Q4 2023 CS Disco Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to C. S Discos fourth quarter and fiscal year 2023 conference call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to CS Disco's fourth quarter and fiscal year 2023 conference call. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise.

At this time all participants are in a listen only mode.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to hand the conference over to your first speaker today, Head of Investor Relations, Alexei Lakshakov. Please go ahead.

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.

Alexei Lakshakov: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Disco's fourth quarter and fiscal year 2021. With me on today's call are Scott Hill, Disco's Chief Executive Officer, and Michael Affair, Disco's 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 our future performance, our future capital expenditures, market opportunity and market position, product strategy and growth opportunities, and developments in the legal technology industry. In addition to our prepared remarks, our earnings press release, FEC filings, and a replay of today's call can be found 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 statement.

May cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements.

Alexei Lakshakov: Overlooking statements represent our management's belief and assumptions only as of the date. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC on November 9, 2023, and the company's upcoming annual report on Form 10-K for the year In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to, and neither substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

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 in its filings with the SEC from time to time, including the section titled Risk factors and the company's quarterly report on Form 10-Q for the quarter ended September 30th 2023 filed with the SEC.

C on November 9th 2023, and the company's upcoming annual report on Form 10-K for the year ended December 31st 2023 in.

In addition, during today's call, we will discuss non-GAAP financial measures.

non-GAAP financial measures are in addition to another substitute for or superior to measures of financial performance prepared to the coordinates with gap.

Scott Anthony Hill: Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus the closest GAAP equivalents are available in our earnings release. And with that, I'd like to turn the call over to Alexi. Thanks, Alexi. Good afternoon, everyone, and thank you for joining us.

Conciliation between gap and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus the closest gap equivalents is available in our earnings release.

And with that I'd like to turn the call over to Scott.

Alexi good afternoon, everyone and thank you for joining us.

Scott Anthony Hill: I would like to start with a few comments on a strong end to 2023 before turning to our objectives for 2024. Fourth quarter total revenue increased 10% versus last year to $35.7 million. For the full year 2023, total revenue was $138.1 million, up 2% from the prior year. Software revenues, which include revenues from eDiscovery and other software product offerings, grew 5% to $29.3 million in the fourth quarter. For the full year, software revenues grew 3% to $112.3 million.

I would like to start with a few comments on a strong in the 2023 before turning to our objectives for 2024.

Fourth quarter total revenue increased 10% versus last year to $35.7 million.

Full year of 2023 total revenue was $138 $1 million up 2% from the prior year.

Software revenues, which include revenues from E discovery, and other software product offerings, 5% to $29.3 million in the fourth quarter.

For the full year software revenue grew 3% to $112.3 million.

Scott Anthony Hill: We had 1,441 customers as of December 31st, 2023, which is 9% more than a year ago. Importantly, we had nearly 300 customers that generated more than $100,000 in revenues in 2020, up 9% compared to 2022. The number of customers who generated more than $1 million in revenue also expanded to 26 during 2020.

We had 1400 41 customers as of December 31, 2023, which is 9% more than a year ago.

Importantly, we had nearly 300 customers that generated more than $100000 in revenues in 2023.

9% compared to 2022.

The number of customers, who generated more than $1 million in revenue also expanded the 26 during 2023.

Scott Anthony Hill: And finally, we saw the multiproduct attach rate improve to 15% at the end of 2023, up from 11% at the end of 2022. We have more customers spending more money and buying more of our products, and we believe there is meaningful room for additional expansion in our existing customer base. Services revenues, which include revenues from Disco Review and Professional Services, were $6.5 million in the fourth quarter. Full year services revenue was $25.8 million, flat from the prior year.

And finally, we saw multi product attach rate improved a 15% at the end of 2023 up from 11% at the end of 2022.

We have more customers spending more money and buy more of our products and we believe there is meaningful room for additional expansion in our existing customer base.

Services revenues, which include revenue from disco review and professional services, where $6.5 million in the fourth quarter.

Full year services revenue was $25.8 million flat from the prior year.

Scott Anthony Hill: Q4 2023 Adjusted EBITDA was negative one million dollars. Fiscal year 2023 adjusted EBITDA was negative $25.9 million. We ended the year with just under $160 million in cash on our balance.

Q4, 2023, adjusted EBITDA was negative $1 million.

Fiscal year 2023, adjusted EBITDA was negative $25.9 million.

We ended the year with just under $160 million in cash on our balance sheet.

Scott Anthony Hill: 2023 was a year of change for Disco, but we're pleased with the return to growth we saw within our software business throughout the year. As we turn to 2024, we are focused on continuing to re-accelerate our revenue growth, investing to enhance our software product offerings, including advancing our innovative Cecilia capabilities, and strengthening our operating framework to improve our efficiency and profitability. And importantly, under the strong leadership of our Chief Human Resources Officer, Karen Herkes, we are building a stronger cultural foundation that we believe will be critical to sustaining our success. Let's start with continuing to reaccelerate revenue. We struggled with a number of distractions during 2023, but I'm proud of how the team executed and delivered a solid end to the year.

2023, with a Europe changed for disco, but we're pleased with a return to growth we saw within our software business exiting the year is.

As we turn to 2024, we're focused on continuing to Reaccelerate our revenue growth.

Investing to enhance our software product offerings, including advancing are innovative cecilia capabilities and strengthening our operating framework to improve our efficiency and profitability.

And importantly, under the strong leadership of our Chief Human Resources Officer, Karen hurt because we are building a stronger cultural foundation that we believe will be critical to sustaining our success.

Let's start with continuing to Reaccelerate revenue.

We struggled with the number of distractions during 2023, but I'm proud of how the team executed and delivered a solid end of the year and importantly, I'm very confident that we have the leadership and team in place focused and motivated to build on that momentum.

Scott Anthony Hill: And importantly, I'm very confident that we have the leadership and team in place, focused, and motivated to build on that momentum. Of particular note, we're fortunate that Andrea Papaves agreed to step in as our Senior Vice President of Global Sales. Andrea brings over 30 years of experience in the legal industry across all segments, having led sales teams for over 20 years at LexisNexis and over seven years at Epic. She hit the ground running and has already improved and accelerated a number of our key initiatives.

Particular note, we're fortunate that Andrea pop of as agreed to step in as our senior Vice President of global sales.

Andrea brings over 30 years of experience in the legal industry across all segments, having led sales teams for over 20 years that lexis nexis and over seven years at epic.

She hit the ground at full sprint and has already improved and accelerated a number of our key initiatives. The great news is that we have always had a large addressable market a growing customer base and industry, leading products. I believe we are now developing and deploying the right sales approach to capture a greater portion of that signal.

Scott Anthony Hill: The great news is that we have always had a large addressable market, a growing customer base, and industry-leading products. I believe we are now developing and deploying the right sales approach to capture a greater portion of that significant opportunity. Entering 2024, we have taken a number of steps to improve our sales execution and drive our software dollar-based net retention back above 100% from 97% in exiting 2023. We have bifurcated our customers into specific profiles and are developing sales processes that better reflect the nature of those distinct groups. We've reorganized our sales team to reflect these groupings and their needs.

Opportunity.

Entering 2024, we have taken a number of steps to improve our sales execution and drive our software dollar based net retention back above 100% from 97% exiting 2023.

We are bifurcated, our customers and to specific profiles and are developing sales motions that better reflect the nature of those distinct groups.

We have reorganized our sales team to reflect these groupings and their needs.

