Q4 2021 CS Disco Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome you to the D C <unk> co fourth quarter and fiscal year.
Go ahead.
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At this time all participants are in a listen only mode. All lines are on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad. If you would like to draw your question press the pound key.
I'd like to hand, the conference over to your first speaker today, what are your Robinson sees this co Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss the financial results to discuss fourth quarter and fiscal year 2020.
With me on today's call are keeney camera, Cisco founder and Chief Executive Officer, and Michael affair.
<unk> financial officer.
During today's call, we will review our financial results for both the fourth quarter and fiscal year 2021, and discuss our guidance for the first quarter and full fiscal year 2022.
Addition to our prepared remarks, our earnings press release.
Filings and a replay of today's call can be found on our Investor Relations website at IR <unk> CN Cisco Dot com.
Today's call will include forward looking statements pursuant to the Safe Harbor provision of the private Securities Litigation Reform Act of 995, including but not limited to statements regarding our financial outlook, including our guidance for the first quarter and fiscal year 2020 tail, our market opportunity market position.
Product strategy and growth opportunities.
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 outcome of the matters covered by these forward looking statements is included in our filings with the SEC from time to time.
<unk> the section titled Risk factors and the quarterly report on Form 10-Q for the quarter ended September 32021 filed with the SEC on November 10 2021.
Additional information will be made available in our annual report on Form 10-K for the year ended December 31.
<unk> thousand 21.
In addition, during today's call, we will discuss non-GAAP financial measures.
non-GAAP financial measures are in addition to you and not a substitute for or superior to measures of financial performance paired 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 equivalents.
<unk> in our earnings release.
And now I'd like to turn the call.
Burnt Felipe good afternoon, and welcome to our fourth quarter and fiscal year 2021 earnings call. This will be discussed 10th year in business I want to begin by thanking the many <unk> past and present.
Whose hard work dedication and beliefs have resulted in so many remarkable achievements over the last nine years, we would not be here without.
2021 was it prouder year for district. In addition to our IPO in July we continue to innovate in both features and platform across all our products.
Many new customers and expanded many of our existing customers and continue to add top talent to our key across every function.
Software is coming to legal and we believe we are well positioned to build a large and enduring business on top of that fundamental transformation.
Let me begin with a brief overview of our business for those of you who are new to the <unk> story.
At this show we are going after the $767 billion market for legal services, replacing services with software.
Every large company, regardless of industry or vertical has a legal needs and the legal function, but historically the legal function has been underserved by technology.
Our products help the legal function by leveraging artificial intelligence and cloud computing to automate or accelerate large categories of legal work, we seek to automate the parts of the practice of law.
Require human legal judgment, so that lawyers can focus on the kinds of work they went to law school to do.
Several key trends are powering the legal function shift from services to software.
First is the explosion in the volume of variety of enterprise data that may be relevant and legal matters and the velocity with which that data is created.
Legal matters today can involve millions tens of millions or hundreds of millions of documents, including not just E mail presentations spreadsheets, but also track video applications data and more.
Second is a generational shift among lawyers the new generation demands highly performance easy to use self service software solutions that combine the enterprise grade functionality security and reliability with consumer grade performance and design.
Third is the continued growth of regulation around the world and the growing tendency of companies to operate across multiple jurisdictions the impact of more business is only growing.
These trends are driving growing demand for software based solutions that run in the cloud enabled remote work and collaboration and the leverage AI to automate or accelerate work that was previously done by large teams of humans.
This girl is well suited to take advantage of this opportunity.
We combined our commitment to World class software engineering and design with a deep understanding of the law and how lawyers work and things to build product experiences that field magical to lawyers.
Our usage based business model makes it easy for new customers to get started on our platform.
And users experience the magic of district, they often become evangelists growing adoption within their organization expanding to use multiple <unk> products and spreading disco through the highly network and highly collaborative legal industry.
Our first product this grow E discovery helps lawyers quickly find evidence in large collections of billions tens of millions or even hundreds of millions of enterprise documents and data.
Our second product <unk> review, Leverages AI to automate and accelerate the process of legal document review using artificial intelligence models to classify enterprise data into legal categories and identify potential evidence.
And our third product Dislocates builder extends this product suite to witness testimony, helping lawyers find the evidence in deposition transcripts.
Our products all leverage our extensible scalable platform that uses elastic compute to deliver phenomenal performance even on the largest datasets.
By using our products legal department save time, and money free lawyers to practice law and most importantly achieve better legal outcomes.
Now, let me turn to our 2021 results.
For the first time in company history, we crossed $100 million revenue, Mark achieving $114 million in revenue for fiscal year 2021.
