Q1 2022 CS Disco Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the C. S disco first quarter of fiscal year 2022 conference call at.
At this time all participants are in a listen only mode and all lines have been placed 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 followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one once again.
I would now like to hand, the conference over to your first speaker today Lee Robinson C. S. Cisco Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for the first quarter of 'twenty to 'twenty two.
With me on today's call are cute camera, which they co founder and Chief Executive Officer, and Michael a fair to say Chief Financial Officer.
During today's call, we will review our financial results for the first quarter of fiscal year 2022.
And discuss our guidance for the second quarter and an update on full fiscal year 'twenty to 'twenty two.
Today's call will include forward looking statements pursuant to 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 second quarter and full fiscal year 2020 two.
Good opportunity market position product strategy and growth opportunities.
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. That's you have Cisco Dot 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 Companys financial results is included in its filings with the SEC from time to time, including the section entitled Risk factors in the company's annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25th 2022.
As amended on April 29, 2022.
And the company's upcoming Form 10-Q for the quarter ended March 31, 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 QE.
Thank you for joining our Q1 2022 earnings call I am tremendously proud of what we've built and how we've continued to innovate to create a comprehensive legal technology platforms that transforms the way the legal industry works.
Can you to be excited about the future of discos and our goal to be the technology that powers legal and.
In the simplest of terms our ethos of disco is to build and offer technology that frees lawyers to actually practice law and most importantly achieve better legal outcomes in a more efficient tech enabled.
I will begin with a brief overview of our Q1 2022 financial results.
We are pleased to have achieved another quarter of strong growth across the business.
Revenue grew to $34 5 million up 63% year over year, notably we had a record month in March for E discovery usage growth.
Our international revenue nearly doubled year on year attributable in part to the continued expansion of our U K team.
These results reflect our ability to continue to increase adoption and penetration with existing clients continue to win new clients.
The multi product usage across our platform.
We are thrilled with the continued growth and adoption of our software powered solutions by lawyers, who see the value and shifting to a technology first approach.
I will highlight a few key achievements from the quarter.
Capturing more of the corporate legal value chain, introducing meaningful product enhancements continued successful scale out of that execution by our go to market organization and a few illustrative customer success stories.
In Q1, 2022, we expanded our platform to capture a larger portion of the legal value chain and continue our mission to build a complete solution for legal departments needs here.
Historically, we have done this organically by growing our existing products and building new products in house like early case assessment encase builder.
In Q1, we completed our first acquisition by acquiring legal hold and data requests technologies for Congruity 360 that address several of the most pressing needs of corporate legal departments.
Our required disco hold product automates. The manual work that is necessary to comply with corporate presentation requirements, which has become critical with increasing volumes of enterprise data that corporations must capture and say for regulatory requirements or legal demands.
In particular this go hold excels at connecting to and holding it in place data in modern cloud systems of record such as office 365.
The disco request product dramatically simplifies the process of tracking and responding to subpoenas and other data access requests.
With this acquisition, we moved closer to the start of the corporate legal value chain access a new segment of the market and gave a new entry point with customers.
We're excited to add these products to our platform and the team that came to just go with that.
We are at the early stages of introducing disco hold and disk a request to our existing clients and presenting discuss full spectrum of products to the clients that already use hold that request.
March following the close of the acquisition, we reported over all of the existing hold and request clients to disco and completed more than a demo per day of the whole product.
As we fully integrate the disco hold and disco request products and our go to market motion over the coming months, we look forward to expanding our multi product strategy and helping our clients to streamline their legal processes from start to finish.
This broadening of our platform offering is consistent with our strategic vision, which we discussed on our fiscal year 2021 that kind of annual earnings call.
Our focus on improving clients' daily user experience drives innovation and customer satisfaction.
We continuously rollout product enhancements to make the daily lives of lawyers easier and their legal processes more efficient.
We were pleased to hear from customers that discos AI is a key competitive advantage and one of the primary reasons they chose to use Cisco.
