Q2 2024 CS Disco Inc Earnings Call

August 8, 2024

Operator: Ladies and gentlemen, thank you for standing by, and welcome to CS Disco's second quarter of fiscal year 2024 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.

Operator: Ladies and gentlemen, thank you for standing by and welcome to CS Disco's second 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.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to C.S. Disco's second quarter of fiscal year, 2024 conference call.

Speaker Change: 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.

Operator: After the speakers or marks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

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 1 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, Aleksey Lakchakov. Please go ahead.

If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

Operator: I would now like to hand the conference over to your first speaker today.

Aleksey Lakchakov: Head and Investor Relations, Aleksey Lakchakov, to go ahead. Good afternoon and thank you for joining us on today's conference call to discuss the financial results for Disco's second quarter of fiscal year 2024. With me on today's call are Eric Friedrichsen, Disco's Chief Executive Officer, Michael LaFair, Disco's Chief Financial Officer.

I would now like to 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 second quarter of fiscal year 2024. With me on today's call are Eric Friedrichsen, Disco's Chief Executive Officer, and Michael Lafair, Disco's Chief Financial Officer.

Speaker Change: [inaudible]

Speaker Change: Good afternoon and thank you for joining us on today's conference call to discuss the financial results for discuss second quarter of fiscal year 2024.

Speaker Change: With me on today's call are Eric Friedrichsen, Disco's Chief Executive Officer, and Michael Lafair, Disco's Chief 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 on 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 thrown on our investor relations website at ir.csdesco.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, 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 Overlooking 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.

Speaker Change: Today's call will include forward-looking statements within the meaning of the State Harbor provisions of the private securities litigation reform act of 1995, including but not limited to statements regarding our financial outlook and future performance.

Speaker Change: 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: Forward-looking statements involving known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made.

Speaker Change: Overlooking 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: 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 in the company's quarterly report on Form 10-Q for the quarter ended March 31st, 2024, filed with the SEC on May 9th, 2024, and the company's upcoming quarterly report on Form 10-Q for the quarter ended June 30th, 2024.

Speaker Change: Follow the statements represent our management's beliefs and assumptions only as of the date made.

Speaker Change: Information of factors that could affect the company's financial results is included in its problems with the SEC from time to time, including the section titled risk factors in the company's quarterly report on Form 10Q for the quarter ended March 31, 2024.

Speaker Change: filed with the SEC on May 9, 2024, and the company's upcoming quarterly report on Form 10-Q for the quarter ended June 30, 2024.

Aleksey Lakchakov: In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to another substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus the closest GAAP equivalent is available on our earnings release.

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. Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus the closest GAAP equivalent are available in our earnings release. And with that, I'd like to turn the call over to Eric. Thank you.

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

Speaker Change: 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.

Speaker Change: Reconciliations Between Gap and Non- GAAP financial Measures and a Discussion of the Limitations of Using Non- GAAP measures Versus the Closest Gap Equivalent is available on our earnings release. And with that, I'd like to turn the call over to Eric.

Aleksey Lakchakov: And with that, I'd like to turn the call over to Eric.

Eric Friedrichsen: Hello, everyone, and welcome to Disco's second quarter of 2024 earnings call. I'm happy to be here with all of you and to share the results and discuss our go-forward strategy and plans for Disco. Since I joined Disco on April 29th, just over 100 days ago, I've had the opportunity to learn about the business, to meet with many of our top customers, and to get to know the people throughout Disco. I am excited to share my thoughts and my reflections.

Eric Friedrichsen: Hello everyone, and welcome to Disco's second quarter of 2024 earnings call. I'm happy to be here with all of you and to share the results and discuss our going forward strategy and plans for Disco. Since I joined Disco on April 29th, just over 100 days ago, I have had the opportunity to learn about the business, meet with many of our top customers, and get to know the people throughout Disco.

Eric Friedrichsen: Hello everyone and welcome to Disco's second quarter of 2024 earnings call.

Eric Friedrichsen: I'm happy to be here with all of you and to share the results and discuss our go forward strategy and plans for Disco.

Eric Friedrichsen: Since I joined disco on April 29th, just over 100 days ago, I have had the opportunity to learn about the business.

Eric Friedrichsen: to meet with many of our top customers.

Eric Friedrichsen: I am excited to share my thoughts and my reflections. However, first, I'd like to go over the incredible results. Total revenue for the second quarter of 2024 was $36 million, up 5% versus the same quarter last year. Software revenue in Q2 was $29.3 million, up 8% over the prior year.

Speaker Change: and to get to know the people throughout Disco.