This represents growth of 67% year on year for the full year and 76% year on year in the fourth quarter.
Our exceptional growth has several key drivers.
First is the acceleration and secular trends that.
Favre for example, growing customer demand for cloud solutions over on premise.
For software based solutions over traditional professional services and for full stack AI powered solutions like <unk> review that go beyond giving customers tools for legal work and actually guaranteed customers the outcomes they care about.
These trends have supported strong sales growth across all our products.
Second we have continued to add new customers growing our total customer count we.
We finished 2021 with 1126 customers an increase of over 300 customers and growth of 36% year on year.
Third we continue to move upmarket and land, but larger customers and these customers are ramping their adoption of our platform more quickly in.
In 2021, 214 customers spend more than $100000 on the <unk> platform, an increase of 52% year on year in.
In 2021.
All of our top 20 customers spend over $1 billion of disco offerings, a milestone in company history.
Fourth international sales, while still a relatively small part of our revenue grew four X year over year in 2021.
We are excited about the prospect for continued international growth and have invested in scaling up our team in London to pursue this opportunity in 2022 and beyond.
We saw a tremendous growth across all our products.
Strength of our Ediscovery and review businesses continued with increasing adoption among new and existing customers.
A review of adoption more than tripled in 2021.
Case builder adoption reached every major customer type we currently serve.
And we are seeing more and more customers use more than one described product.
Over time, our goal is to continue adding products on top of the disco platform that enable customers to use our platform for more and more kinds of legal work and allow us to earn a growing percentage of our customers and legal budgets.
Here are a few customer stories from 2021.
Throughout 2021, we added and expanded our direct corporate client relationships. As an example, a major E Commerce company expanded its enterprise relationship with disco by adding just a review to its existing use of disco E discovery.
This company's use of disco review helped streamline the work flows between the client's internal legal team and outside counsel bye.
By shifting away from law firm driven review to disco review the clients accelerated time to evidence and reduced total legal project cost. These are the benefits of fully adopting disclosed multi product platform.
This engagement with multiple disco products led to the increase it matters on the <unk> platform more users at the company as well as subsequent relationships built with several high profile law firms that represent the company.
Second Mega cap Energy company first became a <unk> customer in Q2 2021 by Q4 2021, they have tripled their spend.
They are using both <unk> E discovery ended disco review and have been thrilled with the results.
By using our AI powered solutions to reduce their reliance on brute force reviewed by armies of lawyers. They realize substantial savings in terms of time spent by lawyers on legal document review without compromising quality.
One matter they needed over 44000 documents reviewed within a week user.
Using disco review they were able to surface legally important documents with disco AI and complete their work in 50% of the anticipated review time.
Because of results like this this customer has expressed its desire to migrate even more of a key discovery and legal document review program to the good scope platform.
Third we recently signed a three year subscription with an analogue to have the term that increased it spend on disco over 45 apps and grew its number of matters of the digital platform by apex in the last year.
Law firms like these are wonderful strategic partners for discount because they are a channel through which our solutions can spread.
From legal department to law for the legal department until out and also through lawyers career mobility as associates are partners with law firms because of in house counsel and legal departments.
Fourth we signed a new legal services provider partners in Q4, including Cvs and complete legal These partners Act as resellers of our products and have invested in earning discuss certifications and training their sales and delivery teams to sell and support our products.
We believe continuing to grow our reseller channel can help accelerate our growth, especially in parts of the market, where we do not have full direct sales coverage today, and especially given the prevent the size of the legal market we're going after.
That sums up a great 2021.
Where do we want to go next our strategy has five pillars.
Pillar number one these are clear legal software leader by being the best at building software with lawyers love to use.
Our central insight when we founded disco was that software can automate large parts of the practice of law freedom lawyers to focus on the kinds of work. They went to law school to do we.
We are re <unk>, how the legal function works with and revise on technology.
<unk> software is showed you to legal capitalizing on this insight required the capability to build software that lawyers love to use about which they will become even jellicoe.
This capability is the core of what we do at disco.
By combining a commitment to world class software engineering and design with a deep understanding of the practice of law and know how.
Lawyers work and think we repeatedly and reliably build product experiences that field magical to lawyers.
We believe our software products are changing customers' expectations about what legal software can do how fast that could be.
Easy it can be to use and how much it can improve legal outcomes.
Customer stories, I, just mentioned and our tremendous growth in 2021 are just some of the evidence that gives us confidence that we are right and.
And we are not resting on our laurels when it comes to R&D. We are continuously innovating over the last few earnings calls you've heard US talk about major new features like the disc early case assessment or ECA and about improvements in key measures it platform performance.