In Q1, we introduced tightened tracking and review, which allows customers to measure and report on the review of our productivity, including documents per hour time spent in app or time spent per doctor.
This feature of the corresponding metrics enabled customers it managers to assess performance of document reviewers and view of how much time is spent on any given review it.
In addition tracking time in the App allows customers to reconcile billing entries for review activity with actual time spent using discount.
This was a highly requested feature from customers and we are thrilled to be able to offer it to them.
We also released enhancements to our native Aksel reduction capabilities and to the reusable filter component that is part of our application architecture and is shared between <unk> products like E discovery at <unk>.
We are also pleased to announce new evidence management functionality in <unk> case builder.
Today the platforms applications page provides case teams with a holistic view of all agitated testimony from across all of their depositions of witnesses on a single screen for which litigators can search review edit and export the best evidence for use in depositions motions practice.
Or trial.
Now in addition to using the applications page to identify and make strategic use of key excerpts of deposition testimony far faster than they otherwise could legal teams are also empowered to compare the corresponding video evidence across witnesses on the same screen.
Equipment litigators with us side by side analysis of deposition video clips not only allows us to more readily compare witnesses presentation and potential case impact, but also to more confidently select and prepare the best evidence for US is the development to hook with a case straw.
<unk>.
That is to build a stronger case faster.
We take performance of our platform seriously and continually invest in performance improvements across multiple aspects of our core products and platform.
We have continued to optimize our data processing pipelines critical for efficiency and user experience with the rising volumes of types of data that corporations have to deal with and we made measurable improvements to document ingest and loading speeds.
In addition to our investments in our products. We are pleased with the progress and productivity of our expanding go to market team.
As we've talked about in the past we have ambitious plans to expand our go to market organization and we are making good progress toward that goal.
Last year, we have doubled our racks of quota carrying reps and we'll continue to build that team.
In addition to growing scale, we are seeing growing productivity across many teams.
Our sales development representative team many of whom are recent hires and who initiate lead generation and introduce prospects to disco, we're more effective on a per head basis and in the aggregate that in any other quarter.
And our customer success team, who often are the first to identify upsell or cross sell opportunities had a record with quarter with impressive product cross sell and expansion of disco usage within existing clients.
We're excited to see the investments in our people and generate solid business results.
As demonstrated by our results in Q1, we continue to see great momentum across our client base and products.
As we've done in prior earnings calls, we enjoy sharing customer anecdotes that demonstrate how the <unk> platform is used by clients.
Quickly adoption could ramp can be expanded across our clients' legal organizations and the benefits that our clients see it using disco.
One of our Q1 success stories is a new.
<unk> corporate client that was introduced a disco through a partner at their external counsel and the AD law 100 firms.
This corporate client became a six figure multi product clients within their first quarter using discount.
This is a great example of the trends we've seen and discussed previously where we're landing larger clients clients are ramping usage more quickly and using more than one <unk> product.
The clients choice to try disco and continue to increase usage of the <unk> platform was initially driven by our ability to offer flexible product usage options.
Simplicity of our pricing model, which allows them to make an informed and financially transparent decision for their EBIT coverage at review needs.
Another new corporate clients in Q1 began when our sales team met with their Deputy General Counsel.
A large case, where they have not yet kicked in ediscovery provider.
The Corporation was working with the litigation boutique as outside counsel and there was a lot of data around 350000 documents to parse through for the case.
With the mandate our team demonstrated <unk> ability to be a total solution to both outside counsel and the Corporation's General counsel to manage data collection E discovery and preparation for the case.
They appreciated our ability to offer a predictable flat fee guaranteed pricing on review despite the slight premium on our Ediscovery software.
Since the start they have expressed their appreciation for the experience. They have received for the <unk>, including daily updates on Hot documents filed in the review process.
Teams follow ups to discuss trends in the documents and their ability to see these trends themselves using <unk> AI and the discovery user experience and ultimately the completion of the initial review under their time deadline.
We look forward to continuing to work with this client through the completion of the matter and hopefully secured new long term relationship.
