Q1 2024 CS Disco Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by, and welcome to CS Disco's first quarter of fiscal year 2024 conference call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent any background noise.
Ladies and gentlemen, thank you for standing by and welcome to C. S. Just for.
Operator: First quarter of fiscal year 2024 conference call at this time all participants are in a listen only mode. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Operator: If you would like to withdraw your question again prestige star one.
Operator: I would like to now hand, the conference over to your first speaker today head of Investor Relations Alexia locked you Kos. Please go ahead.
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, again press the star 1. I would like to now hand the conference over to your first speaker today, Head of Investor Relations, Aleksey Lakchakov. Please go ahead.
Aleksey Lakchakov: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for Disco's first quarter of fiscal year 2024. With me on today's call are Scott Hill, Disco's incoming chair of the Board of Directors, Eric Friedrichson, Disco's Chief Executive Officer, and Michael Lafair, Disco's Chief Financial Officer.
Aleksey Lakchakov: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for fiscal first quarter of fiscal year 2024 with me on today's call are Scott Hill. This goes the incoming chair of the board of Directors, Eric Friedrichsen, Chief Executive Officer, and Michael look there.
Aleksey Lakchakov: Financial Officer.
Aleksey Lakchakov: Today's call will include forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and future performance, the impact of changes to our executive leadership, our future capital expenditures, market opportunity, market position, product strategy, and growth opportunities, the benefits of our product offerings, and developments in the legal technology industry, including those related to the role of artificial intelligence. In addition to our prepared remarks, our earnings press release, SEC filings, and a replay of today's call can be found on our investor relations website at ir.csdisco.com.
Aleksey Lakchakov: Today's call will include forward looking statements within the meaning of the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and future performance the impact of changes to our executive leadership of future capital expenditures market opportunity market position product strategy and growth.
Aleksey Lakchakov: The benefits of our product offerings and developments in the legal technology industry, including those related to the role of artificial intelligence.
Aleksey Lakchakov: Addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be found on our Investor Relations website at IR Dot <unk> dot com forward.
Aleksey Lakchakov: 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. Quality statements represent our management's belief 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 in the company's annual report on Form 10-K for the year ended December 31st, 2023, filed with the SEC on February 22nd, 2024, and the company's upcoming quarterly report on Form 10-Q for the quarter ended March 31st, 2024.
Aleksey Lakchakov: Forward looking statements involve known and unknown risks and uncertainties that may cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements.
Aleksey Lakchakov: These statements represent our management's beliefs and assumptions only as of the date made information on factors that could affect the Companys financial results is included in its filings with the SEC from time to time, including the section titled Risk factors in the company's annual report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 20 <unk>.
Aleksey Lakchakov: 2024, and the company's upcoming quarterly report on Form 10-Q for the quarter ended March 31 2024. In addition, during today's call. We will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP reconciliations between GAAP.
Aleksey Lakchakov: In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and the discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent are available in our earnings release. And with that, I'd like to turn the call over to Scott.
Scott: The non-GAAP financial measures.
Aleksey Lakchakov: And the discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release and with that I forgot to turn the call over to Scott.
Scott Anthony Hill: Thanks, Aleksey. Good afternoon, everyone, and thank you for joining us. I'm very excited that we are joined today by Disco's new CEO, Eric Friedrich. I noted on my very first call nearly eight months ago that I was committed to being Disco's CEO until we found an outstanding long-term solution. Eric is that person. The board conducted a global search and interviewed a diverse range of candidates to find a CEO to take Disco to the next level.
Scott: Thanks, Alexie good afternoon, everyone and thank you for joining us I'm very excited that we are joined today by Discos, New CEO Eric Friedrichsen.
Scott Anthony Hill: Noted on my very first call nearly eight months ago that I was committed to be disco CEO until we found an outstanding long term answer Eric is that person.
Scott Anthony Hill: The board conducted a global search and interviewed a diverse range of candidates to find a CEO to take this go to the next level.
Scott Anthony Hill: We took our time to find a person who we believe can enable disco's long-term success. Eric stood out above everyone else. His experience scaling global software companies, leading complex sales functions, developing best-in-class products, and enhancing the customer's voice, combined with a deep commitment to building and leading a collaborative and healthy culture, made it clear that he was the right person for the job. Eric is uniquely positioned to lead Disco into its next stage, which we believe will be characterized by a strong company culture, a return to consistent growth, and improved profitability and shareholder
Scott Anthony Hill: We took our time to find the person who we believe can enable this goes long term success.
Scott Anthony Hill: Eric stood out above everyone else.
Scott Anthony Hill: His experience scaling global software companies, leading complex sales functions developing best in class products and elevating the customers voice combined with a deep commitment to building and leading a collaborative and healthy culture made it clear that he is the right person for the job.
Scott Anthony Hill: Eric is uniquely positioned to lead this go into its next stage, which we believe will be characterized by a strong company culture are returned to consistent growth and improved profitability and shareholder returns.
Scott Anthony Hill: I'm excited at the prospect of working closely with Eric as the chair of Disco's board of directors to help support him and the Disco team who have come to mean so much. Before we discuss our first-quarter performance, I want to give Eric an opportunity to introduce himself.
Speaker Change: Excited at the prospect of working closely with Eric as the chair of <unk> Board of directors to help support him and the <unk> team who have come to me so much to me.
Speaker Change: Before we discuss our first quarter performance I want to give Eric an opportunity to introduce himself.
Eric Friedrichson: Thank you, Scott. And hello, everyone.
Scott Anthony Hill: Eric.
Eric: Thank you Scott and Hello, everyone I'm very happy to be here.
Eric Friedrichson: I'm very happy to be here. I just want to start by taking a moment to thank you, Scott. Your leadership over the past eight months has been both stabilizing and inspirational. I am very appreciative. In fact, we're all very appreciative of everything that you've done to help lead the team through this difficult period. So, thank you, for the rest of you, as a quick introduction.
Eric Friedrichsen: I just wanted to start by taking a moment to thank you Scott your leadership over the past eight months has been both stabilizing and inspirational.
Eric Friedrichson: I am very appreciative in fact, we're all very appreciative with everything that you've done to help lead the team through this difficult period. So thank you Scott for the rest of you as a quick introduction.
Eric Friedrichson: For the past four years, I served as the CEO of Inverse, the world's largest independent provider of travel and expense software. During my time at Embers, we more than doubled the revenue to over $250 million while improving gross margins, expanding the employee population, and becoming a very healthy and profitable business. Prior to Inverse, I spent over 25 years leading large organizations in general management, sales, services, and technology, most notably at Adobe, SAP, and Concur.
Eric Friedrichson: For the past four years I served as the CEO of <unk>, the world's largest independent provider of travel and expense software.
Eric Friedrichson: During my time at inverse we more than doubled the revenue to over $250 million.
Eric Friedrichson: While improving gross margins expanding the employee population and becoming a very healthy and profitable business.
Eric Friedrichson: Prior to <unk> I spent over 25 years, leading large organizations in general management sales services and technology.
Disco: Most notably at Adobe SAP, and concur and now I am honored to become the CEO of disco.
Eric Friedrichson: And now, I am honored to become the CEO of Disco. I have already met and spent time with their senior leadership, as well as many key employees and a handful of loyal and valued customers. The first thing I'd like to say is that the disco team should be very proud of everything that they've accomplished, including growing a business to over $130 million in revenue in 2023. With strong gross margins, over 1400 customers, and industry-leading products, it is not a simple task, but even more so at Disco. We are at the precipice of a truly revolutionary. Every industry is evolving due to the advent of generative AI, but we all know that.
Eric Friedrichson: I've already met and spent time with our senior leadership as well as many key employees and a handful of loyal and valued customers.
Eric Friedrichson: The first thing I'd like to say is that the <unk> team should be very proud of everything that they've accomplished.
