Q4 2022 CS Disco Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to see us discuss fourth quarter and fiscal year 2022 conference call.
At this time all participants are in a listen only mode. All lines have been placed on mute to prevent any background noise.
After the 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 again press the star one.
I would now like to hand, the conference over to your first speaker Alexi lots of cars.
Buster Relations. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for <unk> fourth quarter and fiscal year 2022.
With me on today's call are Kiwi camera, <unk> co founder and Chief Executive Officer, and Michael Affair, Discos, Chief Financial Officer.
Today's call will include forward looking statements within the meaning of the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and future performance or future capital expenditures, our market opportunity and 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 Dot <unk> dot.
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 company's financial results is included.
And its filings with the SEC from time to time, including the section entitled Risk factors in the company's quarterly report on Form 10-Q for the quarter ended September 32022 filed with the SEC on November 10th 2022, and the Companys upcoming annual report on Form 10-K for the year ended December 31 2022.
In addition, during today's call we will discuss some 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 equivalents is.
Available in our earnings release, and with that I'd like to turn the call over to Kelly.
Thanks, Alexia good afternoon, and welcome to our fourth quarter and fiscal year 2022 earnings call before I dive into our results I would like to thank all the disco employees customers and partners, who help to get us here.
<unk> was founded in 2013, so 2023 is a celebration of our first 10 years in business.
That time hundreds of discovery and <unk> built this company from our lawyers side project into a leading legal Tech company.
I am deeply proud of everything we have accomplished and I'm excited for everything that has to come in our next 10 years.
Turning now to our results.
Revenue for Q4, 2022 was $32 5 million in revenue for the full year 2022 was $135 2 million.
Adjusted EBITDA for Q4 was negative $11 2 million and adjusted EBITDA for the full year 2022 was negative $44 5 million.
In addition to these overall results we accomplished many great things in 2022.
We grew revenue from our original ediscovery product by more than 30% to more than $105 million.
We continue to onboard new customers and expand our relationship with existing customers.
We ended the year with over 1300 customers 265, who spent over $100000 with us in 2022 and.
23 of whom spent doing for $1 million.
We welcome <unk> back to the office in Austin, and London and opened the disco office in New York City.
We completed our first acquisition, adding disco holder and request to our product portfolio.
We saw amazing innovations by our product team, including topic clustering with automatic indexing, which enhanced the disco experience for our global customer base.
We launched an emerging leadership rotational program to develop the next generation is legal tech leaders and give us access to a steady stream of junior talent.
And we received incredible feedback and praise for the industry, including recognition as a leader in the worldwide E. Discovery early case assessment and E. Discovery review software 2022 vendor assessments by IDC market scape, specifically, calling out the strength.
In our corporate toolkit scalability and ease of use for customers.
I cannot help but be encouraged by these achievements and by the continued feedback that we received from customers and prospects that they love our products the experience of doing legal work in these products and the results. They are able to deliver powered by our products going forward.
We're focused on a plan that reaccelerate revenue growth and pulls forward our path to profitability.
Revenue growth last year was impacted by a decline in usage of our review product, especially on large reviews and by volatility and usage of all of our products, including E discovery, especially in the latter part of the year.
This was compounded by difficult comps created by exceptional growth in 2021 difficult comps that will continue in Q1 of this year.
We believe that the path to Reaccelerate revenue growth lies and continued focus on go to market execution.
Over the last six quarters since our IPO, we invested heavily to scale up our go to market organization.
This involved a rapid growth of our lead generation inside and field sales and customer success teams as well as a scale out of marketing and the addition of new senior leaders and first slide managers.
Our focus now is on ensuring that this larger go to market organization is operating effectively and efficiently.
We continue to meet the market's needs from a pricing and commercial strategy customer support and service and product point of view.
We have also decided to materially accelerate our path to profitability and set a clear timeline for that important milestone. We believe that we can achieve positive EBITDA exiting 2024.
In addition to revenue growth our path to profitability includes increased efficiency across all functions at disco as well as changing our talent mix overtime to take greater advantage of global talent as well as homegrown talent.
The non stop side, we're taking a sharp look at all non staff expenses, including software expenses and other expenses that have historically been driven by head count.
And we believe we can further optimize our spend on cloud infrastructure, both infrastructure used in our production environments to serve customers and in our development environment used by internal engineering teams.
The transition to profitability is an important milestone in the maturation of any business.
I and my senior leadership team are excited to lead <unk> through this transition.
We have tied twenty-twenty three incentive compensation plans, including for our senior leadership team to both revenue and EBITDA targets with the goal of driving focus at every level, what our twin goals of re accelerating revenue growth and achieving profitability.