Additionally, we had a large <unk> clients, who has been with <unk> since 2014 ramp its usage and spend on disco by more than six X in Q1 2022 compared to its highest historic spend in the quarter.
This is a great example of a couple of points, we like to talk about.
Our viral adoption and <unk>.
To multi product usage and expansion.
The lead lawyer, who used disco at a prior firm move to its new firm and championed the increased use of disco of do matters and about other partners at the FERC.
This firm has steadily added new E discovery matters and more recently chose <unk> review for a large highly complex multiple defendants multiple plaintiff case.
The specific review matter had over 1 million documents under review using disco over the last quarter, and notably declined quoted discuss AI as being a huge benefit and getting the evidence currently better faster than they initially thought possible.
Lastly, we were very happy to have one of our oldest and largest clients and one of the first AD load 100 law firms to fully adopt disco red view their multiyear subscription agreement with us.
This type of long term relationship is one we want to achieve across all clients had reaffirms their beliefs in the benefits of adopting and using <unk> products.
They have demonstrated to their clients that they are at the forefront of adopting innovation is law.
We also once again participated and sponsored legal week in New York City, one of the Premier legal industry conferences.
During legal week, our team participated in thought leadership paddles conducted numerous product demos heard tremendous positive feedback about the acquisition of our hold and request products had made great connections with potential new clients, who we are excited to continue the dialogue with.
And to share the benefits of disco.
In summary, we are thrilled to have had another strong quarter and as we communicated last quarter, we will continue to invest behind our growth and scale. The disco organization to best serve our clients now and in the future.
I'll turn it over to Michael.
Thank you Kiwi I am pleased to discuss the details of another strong quarter and provide guidance for Q2, 2022, and an update on our outlook for fiscal year 2022, I'd like to reiterate that our business is primarily a usage based model that is driven by the number and nature of matters volume of data length.
Of time on the platform and other factors that may impact revenue in any given quarter and can you. Maybe mentioned Q1 revenue was $34 5 million up 63% year over year, we had strong performance with growth coming from increasing usage from existing customers and new customer wins, particularly in E discovery as well as increase.
Usage across all of our products versus the same quarter in the prior year.
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 Q1 was 74% up from 73% in Q1 of the prior year.
As a reminder, our gross margins fluctuate from period to period based on for example, the amount and types of data ingested and managed on our platform. We expect gross margin to continue to be within the band we've historically seen.
Sales and marketing expense in Q1 was $15 6 million or <unk>, 45% of revenue compared to 37% of revenue in Q1 of the prior year. This represents an increase of over $7 8 million in the quarter year on year.
As we've previously mentioned we are focused on expanding and investing in our go to market organization. We have historically been very measured and efficient in our go to market organization and feel that now is the right time to invest and scale along with the sustained levels of elevated growth we've achieved in the U S and internationally.
We have made key hires to help with this effort, including our new head of human resources, Jack Nasser Grooms, who started with US a couple of weeks ago, Jack Nasser brings key expertise and experience in scaling international operations across functions.
Research and development expense in Q1 was $10 9 million or 32% of revenue compared to 29% of revenue in Q1 of the prior year. This represents an increase of over $4 8 million in the quarter year on year as we continue to invest in our products platform and new features to help our clients general and.
<unk> expense in Q1 was $7 7 million or 22% of revenue compared to 18% of revenue in Q1 of the prior year. This represents an increase of over $3 8 million in the quarter year on year, we have strategically added to our G&A organization following our IPO to support the increasing scale of our business ops.
Operating loss in Q1 was $8 6 million, representing a margin of negative 25% compared to negative 11% in Q1 of the prior year. Adjusted EBITDA was negative $7 8 million in Q1, a margin of negative 23% compared to a margin of negative 9% in Q1 of the prior year.
Overall, our EBITDA was better than guidance due to the increase in revenue and <unk>.
Some hiring onboarding and other investments pushed from Q1 into Q2 and further quarters.
Net loss in Q1 was $8 6 million or a negative 25% of revenue compared to a net loss of $2 4 million.