Last quarter, we released enhanced communications search that allows users to more easily find privilege emails and enhanced search visualization that allows users to more quickly see and explore patterns in data.
We have earned a reputation for delivering products that field magical to lawyers pillar one of our strategy is to live up to that reputation with every product we release and every feature we ship. If we continue to do this we will be acknowledged as the leader in legal software.
Pillar number two disco as the platform of choice for the General Counsel.
The largest legal budgets in the world are controlled by the general counsels with large enterprises for the past several years, our strategy has been to evolve the <unk> platform into the platform of choice for these buyers.
This means developing an integrated suite of applications on our platform that together bridge. The chasm between enterprise data is exploding and scale and all the legal work for which that data is relevant or required.
We started down this path with releases from several years ago, <unk> analytics and AI allows legal departments to quickly explorer data to assess risk and drive early settlement without incurring the costs of the full legal document review and.
<unk> reviewed metrics, David General counsel, a new level of transparency into the pace of progress and quality of legal document reviews done by outside counsel.
Next came the disco data management suite and disco high speed upload or little allowed self service rapid ingestion of unstructured enterprise data into the <unk> platform forensically sound manner.
In case of disco cross matter.
That allowed general counsels to use the legal document review perform than earlier matters to power AI models that can automate or accelerate with you on subsequent matters and last year. Okay.
<unk> case assessment or ECA that allowed legal departments to collect and explore large quantities of enterprise data to separate out data likely to be relevant to specific legal matters and data not likely to be relevant.
Each of these releases has brought software based automation earlier and earlier in the workflow of the general counsel of the legal Department.
Simultaneous with our earnings release today, we announced our first acquisition, which represents the next step in our journey of building the platform of choice for General Counsel.
We acquired legal hold and workflow technology from <unk> 360 <unk>.
These products, which will be called disco hold and disco request.
And our platform even earlier in the legal process and feet naturally into downstream use of our existing products.
This co hold less legal departments implement track and manage legal holds including a hold noticed since <unk> instruments and the preservation of enterprise data in place in systems like office 365.
This request is workflow software that lets legal departments manage third party legal requests such as service of process subpoenas or law enforcement data access request.
Of the hold solutions on the market today, we were most impressed with this technology for a number of reasons.
Fleet, new capabilities, the rave reviews from existing customers, including around ease of deployment and thoughtfulness of the design and the incredible customer centric team who are a great fit for our culture.
With this acquisition, we are adding new clients strategic technology and impressive talent to disco and making further progress on our second strategic pillar of being the platform of choice for General Counsel.
Pillar number three deliver outcomes using technology.
When it customer buys disco E discovery, they are buying a wonderful tool for legal document review.
<unk> E discovery Leverages elastic compute in the cloud and modern approaches to artificial intelligence to make it possible to automate or greatly accelerate much of the work of legal document review.
But <unk> E discovery is still only a tool it requires lawyers to use it.
With the discovery view, we went one step further instead of just selling the tool for legal document review, we sell the ultimate outcome the customers' documents reviewed.
We use our technology to deliver that outcome far more efficiently and with no sacrificing quality compared to a law firm or legal services provider that relies principally on people and process to deliver the desired outcome.
This is an example of our third strategic pillar delivering not only technology tools, but also going further to deliver outcomes using technology we.
Vote, just cellular hammer will build you a house.
The more than three X growth in district review adoption, we saw last year testifies to the effectiveness of this strategy. We anticipate building offerings similar to just a review into other areas of legal work, where we can deliver the legal outcomes that customers ultimately walk goodbye.
But do so more efficiently and without sacrificing quality by using technology to automate or greatly accelerate work previously done by large teams of people.
This full stack strategy, delivering both technology and the outcomes clearly differentiates us from many of our competitors.
Pillar number four.
These are legal tech portfolio owners with an extensible software platform that's <unk>.
It's multiple products used on more and more kinds of legal work.
Our early and ongoing R&D investments.
Resulted in a scalable platform that can support empower multiple legal tech applications.
Already we are seeing leverage from that platform in our launch of subsequent products like <unk>.
We expect to see further leverage as we technically integrate the newly acquired disco hold and disco request products.
That form capabilities, such as our document processing engine that allows for collection and ingest of unstructured enterprise data at scale or our cutting edge artificial intelligence system that automates. The classification of legal data can be applied to accelerate the development of new.
<unk> and expand the capabilities of acquired products quickly.
And our existing more than 1000 customer relationships and rapidly scaling go to market engine can enable us to accelerate revenue growth for these new product offerings built on our platform.