I look forward to continuing to report on our progress toward profitability over the course of this year zooming out for the coming year, what is next for disco.
Our five pillar strategy that I outlined one year ago on our Q4 2021 earnings call remains our long term strategy.
The five pillars of that strategy are what be the clear software leader by being the best at building software the lawyers love to use.
To be the platform of choice for general counsels.
Three deliver outcomes using technology.
For the the legal tech portfolio owner with an extensible software platform and five be the center of the legal tech ecosystem.
Pillar number one is built on our core strengths combining world class engineering with a deep love and respect for the law to build product experiences that failed magical feel lawyers.
Our focus on product and design infused at every step of the process with deep legal domain expertise and.
<unk> enables us to build software that lawyers love to use that is both powerful and simple and that allows our customers to focus on the kind of work that requires human legal judgment.
Our 2022 product releases, including native excel reductions topic clustering with automatic indexing and review metrics and time tracking in our core E discovery product.
We also released evidence management in case builder and collect for slack in hold.
These features and many others also released in 2020 to make it easier for lawyers to figure out what happened in litigation and investigations and find the evidence they need to prove those facts.
2023, we intend to continue innovating what our current products that it's bringing to market features our customers and prospects demand and introducing them to new capabilities made possible by continued advances in AI and analytics.
In Q4, we made discos next generation AI architecture available to a limited set of customers.
This new architecture improves both the precision and recall of the language models that power features like tags, scoring and tag predictions that lawyers use to greatly accelerate our wholly automate legal document review.
One capability enabled by this architecture is the ability to train a model based on documents in one language for example, English and use the model to find documents related to the same legal issue in a different language for example, Japanese even if humans have only ever.
A few documents that are in English.
We believe these AI improvements, which we expect will enter general availability. This year will further accelerate the process of finding evidence in E discovery and improve the efficiency of disk a review.
We are operating in the time of continued and accelerating advances in AI and analytics.
We look forward to applying these advances to more areas of legal work across our full product suite in the coming years.
This brings us to pillar number two being the platform of choice for general counsels.
The largest legal budgets of the world continued to be controlled by the legal departments of large enterprises.
The second pillar of our strategy is to become the platform of choice for these legal departments.
As a reminder, we sell to corporate legal departments directly as well as through law firms and legal services providers in.
In 2022, the number of corporate customers to which we sell directly increase to more than 450, representing more than 35% year over year growth.
We believe that our investment into an end to end full stack solution that is our ability to provide not only a discovery, but also products like discovery requests and disco hold that are primarily used by in house counsel.
As well as downstream products like disco review of disco case filter has made our solution more attractive to corporate legal departments. These.
These departments demand a single integrated platform to support legal work around investigations and disputes we are now well positioned to provide that solution.
One of my favorite customer examples, yes from a leading sharing economy Tech company that has been a loyal disco customer since 2019.
In Q4, they signed a subscription that was two times the monthly about they were paying at the beginning of 2022, bringing their annual spend to north of $1 million.
Their counsel raved to us that disco was it refreshingly excellent platform and very user friendly our customer loves Discos technology forward platform, which aligns with their vision of themselves as an innovator and technology leader.
Another customer a major global fast food chain increase their usage with disco to over one $3 million in 2022.
They love disco for several reasons.
First they find <unk> gives them transparency into the work of their outside counsel, which allows for tighter control and greater efficiency across their global legal matters.
Second they love, our simple to understand pricing, which provides them with cost certainty.
Finally disco review allows them to save hundreds of thousands of dollars through the application of AI and analytics compared to traditional brute force approaches through legal document review.
Additionally, a major U S conglomerate increase their spending with us.
Over $500000 in 2022.
This customer manages over 50 matters of disco today.
They started with disco in 2019 with a small team of forward thinking users and have since expanded usage to dozens of team members.
The feedback we received from them is that in addition to finding our platform intuitive and powerful they love a responsive and engaged customer service and frequent product updates that consistently keep up with their needs, becoming the platform of choice for Qi <unk>.
<unk> remains a key strategic pillar for our next 10 years.
We will push forward with winning general counsels and major enterprises and continue to prove to gcs why implementing disco can enable them to deliver better legal outcomes for their companies and do so more efficiently, especially if the current macroeconomic climate.
Pillar number three is to deliver outcomes not just tools.
Discover review is an example of delivering outcomes. We don't just give our clients better tools for doing legal document review instead, we use our technology and especially disco AI to deliver the ultimate outcome of review documents with higher quality.
At greater efficiency that legacy approaches that rely on people and process rather than technology.