Eric Friedrichson: Growing our business to over $130 million in revenue in 2023 with strong gross margins over 4500 customers and.
Eric Friedrichson: And industry, leading products is not a simple task.
Eric Friedrichson: But even more so at disco.
Eric Friedrichson: We are at the precipice of a truly revolutionary change.
Eric Friedrichson: Every industry is evolving due to the advent of generative AI, we all know that.
Eric Friedrichson: But the legal industry is the one that stands to benefit the most from this technological advancement. Whether it's the process of document review, legal research, brief writing, or even legal advice, every area of the legal workflow will be impacted by AI. Disco stands at the vanguard of legal technology because of the vision of our employees and our leaders to invest in and develop the technologies to take advantage of this exact. The foundation of Disco is strong.
Eric Friedrichson: But the legal industry is the one that stands to benefit the most from this technological advancement.
Eric Friedrichson: Whether it's the process of document review legal research brief writing or even legal advice every area of the legal workflow will be impacted by AI.
Eric Friedrichson: Disco stands at the Vanguard of legal technology, because of the vision of our employees and our leaders to invest and develop the technologies to take advantage of this exact moment.
Eric Friedrichson: Foundation of <unk> is strong.
Eric Friedrichson: And with focus and collaboration, we will achieve remarkable things. So, as you know, I am just getting started, but I look forward to meeting all of you and our investor base and providing more updates on our strategy and our accomplishments in future earnings calls. Thank you, everyone, and now I'll turn it back over to Scott.
Eric Friedrichson: And with focus and collaboration we will achieve remarkable things.
Scott: So as you know I am just getting started but I look forward to meeting all of you in our investor base and providing more updates on our strategy and our accomplishments in future earnings calls.
Eric Friedrichson: Thank you, everyone and now I'll turn it back over to Scott.
Scott Anthony Hill: Thanks, Eric, and welcome aboard. Now, let's dive into our solid performance during the first quarter of 2024. Total revenue for the first quarter of 2024 was $35.6 million, up 7% versus the same quarter last year. Software revenue in Q1 grew 9% over the prior year to $29.9 million.
Scott: Thanks, Eric and welcome aboard now, let's dive into our solid performance during the first quarter of 2024.
Scott Anthony Hill: Total revenue for the first quarter of 2024 was $35 $6 million up 7% versus the same quarter last year.
Scott Anthony Hill: Software revenue in Q1 grew 9% over the prior year to $29 9 million, notably.
Scott Anthony Hill: Notably, software revenue and revenue growth each accelerated sequentially for the third consecutive quarter. Services revenue was $5.7 million in the first quarter, and Justin Iveda with negative $5.2 million, an improvement of $7.8 million year over year. We ended the first quarter with around $149 million of cash, no debt, and 1,442 customers, up 4% from this time a year ago.
Scott Anthony Hill: <unk> software revenue and revenue growth each accelerated sequentially for the third consecutive quarter.
Scott Anthony Hill: Services revenue was $5 7 million in the first quarter.
Scott Anthony Hill: And adjusted EBITDA was negative $5 2 million, an improvement of $7 $8 million year over year.
Scott Anthony Hill: We ended the first quarter with around $149 million of cash no debt and 40 842 customers up 4% from this time a year ago.
Scott Anthony Hill: As we've mentioned on Power Calls, we see opportunity to grow within our existing customer base while also continuing to add new, high-value customers. Of note, we're also evaluating the cost to acquire and retain some of our smaller customers. I am proud of the way our customer-facing teams executed over the last two quarters despite our internal challenges and even as we began the early stages of rebuilding and reorganizing many aspects of our go-to-market approach.
Scott Anthony Hill: As we've mentioned on prior calls, we see opportunity to grow within our existing customer base. While also continuing to add new high value customers of note. We're also evaluating the cost to acquire and retain some of our smaller customers.
Scott Anthony Hill: I am proud of the way our customer facing teams executed over the last two quarters, despite our internal challenges and even as we began the early stages of rebuilding and reorganizing many aspects of our go to market approach.
Scott Anthony Hill: Over the past few months, we have developed a much deeper understanding of our customers. That understanding has led to improved customer segmentation, a reassessment of our marketing and FDR investments, and a realization that we need to replenish and refresh our sales and customer success function. We're confident that these efforts will help us reaccelerate our growth in the medium term but acknowledge that all of the change is having a slight dampening effect in the second quarter.
Scott Anthony Hill: Over the past few months, we have developed a much deeper understanding of our customers that understanding has led to improved customer segmentation, a reassessment of our marketing and STR investments and a realization that we need to replenish and refresh our sales and customer success functions.
Scott Anthony Hill: We're confident that these efforts will help us reaccelerate our growth in the medium term, but acknowledged that all of the changes having a slight dampening effect in the second quarter.
Scott Anthony Hill: Importantly, Eric is stepping into the CEO role at an auspicious time, given his demonstrated track record of leading high-performance go-to-market functions. His assessment and enhancement of our go-to-market redesign, combined with our loyal customer base and innovative product offerings, give us confidence in our ability to re-accelerate revenue growth, which will then enable improved profitability and enhanced shareholder returns. During the first quarter, our product and engineering teams further enhanced our innovative, generative AI offerings, even as they continue to develop additional features for our core eDiscovery platform.
Scott Anthony Hill: Importantly, Eric is stepping into the CEO role at an auspicious time, given his demonstrated track record of leading high performing go to market functions.
Scott Anthony Hill: His assessment and enhancement of our go to market redesign combined with our loyal customer base and innovative product offerings give us confidence in our ability to reaccelerate revenue growth, which will then enable improved profitability and enhance shareholder returns.
Scott Anthony Hill: During the first quarter, our product and engineering teams further enhanced our innovative generative AI offerings, even as they continue to develop additional features for our core <unk> platform.
Scott Anthony Hill: As you may have seen, we just announced a new Cecilia AI feature called Doc Summaries. This is a generative AI tool that provides detailed and high-level takeaways from individual documents at a user's request with the simple click of a single button on the Disco dashboard. The reality in a review process is that many of the documents lawyers review might be dozens of pages long or in foreign or esoteric language. It slows down the review and can be overwhelming for the person going through the process.
Scott Anthony Hill: As you May have seen we just announced our newest phacelia AI feature called Doc summaries. This.
Scott Anthony Hill: This is a generative AI tool that provides detailed and high level takeaways of individual documents at a users' request with a simple click of a single button on the disco dashboard.
Scott Anthony Hill: The reality in our review process is that many of the documents lawyers review might be dozens of pages long or in foreign or esoteric language. It slows down the review and can be overwhelming for the person going through the process.
Scott Anthony Hill: Doc Summaries was designed to overcome all of those hurdles and provide an immediate, punchy summary of an individual document, enhancing the speed of a lawyer's workflow and review process. We're excited to bring this capability to our customers at no charge to supplement our large-scale document summary skill embedded in our Cecilia platform. Next, we're excited about Cecilia Otto Review. I hinted at this feature on the last earnings call, and it is now being demoed with a small number of customers.
Scott Anthony Hill: <unk> was designed to overcome all of those hurdles and provide an immediate punchy summary of an individual document enhancing the speed of our lawyers workflow and review process.
Scott Anthony Hill: We're excited to bring this capability to our customers at no charge to supplement our large scale document summary skill embedded in our fulfill your platform.
Scott Anthony Hill: Next we are excited about the failure Auto review I hinted at this feature on the last earnings call and it is now being demoed with a small number of customers.
Scott Anthony Hill: Cecilia Autoreview leverages Disco's AI to allow lawyers to set parameters that are then used to tag relevant documents in a case database. This is a core element of the legal review process to identify the most relevant documents for a given case. The task typically takes several lawyers and hundreds of hours to go through terabytes of data and manually tag thousands of documents. In one example, Cecilia Auto Review assessed 9,000 documents in a live customer database in two hours.