Pillar four of our strategy is to use these platforms and distribution advantages to quickly expand our product offerings and extended the applicability of our platform to more and more kinds of legal work, allowing us to earn a growing percentage of our customers should legal budgets.
Customers adopting multiple disco products can spend two X two or three ex <unk> E discovery spend and more and more often we land new customers with our newer products.
We believe our multi product strategy can create tremendous tailwind for both expansion and new logo acquisition for many years to come as software transforms more had more kinds of legal work.
Pillar number five disco at the center of the legal Tech ecosystem.
We already have strong long standing partnerships with hundreds of law firms and dozens of EBIT covering it service providers and Consultancies, who leverage our software to deliver better legal outcomes for their clients.
We are integrated with many of the most critical enterprise applications and systems of record that whole data that can be relevant in legal matters.
The fifth pillar of our strategy is to build on and expand these relationships to nurture an ecosystem around our platform, enabling others to build businesses on top of and around disco, while we remain the technology hub for the legal function much of companies like sale.
For us and workday have done for the sales and HR functions.
In addition, we aim to become a nexus of talent in legal tech, attracting developing credentialing and ultimately, placing a new generation of professionals as software transforms the way legal work is done.
To help achieve our ambitions, we are ramping up hiring in the U S and internationally across the <unk> organization.
Our expanding team will help us continue to fulfill our near and long term growth and innovation plans and to help us increase our share of the $767 billion market for legal services, replacing services with software.
As part of our hiring plans we are excited to announce our inaugural early leadership rotational program for top performing University graduates.
To date, we have hired more than 35 associates, who will be starting with us in June across every part of our organization.
We'll continue to diversify our teams that bring a wide range of talent to disco as we grow.
Finally, let me highlight discuss tariffs and the incredible initiatives. So many disco gains have participated in and contributed to throughout the year, we care about the communities in which we live and work and want to foster a positive net impact.
Despite remote work and the Covid cautious environment in 2021, <unk> contributed over 500 volunteer hours <unk>.
<unk> logged over 80 hours supporting code to college girls and power network.
Through the <unk> technology program, we donated over 120 macbooks across six greater Austin nonprofit.
<unk> provided over 60000 meals and <unk> worked over 250 volunteer hours at local food banks with feeding America in Texas, Florida, and New Jersey.
We are delighted with 2021 and looking forward to 2022.
Now Michael will discuss our financial results and guidance for the year.
Thank you Kiwi.
We're thrilled with what we achieved in 2021 before I dive into our earnings results I wanted to reflect on a couple of things.
Now been with disco for over four years and everyday I am amazed that the work in progress our entire <unk> team has accomplished since I joined.
Four years ago, we had no million dollar customers and today, our top 20 customers in 2021, each spent more than $1 million with us.
All of the growth and innovation that discount has gone through to have the kind of results. We are reporting today is a true testament to the R&D teams that build our products go to market teams that sell our products and nurture our customers and the G&A teams that make this kind of growth and expansion feasible.
Incredibly excited for the future and next phase and this growth story.
Let's discuss our results and guidance.
In Q4, 2021 revenue was $33 8 million up 76% year over year, we had another strong quarter with growth coming from new customers and continued strong expansion of existing customers.
<unk> full year 2021 revenue was $114 3 million up 67% year every year full year revenue growth was driven by several factors, including strong growth in sales across all products.
Increased customer account increased international sales and on average larger client wins and increased existing client spend on the <unk> platform.
Through validation so what we built resonates and is valued by our customers.
We are incredibly pleased with our dollar based net retention rate as of December 31, 2021 of 146% an exceptional outcome on the back of an incredibly strong year attributed to broad based acceleration and expansion across our customer base as well as the number of customers with especially rapid expansion.
Over the last four quarters.
Our revenue growth it is possible to see variability in our dollar based net retention rate going forward.
In discussing the remainder of the income statement. Please note that unless otherwise specified all references to our expenses operating results and share count are on a non-GAAP basis.
Our gross margin in Q4 was 74% up from 72% in Q4 of the prior year gross margin for fiscal year, 2021 was 73% up from 70% for fiscal year 2020.
Sales and marketing expense for Q4 was $14 5 million or 43% of revenue compared to 38% of revenue in Q4 of the prior year. This represents an increase of over $7 million in the quarter year on year as we continue to scale. Our go to market organization for fiscal year, 2021 sales and marketing expense was $45 eight.
Million or 40% of revenue compared to 45% of revenue for fiscal year 2020, an increase of over 15 million year on year.