By delivering the outcome that customers care about we are able to sell them, what they ultimately want to buy and reduce the friction.
Might otherwise feel around adopting new AI powered technology.
And our reliance on technology to deliver these outcomes allows us to do so at fundamentally superior gross margins compared to legacy approaches that rely principally on people and process.
While revenue from our review product encountered headwinds in 2022 relative to an amazing year in 2021, primarily due to a shortfall in review usage on very large matters. We remain firmly convinced that full stack offerings like <unk> review.
Who are the future.
AI powered technology, driven approaches to legal document review and ultimately to many other kinds of legal work will supplant legacy approaches that rely primarily on people and process.
We have begun to broaden our review offering beyond pure legal document review two areas like a deposition preparation and deposition summarization built on top of disco case builder.
Overtime, we expect to introduce more of these full stack product.
That leverage <unk> technology to deliver ultimate outcomes, while simultaneously, increasing quality, reducing costs and making total legal spend more predictable.
Pillar number four is to be the legal tech portfolio owner.
This means continuing to broaden our product portfolio, so that customers can use disco to power more and more kinds of legal work.
We made great progress on this pillar in 2022, with our acquisition and integration of <unk> request and disco hold and our release of collect for slot as part of disco hold.
We have also continued to invest in the development of disco E Discovery, <unk> review and dislocation builder.
We look forward to continuing to build out our legal tech portfolio, both organically and through strategic acquisitions and partnerships.
Adding more products to our portfolio can accelerate revenue growth in several ways.
First with more products, we can deliver more value to our customers and increase the revenue we are able to generate per customer.
Second with more products, we give our customers more ways to begin their disco adoption journey, and then expand across our product portfolio over time.
Third with more products. It is more difficult for competitors, who offer point solutions that compete with only one or two of our products to displace our relationships with existing customers, who prefer to buy a portfolio of products from us.
And for us with more products, we can introduce commercial models that encourage our customers to commit spend to disco with the confidence that they will be able to use that spend across a wider variety of legal work, even as the nature of their legal needs changes.
Period to period.
Okay.
In 2022 are multi product attach rate calculated as the percentage of customers at year end two generated revenue for us in 2022 for their use of more than one <unk> product during the year was 11%.
The number of customers using multiple products at any one time various substantially based on among other things the inception and completion of litigation investigations and other legal matters.
Increasing multi product adoption across our existing customer base can be a material driver of revenue growth in the future.
Finally pillar number five is operating at the center of the legal Tech ecosystem.
We have continued to invest in our partnerships with the law firms and legal services providers, who deliver surfaces and build businesses powered by <unk> technology.
In addition to our direct sales efforts these partnerships give us more ways to reach corporate legal departments.
We invited several of our legal services provider partners to join US at our annual company kickoff in January and have incentivized, our direct sales force to work collaboratively with these partners to grow new and existing customer relationships in 2023.
More recently in some of our product releases, we have provided API endpoints that allow these partners to more deeply integrate their own offerings and business processes into our platform.
And we have released features like organization metrics that enable these partners to build dashboards that give them visibility into all their work on disco.
The technology, we have invested in the <unk> ecosystem through programs like disco University, which provides on demand training and rigorous certifications for users and other ecosystem participants <unk>.
<unk> for schools, which makes disco technology available in law schools, and paralegal training programs to prepare the next generation of customers for careers powered by disco.
And <unk> pro Bono that allows nonprofits and lawyers engaged in pro Bono work to gain access to the disk our platform for free or at greatly reduced rates. We also continue to be active participants in many of the leading industry conferences seeking to add value.
As more and more people in the legal industry embraced the move to the cloud and the adoption of legal attack.
Lawyers and other legal professionals, who move through their careers continue to be a driver of revenue growth at <unk>.
We seek to maintain and develop relationships with these individuals across multiple companies already several million dollar plus customers have originated from these long term relationships.
And we are proud of our many alumni who have got all the positions with our customers or elsewhere in the growing legal tech industry.
If we are successful at executing on pillar number five over the next 10 years, we will make an affiliation with disco into an important credential and career accelerator for the next generation of leaders in legal Tech.
We believe that our five pillar strategy can drive healthy and sustainable growth over the next 10 years as we make disco truly synonymous with the legal tech.
Now I'll hand, it over to Michael to discuss our financial results and guidance.
Thank you Kiwi in Q4, 2022 revenue was $32 5 million a decline of 4% year every year.
Year over year decline in the quarter is primarily attributable to the smaller matters. We saw in review, resulting in lower total revenue.
Full year 2022 revenue was $135 2 million up 18% year over year full year revenue growth was driven by the addition of new customers and expansion of existing customers offset by a significant contraction in review revenue our E discovery business finished with revenues north of 105.
