Q3 2023 KLDiscovery Inc Earnings Call
Thank you for standing by my name is Eric and I will be your conference operator today at this time I would like to welcome everyone to the KL Discovery Q3, 2023 financial results Conference call.
Lines have been placed on mute to prevent any background noise.
I would now like to turn the call over to Don Wilson, Chief Financial Officer. Please go ahead.
Thank you operator welcome to KL Discovery Q3, 2023 conference call. Today's call contains forward looking statements. These statements are not guarantees of future performance.
Actual results may differ materially from these forward looking statements due to assumptions risks and uncertainties that are described in more detail in our earnings press release issued yesterday and filings with the SEC.
Hey, all discovery undertakes no obligation to amend update or clarify these forward looking statements made today unless required by law.
During this call. We will also present non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which we're not perfect with GAAP reconciliation to the most directly comparable GAAP measure to the non-GAAP financial measures are shown in detail in our press release issued last night, along with definitions for those terms and a discussion of certain limits.
Hey, Jim.
Management believes that our presentation of non-GAAP financial measures provides us.
Information to investors regarding our results of operations are.
Our non-GAAP financial measures should only be considered in addition to and not as a substitute for or superior to any GAAP measure. Please refer to our press release on how to access the replay of this call I will now turn the call over to our CEO Chris Weitler.
Thanks, Don and thanks for joining us today for tail Discovery's third quarter 2023 financial results Conference call. My name is Chris Weiler, and I'm, the CEO and cofounder of <unk> discovery.
As the legal tech landscape continues to evolve rapidly we believe our third quarter results.
Truly reflect our strategic alignment with a burgeoning demands in this dynamic industry.
Our momentum is a reflection of years of planning hard work and execution and I am thankful to work with this incredible team of professionals from around the globe.
As I'll cover in a few moments our flagship E discovery platform Nebula is experienced significant growth and adoption amongst our client base.
Nebula is a comprehensive and fully integrated proprietary technology platform that spans across the edr and lifecycle like.
Likewise, our client portal is a powerful business development enabler as it provides unparalleled case management and business intelligence and real time for our clients.
It helps provide transparency in critical areas our competition is lacking.
When coupled with the global team United behind a common purpose and sharing our mindset dedicated to providing world class 20, $473 65 customer service, we believe our value proposition becomes even more compelling and difficult for others to match.
As you will also learn in today's call the momentum of the last several quarters has led to the continuation of exceptional results as the <unk> team continues to demonstrate the tremendous commitment to excellence.
Our dedication to client service and purpose built technology are translating into tangible business results.
They are not only making a difference to our existing global clients, but also helping us attract new clients in every region of the world.
We now serve over 6200 legal technology clients.
Saw an 8% growth in clients in Q3, 2023 over Q3 2022 and as of the end of Q3 2023 of net revenue retention rate of 104%.
Our commitment to delivering innovative technology solutions is driving both customer satisfaction and great financial results client portal and our Nebuly ecosystem.
<unk> the way our clients manage their data for legal matters.
<unk>. This is resulting in increased revenue and improved bottom line.
And the first nine months of 2023, we generated a record $260 million in revenue.
Which is up 12% compared to the same period last year, our third quarter revenue of $79 3 million was up 6% year over year.
<unk> our revenue increase is benefiting from increasing adoption of nebula on a global scale.
<unk> revenue was up 100% for the third quarter of 2023 and 57% for the year.
Our strong revenue growth is positively impacting the bottom line we.
We reduced our net loss, 34% in the third quarter of 2023 compared to the third quarter of 2020 to.
EBITDA for the same period increased 173%, while adjusted EBITDA increased 48%.
Our gross margins crossed the 50% threshold.
In both third quarter and year to date results.
As we ended the fourth quarter of 2023 I continue to be extremely pleased about where <unk> is and where we're going.
Creating impactful and innovative legal technology has always been a cornerstone of our strategy.
We built the technology our clients rely on every day to address the real world challenges they face in navigating their legal regulatory and cyber engagements.
It is fully integrated and can be begin bringing value as early as the collection space and enrich the entire process all the way through production.
It makes our offering more efficient and inherently more dependable more overall results in a clear and undeniable message the.
The investments we made in our technology infrastructure and solutions are paying off.
Nebula and client portal are leading the way in increasing customer satisfaction and attracting new customers are.
Our existing clients and new clients are now reaping, the rewards and theyre increasing adoption demonstrates their enthusiasm.
Looking at Nebula, the metrics show, an unquestionable truth cluster.
Customer adoption is increasing at a significant pace.
Since the third quarter of 2022, the number of Nebula matters is growing approximately 15% for 1338 active data hosted on tabular is up 35% almost 500 terabytes and active users are up 20% to approximately 4900 <unk>.
In each case as of September 32023, as compared to September 32022.
I would also like to point out the cloud adoption is through the roof and leading the way for nebula growth.
For example, active data hosted in the cloud has increased approximately 200%.
200 terabytes active users in the cloud has grown approximately 147%.
Two over 'twenty 100, and active matter supported and the cloud have grown approximately 144% to approximately 1000.
Lastly, and most importantly, I want to reiterate the nebula third quarter revenue is up 100% year.