Research and development expense during Q4, with $9 3 million or 28% of revenue compared to 30% of revenue in Q4 of the prior year. This represents an increase of over $3 million in the quarter year on year as we continued to invest in innovation during fiscal year 2021 research and development expense was $32 three.
For 28% of revenue compared to 38% of revenue in fiscal year 2020, an increase of over $6 million year on year.
General and administrative expense in Q4 was $7 1 million or 21% of revenue compared to 17% of revenue in Q4 of the prior year. This represents an increase of over $3 million in the quarter year on year General and administrative expense in fiscal year, 2021 was $23 4 million or 20% of revenue compared to 19%.
Revenue in fiscal year 2020, an increase of over $10 million a year on year in part due to the associated cost of becoming an operating as a public company.
Operating loss in Q4 was $5 9 million, representing a margin of negative 17% compared to negative 13% in Q4 of the prior year.
Operating loss for fiscal year, 2021 was $18 2 million, representing a margin of negative 16% compared to negative 32% in 2020, adjusted EBITDA was negative $5 3 million in Q4, our margin of negative 16% compared to a margin of negative 11% in Q4 of the <unk>.
Higher year.
Adjusted EBITDA in fiscal year, 2021, with negative $16 3 million or margin of negative 14% compared to a margin of negative 29% in 2020.
We efficiently invested in the scale and growth of our business demonstrated incredible operating leverage while achieving phenomenal topline results.
Net loss in Q4 was 6.0 or negative 18% of revenue compared to a net loss of $2 5 million or a negative 13% of revenue in Q4 of the prior year net loss in fiscal year, 2021 was $18 8 million or negative 16% of revenue compared to net loss of 22.0 million.
Negative 32% of revenue in 2020.
Net loss per share for fiscal year, 2021 was <unk> 57 per share compared to $1 67 for fiscal year 2020.
Turning to the balance sheet and cash flow statement. We ended the year with $255 5 million in cash and cash equivalents operating cash flow for 2021 was negative $21 6 million compared to negative $22 7 million in the prior year.
Now turning to the outlook, we feel good going into 2022 with a strong pipeline driven by an increase in our regeneration and scale go to market pension I will reiterate that our usage based model can lead to fluctuations in revenue depending on the number and nature of matters on the platform.
You have data length of time on the platform and other factors. Therefore, we take a prudent approach to forecasting revenue.
For Q1, 2022, we are providing revenue guidance in the range of 30 million to $31 million, representing 44% year over year growth at the midpoint.
For Q1, 2022, we are providing adjusted EBITDA guidance in the range of negative $12 5 million to negative $11 $5 million, representing adjusted EBITDA margin of negative 39% at the midpoint.
For the full fiscal year 2022, we are providing revenue guidance in the range of $146 8 million and $50 8 million, representing 30% year over year growth at the midpoint.
As you put our 2022 growth rate in perspective, please keep in mind that we fired on all cylinders in 2021 and outperformed across every dimension. We grew revenue over 66% and three of our four quarters and 88% growth in our strongest quarter, we feel really good about the continued momentum in the business.
And we're confident that the investments, we're making will continue to drive best in class growth rate.
For fiscal year 2022, we expect adjusted EBITDA between negative $51 5 million from negative $43 $5 million, representing adjusted EBITDA margin of negative 32% at the midpoint.
Let me take a minute to talk about our adjusted EBITDA margin guidance 2021 proved once again that we are making the right investments to capture an increasing share of the $767 billion market for legal services and we intend to ramp our investment in 2022 to strengthen our share of that attractive opportunity.
Sure.
As you have heard our 2021 and result in vastly exceeded our expectation.
Given the operating leverage we showed in both 2020 and 2021, we have proven our ability to expand margins when appropriate and needed.
Given our confidence level on the attractiveness of this market and the unique opportunity. We are pursuing we believe investing more aggressively in 2022 is the right thing to do for the business.
Our investments in the business or drive base, but let me touch on a few key areas.
We are focused on driving efficient top of funnel demand in 2022 through both an increase in marketing and the expansion of our FDR program.
<unk> disclosed historically lean marketing efforts, but it is now time to build marketing at scale. We will continue to grow our sales force both in North America and internationally.
We're delighted at what our go to market team achieved in 2021 and recognize that we must continue to build out the team in 2022 to address the massive market opportunity.
We will continue to make strategic product investments in our existing solutions and next generation AI.
We believe we've built the market leading E discovery solution, but it's still in early innings of software transforming the practice of law.
In 2022, we are also building out our international infrastructure to support our growing base of global clients.