Million in growth of over 30% year every year, we saw lower revenue growth rate in E discovery in the back half of 2022 as compared to the front half.
Our dollar based net retention rate as of December 31, 2022 was 106%. This dropped from our DNR of 146% last year is primarily due to the ending of large reviews. We've previously discussed while ever all DNR was 106% for E discovery DNR was one.
20% for the year, demonstrating the resilience of E discovery in 2022, and as we've said before there will be variability in our dollar based net retention rate based on timing of revenue and the contribution from existing and new customers in.
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 76% up from 74% in Q4 of the prior year gross margin for <unk>.
School year, 2022 was 75% up from 73% for fiscal year 2021, as a reminder, our gross margins fluctuate from period to period based on the nature of our customers' usage for example, the amount and types of data ingested and managed on our platform. We expect gross margin to continue to be within.
The bands we have historically seen.
Sales and marketing expense for Q4 was $16 9 million or 52% of revenue compared to 43% of revenue in Q4 of the prior year. This represents an increase of approximately $2 5 million in the quarter year on year as we completed the six quarter scale out of our go to market organization for fiscal year 2020.
Two sales and marketing expense was $68 $7 million were 51% of revenue compared to 40% of revenue for fiscal year 2021, an increase of approximately $22 9 million year on year.
As Kelly mentioned and as we mentioned last quarter. We feel we have reached the appropriate scale of our business in terms of head count and moving forward, we will be more focused on sales execution and efficiency.
Research and development expense during Q4 was $13 4 million or 41% of revenue compared to 28% of revenue in Q4 of the prior year.
This represents an increase of over $4 million in the quarter year on year as we continue to invest in innovation during fiscal year 2020 to research and development expenses were $51 2 million or 38% of revenue compared to 28% of revenue in fiscal year 2021, an increase of approximately.
$18 9 million year on year General and administrative expense in Q4 was $6 5 million or 20% of revenue compared to 21% of revenue in Q4 of the prior year. This represents a decrease of $5 million in the quarter year on year general and administrative expense in fiscal <unk>.
Year, 2022 was $30 1 million or 22% of revenue compared to 20% of revenue in fiscal year 2021, an increase of over $6 7 million year on year as we scaled our back office functions to keep pace with the growth of the company.
Operating loss in Q4 was $12 1 million, representing a margin of negative 37% compared to negative 17% in Q4 of the prior year.
Operating loss for fiscal year, 2022 was $48 million representing margin of negative 36% compared to negative 16% in 2021.
Adjusted EBITDA was negative $11 2 million in Q4, our margin of negative 34% compared to a margin of negative 16% in Q4 of the prior year, we want to point out that operating expenses in Q4 were approximately $3 3 million lower than in Q3. This was primarily driven.
Even by lower incentive compensation in line with our performance, we do not expect to benefit from these savings in Q1 2023.
Adjusted EBITDA in fiscal year, 2022 was negative $44 5 million a margin of negative 33% compared to a margin of negative 14% in 2021.
Net loss in Q4 was $10 8 million or negative <unk>, 33% of revenue compared to a net loss of $6 million or negative <unk>, 18% of revenue in Q4 of the prior year.
Net loss in fiscal year, 2022 was $47 million or negative 35% of revenue compared to net loss of $18 8 million or negative 16% of revenue in 2021.
Net loss per share for fiscal year, 2022 was <unk> 80 per share compared to 57 per share for fiscal year 2021, turning to the balance sheet and cash flow statement. We ended the year with $203 2 million in cash and cash equivalents operating cash flow for 2022 was negative 46.
Million compared to negative $21 6 million in the prior year.
Now turning to the outlook for Q1 2023, we are providing revenue guidance in the range of 35 million to $32 5 million. Please keep in mind that we were facing a difficult comp due to a strong Q1 last year, especially in review.
For Q1, 2023, we are providing adjusted EBITDA guidance in the range of negative $16 5 million to negative $14 $5 million, representing adjusted EBITDA margin of negative 49% at the midpoint.
For fiscal year 2023, we are providing revenue guidance in the range of $135 million $245 million and adjusted EBITDA range of negative $42 million to negative $38 million, representing adjusted EBITDA margin of negative 29% at the midpoint. Additionally, we are targeting a Q4 'twenty.
23, adjusted EBITDA margin in the negative teens.
This guidance implies reacceleration of our business relative to the last few quarters. Additionally, as Kiwi said in his remarks, we are focused on a plan that pulls forward our path to profitability with positive adjusted EBITDA exiting 2024.