Scott Anthony Hill: Julia Auto review Leverages <unk> AI to allow lawyers to set parameters that are then used to tag relevant documents in a case database.
Scott Anthony Hill: A task that would have required as much as 200 hours to manually complete. Importantly, the Cecilia results match well over 90% of the results from the actual human review, and the customer acknowledged that in the small number of mismatches, it's probable that the Cecilia results were more correct.
Scott Anthony Hill: This is a core element of the legal review process to identify the most relevant documents for a given case.
Scott Anthony Hill: Past typically take several lawyers and hundreds of hours that go through terabytes of data and manually tagged thousands of documents.
Scott Anthony Hill: In one example, phacelia auto review assessed 9000 documents in a live customer database in two hours.
Scott Anthony Hill: Past that would have required as much as $200 to manually complete.
Scott Anthony Hill: Importantly, this ophelia results matched well over 90% of the results from the actual human review and the customer acknowledged that in a small number of mismatches. It's probable that the Cecilia results were more correct.
Scott Anthony Hill: Imagine the significant improvement to lawyers' efficiency and how much additional time they will have to spend on building a strong case as opposed to reviewing a high volume of irrelevant documents. We're excited about this next Cecilia skill, and we'll have more updates on Cecilia Auto Review in the coming quarter. Even as we continue to develop new Cecilia skills, we remain focused on enhancing our core e-discovery platform. A feature called Data Type and Custom Fields was among the many new features we delivered to our customers during this past quarter.
Scott Anthony Hill: Imagine the significant improvement to lawyers efficiency and how much additional time, they will have to spend on building a strong case as opposed to reviewing a high volume of irrelevant documents.
Scott Anthony Hill: We're excited about this next fulfill your skill and we'll have more updates on Cecilia Auto review in the coming quarters.
Scott Anthony Hill: Even as we continue to develop new Cecilia skills, we remain focused on enhancing our core E discovery platform that.
Scott Anthony Hill: Feature called data types and custom fields was among the many new features we delivered to our customers during this past quarter.
Scott Anthony Hill: With this functionality, users can effectively search and sort custom fields, unlocking the full potential of Disco's search functionality. With support for key data types like DateTime, TextList, Integer, Boolean, and FreeText, this update empowers users to streamline their data management process for any field, standard, or custom, enabling more intuitive and efficient eDiscovery workflows. Although a more technical feature, this has been one of the most requested enhancements from our customers, and we have already had a number of those customers request that we enable this capability on all of their matters.
Scott Anthony Hill: With this functionality users can effectively search and sort custom field unlocking the full potential of this go search functionality.
Scott Anthony Hill: With support for key data types like daytime text list integer Boolean and free text. This update empowers users to streamline their data management process for any field standard or custom, enabling more intuitive and efficient E discovery workflows.
Scott Anthony Hill: Although a more technical feature this had been one of the most requested enhancements from our customers and we have already had a number of those customers request that we enable this capability on all of their matters.
Scott Anthony Hill: We believe our continuous platform enhancements and product releases, coupled with our deep understanding of legal workflow, UI, and architectural efficiency, provide customers with technology solutions that enhance their ability to produce the best legal outcomes for their clients. Our platform is efficient, scalable, and fast. In March alone, over 1.2 billion pages were produced on the platform. And at the peak, over 51.6 million pages were produced in a single hour.
Scott Anthony Hill: We believe our continuous platform enhancements and product releases, coupled with our deep understanding of legal workflow UI and architectural efficiency provide their customers with technology solutions that enhance their ability to produce the best legal outcomes for their clients.
Scott Anthony Hill: Our platform is efficient.
Scott Anthony Hill: <unk> and fab in.
Scott Anthony Hill: In March alone over $1 2 billion pages were produced on the platform and at the peak over $51 6 million pages were produced in a single hour.
Scott Anthony Hill: This highlights the scale of the Disco offering and the ability to leverage our cloud native platform to handle the largest matters with unparalleled efficiency. From my first day in this role, I have consistently stated my strong belief that Disco has the right people and products to re-accelerate growth and deliver profitability, positive cash flow, and enhance shareholder returns. We have analyzed our culture and go-to-market challenges and are developing action plans to materially improve both areas.
Scott Anthony Hill: This highlights the scale of the <unk> offering and the ability to leverage our cloud native platform to handle the largest matters with unparalleled efficiency.
Scott Anthony Hill: From my first day in this role I have consistently stated my strong belief that <unk> has the right people and products to reaccelerate growth and deliver profitability positive cash flow and enhance shareholder returns we have analyzed our culture and go to market challenges and are developing action plans to.
Scott Anthony Hill: <unk> improved both areas.
Scott Anthony Hill: The launch of our stock buyback program in March was a reflection of our belief that a stronger culture and better go-to-market, combined with our talented employees, industry-leading products, and large growing market opportunity, support our objective to generate meaningfully more value than is reflected in our current share price. We're confident that Eric's leadership and experience can help Disco realize that objective. With that, I'll turn it over to Mike.
Scott Anthony Hill: The launch of our stock buyback program in March was a reflection of our belief that a stronger culture and better go to market combined with our talented employees industry, leading products and large growing market opportunity support our objective to generate meaningfully more value than is reflected in our current share price, we're confident that Eric.
Mike: Leadership and experience can help this go realize that objective.
Mike: With that I'll turn it over to Michael.
Michael S. Lafair: Thank you, Scott. In Q1 2024, total revenues were $35.6 million, up 7% year-over-year. Software revenues were $29.9 million, up 9% year-over-year. Services revenues, which include Disco Manager Review and Professional Services, were $5.7 million, up 2% year-over-year. As Scott mentioned in his remarks, we are continually adding capabilities to our platform. This was an exciting quarter for us as we are starting to see contributions from Cecilia, which Scott previously discussed at length. Since beginning to introduce Cecilia to the market in December 2023, we've been adding new customers at a healthy clip, which has been encouraging.
Mike: Thank you Scott in Q1, 2024 total revenues were $35 6 million up 7% year over year software revenues were $29 9 million up 9% year over year services revenues, which include discount managed review and professional services were $5 7 million.
Michael S. Lafair: Up 2% year over year.
Michael S. Lafair: As Scott mentioned in his remarks, we are continually adding capabilities to our platform.
Michael S. Lafair: Was an exciting quarter for us as we are starting to see contributions from Cecilia, which Scott previously discussed at length.
Michael S. Lafair: At the beginning to introduce <unk> to the market in December 2023, we've been adding new customers at a healthy clip, which has been encouraging at this point Cecilia it's still an immaterial portion of the business, but we are starting to see signs of traction with our customer base in discussing the remainder of the income statement. Please note that unless other.
Michael S. Lafair: At this point, Cecilia is still an immaterial portion of the business, but we are starting to see signs of traction with our customer base. 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. Our gross margin in Q1 was 76%. 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.
Michael S. Lafair: 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.
Michael S. Lafair: Our gross margin in Q1 was 76% 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.
Michael S. Lafair: Sales and marketing expense for Q1 was $14.7 million, or 41% of revenue, compared to 53% of revenue in Q1 of the prior year. The year-over-year decline is predominantly due to headcount changes. Research and development expense for Q1 was $10 million, or 28% of revenue, compared to 39% of revenue in Q1 of the prior 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. General and administrative expenses in Q1 were $8.8 million, or 25% of revenue, compared to 26% of revenue in Q1 of the prior year. However, general and administrative expenses were relatively flat year over year.
Michael S. Lafair: Sales and marketing expense for Q1 was $14 7 million or 41% of revenue compared to 53% of revenue in Q1 of the prior year. The year over year decline is predominantly due to head count changes research and development expense for Q1 was $10 million or 28% of revenue compared to 39% of revenue in Q1 of the <unk>.
Michael S. Lafair: 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.
Michael S. Lafair: General and administrative expense in Q1 was $8 8 million or 25% of revenue compared to 26% of revenue in Q1 of the prior year General and administrative expenses were relatively flat year over year.