Eric Friedrichsen: However, first, I'd like to go through the incredible results. Total revenue for the second quarter of 2024 was $36 million, up 5% versus the same quarter last year. Software revenue in Q2 was $29.3 million, up 8% over the prior year. This was the fifth quarter in a row of year-over-year growth for our business and a new high watermark for our total revenue. Services revenue was $6.7 million in the second quarter.

Eric Friedrichsen: I am excited to share my thoughts and my reflections.

Eric Friedrichsen: However, first, I'd like to go through our high level results.

Speaker Change: Total revenue for the second quarter of 2024 was $36 million, up 5% versus the same quarter last year.

Eric Friedrichsen: Software revenue in Q2 was $29.3 million, up 8% over the prior year.

Eric Friedrichsen: This was the fifth quarter in a row of year-over-year growth for our business and a new high watermark for our total revenue. Services revenue was $6.7 million in the second quarter, and adjusted EBITDA was negative $4.7 million, or a negative 13% adjusted EBITDA margin. We ended the quarter with 1,449 total customers.

Eric Friedrichsen: This was the fifth quarter in a row of year-over-year growth for our business.

Eric Friedrichsen: and a new high watermark for our total revenue.

Eric Friedrichsen: Services revenue was $6.7 million in the second quarter.

Eric Friedrichsen: Adjusted EBITDA was negative $4.7 million, or negative 13% Adjusted EBITDA margin. We entered the quarter with 1,449 total customers, $130 million of cash, and no debt.

Eric Friedrichsen: Adjusted EBITDA was negative $4.7 million or negative 13% adjusted EBITDA margin.

Eric Friedrichsen: We ended the quarter with 1449 total customers.

Eric Friedrichsen: $130 million in cash and no debt. There are many exciting things that I want to discuss this quarter. While our team made considerable progress in sales and product development, our ultimate goal is to accelerate revenue growth and to further strengthen our position in the market. On today's call, I will share my observations from my first three months at Disco. Second, I will highlight our primary areas of focus and our approach to accelerating revenue growth.

Eric Friedrichsen: There are many exciting things that I want to discuss this quarter. While our team made considerable progress in sales and product development, our ultimate goal is to accelerate revenue growth and to further strengthen our position in the market.

Eric Friedrichsen: 130 million dollars of cash and no debt.

Eric Friedrichsen: There are many exciting things that I want to discuss this quarter.

Eric Friedrichsen: While our team made considerable progress in sales and product development, our ultimate goal is to accelerate revenue growth and to further strengthen our position in the market.

Speaker Change: On today's call, first I will share my observations from my first three months at Disco.

Eric Friedrichsen: Second, I will highlight our primary areas of focus and our approach to accelerating revenue growth.

Eric Friedrichsen: Third, I will share some exciting updates on the product run. From my initial observations, I am more convinced than ever that Disco is a fantastic company with a bright future. I have visited all of our offices across the globe and met with many employees in various departments. It is clear that we have high caliber, eager, and talented employees who are dedicated to Disco. We have some of the brightest minds in the legal technology industry who have a strong ambition to deliver the absolute best products and services to our customers. I have also met face-to-face with over 20 customers, mostly from our largest AMLog 100 and corporate customer base.

Eric Friedrichsen: Third, I will share some exciting updates on the product front. From my initial observations, I am more convinced than ever that Disco is a fantastic company with a bright future. I visited all of our offices across the globe and met with many employees in various departments.

Eric Friedrichsen: Third, I will share some exciting updates on the product front.

Eric Friedrichsen: From my initial observations, I am more convinced than ever that Disco is a fantastic company with a bright future.

Eric Friedrichsen: I visited all of our offices across the globe and met with many employees in various departments.

Eric Friedrichsen: It is clear that we have high-caliber, eager, and talented employees who are dedicated to disco. We have some of the brightest minds in the legal technology industry, who have a strong ambition to deliver the absolute best products and services to our customers. I've also met face-to-face with over 20 customers, mostly from our largest AMLOG100 and corporate customer base.

Eric Friedrichsen: It is clear that we have high caliber, eager and talented employees who are dedicated to disco.

Eric Friedrichsen: We have some of the brightest minds in the legal technology industry.

Eric Friedrichsen: who have a strong ambition to deliver the absolute best products and services to our customers.

Eric Friedrichsen: I've also met face-to-face with over 20 customers, mostly from our largest AMLA 100 and corporate customer base.

Eric Friedrichsen: Very directly from our customers has been enlightening. Their appreciation for our solution is evident. They have used competitors' products in the past, which provides them with very valuable reference points. Consistently, customers expressed their love for our products, ease of use, workflow efficiency, speed, and reliability. They love that Disco is a significant improvement over the legacy solutions that they have used in the past. I heard stories directly from these customers about saving hundreds of hours of work by switching to Disco e-discovery, finding pivotal evidence quickly with Cecilia Q&A, and gaining significant value by leveraging our services team as a true strategic partner.