12% of revenue in Q1 of the prior year net loss per share in Q1 was <unk> 15 per share compared to a net loss per share <unk> 18 in Q1 of the prior year.
Turning to the balance sheet and cash flow statement, we ended Q1 with $238 $6 million in cash and cash equivalents operating cash flow in Q1 was negative $11 4 million compared to negative $4 5 million in Q1 of the prior year.
Now turning to the outlook for Q2 2022, we are providing revenue guidance in the range of $32 million to $34 million, representing 12% year over year growth at the midpoint for Q2 'twenty. Two we are providing adjusted EBITDA in the range of negative $17 million to negative $15 million representing adjusted EBITDA.
Margin of negative 48% at the midpoint.
Mentioned on our last quarterly call, we do anticipate operational costs to continue to grow in Q2 and throughout the year as we continue to invest in our product go to market team and G&A.
For the full fiscal year 2022, we are raising our revenue guidance in the range of $149 million to $153 million, representing 32% growth at the midpoint.
For the full fiscal year 2022, we continue to expect adjusted EBITDA between negative $51 5 million to negative $43 $5 million, representing adjusted EBITDA margin of negative 31% at the midpoint in summary, we are delighted with our strong start to the year and continue to be excited.
Where we are headed and the opportunity in front of US we will continue to build innovative solutions and a scalable platform that fully serves legal teams and transforms the way legal work is done we will continue to build our organization to keep pace with our growth and have the right people in place to attain our goals. We will also continue.
To go after market share in a large market that is ripe for technological disruption and discos leadership and its transformation I would like to now turn the call over to the operator to open up the line for Q&A operator.
Thank you.
And at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.
And we will take our.
First question.
From Koji Ikeda with Bank of America. Your line is open.
Yeah.
Hey, Mike Thanks for taking the questions here.
A couple of a couple from me first.
Okay. So the second quarter guide and just wanted to ask a couple of questions here on that.
When looking at it from a sequential basis, it's going to be youre guiding to being down quarter over quarter and thats similar to how you guided initially.
Initially guided to the first quarter.
On the fourth quarter call. So so kind of understand the puts and takes there but just wanted to be sure is there anything that we should be thinking about.
In the second quarter to call out is there anything seasonal or is there any any matters that that has come off already off the platform that we should be thinking about any sort of help there and just kind of reconcile that quarter over quarter decline with the guide there.
Hey, it's Michael.
Great question.
As you know since we went public we've actually guided down every single quarter sequentially and part of that really has to do with the fact that we're a usage based model and on a quarter to quarter basis. There can be variability in the numbers. We're also very prudent in our approach to guidance as we've discussed many many times and we are.
We've raised our full year guidance for the year, we have really good visibility into the full year, we feel really confident about that number and that's kind of where we are with our guidance.
Got it got it Super helpful. There I just wanted to be sure.
The second question, maybe for Kiwi, Okay. So congrats on the acquisition of of Congruity $3 60.
Is that legal hold technology also that legal request compliance technology, and we're talking about a couple of people within the legal industry and they mentioned that adding this capability really would help drive enterprise adoption of disco.
And I wanted to ask you why is that what is it particularly about this legal hold that it's so important within the enterprises.
So I think it's two things Kochi first.
Part of the platform that in house counsel to the lawyers, who work in the corporate legal departments are most likely to engage with directly and second it's the earliest stage of the process. So let me talk about that a little bit.
If you think about a big piece of litigation it might start out being handled by the corporate legal department, where they do the initial assessment that the case.
<unk> business side people they collect data they implement legal holds but as the case matures. If it doesn't settle they will typically engaged outside counsel a law firm to go handle the actual litigation of the case and so it often winds up that even though our corporation as our client and is using the product.
Initially to collect and conduct early case assessment of data downstream in time, the principal users alright at the law firm that is representing the company in that piece of litigation. So the advantage of having the hold and request products is that we have the products, which are corporate customer the person who is ultimately paying.
Our bills is actually using directly.