Operator: Operating loss in Q1 was $6.5 million, representing an operating margin of negative 18% compared to negative 42% in Q1 of the prior year. Adjusted EBITDA was negative $5.2 million in Q1, representing an adjusted EBITDA margin of negative 15% compared to an adjusted EBITDA margin of negative 39% in Q1 of the prior year. The net loss in Q1 was $4.7 million, or negative 13% of revenue, compared to a net loss of $12.1 million, or negative 37% of revenue, in Q1 of the prior year.
Michael S. Lafair: Operating loss in Q1 was $6 5 million, representing an operating margin of negative 18% compared to negative 42% in Q1 of the prior year.
Operator: Adjusted EBITDA was negative $5 2 million in Q1, representing an adjusted EBITDA margin of negative 15% compared to an adjusted EBITDA margin of negative 39% in Q1 of the prior year net.
Operator: Net loss in Q1 was $4 7 million or negative 13% of revenue compared to a net loss of $12 1 million or negative <unk>, 37% of revenue in Q1 of the prior year net loss per share for Q1 was <unk> <unk> compared to <unk> 20 per share for Q1 of the prior year, turning to the balance sheet and cash.
Operator: The net loss per share for Q1 was $0.08, compared to $0.20 per share for Q1 of the prior year. Turning to the balance sheet and cash flow statement, we ended Q1 with $148.7 million in cash and cash equivalents and no debt. Operating cash flow in Q1 was negative $7.3 million, compared to negative $14.8 million in Q1 of the prior year. Turning to the outlook, for Q2 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 million to $30 million.
Operator: Cash flow statement, we ended Q1 with $148 7 million in cash and cash equivalents and no debt operating cash flow in Q1 was negative $7 3 million compared to negative $14 8 million in Q1 of the prior year.
Operator: Turning to the outlook for Q2 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 million to $30 million, we expect adjusted EBITDA to be in the range of negative $7 5 million to negative.
Operator: We expect Adjusted EBITDA to be in the range of negative $7.5 million to negative $5.5 million. While we remain confident in our ability to accelerate our growth over the medium to long term, we did see some softness in the start of the second quarter, as Scott mentioned, which we expect will have an impact on our full-year numbers. For fiscal year 2024, we have narrowed our total revenue guidance range to $143 million to $151 million, and our software revenue guidance to the range of $120 million to $124 million.
Operator: Five 5 million.
Operator: While we remain confident in our ability to accelerate our growth over the medium to long term, we did see some softness in the start of the second quarter as Scott mentioned, which we expect will have an impact on our full year numbers for fiscal year 2024, we have narrowed our total revenue guidance range to $143 million.
Operator: $251 million and software revenue guidance to the range of $120 million $224 million. We continue to expect adjusted EBITDA to be in the range of negative $26 million to negative $19 million.
Operator: We continue to expect adjusted EBITDA to be in the range of negative $26 million to negative $19 million. Now, I'd like to turn the call over to the operator to open up the line for Q&A. Operator?
Operator: Now I'd like to turn the call over to the operator to open up the line for Q&A operator.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Scott Berg from Needham. Your line is open.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Operator: Your first question comes from the line of Scott Berg from Needham Your line is open.
Scott Randolph Berg: Hi, everyone. Thanks for taking my questions here. Eric, I guess, welcome to the company. Look forward to connecting in person. But I wanted to hear about what your first priorities are. Do you think over maybe the first 90 to maybe 180 days with the company?
Scott Randolph Berg: Hi, everyone. Thanks.
Scott Randolph Berg: Thanks for taking my questions here.
Scott Randolph Berg: Eric I guess welcome to the company and look forward to connecting in person, but I wanted to hear about what your first priorities or do you think over maybe the first 90.
Scott Randolph Berg: Maybe 180 days with CEO of the company.
Eric Friedrichson: Yeah, thanks, Scott. I really appreciate it. You know, I've got a very detailed plan for the next 90 days, very much focused on coming up to speed, as you can imagine, getting to know our people, our customers, our partners, our products, our business. It's going to be intense, and I'm going to be learning a lot very quickly. But I also want to be moving at a quick enough pace to make sure that we're driving the right focus and that we're taking advantage of the best opportunities that we possibly can.
Eric Friedrichsen: Yes, Thanks, Scott I really appreciate it.
Eric Friedrichson: Got a very detailed laid out plan over the next 90 days very.
Eric Friedrichson: Very much focused on coming up to speed as you can imagine.
Eric Friedrichson: Getting to know our people our customers our partners our products our business.
Eric Friedrichson: It's going to be intense I'm going to be learning a lot very quickly, but I also want to be moving at a quick enough pace to.
Eric Friedrichson: To make sure that we're driving the right focus and that were taking advantage of the best opportunities that we possibly can.
Eric Friedrichson: So it's funny because it's only been a week and a half, but I've already been able to attend my first board meeting, run my first company meeting, visit with our teams in both Austin and New York, and also spend time with five of our best customers. We're talking big, big law firms here in the U.S. along with some Fortune 100 companies. And that was a great experience, you know, really understanding the value that they're getting today out of disco products, and the opportunities they see for us to do more with them.
Eric Friedrichson: So.
Eric Friedrichson: It's funny, because it's only been a week and a half but I have already been able to join my first Board meeting run My first company meeting.
Eric Friedrichson: Visit with our teams in both Austin, and New York and also spend time with five of our best customers, we're talking to big Big.
Eric Friedrichson: Big law firms here in the U S along with some fortune 100 companies and that was great experience really understanding the value that theyre getting today at a disco products the opportunities they see for us to do more with them and interestingly there their desire to embrace AI. So I've got I've got a lot.
Eric Friedrichson: And interestingly, their desire to embrace artificial intelligence. So I've got I've got a lot of learning to do in the next several weeks. I'm going to be visiting teams in India and London and meeting with many more of our customers.
Eric Friedrichson: Learning to do the next several weeks I am going to be visiting teams in India and in London and meeting with many more of our customers and partners.
Eric Friedrichson: Okay.
Scott Anthony Hill: Great. And then I wanted to follow up on Scott and Michael's comments on softness in the quarter. Can you maybe double-click on that?
Eric Friedrichson: Great and then I wanted to follow up on Scott and Michael's comments on softness in the quarter.
Scott Anthony Hill: You, maybe double click on that and expand upon is it more on the services side, specifically within E discovery large customers small customers.
Scott Anthony Hill: Is it more on the service side? Is it specifically within eDiscovery, large customers, small customers? You know, any additional details there? Yes, Scott. Thanks.
Scott Anthony Hill: Additional details there would be helpful. Thank you, yes, Scott. Thanks, It's Scott I'll take that question and then Michael can chime in if he wants to add anything to it. So I think what youre seeing in the softness in the second quarter is very simply.
Scott Anthony Hill: It's Scott. I'll take that question. And then Michael can chime in if he wants to add anything to it. So I think what you're seeing in this office in the second quarter is, very simply, a minor impact from the reorganization we're doing on the sales side. As I've talked about on the last couple of calls, and particularly on the last call, we have, for the first time as a company, segmented our customers and started to develop an approach that is unique relative to what those customers look like, how they buy, their size, their, you know, the type of law they practice.
Scott Anthony Hill: Diner impact from the reorganization, we are doing on the sales side as I've talked about for the last couple of calls and particularly on the last call. We have for the first time as a company.
Scott Anthony Hill: Segmented our customers and started to develop an approach that is unique relative to what those customers look like how they buy their size, they're the type of law they practice.
Scott Anthony Hill: And we've effectively started to align our team in such a way that, for example, our field sales is now 100% focused on the AMLA 100 and large corporations and will drive a focus that will be supplemented by SDR investments and marketing investments. Meanwhile, our inside sales team is going to pick up some of the lower end of that group plus the mid-market. Some other parts of our inside sales team will pick up what I'll call the SMB elements of the market that we're going to approach.