Scott Anthony Hill: We've enhanced our sales plan, committed to a more constructive channel partnership, and refined our pricing strategy. We have also combined our services and customer success functions under Melanie Antone's leadership as our Chief Customer Officer to reposition customers at the center of what we do. We believe these initiatives will improve our customer satisfaction and NPS scores and enable consistent revenue growth across both existing and new customers. In support of these sales and customer initiatives, we are refining our investments in lead generation, marketing, and brand awareness, and we are already seeing signs of progress. Since the launch of the Lady J campaign last year, we have seen organic searches for Disco triple, and we have received over 10 million views and 32.8 million impressions across various platforms.

We have enhanced our sales plan committed to a more constructive channel partnership and refined our pricing strategy.

We have also combined our services and customer success functions under Melanie and tones leadership is our chief customer officer to reposition customers at the center of what we do we.

We believe these initiatives will improve our customer satisfaction and M. P. S scores and enable consistent revenue growth across both existing and new customers.

And supported these sales and customer initiatives, we're refining our investments and lead generation marketing and brand awareness.

And we are already seeing signs of progress.

Since the launch of the Lady J campaign last year, we have seen organic searches for disco Triple and we have received over 10 million views and 32.8 million impressions across various platforms.

Scott Anthony Hill: A third-party survey of over 1,000 U.S.-based legal professionals indicated that we are now the most cited e-discovery technology platform among all of our competitors. It's very common for us to hear new leads and customers mention the Lady J campaign as they first begin their disco journey. We must now do a better job in 2024 of converting this increased awareness into revenue. Our product and engineering teams are also doing a great job of supporting our sales efforts by continuing to enhance our industry-leading e-discovery offering at an unprecedented pace, while also further developing our market-leading Cecilia AI capabilities and our innovative legal platforms, including CaseBuilder, Hold, and Request. With Cecilia Q&A now generally available in the U.S., we were able to sign our first several customers.

A third party survey of over 1000 U S based legal professionals indicated that we are now the most cited E discovery technology platform among all of our competitors.

It's very common for us to hear new leads and customers mentioned, the Lady J campaign as they first began their disco journey.

We must now do a better job in 2024 of converting this increased awareness into revenue growth.

Our product and engineering teams are also doing a great job of supporting our sales efforts by continuing to enhance our industry, leading E discovery offering at an unprecedented pace. While also further developing our market, leading Cecilia AI capabilities in our innovative legal platforms, including.

<unk> builder hold and request.

With Cecilia Q&A now generally available in the U S. We were able to sign our first several customers. The customers were a combination of law firms and large corporate users and we are already hearing some great feedback.

Scott Anthony Hill: The customers were a combination of law firms and large corporate users, and we are already hearing some great feedback. It was exciting to hear the founding partner of a leading Houston-based law firm explain to us the benefits they were receiving from Cecilia. He mentioned they are using Cecilia on a very large database with over 1.4 million documents and a very tight deadline. They demonstrated to their end client how Cecilia could ultimately save them hundreds of working hours and help accelerate the speed and quality of the work at the same time. This partner also told us how he is able to use Cecilia to find answers to very specific questions with only a couple of clicks, while his team finds it far easier to get started and execute reviews with Cecilia.

It was exciting to hear the founding partner of a leading Houston based law firm explained to us the benefit they were receiving from Cecilia.

He mentioned they are using Cecilia on a very large database with over 1.4 million documents in a very tight deadlines.

They demonstrated their in client has affiliate could ultimately save them hundreds of working hours and help accelerate the speed and quality of the work at the same time.

This part are also told US how he himself is able to use cecilia to find answers to very specific questions with only a couple of clicks. While his team finds it far easier to get started and execute reviews with Cecilia.

Scott Anthony Hill: The early success we are seeing with Cecilia isn't expected to be a large contributor to our 2024 revenue, but it is certainly opening doors to new and existing customers and is laying the foundation for future growth by extending our lead and innovation in the legal industry. It also demonstrates why we believe it is imperative that we continue to invest to enhance our e-discovery offerings, including advancing our innovative Cecilia capabilities. During 2023, our product and engineering teams worked together to release major AI innovations, including Cecilia Q&A, which increases the efficacy and efficiency with which lawyers review documents, and Cecilia Timelines and Tagging, which enhance the way lawyers prepare cases. Our product and engineering teams have also been hard at work on Cecilia AutoReview, which is now in private testing and has the capability to significantly automate and improve the accuracy and quality of large, As we pivot to 2024, we expect the rate and pace of innovation to continue as we add additional skills to our Cecilia AI platform. We announced the launch of Cecilia Deposition Summaries at Legal Week in January. This generative, AI-driven solution enables legal professionals to automatically create deposition summaries, which have traditionally been a tedious and time-consuming task.

The early success, we received was Cecilia isn't expected to be a large contributor to our 2024 revenue, but it is certainly opening doors to new and existing customers and is laying the foundation for future growth by extending our lead and innovation and the legal industry.

It also demonstrates why we believe it is imperative that we continue to invest to enhance R. E discovery offering including advancing are innovative cecilia capabilities.

During 2023, our product and engineering teams work together to release major AI innovations, including Cecilia Q&A, which increases the efficacy and efficiency with which lawyers review documents and Cecilia timelines and tagging, which enhanced the way lawyers prepare cases.

A product and engineering teams have also been hard at work on Cecilia Auto review, which is now in private testing and has the capability to significantly automate and improve the accuracy and quality of large tedious document reviews.

As we tip at the 2024, we expect the rate and pace of innovation to continue as we add additional skills to our Cecilia AI platform, we announced the launch of fulfill your deposition summaries at legal week in January this.

This generative AI driven solution enables legal professionals to automatically create deposition summaries, which have traditionally been a tedious and time consuming task.

Scott Anthony Hill: Our team is also working to integrate the primary law asset, which we licensed in late 2023, into Cecilia, which will marry facts with law on a single technology platform for the first time. We anticipate launching primary law capabilities later this year. And while we're excited about Cecilia, the key to our success in 2024 remains our core eDiscovery software and services business. During the fourth quarter, we continued to deliver key functionality that our customers need, including deeper integration capabilities between Timelines and eDiscovery. New capability to track user activity and last accessed user information. Production Sharing, which allows lawyers to securely and easily send legal productions to a third party, and Work Product Permissions, which allows users to keep work confidential from document viewers such as expert witnesses. In January, our team delivered the ability to sort on a custom field, which is one of the most asked-for enhancements on our roadmap.

Our team is also working to integrate the primary law asset, which we licensed in late 2023, and the Cecilia, which will marry facts with law on a single technology platform for the first time, we anticipate launching primary law capabilities later this year.

And while we're excited about Cecilia the key to our success in 2024 remains our core E discovery software and services offerings.

During the fourth quarter, we continued to deliver key functionality that our customers need including deeper integration capabilities between timelines any discovery.

New capability to attract user activity and last accessed user information.

Production sharing which allows lawyers to securely and easily send legal productions to a third party.

And work product permissions, which allows users to keep work confidential from document viewers such as expert witnesses.

In January our team delivered the ability to sort unaccustomed field, which is one of the most ask for enhancements on a roadmap.

Scott Anthony Hill: Our product and engineering teams are extremely talented and dedicated, and I'm confident that 2024 will be another banner year in product development that will delight our customers, enable revenue growth, and strengthen the foundation of our future success. We're investing in local and global talent to supplement capacity while we continue to build a comprehensive litigation platform that we believe will truly transform the way legal work gets done. We believe we are positioned to return to meaningful growth with a much more precise focus on serving our customers. We will invest to solidify our technology footprint, enhance our core offerings, and build our lead in product innovation. We intend to do all of this while also focusing on the strength of our balance sheet and cash flow.