We are very excited about 2023 and the progress our team is working towards we have the right people strategy and vision at disco to lead us forward into our next 10 years now I would like to turn the call over to the operator to open up the line for Q&A operator.
Yes.
Thank you Andrew.
Reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Koji Ikeda with Bank of America. Your line is now open.
Hey, guys. Thanks for taking the questions.
So I was thinking about or looking at the guidance for this year and I was wondering are there any large matters that you are already anticipating to come off the platform. This year and how should we be thinking about the seasonality of growth.
Beyond the first quarter anything to call out specifically, the second third or fourth quarter that we should be aware about.
Yes.
There are no specific matters.
We're aware of that are big ticket items.
That will roll off.
Do think it's fair to say, what we talked about on our last earnings call, which is that in this macro environment. We do have some large customers who come to disco and say hey, how can you help me optimize my spend.
And obviously, we have a few different responses there. The first of which is we can help you spend less by moving more of your business to the disco platform across multiple products, but certainly in some instances, we wind up providing discounts to those large customers for whom disco is a material line.
Item, but no big cases that are scheduled to come off.
Got it got it thank you for that and I wanted to follow up.
With Michael on the comment of the adjusted adjusted EBITDA profitability exiting 2024.
Any sort of other color you can provide maybe other than scale and growth driving model leverage anything specific to call out that could be driving that path to profitability. Thanks, Scott. Thanks, So much.
In light of good question Koji. Thank you so in light of the macro environment, and we've decided to pull forward our path to profitability. We have shown the ability to do this in the past.
And with respect to what we're providing color on 2024 exiting the year adjusted EBITDA positive I mean, there's obviously a number of different levers that can get us there and how that will be achieved is going to based on how things go over the next eight quarters and so we will provide updates as we go along each quarter.
Makes sense. Thank you so much for taking the questions.
Your next.
Question comes from the line of Tyler Radke with Citi. Your line is now open.
Hi, This is Kylie Tobin on for Tyler Radke.
Thanks for taking the question starting off on January the AI team and your integration into the disco architecture.
It has the feedback been from those initial data customers and how are you thinking about the monetization opportunity long term how does this impact the review business and is it built into your margin and guidance outlook for next year. Thanks.
So AI has been a core differentiator for disco from the beginning we began investing in AI lab eight years ago and have incorporated AI technologies as they've improved and the broader market into multiple product offerings over time, everything from tag, scoring and tag predictions to our release last.
Year of topic clustering with automatic indexing. The most recent architectural improvement that you were talking about has delivered a great improvement in both the precision and recall of the language models that we use to help automate and accelerate legal document review customers get the benefit of that both in <unk>.
<unk> E discovery, when Theyre doing reviews themselves and when they use disco review to buy the ultimate outcome of documents reviewed and legal matters.
Sure. What this technology is able to do is allow us to review matters with higher quality, even more quickly than was done before now our review pricing model.
Is it generally based on the number of documents submitted and win review deals are priced that way and increase in the efficiency of the review write downs to discuss benefit on the discovery side when the customer is doing the reviews themselves or using an outside law firm, where legal services provider to.
Do the review.
AI translates into increased value the disco delivers to the customer because it reduces the amount of their spend on those third party legal services.
Going forward I think we're just at the beginning of a very exciting time in the integration of generative AI and other AI techniques into discos products, and we look forward to sharing more product announcements going forward not only in E discovery, but in some of our newer products like <unk> and.
Disco hold.
We have not baked in any incremental AI pricing or incremental AI margins into the numbers that we've guided to so if we over the course of this year at next year release capabilities that are independently priced in this area than we would expect that to be.
<unk> to the model.
Thanks, that's really helpful.
Just one more on the customer count we noticed that the debt off Q3, ending at 1300 did.
Did you see churn this quarter.
And if so was that anticipated in guidance.
Or did that full year and customer count fall short of your expectations. Thanks, So much hey, I. Appreciate the question so customer count actually did increase sequentially from Q3. We also saw increased customer count in the corporate segment. So I'm not I'm not we're not seeing what you are seeing it definitely went up.
Thanks, so much.
Your next question comes from the line of Jackson Ader with STB Masa Moffett. Your line is now open.
Oh, great. Thanks for taking our questions Scott.
Just curious if we think about review case that youre kind of three largest.
Products E discovery and reviewed case builder.
What what kind of growth expectations are factored into guidance for each of those for this year.
Well, we don't disaggregate.
The growth targets by product I can tell you that we expect that ordering to remain the same over the course of the year and that from an operational point of view. Our main focus is executing on this multi product full stack strategy that I talked about as part of our five pillars.