Michael: And we've effectively started to align our team in such a way that for example, our field sales is now a 100% focused on the <unk> 100, and large corporations and will drive a focus that will be supplemented by SDR investments and marketing investments are inside.
Scott Anthony Hill: Sales team is going to pick up some of the lower end of that group plus the mid market.
Scott Anthony Hill: Our.
Scott Anthony Hill: Some other parts of our inside sales team will pick up the what I'll call. The SMB elements of the market that we're going to approach and so as we've reassigned people to those different roles. We allowed them through the first quarter to close open opportunities, we didn't want to leave money sitting on the table, but now they turn to what's next in <unk>.
Scott Anthony Hill: And so as we've reassigned people to those different roles, we allowed them through the first quarter to close open opportunities. We didn't want to leave money sitting on the table. But now they've turned to what's next in terms of their roles and their focus for that segmentation. For example, in big law and on the corporate side, those are relationships that take time to build, and the teams are just in the process of doing that.
Scott Anthony Hill: Turns of their roles in their focus for that segmentation.
Scott Anthony Hill: For example in big one on the corporate side those are relationships that take time to build and the teams are just in the process of doing that and so a little bit of softness in the quarter related to the reorganization, but the good news from my perspective. It is a very small step back that I think positions us for a really important large step forward.
Scott Anthony Hill: And so a little bit of softness in the quarter related to the reorganization. But the good news from my perspective is it's a very small step back that I think positions us for a really important big step forward once we've gotten this segmentation work done, our field resources reassigned and reestablished, and our marketing and our go-to-market investments really aligned with that segmentation. Excellent. Thanks for taking the
Scott Anthony Hill: Once we've gotten this segmentation work done our field resources reassigned and reestablished and our marketing and our go to market investments really aligned with that segmentation.
Scott Anthony Hill: Okay.
Speaker Change: Excellent thanks for taking my questions. Thanks, Scott.
Operator: Your next question comes from the line of Brian Essex from J.P. Morgan. Your line is open.
Scott Anthony Hill: Your next question comes from the line of Brian Essex from Jpmorgan. Your line is open.
Brian Essex: Hi, good afternoon. Thank you for taking the questions. I was wondering if you maybe could offer a little bit of insight into given some of the changes that you're currently going through both on the executive side as well as some of the changes that go into market initiatives. Thoughts on, you know, when you might start to see a meaningful level of acceleration on the top line and then any kind of, you know, benchmarking for your outlook to achieve, you know, profitability, and positive cash flow as a result of these changes.
Brian Lee Essex: Hi, good afternoon, and thank you for taking the questions.
Brian Essex: I was wondering if maybe you could offer a little bit of insight into given that given some of the changes that you're currently going through both on the executive side as well as some of the changes that go to market initiatives.
Brian Essex: That's on when you might start to see a meaningful level of acceleration on the top line and then any kind of.
Brian Essex: Benchmarking for your outlook to achieve profitability positive cash flow as a result of these changes.
Scott Anthony Hill: Yeah, so I don't want to put a timeline on it, but what I will say to you is that we've demonstrated that we can grow revenues on a sequential basis. We've done that for the last three quarters in software.
Speaker Change: Yes, so I don't want to put a timeline on it but what I will say to you is that we demonstrated that we can grow revenues on a sequential basis, we've done that for the last three quarters and software not only a $1 accelerated but growth has accelerated and despite the small backward.
Scott Anthony Hill: Not only have dollars accelerated, but growth has accelerated as well. And despite the small backward movement in 2Q dollars, the growth in 2Q software, if you look at the midpoint of our guidance, is 9%, which is consistent with what we did in the first quarter. I'm confident, as we've talked about, however, that the ability, and I said it on the last call, the ability for us to get back to 15, 20, 25 percent growth, which I think we're capable of, really depends on us refocusing on the right customers and approaching them in the right way.
Scott Anthony Hill: <unk> and <unk> dollars the growth in <unk> software. If you look at the midpoint of our guidance is 9%, which is consistent with what we did in the first quarter I am confident as we've talked about however that the $1 billion I said it on the last call the ability for us to get back to 15, 20, 25% growth, which I think we're capable of.
Scott Anthony Hill: Really depends on us refocusing on the right customers and approaching them in the right way and that's the investment that we're making I believe whether that begins to pay off later this quarter into the third quarter or later this year is harder to say, but there is no doubt in my mind that it will pay off and I am not sure week.
Scott Anthony Hill: And that's the investment that we're making. I believe, you know, whether that begins to pay off later this quarter or later this year is harder to say, but there's no doubt in my mind that it will pay off.
Scott Anthony Hill: And I'm not sure we could have a better time for Eric to join us. He brings a tremendous amount of background from a go-to-market standpoint. You know, he more than doubled the revenues at his last company. And so, as we've begun the early stages of making the changes in our go-to-market, Eric joins at a moment when he can help refine those, enhance those, and then accelerate them, so that not only will the payoff come faster, but I believe it'll be a multiple of what it would be without his...
Scott Anthony Hill: Could have a better time for Eric to join.
Scott Anthony Hill: Eric brings a tremendous.
Scott Anthony Hill: This amount of background from a go to market standpoint.
Scott Anthony Hill: He has more than doubled the revenues at his last company and so as we've begun the early stages of making the changes in our go to market Eric joined at a moment, where he can help refine those enhanced those and then accelerate them. So that not only will the payoff come faster, but I believe it will be a multiple of what it would be without.
Scott Anthony Hill: His leadership.
Eric Friedrichson: Yeah, and this is Eric. Let me just let me just jump in here, too.
Scott Anthony Hill: Yes. This is Eric let me just let me just jump in here too what I would say is that I have had the opportunity to spend quite a bit of time with our senior leadership team is involved in go to market.
Eric Friedrichson: What I would say is that I've had the opportunity to spend quite a bit of time with our senior leadership team that's involved in going to market. You know, Andrea, our SVP of sales, and Tom, our CMO, and Melanie, our chief customer officer. And I've really been very impressed at the work that they're doing to leverage data to understand where we have the most opportunity. As Scott has mentioned in the past, you know, 75 percent of our revenue comes in from our top customers. And then there are some of those outside the 75 percent that should be our top customers. There's a lot of opportunity there. And, you know, I've been doing this for a long time.
Eric Friedrichson: Andrea our SVP of sales and Tom our CMO, Melanie our chief customer officer, and I've really been so far very impressed at the work that they're doing to leverage data to understand where we have the most opportunity as Scott has mentioned in the past 75% of our revenue comes from our top customers and then there are some of those outside that.
Eric Friedrichson: 75% that should be our top customers there is a lot of opportunity there.
Eric Friedrichson: I've been doing this for a long time every successful organization that I've ever worked with over the last.
Eric Friedrichson: Every successful organization that I've ever worked with over the last three decades plus has started by doing a really good job of understanding their customers, segmenting those customers, and then allocating their resources to where they can generate the most value for the customers and the most revenue for the company. And I think we're on the right track. I think that we are segmenting in the right way, and we're gonna make investments in pursuing those customers and expanding within those customers, where we can really grow.
Eric Friedrichson: Three decades, plus has started by doing a really good job of understanding their customers segmenting those customers and then allocating our resources to where they can generate the most value for the customers and the most revenue for the company and I think we're on the right track I think that that that we are segmenting in the right way and we're going to make investments in.
Eric Friedrichson: In pursuing those customers and expanding within those customers, where we can really grow we're still going to be acquiring net new customers.
Eric Friedrichson: We're still gonna be acquiring new customers, but we're gonna be allocating a good share of our resources to where we think we can get the most revenue, which is in many of our biggest customers. And then I do wanna pick up on the part of your question I didn't answer because it is important.