Our product and engineering teams are extremely talented and dedicated and I'm confident that 2024, it will be another banner year and product development that will delight, our customers enable revenue growth and strengthen the foundation of our future success, we are investing in local and globalized talent to supplement capacity, while we can.

<unk> to build a comprehensive litigation platform, which we believe will truly transformed the way legal work gets done.

We believe we are positioned to return to meaningful growth with a much more precise focus on serving our customers.

We will invest to solidify our technology footprint enhance our core offerings and build our lead and product innovation.

We intend to do all of this while also vigilantly focusing on the strength of our balance sheet and cash generation.

Scott Anthony Hill: In order to do that, we must strengthen our operating framework to improve efficiency and profitability by developing the processes, systems, and infrastructure necessary to scale efficiently and profitably. One important initiative that we will continue is expanding our presence in India to enable additional future efficiency. In 2023, we grew our employee headcount in India from zero to over 100 employees. We anticipate approximately 20% of our workforce will be based in India by the end of this year.

In order to do that we must strengthen our operating framework to improve our efficiency and profitability by developing the processes systems and infrastructure necessary to scale efficiently and profitably.

One important initiatives that we will continue is expanding our presence in India to enable additional future efficiencies in 2023, we grew our employee head count in India from zero to over 100 employees. We anticipate approximately 20 per cent of our workforce will be based in India by the end of this year.

Scott Anthony Hill: We're also working to enhance our CRM processes and systems and rebuild our customer success and sales operations function. We will enhance our security and controls capabilities and develop an improved quote-to-cash process, as well as enhance other key back-office processes and systems. These are critical initiatives that will enable our future ability to scale. Finally, while the board continues to evaluate a strong set of candidates to be Disco's next leader, I remain fully engaged as CEO, and I'm very excited about 2024.

Also working to enhance our CRM processes and systems and rebuild our customer success and fills up functions.

We will enhance our security and controls capabilities and develop unimproved quote to cash process as well as enhancing other key back office processes and systems. These are critical initiatives that will enable our future ability to scale.

Finally, while the board continues to evaluate a strong setup candidates to be Discos next leader I remain fully engaged the C E O and I'm very excited about 2024 as.

Scott Anthony Hill: As I enter my sixth month in the role, I want to reiterate some of the things I mentioned on the last earnings call over three months ago. I remain convinced of the amazing talent, the industry-leading products, the sizable market opportunity, and the strategic roadmap we have at Disco. I now believe we have also made significant and necessary improvements to our culture and our go-to-market approach. But something else has become clear in the time that I've spent in this role. We stopped investing in our people. We cut key sales functions and fuel capacity to save money without having a cohesive go-to-market strategy, and we reduced R&D capacity to the detriment of our product roadmap. We asked our GNA resources to work harder without addressing key systems and processes.

As I enter my six month in the role I want to reiterate some of the things I mentioned on the last earnings call over three months ago.

I remain convinced and the amazing talent the industry, leading products, the sizeable market opportunity and the strategic roadmap we haven't discussed.

I now believe we have also made significant unnecessary improvements to our culture.

And I'd go to market approach.

But something else became clear in the time that I've spent in this role.

We had stopped investing in our people.

We cut key sales functions and fuel capacity to save money without having a cohesive go to market strategy.

We reduced R&D capacity to the detriment of our product roadmap we.

We asked our G&A resources to work harder without addressing key system and process gap.

Scott Anthony Hill: Those actions pushed us closer to profitability, but not in a sustainable way. As I've said in my remarks this afternoon, we are going to invest in correcting those mistakes. We believe these investments, combined with re-accelerating revenue growth, will put us on a sustainable path to profitability during 2025. The opportunity is there. Now we have to act.

Those actions pushed us closer to profitability, but not in a sustainable way.

As I said in my remarks. This afternoon, we're going to invest in correcting those missteps.

We believe these investments combined with Reaccelerating revenue growth will put us on a sustainable path to profitability during 2025.

The opportunity is there now.

Now we have to execute.

Mike: With that, I'll turn it over to Mike. Thank you, Scott. In Q4 2023, total revenues were $35.7 million, up 10% year-over-year. Software revenues, which include revenues from eDiscovery and other software product solutions, were $29.3 million, up 5% year-over-year.

With that I'll turn it over to Michael.

Thank you Scott in Q4, 2023 total revenues were $35.7 million up 10.

10% year every year.

Revenues, which includes revenues from you discovery and other software products solutions for $29.3 million.

5% year over year Sir.

Mike: Services revenues, which include Disco Managed Review and Professional Services, were $6.5 million, up 37% year-over-year. Full-year 2023 revenues were $138.1 million, up 2% year-over-year. Software revenues were $112.3 million, up 3% from the prior year. Services revenues were $25.8 million, flat versus last year.

<unk> revenues, which includes described managed to review and professional services for $6 5 million up 37% year every year for year 2023 revenues were $138 $1 million up 2% year over year software revenues were $112.3 million up 3% from prior year.

Services revenues were 25.8 million black versus last year broken or professional services was offset by a year over year decline in revenues from our review product offering which resulted in flat performance.

Mike: Growth in our professional services was offset by a year-over-year decline in revenues from our review product offering, which resulted in flat performance. Total dollar-based net retention as of 2023 year-end was 92%, and, as Scott mentioned, software dollar-based net retention was 97%. In discussing the remainder of the income statement, please note that, unless otherwise specified, all references to our gross margin operating expenses and net loss are on a non-GAAP basis. Adjusted EBITDA is also a non-GAAP financial measure.

Total dollars net retention as of 2023, a year and was 92% and is Scott mentioned software one dollar base never Thompson was 97 per cent.

And discussing the remainder of the income statement. Please note that unless otherwise specified or references to our gross margin.

Writing expenses and that loss or on a non-GAAP basis.

EBITDA is also a non-GAAP financial measures are.

Mike: Our gross margin in Q4 was 76%, and our gross margin for fiscal year 2023 was 75%, in line with Q4 in fiscal year 2022. As we mentioned before, 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. Sales and marketing expense for Q4 was $13.0 million, or 36% of revenue, compared to 52% of revenue in Q4 of the prior year. For fiscal year 2023, sales and marketing expense was $62.1 million, or 45% of revenue, compared to 51% of revenue for fiscal year 2022, a decrease of over $6.5 million year-on-year. The decrease was primarily driven by a decrease in sales and marketing personnel costs.

Gross margin in queue for with 76% and gross margin for fiscal year 2023, 75%.

The line with Q4 in fiscal year 2022, as we mentioned before our gross margins fluctuate from period to period based on the nature of our customers usage for example, the amount and types of data ingests, It and managed on our platform.

Sales and marketing expense for Q4 was $13.0 million or 36% of revenue compared to 52% of revenue in Q4 of the prior year for fiscal year, 2023 sales and marketing expense was $62.1 million or 45% of revenue compared to 51% of revenue for fiscal year 2002.

22, a decrease of ever $6.5 million a year on year. The decrease was primarily driven by a decrease in sales and marketing personnel costs.

Mike: Research and development expense for Q4 was $8.7 million for 24% of revenue compared to 41% of revenue in Q4 of the prior year. For fiscal year 2023, research and development expenses were $42.3 million for 31% of revenue compared to 38% of revenue in fiscal year 2022, a decrease of over $8.8 million year-on-year. This decrease was primarily driven by a reduction in research and development personnel and a decrease in per employee cost as a result of globalization efforts.

Research and development expense for Q4 with $8.7 million for 24% of revenue compared to 41% of revenue in Q4 of the prior year for fiscal year 2023.