We think the right metric for that is a new metric that we shared on the call today, which is multi product attach rate measured as the percentage of year and the customers who use multiple products over the course of that year that metric stands at 11% it's up very materially.
The year over year and our goal is to continue to drive an increase in that metric both by getting more new customers to land with our second third fourth and fifth products and getting both existing customers and new customers to expand across multiple products as they use the disc of platts.
Form for more and more categories of legal work.
Okay, Alright, Thats fair and then.
If we just think again.
Rewind.
A couple of years ago can you think about the growth.
That.
Maybe you were expecting at this point in your company lifecycle relative to the growth slowdown that youre actually experiencing I'm curious.
How much you would attribute this to.
Yeah, maybe competitive products catching up to the.
The capabilities that.
<unk> enjoyed maybe again a couple of years ago.
I think it's interesting we had four quarters of unexpectedly good growth and then four quarters, where we were paying somewhat the penalty of that unexpectedly good growth and interesting thing to do is to look at the model.
<unk> that we provided around the time of the IPO and compare the revenue number we thought we would be at last year to the revenue number we actually delivered and so theres a little bit of we pulled forward. Some growth and then we had some slower growth on the back end of that of course, we believe.
That we can and need to and have a plan to reaccelerate growth going forward and I think the key ingredients to that beyond tightening up go to market execution right every opportunity is sacred expand every customer and so on are the things I talked about in our five pillar strategy things like extend.
Our reach into corporate.
That number of customers is up to 450 and up 35% year over year, and then driving multi product attach rates that said, 11% up very materially year over year.
On the competitive landscape I don't actually think much has changed over the last call. It year, specifically I think if you go back three to five years ago. There were a number of ideas that were new to the market that disco championed and that our competitors were.
We're often skeptical love things like moving to the cloud things like a focus on the end user experience of lawyers things like a direct sales model, where we sell directly to the ultimate buyers, whether it and legal departments or at law firms and things like the reliance on AI and analytics.
Full stack with products like this get review these were things if you go back.
Many of our competitors would have been skeptical of them and now our competitors are embracing them and trying to say we too are like disco. So that has certainly changed and so we're focused on continuing to deepen our differentiation in those core areas, but I think what we're doing now is again in producing.
Some ideas to market that are current competitors as skeptical lots. This is skating to where the puck is going now and these are things like our investment in multi product and our investment in full stack. The idea that you can build one continuous platform to handle the full spectrum of legal work and today discuss.
<unk> products handled a full spectrum of work around disputes investigations and that you can deliver not only tools, but also the ultimate outcomes through offerings like disk a review in my prepared remarks, I talked about how we are beginning to broaden that offering to leverage technologies that we've built in products like <unk>.
Tastes builder, so that's where I think we're continuing to lead the market.
And that's how the competitive landscape.
Okay that was great and thoughtful thanks.
Your next question comes from the line of Derrick Wood with Cowen. Your line is now open.
Oh, great. Thanks, it's Andrew on for Derrick.
Last quarter, you talked about increasing investments in marketing and lead generation I'm. Just curious how those are starting to pay off and what kind of channels are most effective in driving new leads.
So if we start with Str's. So STR is do they process inbound leads and they do outbound outreach to both warm and cold targets and we've steadily scaled up the STR team over the last six quarters since part of our go to market scale out.
And that is sort of unambiguously going very well both on a unit basis and on an aggregate basis, we're seeing increased productivity from that team and measured in terms of the number of sales excepted bleeds.
Generate we've also made progress in building specialty SDR teams for example in SDR team that is focused on new direct corporate origination so thats like selling to the general Counsel Deputy General Counsel head of legal operations and that's an area, where we initially had some skepticism.
How about the prospect of STR lead generation, just because you might imagine it's harder to get those sorts of people on the phone through a cold call, but actually we've built out a corporate SDR team that's been tremendously productive and that has contributed to some of the metrics. We shared on the call like the 35% year on year growth in number of corporate.
Direct relationships now up to 450.
Well on the customer success side. We've also seen strong results with that team setting records, both on an individual and aggregate basis in terms of the upsell and cross sell opportunities that they identified if you think about how we're positioning the <unk> team for the coming year, we think it can be a huge.
Driver of growth.
For example, taking the large number of customers at disco that RSA under $100000 in spend and getting them to double the number of matters that they have in our platform that would blow the plan out of the park right. So there's a tremendous opportunity for us to do things.
<unk> shorten the adoption journey for new and existing customers from the historical three to five years or longer to something much shorter and we've seen enough customers do it quickly now that we know it can be done on the marketing side I think we're earlier in the journey whereby marketing here.