Eric Friedrichsen: Hearing directly from our customers has been enlightening. Their appreciation for our solution is evident. They have used competitor's products in the past, which provides them with a very valuable reference. Consistently, customers express their love for our products, their ease of use, Workflow Efficiency, Speed, and Reliability.

Eric Friedrichsen: Hearing directly from our customers has been enlightening.

Eric Friedrichsen: Their appreciation for our solution is evident.

Speaker Change: They have used Competitor's products in the past, which provides them with very valuable reference points.

Eric Friedrichsen: Consistently, customers express their love for our products, ease of use.

Eric Friedrichsen: We love that Disco is a significant improvement over the legacy solutions that they've used in the past. I heard stories directly from these customers about saving hundreds of hours of work by switching to Disco e-discovery, finding pivotal evidence quickly with Cecilia Q&A, and gaining significant value by leveraging our services team as a true strategic partner. Virtually every customer that I met with made it clear that they want to do more with disco.

Eric Friedrichsen: Workflow efficiency, speed and reliability.

Eric Friedrichsen: They love that DISCO is a significant improvement over the legacy solutions that they've used in the past.

Speaker Change: I heard stories directly from these customers about saving hundreds of hours of work by switching to Disco eDiscovery.

Eric Friedrichsen: Finding pivotal evidence quickly was Cecilia Q&A, and gaining significant value by leveraging our services team as a true strategic partner.

Eric Friedrichsen: Virtually every customer that I met with made it clear that they wanted to do more with Disco. It is clear to me that Disco is in a solid position to make the most of the market opportunity.

Eric Friedrichsen: Virtually every customer that I met with made it clear that they want to do more with Disco.

Eric Friedrichsen: It's clear to me that Disco is in a solid position to make the most of the market opportunity. So in terms of where we'll focus, it's all about customer focus, operational effectiveness, and cultural improvement. Those are the three areas that will drive our revenue acceleration. Becoming a customer-focused organization is absolutely paramount. Over the last few months, we segmented our customer base and began shifting resources to focus attention on our most important top customers and prospects.

Speaker Change: It's clear to me that disco is in a solid position to make the most of the market opportunity.

Eric Friedrichsen: So, in terms of where we'll focus, it's all about customer focus, operational effectiveness, and cultural improvement. Those are the three areas that we'll drive our revenue accelerate.

Eric Friedrichsen: So in terms of where we'll focus, it's all about customer focus, operational effectiveness, and cultural improvement.

Eric Friedrichsen: Foundation. Becoming a customer-focused organization is absolutely paramount. Over the last few months, we segmented our customer base and began shifting resources to focus the attention on our most important top customers and prospects. We have a platform that's highly valued by legal teams and a services organization that provides world-class experiences and outcomes. However, I heard firsthand from several Disco champions at our largest customers that they need Disco's help in promoting our platform within their organizations. We're executing on a plan right now to enable our customer champions to do exactly that.

Eric Friedrichsen: Those are the three areas that will drive our revenue acceleration.

Eric Friedrichsen: Becoming a customer-focused organization is absolutely paramount.

Eric Friedrichsen: Over the last few months, we segmented our customer base and began shifting resources to focus the attention on our most important customers and prospects.

Eric Friedrichsen: We have a platform that's highly valued by legal teams, and a services organization that provides world-class experiences and outcomes. However, I heard firsthand from several disco champions and our largest customers that they need disco's help in promoting our platform within their organization. We're executing on a plan right now to enable our customer champions to do exactly that. Our industry and the problems we solve are complex. U.S. and international legal systems and regulations have unique rules and requirements and complex workflows that our solutions are designed to address elegantly.

Eric Friedrichsen: We have a platform that's highly valued by legal teams and a services organization that provides world-class experiences and outcomes.

Eric Friedrichsen: However, I heard firsthand from several disco champions at our largest customers that they need discos help in promoting our platform within their organizations.

Eric Friedrichsen: We're executing on a plan right now to enable our customer champions to do exactly that.

Eric Friedrichsen: Our industry and the problems we solve are complicated. The US and international legal systems and regulations have unique rules and requirements, and complex workflows that our solutions are designed to address elegantly. Because of the complexity that's inherent in our space, our sales and marketing team needs to be exceptionally well-enabled to understand the customer's needs, their rules, and their related value propositions. We're rebuilding our sales enablement function to help you adjust that. We will improve how we communicate Disco's value, navigate potential objections in the sales process, and sell the entire platform offering, not just a point solution.