Year over year, we continue to run nearly all processing for all clients, regardless of which platform they host data into the <unk> ecosystem and.
In other words virtually every single legal technology engagement, we support benefits from the investments we've made in the years of experience in innovation, we have infused in the nebula ecosystem.
Likewise, our early adoption of artificial intelligence and machine learning years ago has paved the way for the ongoing evolution of our technology offering.
We believe the next 12 plus months will bring a proverbial AI Renaissance for <unk>.
It will help our clients not only change the way they address their legal regulatory and cyberneeds, but push forward what they envision as the art of the possible.
Eyes are fixed on the horizon to ensure we not only maintain but grow the improved financial results.
I couldnt be more thrilled about where we are today with our client portal, our real time business intelligence platform that provides instant access to the critical case information and metrics our clients rely on to make informed business decisions.
Client portal is available globally and provides clients with full visibility of matter performance with financial information, including real time work in progress estimates and Visualizations about performance to budget.
The feedback from our clients is overwhelmingly positive about portal, here's what a couple of photos.
Our corporate clients for us it is critical to have full visibility into our finances.
Billing transparency of <unk> client portal is great.
And the Am law 200 firm said client portal is helpful tool from a productivity standpoint, because you can see important metrics all in one place real time.
Another corporate clients that I love using client portal, there are 25, plus metrics that the portal tracks. It's all in one place and it's in real time we.
We currently have 1000 client portal users across more than 600 law firms and corporations.
I would be remiss to not touch on the powerful new alerting feature we have recently announced and our client portal platform.
This feature allows clients to receive proactive alerts around case activity.
<unk> database user activity performance to budget and more.
This is helping them manage their legal portfolios effectively and proactively.
Our clients can constantly focus on the tactical execution of their matters, knowing that the new alerting feature can keep them proactively informed of critical data points around budget attainment work in progress.
And changes in matter activity.
We believe client portal is the only offering available in the industry today that gives users this level of incident.
Real time visibility into their portfolio of matters and then it will continue to get better overtime.
We know we are starting to win new clients because of it.
None of this would be possible if not for a second to non back office, we have built at KL discovery.
Several years back we set on a strategic path to create the most automated efficient and high quality infrastructure and the legal services industry and we believe we have done just that.
We have built connective tissue amongst everything we do globally.
Has yielded almost complete automation, yes automation in our billing process.
It has taken years of painstaking work.
Commitment to a vision and an unbelievable level of operating disciplines that put us in the position. We're in today, where we can be as efficient and transparent as we are.
This creates yet another competitive advantage over organizations.
Rely wholly on licensed software and or haven't taken the time to truly consolidate their businesses.
Despite the challenging market. We are all operating under we remain incredibly bullish on where <unk> is.
And where we are heading our incredible team continues to deliver and I'm very confident that we have built a unique and outstanding offering backed by the strength of our fully integrated <unk>.
Office, one of a kind technology and 24 by seven by 365 customer service.
I believe that as favorable industry <unk> begin to take hold we are well positioned to continue delivering a positive impact on our industry.
I will now turn the call over to our CFO John Wilson.
Thank you Chris.
We achieved very strong financial results in the third quarter of 2023, continuing the momentum we have had throughout the year revenue in the third quarter of 2023 was $79 3 million compared to $74 5 million in the third quarter of 2022 six.
6% increase.
First three quarters of 2023, our revenue was up 12% compared to the same period in 2022 revenue growth and nebula, a fully integrated end to end technology solution is accelerating.
Revenue in the third quarter of 2023 is up 100% compared to the third quarter of 2022 and <unk> 50.
57% year to date.
As Chris stated, we have seen tremendous growth in key nebula metrics, including number of users number of matters and active data hosting as Nebulae has gained in global traction in each of our regions around the world.
Our strategy and strong focus on managing costs down while still investing in our technology continues to deliver positive results.
Net loss improved 34% in the third quarter of 2023 compared to the third quarter of 2022 to $11 4 million from $17 4 million EBITDA and adjusted EBITDA results also saw significant gains in the third quarter of 2023 compared to the same quarter last year growing 173% and 41% risk.
Secondly, Q3, 2023, EBITDA was $13 9 million compared to Q3 2022 EBITDA of $5 1 million Q3, 2023, adjusted EBITDA was $15 9 million compared to Q3 2022, adjusted EBITDA of $11 3 million.
Additionally, our gross margin has improved significantly our Q3 2023 gross margin increased to 50% compared to 45% in Q3 2022, our year to date 2023 gross margin improved to 51%.
The last year of approximately 47%.
Our liquidity remains strong as our cash and cash equivalents were $25 million on September 30 of 2023, and we have nothing drawn on our $40 million revolving credit facility.
In closing while the market continues to be choppy, we are very happy with our strong financial results and the great job. Our team Mackenzie does every day as always we continue to be diligent agile and build upon our strong foundation and momentum I will now turn the call over to Chris for final comments Chris.
Thank you Dawn and I want to thank everyone for joining our call. This morning, and a special thanks to the greatest team in the E discovery and data recovered global industries <unk> Global family, one unique fingerprint everyone have a great day and thank you again.
Yeah.
Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect your lines.
Okay.
[music].
Okay.
Yeah.