Search and development expenses were $42.3 million for 31% of revenue compared to 38% of revenue in fiscal year 2022, a decrease of ever $8.8 million year on year. This decrease was primarily driven by a reduction in research and development personnel and a decrease in per employee cost as a.

A result of globalization efforts.

Mike: General and administrative expenses in Q4 were $7.8 million, or 22% of revenue, compared to 20% of revenue in Q4 of the prior year. For fiscal year 2023, general and administrative expenses were $30.2 million, or 22% of revenue, consistent with general and administrative expenses as a percent of revenue in fiscal year 2022. General and administrative expenses were just about flat year on year.

General and administrative expense in Q4 was seven $8 million or 22% of revenue compared to 20% of revenue in queue for over the prior year for fiscal year, 2023, general and administrative expenses were $32 million or 22% of revenue consistent with general and administrative expenses per.

<unk> revenue in fiscal year 2022.

General and administrative expenses were just about spot year on year.

Mike: Operating loss in Q4 was $2.2 million, representing an operating margin of negative 6 percent compared to negative 37 percent in Q4 of the prior year. Operating loss for fiscal year 2023 was $30.5 million, representing a margin of negative 22 percent compared to negative 36 percent in 2022. Adjusted EBITDA was negative $1.0 million in Q4, representing an adjusted EBITDA margin of negative 3 percent compared to an adjusted EBITDA margin of negative 34 percent in Q4 of the prior year. Adjusted EBITDA for fiscal year 2023 was negative $25.9 million, a margin of negative 19 percent compared to a margin of negative 33 percent in 2022. The net loss in Q4 was $0.3 million or negative 1% of revenue compared to a net loss of $10.8 million or negative 33% of revenue in Q4 of the prior year. The net loss in fiscal year 2023 was $22.8 million or negative 17% of revenue compared to a net loss of $47.0 million or negative 35% of revenue in 2022. The net loss per share for fiscal year 2023 was $0.38 per share compared to $0.80 per share for fiscal year 2022.

Operating loss in queue for was $2.2 million, representing an operating margin of negative 6% compared to negative 37% in Q4 of the prior year operating loss for fiscal year, 2023 was $35 million, representing a margin of negative 22% compared to negative 36%.

In 2022 adjusted.

Justin EBITDA was negative 1.0 million in queue for representing an adjusted EBITDA margin of negative 3% compared to an adjusted EBITDA margin of negative 34% in Q4 of the prior year adjusted EBITDA in fiscal year, 2023 was negative $25 $90 million a margin of negative 19.

Percent compared to a margin of negative 33% in 2022.

Net locks in Q4 was zero point $3 million or a negative 1% of revenue compared to a net loss of $10.8 million or negative 33% of revenue in Q4 of the prior year net loss in fiscal year, 2023 was $22.8 million or negative 17% of revenue compared to net loss.

$47.0 million or a negative 35% of revenue in 2022.

Net loss per share for fiscal year, 2023 was 38 cents per share compared to 80 per share for fiscal year 2022.

Mike: Turning to the balance sheet and cash flow statement, we ended Q4 with $159.6 million in cash and cash equivalents and no debt. Operating cash flow in fiscal year 2023 was negative $25.5 million compared to negative $46.0 million in fiscal year 2022. Now, turning to the outlook. For Q1 2024, we are providing total revenue guidance in the range of $34.5 million to $36.5 million and software revenue guidance in the range of $29.5 million to $30.5 million. We expect adjusted EBITDA to be in the range of negative $8 million to negative $6 million.

Turning to the balance sheet and cash flow statement, we ended Q4 with $159 $6 million in cash and cash equivalents and know that operating cash flow in fiscal year, 2023 was negative $25.5 million compared to negative $46.0 million in fiscal year 2022 now.

Now turning to the outlook for Q1 2024, we are providing total revenue guidance in the range of $34.5 million to 36 5 million and software revenue guidance in the range of $29.5 million to $35 million, we expect adjusted EBITDA to be in the range of negative 8 million.

To negative $6 million.

For fiscal year 2024, we are providing total revenue guidance in the range of $143 million $255 million and software revenue guidance in the range of $120 million to $127 million, we expect adjusted EBITDA could be in the range of negative $26 million to negative $19 million, reflecting the inverse.

Operator: For fiscal year 2024, we're providing total revenue guidance in the range of $143 million to $155 million, and software revenue guidance in the range of $120 million to $127 million. We expect adjusted EBITDA to be in the range of negative $26 million to negative $19 million, reflecting the investments Scott previously discussed. Now I'd like to turn the call over to the operator to open up the line for Q&A. Operator?

<unk> Scott previously discussed now I'd like to turn the call over to the operator to open up the line for Q&A operator.

Thank you.

This time I would like to remind everyone in order to ask a question. Please press star one.

Yeah. Our first question comes from Scott bag with Needham and company. Please go ahead.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star one. Your first question comes from Scott Berg with Needham and Company. Please go ahead.

Hi, This is Ron really on for <unk>.

Thanks for taking my question you know as you guys touched on January 5th departure of Luke meals can you just touch on how you know if at all this has impacted your 2024 outlook or go to market motion for the year.

Rob Marellion: Hi, this is Rob Marellion for Scopper. Thanks for taking my question. You know, as you guys touched on in January, you announced the departure of Luke McNeil, CRO. Can you just touch on how, if at all, this has impacted your 2024 outlook and your go-to-market strategy? Hey Ramit, Scott.

Yeah, Hi, Robert Scott. Thanks for the question you know, we we were disappointed to have look the part, but I have to tell you that Andrea pop of US who stepped in his place got onboard remarkably fast I placed a phone call to her literally a week before I kick off a couple of weeks before.

Scott Anthony Hill: Thanks for the question. You know, we were disappointed to have Luke depart, but I have to tell you that Andrea Papaves, who stepped in his place, got on board remarkably fast. I placed a phone call to her literally a week before our kickoff, a couple of weeks before legal week, and you wouldn't know that she had just stepped into the role. You know, I think the fact that she's been in our industry for 30 years, 20 years at LexisNexis and seven at Epic really gave her a lot of forward momentum as she stepped into the role. And frankly, she picked up some of the good work that Luke had started with the broader sales team and has really helped us refine and enhance it.

Legal week and you wouldn't know that she had just stepped into the role.

I I think the fact that she has been in our industry for 30 years 20 years at at Lexis Nexis and seven at Epic really gave her a lot of forward momentum as she stepped into the role and frankly, she picked up some of the good work that Lou Kids started with with the broader sales team and has really helped us we're fine and enhanced.

And so I really don't feel like not only do I feel like we haven't lost a step I think we we have a little bit more forward momentum as we move into the year make no mistake a lot of the things that we've talked about in the call or things that we are just starting to deploy so we <unk> we had a good fourth quarter, a nice way to end the year.

You can see that our guidance is that we think will have a similarly, good start to the year, but those things aren't really driven by the initiatives that we're launching in deploying right now, but I have the utmost confidence in and Andrea and her leadership team and our team out in the field and inside sail across the board to go and do the things that are necessary to <unk>.

Scott Anthony Hill: And so I really don't feel like we haven't lost a step, but I think we have a little bit more forward momentum as we move into the year. Make no mistake, a lot of the things that we've talked about in the call are things that we are just starting to deploy. So we had a good fourth quarter, a nice way to end the year.

River revenue in the range that we provided for the year.

God, if it's helpful regarding Cecilia.

Scott Anthony Hill: You can see that our guidance is that we think we'll have a similarly good start to the year, but those things aren't really driven by the initiatives that we're launching and deploying right now. But I have the utmost confidence in Andrea and her leadership team and our team out in the field and inside sales across the board to go and do the things that are necessary to deliver revenue in the range that we have provided for the year. God, if it's helpful.

