitingly, our revenue increase is benefiting from increasing adoption of Nebula on a global scale. Nebula revenue is up 100% for the third quarter of 2023 and 57% for the year. Our strong revenue growth is positively impacting the bottom line. We reduced our net loss 34% in the third quarter of 2023 compared to the third quarter of 2022. EBITDA for the same period increased 173% while adjusted EBITDA increased 40%. Our gross margins crossed the 50% threshold in both third quarter and year-to-date results. As we enter the fourth quarter of 2023, I continue to be extremely pleased about where KLD is and where we are going. Creating impactful and innovative legal technology has always been a cornerstone of our strategy. We built the technology our clients rely on every day to address the real-world challenges they face navigating their legal, regulatory, and cyber engagement. It is fully integrated and can begin bringing value as early as the collections phase and enrich the entire process all the way through production. This makes our offering more efficient and inherently more dependable. Moreover, our results send a clear and undeniable message. The investments we made in our technology, infrastructure, and solutions are paying off. Nebula and Client Portal are leading the way in increasing customer satisfaction and attracting new customers. Our existing clients and new clients are now reaping the rewards in their increasing adoption demonstrates their enthusiasm. Looking at Nebula, the metrics show an unquestionable truth. Customer adoption is increasing at a significant pace. Since the third quarter of 2022, the number of Nebula matters has grown approximately 15% to 1,338. Active data hosted on Nebula is up 35%, almost 500 terabytes, and active users are up 20%, to approximately 4,900, in each case as of September 30, 2023, as compared to September 30, 2022. I would also like to point out that cloud adoption is through the roof and leading the way for Nebula growth. For example, active data hosted in the cloud has increased approximately 200 percent to 200 terabytes. Active users in the cloud has grown approximately 147 percent to over 2,100, and active matters supported in the cloud have grown approximately 144% to approximately 1,000. Lastly, and most importantly, I want to reiterate that Nebula third quarter revenue is up 100% year over year. We continue to run nearly all processing for all clients, regardless of which platform they host data in through the Nebula ecosystem. In other words, virtually every single legal technology engagement We support benefits from the investments we've made and the years of experience and innovation we have infused in the Nebula ecosystem. Likewise, our early adoption of artificial intelligence and machine learning years ago has paved the way for the ongoing evolution of our technology offering. We believe the next 12 plus months will bring a proverbial AI renaissance for KLD that will help our clients not only change the way they address their legal, regulatory, and cyber needs, but push forward what they envision as the art of the possible. Our eyes are fixed on the horizon to ensure we not only maintain, but grow the improved financial results. I couldn't be more thrilled about where we are today with our client portal, our real-time business intelligence platform that provides instant access to the critical case information and metrics our clients rely on to make informed business decisions. Client Portal is available globally and provides clients with full visibility of matter performance with financial information, including real-time work-in-progress estimates and visualizations about performance to budget. The feedback from our clients is overwhelmingly positive about Portal. Here's what a couple have told us. A corporate client told us it is critical to have full visibility into our finances. The billing transparency of KLD's Client Portal is great. An AMLAW 200 firm said, client portal is a helpful tool from a productivity standpoint because you can see important metrics all in one place real time. Another corporate client said, I love using client portal. There are 25 plus metrics that the portal tracks. It's all in one place and it's in real time. We currently have 1,000 client portal users across more than 600 law firms and corporations. I would be remiss to not touch on the powerful new alerting feature we have recently announced in our client portal platform. This feature allows clients to receive proactive alerts around case activity, matter spend, database user activity, performance to budget, and more. This is helping them manage their legal portfolios effectively and proactively. Our clients can constantly focus on the tactical execution of their matters, knowing that the new alerting feature can keep them proactively informed of critical data points around budget attainment, work in progress, and sudden changes in matter activity. We believe Client Portal is the only offering available in the industry today that gives users this level of instant, real-time visibility into their portfolio of matters, and that it will continue to get better over time. We know we are starting to win new clients because of it. None of this would be possible if not for the second-to-none back office we have built at KL Discovery. Several years back, We set on a strategic path to create the most automated, efficient, and high-quality infrastructure in the legal services industry, and we believe we have done just that. We have built connective tissue amongst everything we do globally that has yielded almost complete automation. Yes, automation in our billing process. It has taken years of painstaking work, commitment to a vision, and an unbelievable level of of operating disciplines to put us in the position we are in today where we can be as efficient and transparent as we are. This creates yet another competitive advantage over organizations who rely wholly on licensed software and or haven't taken the time to truly consolidate their businesses. Despite the challenging market we are all operating under, we remain incredibly bullish on where KLD is and where we are heading. Our incredible team continues to deliver And I'm very confident that we have built a unique and outstanding offering backed by the strength of our fully integrated back office, one-of-a-kind technology, and 24 by 7 by 365 customer service. I believe that as favorable industry tailwinds begin to take hold, we are well positioned to continue delivering a positive impact on our industry. I will now turn the call over to our CFO, Dawn Wilson.
spk01: Thank you, Chris. We achieved very strong financial results in the third quarter of 2023, continuing the momentum we have had throughout the year. Revenue in the third quarter of 2023 was $79.3 million compared to $74.5 million in the third quarter of 2022, a 6% increase. Through the first three quarters of 2023, our revenue is up 12% compared to the same period in 2022. Revenue growth in Nebula, our fully integrated end-to-end technology solution, is accelerating. Nebula revenue in the third quarter of 2023 is up 100% compared to the third quarter of 2022, and up 57% year-to-date. As Chris stated, we have seen tremendous growth in key Nebula metrics, including number of users, number of matters, and active data hosted, as Nebula is gaining global traction in each of our regions around the world. Our strategy and strong focus on managing costs down while still investing in our technology continues to deliver positive results. Net loss improved 34% in the third quarter of 2023 compared to the third quarter of 2022, to 11.4 million from 17.4 million. EBITDA and adjusted EBITDA results also saw significant gains in the third quarter of 2023 compared to the same quarter last year, growing 173%, and 41% respectively. Q3 2023 EBITDA was $13.9 million compared to Q3 2022 EBITDA of $5.1 million. Q3 2023 adjusted EBITDA was $15.9 million compared to Q3 2022 adjusted EBITDA of $11.3 million. Additionally, our gross margin has improved significantly. Our Q3 2023 gross margin increased to 50% compared to 45% in Q3 2022. Our year-to-date 2023 gross margin improved to 51% compared to last year of approximately 47%. Our liquidity remains strong as our cash and cash equivalents were $25 million on September 30, 2023, and we have nothing drawn on our $40 million revolving credit facility. In closing, while the market continues to be choppy, we are very happy with our strong financial results and the great job our team at KLD does every day. As always, we continue to be diligent, agile, and build upon our strong foundation and momentum. I will now turn the call over to Chris for final comments. Chris?
spk03: Thank you, Dawn. And I want to thank everyone for joining our call this morning, and a special thanks to the greatest team in the e-discovery and data recovery global industries. Go KLD global family, one unique fingerprint. Everyone have a great day, and thank you again.
spk02: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.
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