We are confident in our ability to use these investment dollars and see a return in the medium and long term as demonstrated by our stellar growth achieved by very efficient investment over the past year to close we delivered incredible results in 2021 and are very excited about 2022 and the years.
To come.
Like now to turn the call over to the operator to open up the line for Q&A operator.
Thank you at this time, we would like to ask a question. Please press star one on your telephone that is tier one on your telephone keypad to ask a question in interest of time. Please limit your questions to one question at a time.
Your first question comes from the line of Koji Ikeda from Bank of America. Your line is now open.
Hey, guys. Thanks for taking the questions congrats on a great quarter.
Couple of questions here first question on hold 360, <unk> request 360 Kiwi. Thank you very much for the color on the features of the product there I was looking through the deck and it looks like maybe one of them is becomes a new SKU is that the right way to think about this.
One of these products and the new actual growth lever for you guys from a product perspective is the other one does that eventually get integrated with another product and I guess, a big picture question here too is that could be.
New products and features help accelerate the adoption of reveal in case builder.
Thanks, Koji, yes, the big new product from a go to market point of view is disco hold and the strategy. There is to go one step earlier in the <unk> process. So the way. This works when there's a new investigation or a demand letter it comes in the law requires.
As the GSE issued legal holds which our notifications to people who have data that they're required to preserve not deleted as part of general Records' retention policies and so on and then the second implement the holds in place.
And then you collect that data.
And the next step is <unk> E. Discovery, then disco review them discount case broker. So the idea is you are providing a more complete counts.
Products for General Counsel and once you are the provider of that hold and collection solution. The natural thing to do is to use our other products downstream.
Got it got it thanks, Kiwi and then just one follow up here for Mike.
Looking at the guidance the revenue guidance for 'twenty, two help us reconcile kind of the starting point of 30% at the midpoint, you're finishing the year with 146% NRI. So the math implies that either one is way too low or the NR is going to be coming down. So I guess, how can we think about the mechanics. Okay. Thanks again.
Thanks for the question. Good question. So we're really pleased with our outsized performance last year was 67% growth year over year and also amazing Q4 growth of 76% really pleased with how the year turned out as a relatively new public company, we're really prudent with our guidance and as you know we're a usage base. So we just wanted to.
Our base net retention number.
Were also impacted by the variability in the interface of the model and so that could potentially come down again, but quite frankly.
We're pleased with where that number has been all year, including where it was when we filed the S. One and I believe it was 122.
Got it thanks, guys. Congrats again, thank you.
Thank you again to ask a question. Please press star one on your telephone keypad and please do limit your question to one question at a time. Your next question comes from the line of Tyler Radke from Citigroup. Your line is now open.
Hi, Good evening, everyone. This is <unk> on for Tyler Radke.
Question on <unk>.
First at a high level I want to understand the magnitude of the acquisition from a revenue and customer standpoint in year one.
A question before you talked about.
<unk> adoption benefits that youre getting from their existing products.
Better on the platform and then I had a follow up thanks.
Sure. So you shouldn't think of this principally as a technology acquisition, where we're at.
Adding a product to our platforms that we will then use our go to market engine to push outs, but its principally the technology.
Unfold that overlap with.
Our existing customer base and one thing we were able to do diligence.
Use those existing customers as part of our diligence process to understand how they evaluated holding solutions and why they ultimately selected the products that we acquired wasn't large disco customer we were actually able to diligence put this hold.
Product into their sales motion and they wound up selecting it.
Really good evidence there that.
This is the best product on the market.
Got it and then I also wanted to ask for a little more additional context behind it just behind the deal how long have you known non the acquired asset.
What was the Genesis of the relationship and where are there any other bidders out there that made the process a little more competitive anything along those lines would be helpful. On it seems like you're already bounce back off before you complete the transaction exactly.
Exactly so we of course, having been in this industry for nine years now keep our ears to the ground.
Hearing about new products, new companies and also frankly talking to customers and prospects about what they're seeing and what they find attractive.
One of the big elements of this acquisition for US was consistent feedback, especially from large enterprises and especially when from that title wave of Rfps that we talked about it before that customers really want.
Great.
As you also know.
So we invested in building up.
Our product function with the addition of Kevin Smith, our new Chief product Officer.
One of his big rebates is meeting with all of these companies understanding the innovation space identifying things that might be good additions to the <unk> platform. So over a couple of quarters, Kevin and his team got to know the team that is.
Now join disco and we went through the diligence process that I described with customers for very pleased with the results and they are happy to have secured in the deal.
Thank you so much.
Thank you and your next question comes from the line of Brent Thill from Jefferies. Your line is now open.