Great to hear some of the you know positive feedback to date you know any.

Update on the monetization strategy, there and when it comes to the Guy is there any sort of uplift or you know make.

Incremental answer a victim thanks.

Yeah as I mentioned in my prepared remarks that there's not a significant dependency on Cecilia revenue in 2024 per se, but as I noted she is definitely opening doors to not only existing customers who are looking at ways to extend their partnership with.

Scott Anthony Hill: And then regarding Cecilia, great to hear some of the positive feedback to date. You know, any update on the monetization strategy there? And when it comes to the guide, is there any sort of uplift or, you know, incremental ads there? Yeah, you know, as I mentioned in my prepared remarks, that there's not a significant dependency on Cecilia revenue in 2024 per se. But as I noted, she is definitely opening doors to not only existing customers who are looking at ways to extend their partnership with us, but also customers that maybe we've had before and are now open to coming back, new customers with whom we haven't spoken before. And so the impact of 2024, I think, is we're once again demonstrating what Disco started with, which is being the leading innovator in the space.

But also customers that maybe we've had before and I don't know open to coming back new customers with whom we haven't spoken before and so the impact on 2024 I think is once again, demonstrating what disco started with which is the leading innovator in the space and so customers want to talk to us.

About what we're doing and while we're in the room of course, we can talk to them about buying or a discovery platform. In the next case, we can talk to them about deploying case builder across the case, we can talk to them about our hold and I request offerings. So that's really the impact that Cecilia having now as I said, we do have some customers that are using phacelia right.

Scott Anthony Hill: And while we're in the room, of course, we can talk to them about buying our e-discovery platform for the next case. We can talk to them about deploying case builder across the case. We can talk to them about our hold and our request offering. So that's really the impact that Cecilia is having.

Now on cases, and who are paying nuts for for that and so I'm excited that that process has begun but there are a number of different ways you know Cecilia.

Think of her as a thing, but it's really the skills that matter you think about timelines, which are released and live in a part of our case builder Q&A, which is being used by paying customers today, but you've also got auto review or tagging coming down the line, which will I think greatly enhanced our customers.

Scott Anthony Hill: Now, as I said, we do have some customers that are using Cecilia right now in cases and who are paying us for that. And so I'm excited that that process has begun. But there are a number of different ways. You know, Cecilia.

Doing review, you've got the the deposition summaries that we announced it legal but that's not even fully launched to our customers yet that should be launched in the near future. So a number of different skills that enhance existing products enhanced existing workflows and I think.

Scott Anthony Hill: Think of her as a thing, but it's really the skills that matter. You think about timelines, which are released and live and a part of our case builder Q&A, which is being used by paying customers today, but you've also got auto review or tagging coming down the line, which will, I think, greatly enhance our customers doing reviews. You've got the deposition summaries that we announced at LegalWeek, but that's not even fully launched to our customers yet, and should be launched in the near future. A number of different skills that enhance existing products, enhance existing workflows, and I think provide a number of different opportunities for us to package, bundle, and price in a way that our customers will find really attractive. Contribution this year is a door opening. The contribution as we move into 25 and 26 is even more revenue growth opportunity because, frankly, we need that acceleration to continue to make the investments to innovate for our customers. Scott, if that's helpful, congratulations. Your next question comes from Mark Chappell with Loop Capital. Please go ahead.

A number of different opportunities first the package bundle in price in a way that our customers will find really attractive and so contribution. This year is door opening the contribution as we move into 25 and 26 is even more revenue growth opportunity because frankly, we need that acceleration to continue to make the <unk>.

Best Mets to innovate for our customers.

Kind of it's helpful. Congratulations on the corner.

Your next question comes from Marsha <unk>. Please go ahead.

Hi, This is <unk> one one for me <unk> with respect to your overall demand environment could could you provided an update on whether you're seeing any changes which are customers like over the past 90 days in terms of buying patterns sales cycles or any like additional sign also.

Tim Greaves: Hi, this is Tim Greaves on for Mark. One question for me, with respect to your overall demand environment, could you provide an update on whether you're seeing any changes with your customers, like over the past 90 days in terms of buying patterns, sales cycles, or any like additional sign-offs on deals closed? I wouldn't say that I've noticed any notable difference.

<unk> closed.

I wouldn't say that I've noticed any notable difference you know as I mentioned, we had a good end of the year. We've had a good start to really good January and moving into to February I think a good start to the quarter.

No I I don't know any particular change in terms of buying patterns, but again, what what I am noticing and I. Just spent I guess, it's now been two or three weeks ago, a little bit of time for the first time it at legal week, but our booth was buzzing and again I think it goes back to some of the innovative offerings that <unk>.

Scott Anthony Hill: As I mentioned, we had a good end of the year. We've had a good start to a really good January, and moving into February, I think a good start to the quarter. No, I don't know any particular change in terms of buying patterns, but again, what I am noticing, and I just spent, I guess it's now been two or three weeks ago, a little bit of time for the first time at Legal Week, but our booth was buzzing, and again, I think it goes back to some of the innovative offerings that we're talking about, and so what I'm seeing is an additional engagement, a re-engagement across existing and new customers that I'm excited about, again, that aren't necessarily yielding right into January and February, but I think certainly will allow us to accelerate as we move through the year. Okay, thank you. Your next question comes from David Hynes with Canaccord Genuity. Please go ahead.

We're talking about and so what I'm seeing is an additional engagement of reengagement.

Across existing and new customers that I'm excited about.

Again they'd been aren't necessarily yielding right into January and February, but I think certainly will allow us to accelerate as we move through the year.

Okay. Thank you.

Your next question comes from David Hines mechanically continue any please go ahead.

Hey, guys, Scott My <unk> I need to ask about customer adds right I mean, they were negative in queue for you added 10 customers in the back half of the year.

Just what's going on there I mean, it seems to be a market slowdown from what we saw in the first half of the year and I guess it begs the broader question of of.

David E. Hynes: Hey guys, Scott, Michael, I need to ask about customer ads, right? I mean, they were negative in Q4, but we added 10 customers in the back half of the year. Just what's going on there?

What's the best leading indicator that we should be paying attention to for the health of the business.

Yeah, I think that that's a really good question and it's an important one because.

I think historically, we've talked about customers as if they're all equal an equal opportunity equal future ability to grow equal interest in partnering and that's not what I've seen in the six months that I've I've been here I think there are certainly customers, where we have deep longstanding relationship.

Scott Anthony Hill: I mean, it seems to be a market slowdown from what we saw in the first half of the year. And I guess it begs the broader question of, what's the best leading indicator that we should be paying attention to for the health of the business? Yeah, I think that's a really good question. And it's an important one, because I think historically, we've talked about customers as if they were all, an equal opportunity, equal future ability to grow, and equal interest in partnering. And that's not what I've seen in the six months that I've been here.

<unk> shifts, but they're also customers, who who do a small case by a small deal in and then aren't with US you know two months later and so I've really asked the team to focus a lot inside that 1400 41 customers on who are the ones that we can grow with who are the ones that will partner.

Scott Anthony Hill: I think there are certainly customers where we have deep, longstanding relationships. But, you know, there are also customers who do a small case, buy a small deal, and then aren't with us, you know, two months later. And so I've really asked the team to focus a lot on those 1,441 customers on who are the ones that we can grow with, who are the ones that will partner with us, who are the ones that look to us for the second case and the fourth case and the sixth case. Because historically, what we know is if we can get a customer to a fifth or a sixth case, that's a sticky customer. And so I asked the team to look at the customers from the lens of, who are the customers we can grow to six cases? You know, it doesn't immediately go from one to six, but who's the one we can sell a second to? And if that second one comes, can it lead to a third?