Eric Friedrichson: But we're going to be allocating a good share of our resources to where we think we can we can get the most revenue which is in many of our biggest customers and then I do want to pick up on the part of your question I didn't answer because it is important and of tomorrow because of ours.
Scott Anthony Hill: And it's a focus of ours. Fundamentally, the way to sustainable profitability is by reenergizing our top line, and we're committed to doing that. I hope you'll notice that even with the slight reduction in revenue guidance, we held EBITDA, and that's because we are making the investments we need to make, but we're also finding ways to optimize as we reevaluate how to apply marketing and SDR and those types of investments and go to market.
Scott Anthony Hill: Fundamentally the way to sustainable profitability is by Reenergizing, our topline growth.
Scott Anthony Hill: And we're committed to doing that I hope, you'll you'll notice that even with a slight reduction in the revenue guidance, we held EBITDA and thats, because we are making the investments we need to make but we're also finding ways to optimize as we reevaluate how to apply marketing and SDR and those types of investments and go to market.
Scott Anthony Hill: And so our path to profitability is no different from what I said on the last call. This is the year of investment to get us back to growing. That growth, as you move into 25 and 26, is what will drive us not only to profitability but to sustainable and improving profitability.
Scott Anthony Hill: And so our path to profitability.
Scott Anthony Hill: No different than what I said on the last call. This is the year of investment to get us back to growing that growth as you move into 25% and 26 is what will drive us not only to profitability, but the sustainable and improving profitability.
Scott Anthony Hill: That's super helpful. And anyway, you can indicate, you know, 75% of your revenue from your top customers. What defines a top customer? And is there any way you can quantify, you know, how that cohort has been growing, maybe unit economics around that cohort?
Speaker Change: Got it Super helpful. In any way you can indicate that 75% of your revenue from your top customers. How do you define a top customer and is there any way you can quantify how that cohorts being growing maybe unit economics around that cohort.
Scott Anthony Hill: Yeah, so what Eric was referring to, if you look at our 10K, and we mentioned this on our last call, that we had nearly 300 customers that spent more than $100,000 with us over the full year of 2023, and it's that group of customers that make up 75% of our revenue. Of note, if you go back two years, that number has grown by over 30%. That's great news.
Scott Anthony Hill: Yes.
Scott Anthony Hill: What Eric was referring to if you look at our 10-K.
Scott Anthony Hill: And we mentioned this on our last call that we had nearly 300 customers that spent more than $100000 with us over the full year of 2023 units that group of customers that make up 75% of our revenue.
Scott Anthony Hill: Of note. If you go back two years that number has grown by over 30% Thats Great News, that's a super important metric for us because that means we are growing the wallet share at those nearly 300 customers. We also mentioned on the last call that we had customers who had spent.
Scott Anthony Hill: That's a super important metric for us because that means we are growing the wallet share at those nearly 300 customers. We also mentioned on the last call that we had customers who had spent more than a million dollars with us that were now in excess of 20. That growth has been a little bit less, but that again is a real opportunity for us because we aren't wallet share constrained. Those nearly 300 customers who spend over $100,000 are the next opportunity to spend over $1 million.
Scott Anthony Hill: More than $1 million with us that we're now in excess of 20.
Scott Anthony Hill: That growth has been a little bit less but that again is a real opportunity for us because we our wallet share constraint.
Scott Anthony Hill: Those nearly 300 customers, who spend over $100000 or the next opportunity to spend over $1 million and so we're very focused in how we deploy our sales resources towards those customers, who have the opportunity to grow with us and then doing to invest more with it. It's one of the reasons why am I.
Scott Anthony Hill: And so we're very focused on how we deploy our sales resources towards those customers who have the opportunity to grow with us and then to invest more in us. It's one of the reasons why, in my prepared remarks, I talk about the technology. You know, 1.2 billion pages, 51 million pages in an hour. Those are gee whiz facts.
Scott Anthony Hill: Prepared remarks, I talk about the technology.
Scott Anthony Hill: $1 2 billion pages 51 million pages and an hour those are G with facts, but what does it mean, what it means is our platform can scale. It can handle the largest matters, our customers' app and as we get that message out in front of the customers and build those relationships.
Scott Anthony Hill: But what does it mean? What it means is that our platform can scale. It can handle the largest matters our customers have, and as we get that message out in front of the customers and build those relationships, those are key metrics we're going to keep in front of you. Who's buying more than $100,000? Who's buying more than $1 million? That's where the growth is going to come from. Clearly, we're going to cover the entire customer base because there are opportunities inside the $1,400 where people could spend $1 million but aren't even at $100,000 yet. But, as Eric was mentioning, a key for us is focus. Figure out where the opportunity is, align the investment, align the resources, focus, and then go execute.
Scott Anthony Hill: Those are key metrics, we're going to keep in front of you who's buying more than 100000, who is buying more than $1 million, that's where the growth is going to come from clearly we're going to cover the entire customer base because there are opportunities inside the 1400, where people could spend $1 million that arent, even add 100000, yet, but as Eric was mentioning are key.
Operator: Okay, very helpful. Thank you very much.
Operator: For us its focus figure out where the opportunity is align the investment align the resource focus and then go execute.
Operator: Okay very helpful. Thank you very much.
Operator: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. Your next question comes from the line of Brent Thill from Jeffreys. Your line is open.
Operator: Again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Brent Thill from Jefferies. Your line is open.
Operator: Hello.
Alon Leone: This is Alon Leone on behalf of Brent Thill. Thank you for taking my question. The first one is for Eric. Nice to meet you. My question is if you could shed some light on what drew you to disco and maybe your vision for the company three to five years out.
Speaker Change: This is <unk> on for Brent Thill. Thank you for taking my question.
Alon Leone: The first one is to Eric.
Eric Friedrichson: It's very nice to meet you. Thank you.
Speaker Change: Nice to meet you. My question is if you could shed some color on what drew you to <unk> and maybe your vision for the company three to five years out.
Eric Friedrichson: You know, I've been super fortunate. I've worked with some great teams over the years and had some experiences that have put me in a position where I had a few choices, you know, a number of opportunities, and I could be a little selective about where I wanted to go next. And I really was looking for a company where I felt like there was significant growth, where there was a solid customer base, a strong set of differentiated products, and then a mission that I could get behind and a solid team of people. And so it was sort of a no-brainer, to be perfectly honest, to come to Disco.
Speaker Change: Sure very nice to meet you. Thank you.
Eric Friedrichson: I've been Super fortunate I've worked with some great teams over the years and had some experiences that.
Eric Friedrichson: Have put me in a position where I had a few choices.
Eric Friedrichson: So a number of opportunities and I could be a little selective about where I wanted to go next and I really was looking for a company where I felt like there was significant growth.
Eric Friedrichson: Whether it was a solid customer base, a strong set of differentiated products.
Eric Friedrichson: And then a mission that I could get behind.
Eric Friedrichson: And a solid team of people and so it was sort of a no brainer to be perfectly honest to come to <unk>.
Eric Friedrichson: I felt like we had really good people, loyal employees at Disco who, even though they've been through some tough times, they're committed to the future and they're passionate about the mission to make law better. We had some, you know; we've got products, they're state of the art, and they're only getting better. We've got new enhancements, new products coming out, and an industry-leading approach to AI that's differentiated from our competitors. And I think the other thing I liked about Disco is that the challenges that we have are ones that I have overcome time and time again.
Eric Friedrichson: I felt like we had.
Eric Friedrichson: Really good people.
Eric Friedrichson: Loyal employees at <unk>, who even though they've been through some tough times. They are committed to the future and they are passionate about the mission to make law better.
Eric Friedrichson: We had some we got products there is state of the art and they're only getting better we've got new enhancements new products coming out.
Eric Friedrichson: And an industry leading approach to AI, that's differentiated from our competitors.
Eric Friedrichson: And I think the other thing I felt about disco is the challenges that we've got are ones that I have overcome time and time again and I've got an incredible amount of confidence that that we can get back to a really significant growth trajectory here at disco, So I felt like the.