In the course of one of these legal matters. The second point is when they use it so because <unk> request is the product used first and then disco hold as the product second by the time the cases underway. The client is in some sense deeply invested in using our platform and then natch.
Next step is to proceed to use products like disco E discovery than discount review them discount case builder and so I think thats why youre hearing customers say theres a lot of value to a single integrated solution.
Got it got it thanks, so much for taking my questions Kian, Michael Thank you so much.
We will take our next question from Tyler Radke with Citi. Your line is open.
Hey, Thank you for taking the question. So there's been a lot of discussion in the Investor World about usage based models.
Some concerns that as we get into a.
More of a tougher economic.
Backdrop that customers can pullback spending a little bit faster on usage based models.
Curious your perspective on this and to what extent would you kind of characterize that.
The spending environment.
In Q1, and as things have progressed here into Q2. Thank you.
Sure. So first of all Q1 was a terrific quarter as you can see in the numbers big beat and 63% year on year growth.
In terms of the broader question I think the Covid quarter was really a great test of how resilient our usage based business model would be to customers' side stress and youll recall that in the Covid year, we had one sequentially flat quarter in Q2 of them.
Year, and then Reaccelerate in Q3, and Q4, ultimately delivering more than 40% year on year growth for the full year.
I think thats, a good indicator of what a really bad economic situation might do to our business. The last observation I'll make is that often in law firms people think about the corporate or transactional partners lawyers, who do M&A or.
Securities are project finance as carrying the law firm in times when the economy is booming and then in times when the economy is doing less well, it's the litigation or dispute side of the house that tends to carry the overall fortunes if the law firm.
So there is a sense in which litigation disputes has historically been regarded as counter cyclical. If you think about all the litigation that was created in the wake of the 2008 crisis or the Dot com crisis. Those are some good examples.
I don't know that I would go so far as to say that <unk> business is counter cyclical, but what I would say is that the demand for legal services and peoples exposure to legal requirements continue as independent position in the economic cycle.
That's helpful perspective, Thanks, QE, a follow up for Michael obviously, theres been a lot of pressure out there on.
The company's.
Profitability in.
I'm curious now that you've.
Been public for for some time in several quarters and as you look at your Youre spending plan for the year just.
Kind of how you've adjusted your plan if at all.
What about areas of of incremental efficiencies and just kind of some of the puts and takes.
Operating margin outlook. Thank you.
Thanks, Tyler really good question, so as we issued in our release earlier today.
We've reaffirmed our guidance for the full year adjusted EBITDA.
And we raised our revenue.
The macro environment is obviously interesting to watch but from a business perspective, we're going after the $767 billion market. We saw a small piece of that overall market and so we really do not want to change our spending profile because we believe as we continue to expand those investments are going to payback and multiple.
So that's.
That's kind of where we are sitting.
Thank you.
And we will take our next question from Brent Thill with Jefferies. Your line is open.
Thanks, Michael just following up on the expense.
Question.
The escalating loss where are all the investments going.
The doubling of the sales team or you can see on that trajectory to double again. This year can you just give us a sense of.
What are the big investments are going.
Yes, we're continuing to scale our go to market.
Kiwi and I have talked about that since the IPO in terms of really doubling down on our go to market team and continuing to get efficiency from those investments we're going to monitor those investments as we continue to make them and also continuing to invest in the product to scale out our solution to continue our market lead in the product and the <unk>.
Solution that we have.
When you think about beyond the discovery and the other family of apps that you have can you just talk to this.
Importance now.
Our model over over time, what youre seeing in that multi product adoption.
Yeah, I think we talked a lot about this in our full year earnings call, where we laid out sort of five pillar strategy.
Towards becoming the company that builds technology that powers legal work every everywhere that legal work is done.
And I think being multi product is a very core part of that strategy. So if you look at what we've done historically, we started with E discovery going really deep on one of the most expensive and problematic parts of the legal process review of millions tens of millions or even hundreds of millions of documents.
That are involved in legal disputes investigations or other kinds of legal matters and then from there. We expanded both later in time in the process with products like <unk> reviewed and <unk> filter and then earlier in time with products like disco early case assessment disco hold.