With us who who are the ones that that look to us for the second case in the fourth case in the sixth game because historically, what we know is if we can get a customer to a fifth or a six case, that's a sticky customer.

And so I've asked the team to look at the customers from a lindz who are their customers. We can grow to six cases, you know it doesn't immediately go <unk>, but who's the one we can sell a second two and if that second one comes can it lead to a third and and can that put us on a path to a sick. So what that's gonna, Maine is from quarter to quarter I don't know that you.

Look at the customer count as particularly meaningful but it does matter a year over year, because we do need to grow customers and so I take solace in the fact that we're entering 2024 with 9% more customers than we had in the prior year, we're entering the year with 9% more customers spending more than $100000. We're entering.

Scott Anthony Hill: And can that put us on a path to a sixth? So, what that's going to mean from quarter to quarter, I don't know that you'd look at the customer count as particularly meaningful. But it does matter year over year because we do need to grow customers. And so I take solace in the fact that we're entering 2024 with 9% more customers than we had in the prior year. We're entering the year with 9% more customers spending more than $100,000. We're entering the year with 26 customers, which is up 10 or 12% from last year. It's three, it's up, you know, three customers, but they're spending a million dollars or more a year. That's the growth driver for us. And the thing it does is it makes us a little bit less transactional. Because to the extent that we can embed ourselves in a customer and grow with that customer, it becomes far more annuity-like. It's still transactional in nature, but the relationship becomes more annuity because there's a point in time at which we get the call on the next case. It's not a hard sell to win that case.

The year with 26 customers, which is up at 10 or 12% from last year. Three it is three guys were but they're spending a million dollars or more you. That's the growth driver for <unk> and the thing. It does is it makes us a little bit last transaction.

Because to the extent that we can embed ourselves in a customer and grow with that customer.

Comes far more annuity like it's still transaction in nature, but the relationship becomes more annuity because there's a point in time at which we get the call on the next case, it's not a hard sell the win that case and so over the course of the year growing our customer base absolutely important.

Is it out in any particular quarter, particularly and this is really important as where for the first time ever as a company.

Many of our customers and looking at Big law distinct for mid market law distinct from corporate law and developing sales motions around that deploying our sales team across that are lining our marketing spend with that there's gonna be some dynamics underneath the covers within that customer account and so what I would encourage you to.

Scott Anthony Hill: And so over the course of the year, growing our customer base, absolutely important in and out of any particular quarter, particularly, and this is really important as we're, for the first time ever as a company, segmenting our customers and looking at big law distinct from mid-market law, distinct from corporate law, and developing sales motions around that, deploying our sales team across that, aligning our marketing spend with that. There's going to be some dynamics underneath the covers within that customer count, and so what I would encourage you to do is watch the year-over-year growth for the full year. You know, ask about the trends as we move through the year, but know that what I think is really important is the fact that we've segmented the customers, we're developing the sales motion, and we're aligning soup to nuts, every bit of spend around the customer to serve that. I think those are the more meaningful metrics. And then, at the end of the day, the metric to watch is how revenue is trending. Okay, fair enough. Michael, one for you.

Do is watch the year over year growth for the full year, you ask about the trends as we move through the year, but know that what I think really important is the fact that we've segment of the customers were developing the sales motion where are lining soup-to-nuts every bit of spend around customer.

Serve that I I think those are the more meaningful metrics and then at the end of the day that the metric to watch it is how is revenue trending.

Yeah, Yeah, Okay fair enough.

Michael one for you.

Do you have software revenue for 21, and 22, I mean it'd be helpful to see how that has been trending as a percent of revenue given it looks like it's gonna be a new guidance metric.

Yeah. So we the the the K includes software revenue for 22 or 23 and I'll just tell you what it is on the call now it's it's about 112 million and that is that is in the K and you also have indicated quarterly numbers for 23.

But nothing historically pass beyond that.

Michael: Do you have software revenue for 21 and 22? I mean, it'd be helpful to see how that's been trending as a percent of revenue, given it looks like it's going to be a new guidance metric. Yeah, so the K includes software revenue for 22, well, 23. And I'll just tell you what it is on the call now. It's about 112 million. And that is what is in the K. And you also have in the K the quarterly numbers for 23, but nothing historically has passed beyond that. Nothing prior to 23.

Nothing prior to twenty-three.

Okay.

Got it thank you guys.

Again, if you would like to ask a question. Please press star one.

Your next question comes from <unk> with Bank of America. Please go ahead.

Hey, Scott Hey, Michael Thanks, Thanks for taking the questions. So just a couple from me here I think I heard that the <unk> I guess, it's safe to assume that the third quarter, 2020th <unk> EBITDA profitability.

Election target is now off the table, but I think he did mentioned something about 2025, so would that be EBITDA profitable for the full year 2025 or is that a quarter and 2025 that we've shown that positive inflection.

Michael: Okay. Got it. Thank you guys. Again, if you would like to ask a question, please press star 1. Your next question comes from Koji Ikeda with Bank of America. Please go ahead.

Koji Ikeda: Hey, Scott. Hey, Michael. Thanks for taking the questions. So just a couple from me here.

Yeah could you it's got its good question and not an unexpected one what I said precisely in my remarks is that it will put us on a sustainable and that's an important word to me a sustainable path to profitability as we move through 2025, so I didn't pick a quarter I didn't pick the year, what I'm, telling you is that I believe.

Scott Anthony Hill: I think I heard that the, or I guess it's safe to assume that the third quarter 2024 EBITDA profitability inflection target is now off the table. But I think you did mention something about 2025. So would that be EBITDA profitable for the full year 2025? Or is that a quarter in 2025 that would show that positive inflection? Yeah, Cody, it's Scott. It's a good question and not an unexpected one. What I said, precisely in my remarks, is that it will put us on a sustainable, and that's an important word to me, a sustainable path of profitability as we move through 2025. So I didn't pick a quarter; I didn't pick the year.

<unk> a combination of the investments we're making this year.

The acceleration in revenue, we're seeing this year and then an additional acceleration as we move out into 25 and beyond are the things that put us on track for a sustainable path to profitability. During 2025, again, I I'm not gonna pick the mark but it it it.

Again, just in case I need to say it on the record we have to get the profitability. We're committed to get there I just as I said did not want to cut off our ability to grow revenues and the balance the path to profitability and that's what we're doing so as we move into 2025 I think the investments we're making this year combined with accelerating revenue.

Scott Anthony Hill: What I'm telling you is that I believe a combination of the investments we're making this year, the acceleration in revenue we're seeing this year, and then an additional acceleration as we move out into 2025 and beyond are the things that put us on track for a sustainable path to profitability during 2025. Again, I'm not going to pick the mark, but again, just in case I need to say it on the record, we have to get to profitability. We're committed to getting there. I just, as I said, did not want to cut off our ability to grow revenues and balance the path to profitability, and that's what we're doing. So as we move into 2025, I think the investments we're making this year, combined with accelerating revenue growth, will put us on a sustainable path as we move through the year next year. I got it. No, that is super helpful.

Growth will put us on a sustainable path as we move through the year next year.

Got it now that that is super helpful and looking at the guidance in essence services revenue, which is described review is roughly flat for 2024, So I guess, maybe walk us through why it would be flat and <unk>.

Is services revenue going to be a drag on the business going forward and then the second part of that question is how is review priced because I was looking through prior transcripts.

Sounded like it it's priced on how many documents are interested in the platforms are just wondering why it was being put into a different category going forward.