Things like digital marketing field marketing and so we're seeing early promising results and we are scaling our spend based on those results overtime, but we expect to continue making progress in those areas over the course of 2023.
Great. Thanks, and then QE in terms of the quota carrying sales capacity.
Maybe give us a flavor for you've hired a lot over.
One or two years and you're on it.
Where you don't need to grow that number much higher but maybe give us a feel for what percentage of reps are productive currently and as those reps you've hired ramp cannot help accelerated growth.
Over this year.
Yes, that's exactly our bet. So we believe that as our newer freshman classes of reps go through their ramp.
It will contribute materially to growth in 2023 and in 2024 in terms of the newer reps. The way we think about rep ramp is to compare the productivity of the new reps to their productivity of historical disco reps. When they were at similar tenures of grants since six months 12 months.
So on our newer reps are performing well as compared to our historical reps when they were at similar 10 year bonds.
Great. Thank you.
Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.
Hi, This is love stood on for Brent.
Michael maybe first question for you.
Could you just give us some color as to what is baked into the guide.
Are you baking in a higher than historical level of conservatism.
And then you mentioned that the discovery growth did slow down in the back half of the ear.
Are you baking that into what Youre guiding for next year.
Yes.
Thanks for the question. So there's a lot that goes into our guidance and as I said in my prepared remarks remarks, if you look at the last couple of quarters. The guidance, obviously implies the reacceleration.
And it's a combination of Ediscovery review and just the overall business.
I wouldn't read more into that other than that.
Got it.
Yes.
On that point.
Key Lee what gives you more confidence that you can reaccelerate growth.
Is there anything.
Internal in terms of execution.
Or do you feel like you have the resources you need to drive better growth over the next year.
I do over the last six quarters, we more or less stuck to our guns in terms of investing in the scaling out of the company to go pursue the five pillar strategy that I've been talking about and that was true in every function both R&D.
And.
Now, we're very focused on helping those new team members go through their ramp and become productive as they contribute to growth in 2023 and 2024 in response to one of the earlier questions. I gave you some color in terms of how the STR CSM and quote.
Carrying sales Rep teams are doing I think zooming out from that color and thinking about some of the underlying metrics that can help analysts and investors understand our business, we pointed to a number of things in our prepared remarks.
We continue to experience strong customer growth up to more than 1300 customers. Today. We also continued to grow customers at the higher spend levels 265 customers spending more than $100000 with us last year, and 23 is spending more than $1 million and we're succeeding.
<unk> at penetrating the market with the decision makers, who control the largest legal budgets that is the general counsel, most large enterprises, where up to 450 direct corporate relationships a number that is up 35% year over year than our multi product in full stack strategy.
She is working with 11% multi product attach rate up materially year over year, but also low enough that there is tremendous room to expand that multi product attach rate and for expansion of that multi product attach rates to be a material driver of growth and then of course, our original product <unk>.
Discovery still makes up a large majority of our overall revenue north of $105 million for last year up 30% year over year, and importantly, with 120% dollar based net retention. So both at the micro level in terms of what we're seeing in execution on the teams.
And also zoomed out at an operating metrics level I think there are many reasons to be optimistic about the prospect for re accelerating growth in our business.
Okay.
Perfect. Thank you.
Your next question comes from the line of Robyn <unk> with Needham.
Your line is now open.
Hi.
Stop right here Tom Thanks for taking my question when you look at bookings over the last two quarters or the pipeline into fiscal year 'twenty. Three is the composition of modules changed much versus the beginning of the year.
Okay.
No.
Okay.
Got it Okay, and then I guess.
Given the legal litigation industries are wildly sensitive to economic movements, how should we view the drivers to why customers slow down or accelerate the solution to replace their existing legal check platforms in the softer macro thank you.
I think the impact of the Mac are in our business has puts and takes.
On the one hand, and I talked about this earlier when you have very large <unk> customers and their spend with Cisco as a material line item in the current climate. There is pressure to go reduce that spend and so we have to work with those customers sometimes we succeed.
Maintaining or expanding their spend other times, we provide discounts and of course, we tried to.
Extend deals and do things like that in connection with providing discounts, but that's definitely a headwind created by macro. Additionally.
At <unk>, we are much less likely to engage and pilot some new software products or otherwise undertake new programs. So that generalized resistance to the new that is created in times of macroeconomic stress is also a headwind to acquisition of new logos.
I think on the tailwind side.
We have a product that delivers ROI by reducing and making more predictable a material line item of spend which is the cost of bill by the hour that professional services lawyers time and handling.