And this could request and hopefully the strategy there is coming clear our idea is to give corporate customers more and more places where they can begin to engage with our platform and start using the platform and then to encourage them to adopt a multi product solution, regardless of where they start.
So a customer can start with hold and then it can be very natural for them to expand to E discovery and review in case builder downstream or a customer might come to us initially with an interest in disco review and then find that it's better to use the platform to manage testimony as well as documents.
The case builder and then find that actually they should manage their whole litigation portfolio and the platform and implement the solution like holder request as an enterprise wide solution. So that's the idea create more entry points by building products that cater to different kinds of legal needs.
And then once the customers on the platform they have that magic disco experience and that is something that you can use to cross sell them into other products over time.
Can you quantify the percentage of revenue beyond the discovery or is that something youre not breaking out.
We don't disaggregate revenue by product line, you can get some sense just by estimating when we've introduced the various products disco E. Discovery is obviously the most mature of our products. It was our original product our second product <unk> review was introduced mix and then <unk>.
So at least.
A sense of ranking you can get information there I will tell you. The reason we don't disaggregate is because we believe that over time, we're going to continue to introduce more and more products and we think of those products just as different ways of using the same underlying platform. So.
We don't really care, whether your customers startled by using hold or case builder or request or a discovery or review what we want to do is get them using our platform somehow right whatever is easiest for them and then drive adoption of the platform across more and more categories. If their legal work overtime.
Which should enable us to capture a growing percentage of their overall legal budget over time.
Yes.
Great. Thank you.
And we will take our next question from Scott Berg with Needham Your line is open.
Hi, Kiwi and Michael Congrats on a good quarter and thanks for taking my questions.
I've got two here first of all.
I just wanted to start off with some of the work we've done in the space recently, one of the comments that came up with.
With a law firm was the complexities today are so much more difficult than what they were 10 or 15 years ago in the ediscovery process, because there's still many more data formats today, whether it's slack or teams or data that might be in a video call. Our ancillary applications applications trying to digest them as difficult as that.
Driver right now that youre seeing for customers trying to adopt the.
The <unk> platform in particular or is that maybe Ed.
On the ancillary components of why a customer might select you today.
Yes, so we see growing demand for the newer kinds of data. So slack has been a huge explosion in demand.
<unk> office 365, supporting Zoom recordings, and then different industries have their own specialized things. So for example, construction has a lot of Ken summers.
Some of the newer software companies.
Probably many of you cover have introduced their own formats that then need to be supported and downstream discovery applications. So that is a driver I wouldn't say that it's the number one driver is the number one driver is not so much the explosion in the variety of data explosion and the sheer volume right. So.
It's not so much the slack because of difficult style type to handle it.
When you collect slack you might collect 10 slack messages for every one E mail that you used to collect when people were principally using E mail and so you'll see this continuation of a trend where when I started practicing law 20 years ago, maybe a big case was 1 million documents and then a big case.
<unk> 10 million documents and now a big case was 100 million documents and what that drives is a demand for systems that are highly performance, even under that kind of extreme load and that today remains I think the number one reason why customers switch to disco is amazing performance regardless.
With the scale of the database the second thing it drives is a need for a more efficient way to actually understand what's in those documents and define the evidence and thats the shift away from brute force associates flipping through documents to AI powered review solutions, which can actually keep up with it.
Explosion and the scale of the data.
Got it that's helpful. And then you all have spoken a lot about sales and marketing investments and doubling of the quota bearing reps head count on a year over year basis, but how should we think about the growth in sales and marketing overall, how much of it is going towards these direct resources versus your ability to press on the partner.
Eric.
<unk> are a little bit to drive more indirect sales.
So we remain optimistic about the partner channel over the medium term.
As is no secret I believe that the products. We're building are the future of the industry and those products.
When they are adopted they just fundamentally change what it is that the channel does reduce the need for services by replacing services with software now Thats, obviously, a difficult transition for partners to make and so you see folks who are early in the adoption cycle partners, who have been with us for 678 years.