Eric Friedrichson: And I've got an incredible amount of confidence that we can get back to a really significant growth trajectory here at Disco. So I felt like the company is a really strong company, and the challenges that were ahead are ones that I've done before and I look forward to doing at Disco.
Eric Friedrichson: The company has a really strong company and the challenges that we're ahead are ones that I have done before and I look forward to doing a discount.
Eric Friedrichson: Super helpful caller. And just as a quick follow-up. When I look at the 2024 guide, given the softness embedded in 2Q and the tough comp in 4Q, what are you seeing in the business that gives you confidence in that full-year guide? More specifically, if you can shed some color around what you're seeing around pipeline activity and large customer usage, that would be super helpful.
Eric Friedrichson: Super helpful color and just as a quick follow up when.
Eric Friedrichson: When I look at the 2020 core guide given the softness embedded in <unk> and the tough comp in <unk>. What are you seeing in the business that gives you confidence in that full year guide more specifically if you can shed some color around what youre seeing around pipeline activity and large customer usage that would be super helpful. Thanks.
Scott Anthony Hill: Thanks. Yeah, thanks for the question. We'll continue to see.
Scott Anthony Hill: Yeah, thanks for the question. So we continue to see not only large customers engage but customers across the board. And Eric mentioned some of the reasons why. Even though Cecilia may not be a large revenue contributor for us yet, it is certainly a door opener. And so there are a lot of conversations that are initiated based upon, "Wow, this Cecilia thing looks really interesting. It looks like it could be truly transformative."
Speaker Change: Thanks for the question. So we continue to see not only large customers engaged with customers across the board and Eric mentioned some of the reasons why even though Cecilia may not be a large revenue contributor for us yet.
Scott Anthony Hill: It is certainly a door opener and so there are a lot of conversations that are initiated based upon while this is still you think looks really interesting and it looks like it can be truly transformative, let's have a conversation and so the inbound.
Scott Anthony Hill: Let's have Calls that we're taking from customers. Wanting to hear more about the generative AI offerings is really what encourages me. You know, and again, if you look at it, to get to the midpoint of the guide, we've got to accelerate about a million dollars a quarter for the next couple of. That, on average, is what we've done for the last three quarters, so it's not going to require anything that's necessarily outsized.
Scott Anthony Hill: Calls that we're taking from customers wanting to hear more about the generative AI offerings are really what encourages me and again, if you look at it to get to the midpoint of the guide we've got accelerated about $1 million a quarter for the next couple of quarters that on average is what we've done for the last three quarter.
Scott Anthony Hill: So it's not going to acquire something that's necessarily outsized again, we've got to work our way through this transition of the go to market and the reorganization of the sales team and realignment of investment that's kind of the risk, but I view that as more of an internal risk versus an external one in the sense of it.
Scott Anthony Hill: Again, we've got to work our way through this transition of the go-to-market and the reorganization of the sales team and realignment of investment. That's kind of the risk, but I view that as more of an internal risk versus an external one in the sense that it sets us up for external success, whether it's a month from now or three months from now, and so my confidence in the rest of the year really is embedded in some of the things Eric talked about.
Scott Anthony Hill: It sets us up for external success, whether it's a month and now we're three months from now and so my confidence in the rest of the year really is embedded in some of the things Eric talked about that people are focused and committed.
Scott Anthony Hill: The people are focused and committed. We've regained our innovation lead on the product side, which is opening doors to customer conversations, which I believe will lead to revenue growth and an acceleration of revenue in the back half of the year and, more importantly, into 2025.
Scott Anthony Hill: We've regained our innovation lead on the product side, which is opening doors to customer conversations, which I believe will lead to revenue growth and an acceleration of revenue in the back half of the year and more importantly into 2025.
Speaker Change: Perfect. Thanks.
Operator: And your final question comes from the line of Mark Schappel from Loop Capital. Your line is open.
Scott Anthony Hill: And your final question comes from the line of Mark Chapelle from Loop capital. Your line is open.
Mark William Schappel: Hi, thank you for taking my call. Eric, welcome, number one. And secondly, Scott, a question for you. I appreciate the color earlier on the new deposition summary tool, but in general, regarding your new AI products, I was wondering if you'd just provide some further insights into how you're thinking about monetizing those capabilities. I believe the deposition summary was free.
Mark William Schappel: Hi, Thank you for taking my call Eric Welcome number one.
Scott Anthony Hill: How are you thinking about monetizing the other tools?
Scott Anthony Hill: Secondly, Scott a question for you I appreciate the color earlier on the new deposition summary tool.
Scott Anthony Hill: But in general regarding your new AI products I was wondering if you just provide some further insights and how youre thinking about monetizing those capabilities I believe the deposition summary was no charge how are you thinking about monetizing.
Scott: The other tool sure yes. So thanks for the question and I appreciate it in particular, because I want to give a shout out to our product and engineering team.
Scott Anthony Hill: Yes, so thanks for the question, and I appreciate it in particular because I want to give a shout out to our product and engineering teams. Our Cecilia document summary capability is one that can handle a massive amount of data. Hundreds and thousands of documents that we can summarize for our customers. But what we were running into with the competition was, oh, but the competitor is giving me a document summary for free. And when we asked, well, what do you mean? How could they possibly be doing that?
Scott Anthony Hill: Our Cecilia document summary capabilities are ones that can handle a mass amount of documents are hundreds and thousands of documents that we can summarize for our customers.
Scott Anthony Hill: But what we were running into with competition is oh, but the competitors, giving me document summary for free and when we ask.
Scott Anthony Hill: What do you mean, how could they possibly be doing that what they meant was they would summarize a document porphyry.
Scott Anthony Hill: What they meant was they would summarize a document for free. And so we were competing in a world where we had built an industrial-scale capability. And competitors were offering single document summaries, which again, it's useful if I'm a lawyer and I don't want to read 12 pages; I can get a quick summary that's helpful. Our team measured the time from the time we got the feedback that that was an impediment to sales to the time we launched an offering to customers in four weeks.
Scott Anthony Hill: And I think that that demonstrates to you the remarkable capabilities of our technology, because we'll still happily sell you what we think is truly the more value add that can summarize many documents. But if what you need is something that can do one document, here it is for free.
Scott Anthony Hill: And so we were competing in a world, where we have built industrial scale capability.
Scott Anthony Hill: And competitors were offering single document summaries, which again, it's useful if I'm a lawyer and I don't want to read 12 pages I can get a quick summary, thats helpful. Our team in the course of four weeks from the time, we got the feedback that that was an impediment to sales to.
Scott Anthony Hill: So at the time, we launched an offering to customers with measured in four weeks.
Scott Anthony Hill: I think that demonstrates to you the.
Scott Anthony Hill: The remarkable capabilities of our technology, because we will still happily sell you. What we think is truly the more value add that can summarize many documents, but if what you need is something that can be one document here. It is for free don't let that be a hurdle to doing the deal with us and so as we think about the Cecilia.
Scott Anthony Hill: Don't let that be a hurdle to doing the deal with us. And so, you know, as we think about Cecilia's capabilities, the skills, as we refer to them, we think about them in kind of a twofold way. Number one, we clearly think of it as a way that our existing customers can get more value out of their relationship with Disco by leveraging things like Q&A or embedded in case builder timelines to do their work more efficiently.
Scott Anthony Hill: <unk> ziff's skills as we refer to them when we think about it in kind of a twofold way number one we clearly think of it as a way that our existing customers can get more value out of their relationship with disco by leveraging things like Q&A or embedded encase builder timelines to do their work more efficiently.
Scott Anthony Hill: We also believe that the innovation edge that we have in those products opens the door to new customers who want that efficiency, and we'll then move their cases and their databases onto our platform to be able to leverage it. And so we're still working our way through what the individual pricing versus the package pricing and the overall strategy will be, but it's certainly a place where we feel like it's a value pricing strategy and not one that simply chases the lowest dollar.