Thanks, Michael just back on the guide I understand that to go from.
67, 30, I guess everyone's trying to understand.
But in a world that reopens, one would think litigation, but pick up in that.
Improvement of the customers and Shannon you wins and the investments we're putting in the sales team.
I'm trying to reconcile and I think many are.
Sure.
That type of deceleration.
Yes.
I want to make sure we understand the underlying assumptions.
Yes, so we don't believe.
That we really hadn't tailwind per se from covet aside for maybe that first quarter when COVID-19 really hit.
What I would say is we're really pleased with what happened last year and when we were sitting here with you pre IPO.
I expect that we were going to perform as well as we did I was confident we were going to perform well, but we came in at 67% year over year, we want to be prudent in our guidance. We feel really good about the year. We are usage based model as I've said before but we also want to be prudent and it's our third and fourth quarter outlook.
Thank you.
Scott Berg from need Ham.
Your line is now open.
Everybody. This is John Godin on for Scott.
Thanks for taking my question.
As you guys think about continuing to ramp up to go to market motion direct sales.
Curious how important is that from a customer and convergence perspective.
Those salespeople have comprehensive understanding and ability to perhaps speaker legal language.
And kind of going from there.
How long is it taking you guys kind of ramp reps ramp up.
Comprehensive understanding.
Thanks.
We think it's of course quite important for any salesperson to speak the language of the people theyre selling to.
And because our domain is unusual.
<unk> did a couple of strategies here. So first we have three profiles of sales reps that we hire one our laterals from our industry, who obviously know how to speak the language second our internal promotions from our SDR program.
And that has actually generated four out of our top 10 quota carrying rep performance. So it's a great feeder program and over the course of their year or two in our STR program. They really were in the industry and our business. So this issue is most acute to the third category of Hu <unk>.
Four laterals from other high growth software companies.
What we've done for those new Joiners and also for other some disco is to make a relatively early investments several years ago, now and building out our learning and development function through quickly called <unk> University. So disappointing University, both runs formal new hire onboarding, but also rentals.
A series of training programs that teach people our sales motion teach people our industry certify people on the use of our products and it's the same certifications that are available to our customers and partners and so on and then on top of that we have a sales excellence program, where we have four.
<unk>, who do ride the loans with new salespeople, who listen in to their conversations and he will provide real time coaching, especially during the first six months of ramp with US we find the salespeople are generally producing deals within their first six months, but what we find is that their productivity actually.
Continues to increase as they grow their tenure with <unk> all the way up to month, 24, where they sort of stabilized because at that point, they're doing as much business as.
They can handle as it ramp.
Okay.
Thank you. Your next question comes from the line of DJ Hynes from Canaccord. Your line is now open.
Hey, guys congrats on a stellar growth.
Kiwi this maybe a silly question, but do you have to be in the cloud to effectively leverage AI in the review process.
Just trying to assess like how.
How much of a carrot or those time and cost savings in terms of being a catalyst to kind of core discovery system upgrades.
Yes.
Sharp question, so it's not being in the cloud that's the magic is leveraging elastic compute in the cloud. So if you just take all the software and kind of airlifted to running the cloud alright. It's in the cloud that you may get some of the security benefits of the cloud, but you are not taking advantage of the key tech.
<unk> innovation that makes declined special and so what that is going to be called elastic compute in the cloud, but it's the ability to not have to worry about the compute capacity when you write software and this applies to.
To our AI system in terms of training models, scoring data updating the scores on that data and so on but it also applies to lots of other parts of the product experience a discount. So when we think about ingesting huge volumes of enterprise data and not having your data sitting in the queue.
Do we think about doing an incredible number of updates to our indexes based on all the lawyer work product that's happening in our system.
All of these are things that you just couldnt do in an on premise environment because they require a huge amounts of compute that our super spiky.
That's the magic.
Thank you. Your next question comes from the line of Derrick Wood from Cowen and company. Your line is now open.
And congrats as well from me.
I mean, when you look at the Kpis you guys had you guys had a great year and a lot of respects.
And hearing.
Over the last few quarters some of the stories you talked about it sounded like you've had a handful or two large customers that really weighed into the digital platform and I suspect as these may be a big driver behind the 146% retention rate.
Yes.
Okay.
Got it.
I'm not sure if it's us but your audio is cut out.
Operator, we couldn't hear the rest of that question.
Okay.
Hey, Derek. Please go ahead with your question your line is cutting in and out.
Okay.
I don't know where.
I was just saying it seems like you had a handful or.