Now you will see some larger partners, who are beginning to dip their toes in the water with disco and we've talked about some of those on the past couple of earnings calls and I think over time, you'll get to a tipping point, where more of these folks build large businesses on top of disco.
But we're not there yet the bulk of our go to market effort today is direct and we don't believe that we are dependent on converting the channel right, we'd like to bring the channel along but for those who don't come along we're perfectly happy to compete with them in the market and we do that every day so in.
Terms of where investment is going it mirrors kind of our current sources of revenue, which is to say that the bulk of the investment is going into our direct sales force and some investment is going into building up. This channel program again, we're very optimistic about the growth of the channel over the medium term.
Great. That's all I have thanks for taking my questions.
And we will take our next question from David Hynes with Canaccord. Your line is open.
Hey, this is Luke on for DJ Thanks for taking the question.
So <unk> you called out the.
March quarter in particular being a record month for E discovery growth could you just expand on what you saw there maybe what that implies for the shape of Q1, and then to what degree you've seen that momentum pulled into April and May so far.
Well, what we saw is sort of exactly what we said we saw a tremendous spike in usage, specifically of our ediscovery product specifically in March.
We're very excited about the growth of our business both E discovery and really all the other products and we look forward to sharing with you. Some updates on what's unfolded in Q2 on the Q2 earnings call.
Okay. Thank.
Thank you.
And we will take our next question from Derrick Wood with Cowen Your line is open.
Great Thanks, and congrats on a strong quarter.
Michael I'll start with you back on kind of the guidance question.
I noticed it looks like you beat the midpoint of your Q1 guidance by $4 million, but.
Kind of only raising the full year outlook by roughly $2 million.
Was there any pull forward dynamic or if you've gotten a little more conservative in your assumptions because of the macro or any other factors that we should be thinking about that you didn't have that Paul.
Q1 beat full fully flowed through the year.
And I also noticed the.
The Q2 guide being a little bit wider range on revenue than you historically have any reason behind that.
So not really Derek Thank you for the question. So the beat in Q1, we were really pleased with the 63% year over year growth and the two I believe it was the 12% beat against our guidance.
In terms of the full year, we raised the full year and we've only been out I think this is literally our fourth quarterly conference call and we want to be prudent in our guidance and.
And we raised the full year.
And just to be clear, there's nothing you're seeing from a macro demand perspective that.
As you changing any of your assumptions, obviously, it sounds like youre raising the full year, so I would assume not.
That is correct.
Okay.
And then the.
The 10-K showed that.
81% of revenue from 100, K plus customers last year that was a nice uptick from 74% in the previous two years does that reflect more concerted focus up market and perhaps going to be less focus with the lower end of the market or is that just kind of reflect the maturity of your base.
Having a lot more graduates to the 100 K level and just any thoughts on how you see that number trending forward would be it would be.
Helpful.
Its more the ladder it reflects the maturation of debase, rather than any fundamental change in the segments that we're targeting.
But it is both.
So if you look at the disco story overtime, we started out by selling two litigation boutiques and the clients of those boutiques and that was our original segment because they tended to have the least in trench relationship with one of our competitors and then overtime we began selling.
Upmarket to the <unk> 200, and then directly to corporate legal departments and in general when you have a corporate legal direct sale you are getting a larger chunk of their wallet upfront and it grows more quickly and so those accounts tend to be larger just again, because youre dealing with them directly rather than.
Accessing them through the law firm channel. So there is a little bit of that going on but our focus on selling to corporate legal departments has been underway for several years now so that's not a change that youre seeing in the more recent numbers. What are you seeing in the numbers is really again this trend we've talked about a couple of times where.
Customers are starting out spending more and they are growing their spend more quickly so whereas in the past it might have taken three or four or five years to get a customer to middle six figure is low seven figures now you have some customers and we talked about some examples in our prepared remarks, we are doing that ramp more.
Quickly some of them inside of a year some of them over the course of one year to two years, but certainly more quickly than the historical average.
Yes.