Scott Anthony Hill: And looking at the guidance, it assumes services revenue, which is Disco Review, is roughly flat for 2024. So, I guess maybe you could walk us through why it would be flat, and is services revenue going to be a drag on the business going forward? And then the second part of that question is, how is review priced? Because I was looking through prior transcripts, and it sounded like it's priced based on how many documents are ingested into the platform. So, I was just wondering why it was being put into a different category.

Yeah. So it's a it's a good question. So I think the way to think about it is within services you have what what I'll call kind of the the get you up and running and argue discovery platform services and then you have a review services, which leverage our technology via tax rate of or get you up and running services.

Yeah, our professional services is what we call them things like ingest them and forensic those things tend to have a a pretty consistent attach right on our software revenue in and and so I say that and and you could barely imply that what that means is underneath the covers covers revenue is growing and services and down.

Scott Anthony Hill: Yeah, so it's a good question. So I think the way to think about it is, within services, you have what I'll call kind of the "get you up and running" services on our eDiscovery platform services, and then you have our review services, which leverage our technology. The attach rate of our get you up and running services, our professional services, what we call them, things like Ingest and Forensics, those things tend to have a pretty consistent attach rate on our software revenue. And so I say that, and you could fairly imply that what that means is, underneath the covers, revenue is growing in services and down a little bit in reviews. And that's an accurate directional conclusion for you to reach.

A little bit and and review and and that's that's an accurate directional conclusion for you to reach them.

The important thing, though is it it's not because the review is gonna be I think you used the word a drag on the business overall, but review has tended historically to be more episodic.

And it's tended to correlate much more significantly with larger deals while our services correlate with with our software revenue it doesn't matter small deal big deal. The attach right. It is more consistent one of the reasons, we broke out the two numbers as we wanted to give our investors a lot more clarity around the.

Scott Anthony Hill: The important thing though is it's not because review is going to be, I think you used the word drag on the business overall, but review has tended historically to be more episodic. And it's tended to correlate much more significantly with larger deals, while our services correlate with our software revenue. It doesn't matter, small deal, big deal; the attach rate is more consistent.

Lying strength of the thing that is key to our business, which is the software, but we will absolutely continue to offer a review services to clients, who want that again tends to be on the larger deal I think a really important point, though.

Scott Anthony Hill: One of the reasons we broke out the two numbers is we wanted to give our investors a lot more clarity around the underlying strength of the thing that is key to our business, which is the software. But we will absolutely continue to offer our review services to clients who want that, again, tends to be on the larger deals. I think a really important point, though... A lot of the costs associated with our review business are variable. There's very little fixed cost to our business from that. And so we love the big reviews when they come, but fundamentally believe that we can do them more efficiently, leveraging our software. We think it's an important offering to a very large addressable market.

A lot of the costs associated with a review business or variable, there's very little fixed cost to our business from that and so we we love the big reviews, when they come where we fundamentally believe that we can do them more efficiently leveraging our software. We we think it's an important offering into a very large addressing.

Market.

But again, it's it's right now the attach rate relates more to the larger deals as we move up the stack as we develop our sales motion around large law as we are big law as we develop our sales motion around corporate I believe our ability to win those larger deals will improve and as it does I think the review attach rate will start.

Look a little more consistent like a professional services, but as of now we effectively didn't want to lean into the year on whether that would or wouldn't happen quickly, but again, a key point for you to understand not a lotta fixed and I mean like one to 2 million bucks of fixed fees around that business. So now.

Scott Anthony Hill: But again, it's right now; the attach rate relates more to the larger deals. As we move up the stack, as we develop our sales motion around large laws or big laws, as we develop our sales motion around corporate, I believe our ability to win those larger deals will improve. And as it does, I think the review attach rate will start to look a little more consistent with our professional services. But as of now, we effectively didn't want to lean into the year on whether that would or wouldn't happen quickly.

A lot of fixed costs to continue to provide that service, where our customers want it.

Thank you Scott Thank you for taking the questions.

Your next question comes from France with cafes. Please go ahead.

Scott Anthony Hill: But again, a key point for you to understand, not a lot of fixed costs, and I mean, like one to two million bucks of fixed fees around that business. So not a lot of fixed costs to continue to provide that service where our customers want it. Thank you, Scott. Thank you for taking the time to answer the question. Your next question comes from Brent Thill with Jefferies. Please go ahead. Thank you, Scott and Michael, for taking my questions. This is Love Suda on for Brent Thill.

Thank you Scott and Michael for taking my questions. This is love soda on <unk> wanted to ask one so obviously E. You know <unk>.

<unk> has declined quite a bit to 92% versus 106% last year.

I guess yeah.

You know what are the key vectors to drive that back to above 100% and could you maybe break that down between say the volume of cases was driving up monkey product to adoption.

Love Suda: I wanted to ask one, so obviously, you know, dollar retention has declined quite a bit to 92% versus 106% last year. I guess, you know, what are the key vectors to drive that back to above 100%? And could you maybe break that down between, say, the volume of cases versus driving up multi-product adoption?

Yeah look I I I I think for me.

The fact that we're coming off a 97% software here is the lowest hanging fruit. We've got historically our D. N. R has been 115 hundred 20 per cent in the software business in order in order to hit the Guy who we've got to push that back to you know call. It 103 to 105 per cent this year, which isn't the goal. The goal is to get back where we've been here.

Scott Anthony Hill: Yeah, look, I think for me the fact that we're coming off a 97% software year is the lowest hanging fruit we've got. Historically, you know, our DNR has been 115, or 120% in the software business. You know, in order to hit the guy, we've got to push that back to, you know, call it 103 to 105% this year, which isn't the goal. The goal is to get back where we've been historically, where we know we can be. So, but it's just got to be a modest push.

Politically where we know we can be so but it it just gotta be amount is pushing and the way that's gonna happen.

Far greater focus.

On our existing customer base, it and that's why I say the inside that 1400 and 41, if not one large everybody's the same kind of customer there are a lot of big law customers and their their corporate and they're they're they're our mid market firms in there and I think our ability to go and find the right emotion in those segments is critically.

Scott Anthony Hill: And the way that's going to happen is a far greater focus on our existing customer base. And that's why I say that inside that 1,441, it's not one big firm; everybody's the same kind of customer. There are a lot of big law customers in there.

<unk> and another I think really important thing is we went from having a really strong customer success function, a coupla years ago to having no customer success function and Melanie and tone and on her team Justin and the two of them are are working well together have already reestablish that team and.

Scott Anthony Hill: There are corporates in there. There are mid-market firms in there, too. And I think our ability to go and find the right motion in those segments is critically important. And another, I think, really important thing is that we went from having a really strong customer success function a couple of years ago to having no customer success. And Melanie Antone and on her team, Justin, the two of them are working well together, and they have already reestablished that team.

So as I talk about the alignment of go to market.

<unk> and marketing sales ops wise, a big part in an important part of that team is the customer success option the client experience and so we've gotta get back to understanding who our customers are what their needs are and and looking as you said for the operative what's the next product Baker.

Scott Anthony Hill: And so as I talk about the alignment of go-to-market in the field, in marketing, and in sales operations, a big part and an important part of that team is the customer success function, the client experience. And so we've got to get back to understanding who our customers are, what their needs are, and looking, as you said, for the opportunity. What's the next product they could buy from us? What's the next case where we should have the opportunity? Can they leverage the Cecilia skills that are in the market? Do they need case builder to sit across all of their cases or one case in particular?

Buy from US what's the next case, where we should have the opportunity can they leverage. This is cilia skills that are in market do they need case builder to sit across all of their cases or one case in particular.