Hey, Derek it's kind of choppy, but I think that just because the question is are there some big customers and so in the hopes that that answer your question Michael will answer that one yes Derrick.
So what we have seen and we've talked about this on prior calls.
We've seen quicker adoption of our multi product strategy and so there are a few customers, but this is actually fairly broad based in terms of a large number of customers and this is in the numbers 20 customers last year were $1 million or more and so we did have some customers that started in Q4 of the prior year and then when you run the dollar based on it rich.
Tension.
It was a big number but the reality is it was a good number all year and so we were pleased with what it was when we went public we're also seeing kind of broad based.
It sounded like there is this huge concentration and so we feel really really good about the growth this year and we feel good about the numbers, where we ended last year.
Thank you. Your next question comes from the line of Parker Lein, Prince default. Your line is now open.
Yes, hi, Thanks for taking my question and congrats on the quarter.
A lot of churn.
True success in the review and case builder arena as you've put up.
I wanted to do some nice traction there in 2021 curious if you could talk about those customers that haven't across the goal line and adopted these new solutions of what are the main points of feedback that theyre, giving you what is it going to take to get them across the go line and is there an inflection point do you believe youll reach or maybe have you already reached that.
Yes, So we think one of the big growth opportunities going forward not just for next year, but the next five years is driving increased attach on.
It's two and three <unk> review and just care case builder and then I think what you're seeing play out is the first phase of a very long term strategy, which is to continue adding more products like that where we get leverage both from the technology platform, we've built and some of the distribution that we've built in terms of what it is.
Takes to continue driving increased adoption of reviewing case filter I think point number one is it would be hard for me to imagine doing much better than we actually did right. We grew review adoption by more than <unk> year on year last year from a not immaterial and pace I think what youre seeing in the.
The industry is a growing awareness that as enterprise data continues to explode in volume and as the number of legal request continues to explode for multiple jurisdictions solutions that are based on people and process alone simply can't keep up you need an AI based software based.
<unk> because that's the only way you can deal with.
But the real scale, so I think as more and more parts of the market come to believe what I just said by seeing the results on a handful of matters and then growing the adoption over time that is what is driving growth in our review business.
I appreciate the feedback Thanksgiving.
And your next question comes from the line of Mark Chappell from loop capital.
Okay.
Hi, Thank you for taking my question and nice job on the quarter can be started with you I was wondering if you could just provide some insight on how the legal service providers are responding to your threat or shifts discos threat in the marketplace.
Are they adopting or increasing the adoption of the discovery tools on their own.
Fighting on price, maybe you could just talk a little about what youre seeing.
Sure look.
We both co operate with and compete with legal services providers. There are a number of legal services providers, some of whom I talked about in my prepared remarks, who have seen that there is a software revolution coming to legal and who have decided to get on board and these legal services.
There is make wonderful partners they've been through a certification programs. They all seem to have rich relationships in parts of the market, where our direct sales force has not scaled and it is a core part of our strategy.
To work with them and have been participate in the tremendous growth that I think software will bring to legal tech but of course, there are many other services providers.
Who are sticking to their guns and view their differentiation as being around people process and relationships and say things like we are technology agnostic and our point of view is to be technology agnostic in a time when the technology is fundamentally shifting and is enabling things.
It was simply impossible before.
Is the wrong decision.
When we take business from these folks we compete with them every day customers are agreeing with us. So it's an industry in transition I think is the way to think about what's going on with the services providers in terms of how they are competing.
Number two some of them has attempted to build in house.
Yes.
<unk> product type solutions, and what we would say about that is there is a level of expertise in building Silicon Valley grade software that I don't think is present at the launch of these companies.
Third as you say, sometimes they attempt to compete on price and our response to that is to encourage customers to examine the cost of their E discovery solution, but rather a total project cost, which we drive down dramatically because of the fundamental increase in efficiency that comes from using the software that we serve.
Offices.
Great. Thank you that's helpful.
Thanks.
And there are no further questions at this time.
To turn back the call over to <unk> co founder and seat.
Okay.
Thank you for joining us today I'm thrilled with our 2021 results and I am excited to continue building in 2022, we have big ambitions and full confidence in our ability to scale add new product innovations, attracting increasing numbers of customers and continue that.
Technological resolution of the legal industry.
We will continue to aggressively invest in our business and the growth opportunities in front of us in turn we fully believe in our ability to drive long term growth and redefine how legal professionals practice law. We thank you for your interest in disco and for joining our fourth quarter and fiscal year 2020.
One earnings call.
Ladies and gentlemen, thank you for your participation.
Since this call you may now disconnect.
Okay.
Yes.
Sure.
No.
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