Yes, Greg Taylor can you I appreciate it.
As a reminder, it is star one if you would like to ask a question.
And we will take our next question from Parker Lane with Stifel. Your line is open.
Yeah, Hi, thanks for taking the questions and congrats on the quarter.
<unk> you pointed to strong sales efficiency in the STR channel this quarter, perhaps the best on a per AD basis <unk> had than any other quarter. What are some of the factors that you would attribute to that sales efficiency gain and do you expect that to continue here throughout the year.
Yes. So this has been an area of focus for us over the past well for a long time, but really over the past year and it's a complex of changes first on the management side.
<unk> brought on board and now successfully ramped some really great director and managerial level folks who are driving increased performance on that team second I think we have really perfected our hiring profile in terms of the kinds of people, who do well in the seat.
Third we've made big investments in LNG. So we have this program called <unk> University that we've talked about it a little bit on prior calls and disk a university now has very robust onboarding training for people in each of these core sales roles, including Str's and then there is follow on experiential.
Learning coaching that's provided as they get on boarded certifications they got them product awareness and so on and also at the other end so as STR is mature and their careers a disco we have these great bridge programs, what we call bridge programs run by discrete University that get those SDR is ready.
To be Super successful, CSM, sorry, aes or other kinds of roles.
Our go to market organization and so it's one of those things where there is no silver bullet. It's about the continued focus on getting a little bit better every month every quarter and then those games start to compounded.
Got it and when we look at the international team today would you say that there is room for improvement on productivity just given how new that organization is or is that holding up fairly well compared to the U S counterparts.
Well I think I have room for improvement in productivity and we all try to get a little bit better every day, one of our core values is actually craft and its that idea that regardless of what you do whether you're a salesperson or an engineer or an accountant, we can always get better and we've built systems that <unk> I think this is.
Really a key part of our success rate, we thought theyre really robust by organization that measures the heck out of everything and lets us see what's working and what's not working and where we can make progress and we're not and because of that robust analytics structure, we're able to allow teams to.
We experiment a lot right and then call the things that work and propagate them across the rest of the organization. This is probably a more long winded answer than you wanted but I think one of the amazing things. We're observing in the UK is that they've built it's like a mini startup right and so they've been able to innovate in the.
Approaches their SDR is that they are <unk> people and thats their salespeople.
Jake in working with clients in that market. Some of those innovations have been taken back to the United States was improvements and some of them didn't pan out and so I think in the UK.
It's a very interesting example of an organization that has both been very successful and that has allowed us to innovate in a way that can drive increased performance in the U S. As well of course at a macro level. The U K is very early in its growth and we're investing behind it because.
Of the amazing results, it's delivered but there is a very long runway ahead.
Understood I appreciate all the color and congrats again.
Yes.
And we will take our next question from Mark Scheffel with loop capital. Your line is open.
Yes.
Hi, This is Tim.
April March apparel I think thank you for taking my question.
Good.
We're talking to as the company has a aggressive hiring plan this year and the market for talent, particularly good talent.
It could be tight.
To date, where are you in respect to your hiring plan.
Are you on plan or ahead or behind.
As of now we're on plan. So it took us a little while to get there.
You'll you'll remember from the past two earnings calls I described us as sort of getting there, but not quite there and now we are there in terms of how we recruit great people to disco I think it's a combination of offering people the opportunity to work on a mission that matters in our.
Case, using technology to strengthen the rule of law and then having built a culture that empowers people to really do things.
At other places might be regarded as impossible and that greatly accelerates their careers and we're proud not only of.
Our recruitment the recruitment side of the engine, but also at the fact that we have never really suffered from a spike in attrition due to the so-called Craig resignation.
That's really helpful. Thank you.
And there are no further questions at this time I will now turn the call back to co founder and CEO , Mr. Kiwi camera for closing remarks.
Thank you for joining us today at disco, our ultimate vision is to strengthen the rule of law through the use of technology and we're just getting started we thank you for your interest in disco and for joining our Q1 2022 earnings call.
Okay.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
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