Client success Rep that we have talking to those customers every week I think will be critical to that success and so for me.

Fact that we moved from 115 to 120 down to 97 is we frankly took our eye off the ball and the ability to push it back above 100 and back towards historical levels is basic blocking and tackling and I feel like we've taken the right steps again I caution that we just rebuilt that function over the last couple of months and and we're aligning now.

Scott Anthony Hill: The client success rep that we have talking to those customers every week, I think will be critical to that success. And so for me, the fact that we moved from 115 to 120 down to 97 is that we frankly took our eye off the ball. And the ability to push it back above 100 and back towards historical levels is basic blocking and tackling.

How around our segmentation, but I fundamentally believe as we move through the year that alignment in that function in particular are going to be critical to our ability to really rebuild the or or.

Scott Anthony Hill: And I feel like we've taken the right steps. Again, I caution that we've just rebuilt that function over the last couple of months, and we're aligning now around our segmentation. But I fundamentally believe as we move through the year, that alignment and that function, in particular, are going to be critical to our ability to really rebuild or refresh that DNR number. Got it. Appreciate that.

Refresh that that DNR number.

Got it I appreciate that and just a quick follow up on on the investments that you're planning to make <unk> Scott.

Yes, you know, how rich, which parts of the business are getting this investment because obviously you were getting some efficiency from the additional investments in India. So.

Scott Anthony Hill: And just a quick follow-up on the investments that you're planning to make, Scott. I guess, you know, how, which, which parts of the business are getting this investment? Because obviously, you're getting some efficiency from the additional investment in India. So where are these investments going? And how will you track the efficiency of these investments? Yeah, so it's really multifaceted, as I said in my remarks, the first thing that the first investment we made was in our people. Last year was a difficult year for disco in any number of ways, but it was a year in which once again most of our people were simply asked to work harder with little to no reward. And so, as we moved into this year, for the first time in two years, we had a consistent salary increase program. It doesn't really impact our EBITDA numbers, but we also had an equity program that gave everyone in our company equity, which I think is the greatest thing in the world to align our employees' interests around what's best for the company.

Where are these investments going and how will you track the efficiency of these investments.

Yeah. So it it really it's multifaceted as I said in my remarks, the first thing the first investment we made was in our people.

Last year was a difficult year for disco in any number of ways, but it was a year in which once again most of our people were simply asked to work harder.

Little to no reward.

And so as we moved into this year for the first time in two years, we had a consistent salary increase program.

It doesn't really impact our EBITDA numbers, but we also had an equity program that they gave everyone in our company equity, which which I think is the greatest thing in the world to align our employees interests around the the what's best for the company. So that that's the first and and key thing for me is investing in our people.

Scott Anthony Hill: So that's the first and key thing for me is investing in our people. The second thing is, as I mentioned, we're rebuilding our client success team. We're rebuilding, literally from zero, our sales ops team. We're adding about 20% capacity in the field, going from, I think, around 30 reps to just under 40, which will allow us to serve more customers as we segment, particularly around corporate and big law. We're making investments in R&D because the flat reality is that most of what R&D is doing today is what will allow us to grow tomorrow. It's not about 2024. It's about deposition summaries. It's about the enhancement of our eDiscovery platform. It's about the enhancements in CaseBuilder.

The second thing is as I mentioned, we're rebuilding our client success team, we're rebuilding literally from zero our sales ops team, we're adding about 20 per cent capacity in the field going from I think around 30 reps to just under 40, which will allow us to cover more customers as we segment, particularly around corporate.

And and Big law, we're making investments in R&D because the the flat reality is that most of what R&D is doing today is.

Is what will allow us to grow tomorrow, it's not about 2024, it's about deposition somebody that's about the enhancement in our R. E discovery platform, it's about the enhancements and in case builder and in a world where you cut that because it doesn't line up with the current your revenue you effectively cutting your nose off despite your face.

Scott Anthony Hill: And in a world where you cut that because it doesn't line up with the current year's revenue, you're effectively cutting your nose off to spite your face. And so it's investments in R&D that are for the future. And then, Michael, I know this is near and dear to his heart. As you try and scale a business, you can't depend simply on people working harder. You have to have systems. You have to have processes. You have to have controls.

And so its investments in R&D that are that are in the future and then and and Michael I know this isn't as is near and Dear to his art.

As you try and scale of business you can't depend simply on people working harder you have to have systems. You have to have processes. You have to have controls you have to have security and we must make the investments that are necessary to do that the good news is the level of spending increased this.

Scott Anthony Hill: You have to have security, and we must make the investments that are necessary to do that. The good news is the level of spend increase this year versus last year isn't something you need to model as we move forward. I think what we're doing is recovering from a little bit of an overcorrection last year, getting back to balance this year, and then we'll be able to support double-digit revenue growth with low single-digit expenses and put ourselves on that sustainable path to profitability by doing that. So it really is investments across the board, but all of those are in line with what I said in the script, which is finding our way towards sustainable double-digit revenue growth, modest forward-looking investment, and an ability to get our business to be profitable and to have positive cash flow.

Versus last year is it something you need to go Madeline.

We move forward I think what we're doing is recovering from a little bit of of of.

And overcorrection last year getting back to balance this year, and then we'll be able to support double digit revenue growth with low single digit expense.

And put ourselves on that sustainable path to profitability by doing that so it really is investments across the board, but all of those are in line with what I said in the script, which is finding our way towards sustainable double digit revenue growth modest forward looking investment.

And the ability to get our business to profitable and a positive cash flow and and by the way. The last thing I'll say on that the way I look at it is.

Scott Anthony Hill: And by the way, the last thing I'll say on that, the way I look at it is if you take our guidance that, roughly speaking, that's about 15% of the cash that we had on the balance sheet at the end of the year, which if we left it sitting in the bank would earn about 4%, I think the return on the investment we're making will be significantly greater. I got it.

If you take our guidance that roughly speaking that's about 15 per cent of the cash that we had on the balance sheet at the end of the year, which if we left it sitting in the bank would earn about 4%.

I think the return on the investment, we're making will be significantly greater than that.

Got it. Thank you so much for the color.

Scott Anthony Hill: Thank you so much for the call. There are no further questions at this time. I will now turn it back over to CEO Scott Hill for closing remarks. Thank you, Brianna. We appreciate everyone joining us today. 2023, as I just said, was a challenging year for disco.

There are no further questions at this time I will now turn it back over to see Scott How's that closing remarks.

Thank you Brianna, we appreciate everyone joining us today 2023, as I, just said with a challenging year for disco.

I want to thank our employees for their resilience and our customers further forbearance. We're excited about the opportunities we see in 2024, there will be bumps on the road, but our team is aligned and focused we're committed to returning the consistent double digit growth.

Scott Anthony Hill: I want to thank our employees for their resilience and our customers for their forbearance. We're excited about the opportunities we see in 2024. There will be bumps on the road, but our team is aligned and focused. We're committed to returning to consistent double-digit growth, and to disciplined capital and expense management, leading to sustainable profitability.

<unk> the disciplined capital an expense management, leading the sustainable profitability, we're committed to our customers and to each other and I have to tell you I'm excited and proud to be a part of it as we begin the next chapter for disco, we look forward to updating you on the progress as we move into our next quarters and I wish you all a nice evening.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

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Operator: We're committed to our customers and to each other, and I have to tell you, I'm excited and proud to be a part of it as we begin the next chapter for Disco. We look forward to updating you on the progress as we move into our next quarters, and I wish you all a nice evening. This concludes today's conference call. Thank you for your participation. You may now disconnect. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.

Yeah.

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