They are often very large and very impactful disputes and investigations for large enterprises that put more simply we help general counsel save money and so that is a tailwind in a time, where suddenly many of our customers are much more EBITDA focused than they would have been two years ago.
How do these puts and takes of shake out I think it's a little bit hard to say, but that's some of the color that we're hearing from customers that are experiencing in the field.
Got it thank you for that color.
Your next question comes from the line of Parker Lane with Stifel. Your line is now open.
Hi, This is Matthew kicker on for Parker, Thanks for taking my questions could.
Could you talk a bit about your acquisitions hold and request how have those integrations progressed, what's the traction been like and have you been surprised by anything with those solutions so far.
So we're pleased with the success of the integration both from an engineering and product point of view and from a go to market point of view I wouldn't say, we've been surprised I think the acquisition has played out more or less in line with the case that was made.
Internally to justify it.
What was that case, we think first that we added a number of great enterprise customers, who were preexisting holding request customers and second we opened the door to a new kind of conversation with both existing E. Discovery review in case builder customers.
Prospects are entirely new to the disco ecosystem. So there are many conversations we're having now with some of those corporate new logos that I talked about where the product. They are landing on his holder request or even if they don't start by buying that that's a driver of the first conversation.
They start with one of our other product say, a discovery or review of our case builder and expand to hold and request overtime. So I think if you take a step back our hold and request our grade components of two of our five pillars first becoming the platform of choice for general counsels.
These are technologies that are principally used by the PUC in house lawyers and second our pillar around multi product in full stack. These two products enable us to deliver a really end to end solution handling all aspects of litigation investigations and other kinds of legal disputes.
<unk>.
Terrific. That's all for me thank you.
Yes.
Your last question today comes from the line of D J Hynes with Canaccord.
Your line is now open.
Hey, guys. This is Luke on for DJ Thanks for taking my question.
No.
Back to that customer Count question correct me, if I'm wrong on this but I am calculating mine net.
Customer additions this quarter falling from 13 to 27.
13, 18% to 13, 27% and Thats down from average net ads.
Five in the prior three quarters.
That's a pretty significant drop off in especially after having just finished tripling sales capacity here. So I guess the question is is there some increased churn component.
Just becoming more difficult to add new customers in this environment or is this just sort of an outlier quarter.
I think it's too early to say, whether its an outlier quarter or not and I talked about some of the not really specific to disco, but generic headwinds that the macro environment creates in terms of adding new customers.
I can say in terms of color that it doesn't feel like something has fundamentally changed but of course, we will see over the next few quarters as that continues to play out.
Okay.
Then maybe just on your EBITDA guidance it implies a pretty significant decline in opex over the course of the year can you just talk a bit about I guess, what levers you have to call to hit that target.
And then whether or not a lot of that work has already been accomplished sort of windows. This rep in Q1.
I think Michael answered diversion of this question earlier, so I'll give you my thoughts hopefully they are additive.
Thank.
The big difference in the guidance, we're providing is that we've pulled forward and made a commitment around the path to profitability and that commitment is manifested in our EBITDA guidance for full year 'twenty three in the commitment to be a mid teens negative EBITDA in Q4 of <unk>.
<unk> 23, and then to have positive EBITDA exiting 2020 for now in terms of how we get there. There are four big levers number one is of course re accelerating revenue growth and I've given lots of reasons why we think there's a reasonable prospect of re accelerating revenue growth.
Number two which we talked about a bit in the prepared remarks is that we think there are further opportunities to optimize our infrastructure spend both on the development environment, which hits R&D opex and in the production environment, which hits Cogs. So we think there may be upside to gross margin.
Going forward as we make those optimizations, but then on the Opex side think about staff and non staff in terms of staff. The general strategy is over time to increase our mix of global talent and homegrown talent relative to our earlier mix.
Which we believe will reduce the unit cost of talent over time.
And then on the non staff side, where of course, taking a sharp pencil to every line item of non staff expenses with a particular focus on expenses like certain items with software that have historically scaled with head count now the exact mix of those four components that we use to obtain.
Our profitability commitment that's going to unfold as we see how the business progresses over the course of this year, but net of everything what we are saying today is that we're committed to achieving the profitability targets that we've discussed on the call.
Great. Thank you.
This concludes our question and answer session for today I would now like to turn the call back to Kiwi Tomorrow co founder and CEO . Thank you.
Thank you for joining us today at <unk>, we will continue our march to be the legal technology leader and make the everyday lives of lawyers easier smarter and more efficient. We thank you for your interest in disco and for joining our fourth quarter and fiscal year 2022 earnings call.
This concludes today's call. Thank you for attending you may now disconnect.
[music].