Scott Anthony Hill: We also believe that the innovation edge that we have in those products opens the door to new customers, who want that efficient.
Scott Anthony Hill: And we will then move their cases in their databases onto our platform to be able to leverage it and so we're still working our way through what the individual pricing versus the package pricing and the overall strategy will be but it's certainly a place where we feel like it's a value pricing strategy and not one that <unk>.
Scott Anthony Hill: Chases the lowest dollar.
Eric Friedrichson: Yeah, I'll just jump in on that too. This is Eric.
Scott Anthony Hill: Yeah, and I'll just jump in on that too this is Eric but I think.
Eric Friedrichsen: I am very optimistic about the cilia AI and all the capabilities and it's not just from seeing demos of the product Youre speaking with the <unk>, but it's from speaking with customers and understanding that they believe that AI is going to revolutionize revolutionize the industry at this point and just because you've got a significant leg up on the competition and it's all about the investment.
Eric Friedrichson: But, you know, I think I'm very optimistic about Cecilia AI and all its capabilities. And it's not just from seeing demos of the product or speaking with the Disco team, but it's from speaking with customers and understanding that they believe that AI is going to revolutionize the industry at this point. And, you know, Disco's got a significant leg up on the competition.
Eric Friedrichson: And it's all about the investment that we've made in AI for the past several years. We're far ahead when it comes to things like security, speed, reliability, and capabilities. The early feedback so far on Cecilia Q&A is very positive. We're starting to get some feedback on depositions and summer deposition summaries and automated review. And that's a pretty incredible opportunity, and some of these capabilities, particularly automated review, is one that I think about where.
Eric Friedrichson: We have made in AI for the past several years.
Eric Friedrichson: We're far ahead when it comes to things like security speed reliability capabilities.
Eric Friedrichson: The early feedback so far on to see a Q&A is very positive.
Eric Friedrichson: Trying to get some feedback in on deposition and summer deposition. Some reason automated review and that's a pretty incredible opportunity and some of these capabilities.
Eric Friedrichson: Particularly automated reviews, one that I think about where.
Eric Friedrichson: It's a game changer. The amount of time that we can save customers with AI is going to create opportunities for the customer to save money, and it's going to create opportunities for Disco to generate better markets.
Eric Friedrichson: It's a game changer the amount of time that we can save customers with AI is going to create opportunity for the customer to save money and it's going to create the opportunity for disco to generate better margins.
Michael S. Lafair: Then, one follow-up here, Michael, I was wondering if you could just address Churn in the quarter.
Speaker Change: Great. Thank you and then.
Speaker Change: Yes go ahead.
Michael: I wanted to follow up here, Mike I was wondering if could just address churn in the quarter.
Michael S. Lafair: Hey, Mark, thanks for the question. So, in terms of churn, I mean, we've previously disclosed our dollar-based net retention at the end of the year in the K, and obviously, you know, Q1 was a good quarter. We were pleased with the results. We would have preferred a bigger beat than we had.
Michael: Hey, Mark Thanks for the question. So in terms of churn I mean, we've previously disclosed our dollar based net retention at the end of the year in the K.
Michael S. Lafair: And we obviously.
Michael S. Lafair: Q1 was a good quarter, we were pleased with the results we would've preferred that are bigger a bigger beat then we had we were basically in line with the guidance.
Michael S. Lafair: And.
Speaker Change: We've discussed a little bit about some of the softness in Q2, but what I will tell you and I agree with everything Scott said, we feel really confident about the second half of the year and a lot of the investments that we've made at our steelmaking are going to pay off and get us back to where we can reaccelerate revenue, which also would lead to.
Michael S. Lafair: We were basically in line with the guidance. And, you know, we've discussed a little bit about some of the softness in Q2, but what I will tell you, and I agree with everything Scott said, we feel really confident about the second half of the year, and a lot of the investments that we've made and are still making are going to pay off and get us back to where we can reaccelerate revenue, which also would lead to improved dollar-based net retention numbers back to where they used to be.
Michael S. Lafair: Improved dollar based net retention numbers back to where they used to be.
Michael S. Lafair: And, Mark, just a couple of data points to reinforce that point. Customer count was up year over year and up a little bit, modestly, from where it was the prior quarter, and DNR also ticked up slightly from where it was at the end of the year. So each of those metrics, as Michael alluded to, suggests that, along with the revenue performance in the quarter, churn was modest and not really effective.
Speaker Change: Mark just a couple of data points to reinforce that point customer count was up year over year and up a little bit modestly from where it was the prior quarter and DNR also ticked up slightly from where it was at the end of the year. So each of those metrics as Michael alluded to suggest that that along with the revenue performance in the quarter suggests that the churn.
Michael S. Lafair: Was modest.
Michael S. Lafair: And not really a factor in the quarter.
Mark: Okay, great. Thank you.
Scott Anthony Hill: That concludes our question and answer session. I will now turn the call back over to incoming Chair of the Board of Directors, Scott Hill, for some final closing remarks.
Michael S. Lafair: That concludes our question and answer session I will now turn the call back over to incoming chair of the board of Directors Scott Hill for some final closing remarks.
Scott Anthony Hill: Thank you very much. Thank you all for joining our call today. When I stepped into the CEO role eight months ago, my goal was to stabilize the company and work with my disco colleagues to acknowledge and, more importantly, improve what was broken, reinvest in what was working, and recreate forward momentum. I want to thank all of my colleagues here at Disco who have leaned in and focused forward and helped us get the company back on the right track.
Scott Anthony Hill: Thank you very much. Thank you all for joining our call today, when I stepped into the CEO role eight months ago. My goal was to stabilize the company and work with my disco colleagues to acknowledge and more importantly, improve what was broken reinvest in what was working and recreate forward momentum.
Scott Anthony Hill: I want to thank all of my colleagues here at <unk>, who have leaned in and focused forward and helped us get the company back on the right track.
Scott Anthony Hill: Your commitment to our customers and our company inspires us. A lot of hard work remains to be done, but the opportunity is there for us to take it. Now we have to come together in action. I also want to thank our customers and investors for their patience and their loyalty. We're refocused on serving you and generating positive returns. Eric, welcome to the job. Anything you'd like to add?
Scott Anthony Hill: Your commitment to our customers and our company inspires me.
Eric Friedrichsen: A lot of hard work remains to be done, but the opportunity is there for us to take now we have to come together and execute I also want to thank our customers and investors for their patients and their loyalty. We're refocused on serving you and generating positive returns.
Scott Anthony Hill: Eric welcome to the job anything you'd like to add.
Eric Friedrichson: Yeah, Scott. Actually, first of all, I just want to thank you one more time for everything that you've done for Disco over these past several months. I'm very fortunate that we get to work together with you as chair of the board, so I'm looking forward to that. And, like you, I very much appreciate our customers, our partners, and our investors. I'm looking forward. I'm optimistic about the future of Disco, and I look forward to sharing more at our next quarterly earnings call. So thank you, everybody, for joining the call, and have a great evening. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Scott Anthony Hill: Yes.
Eric Friedrichsen: Yes, Scott actually first of all I just want to thank you one more time for everything that you've done for <unk> over these past several months I am very fortunate that we get to work together with you as chair of the board so im looking forward to that.
Eric Friedrichson: And like you I very much appreciate our customers our partners and our investors I'm looking forward I'm optimistic about the future of disco and I look forward to sharing more at our next quarter's earnings call. So thank you everybody for joining the call and have a great evening.
Eric Friedrichson: This concludes today's conference call. Thank you for your participation you may now disconnect.
Eric Friedrichson: [music].
Eric Friedrichson: Yes.
Eric Friedrichson: Yeah.
Eric Friedrichson: Yeah.
Eric Friedrichson: [music].