Eric Friedrichsen: Our industry and the problems we solve are complicated. The U.S. and international legal systems and regulations have unique rules and requirements and complex workflows that our solutions are designed to address elegantly.

Eric Friedrichsen: Because of the complexity that's inherent in our space, our sales and marketing team needs to be exceptionally well-enabled to understand the customers' needs, their roles, and the related value propositions. We're rebuilding our sales enablement function to help do just that. We will improve how we communicate Disco's value, navigate potential objections in the sales process, and sell the entire platform offering, not just a point. We're focused on adding high-caliber sales leaders who are experienced and sophisticated in account-based, enterprise sales.

Eric Friedrichsen: Because of the complexity that's inherent in our space, our sales and marketing team needs to be exceptionally well-enabled to understand the customer's needs, their roles, and the related value propositions.

Eric Friedrichsen: We're rebuilding our sales enablement function to help you just that.

Eric Friedrichsen: We will improve how we communicate discos value, navigate potential objections in the sales process, and sell the entire platform offering, not just a point solution.

Eric Friedrichsen: We're focused on adding high caliber sales leaders who are experienced and sophisticated, account-based enterprise sales motions. We believe that augmenting our existing reps with talent that is experienced and enterprise-level sales will elevate our performance across the board. We've already added several talented, quote-carrying sales reps and managers just this past quarter, and we'll be focused on adding additional talent in the coming quarters in line with our plan. We have started to resource and align our marketing, sales development, and customer success teams to our top customers, which are predominantly big law, corporate, and larger litigation critiques. Finally, when it comes to customer focus, we are rolling out an account-based targeting strategy to ensure that demand generation is focused on our top account priorities, and we're shifting a significant amount of field marketing resources to better support a more focused customer set of events.

Eric Friedrichsen: We're focused on adding high-caliber sales leaders who are experienced in sophisticated account-based enterprise sales motions.

Eric Friedrichsen: We believe that augmenting our existing reps with talent that is experienced in enterprise-level sales will elevate our performance across the board. We've already added several talented quota-carrying sales reps and managers just this past quarter, and we'll be focused on adding additional talent in the coming quarters in line with our plan.

Eric Friedrichsen: We believe that augmenting our existing reps with talent that is experienced in enterprise-level sales will elevate our performance across the board.

Eric Friedrichsen: We've already added several talented quoted carrying sales reps and managers just as task quarter, and we'll be focused on adding additional talent in the coming quarters in line with our plan.

Eric Friedrichsen: We have started to resource and align our marketing, sales development, and customer success teams to our top customers, which are predominantly big law, corporate, and larger litigation. Finally, when it comes to customer focus. We are rolling out an account-based targeting strategy to ensure that demand generation is focused on our top account priorities, and we're shifting a significant amount of field marketing resources to better support and more focused customer sets of events. We've added key senior roles within marketing this quarter, including a vice president of demand generation, to support this initiative.

Eric Friedrichsen: We have started to resource and align our marketing, sales development and customer success teams to our top customers, which are predominantly big law, corporate and larger litigation boutiques.

Eric Friedrichsen: Finally, when it comes to customer focus.

Eric Friedrichsen: We are rolling out an account-based targeting strategy to ensure that demand generation is focused on our top account priorities, and we're shifting a significant amount of field marketing resources to better support a more focused customer set of events.

Eric Friedrichsen: We've added key senior roles for the marketing this quarter, including the vice president of demand generation to support this initiative. We believe that these changes, as well as other initiatives that we're currently working on, will drive better experiences and outcomes for our customers and result in more demand for our software.

Eric Friedrichsen: We've added key senior roles within marketing this quarter, including a vice president of demand generation, to support this initiative.

Eric Friedrichsen: We believe that these changes, as well as other initiatives that we're currently working on, will drive better experiences and outcomes for our customers and result in more demand for our software. Next, we need to enhance elements of our internal operations to drive organizational effectiveness and customer outcomes. I'm pleased to announce that Richard Crum has joined Disco as our chief product officer.

Eric Friedrichsen: Next, we need to enhance elements of our internal operations to drive organizational effectiveness and customer outcomes. I'm pleased to announce that Richard Crumb has joined Disco as our Chief Product Officer. I worked extensively with Richard at Emburs, and he will bring a wealth of experience to Disco from his time leading B2B organizations. Richard is customer focused and commercially minded, and he brings an intense focus and discipline to our product. Team. Richard has a long legacy of growing people and aligning cross-functional teams around clear sets of priorities. We're also working to improve the effectiveness of our internal end-to-end business processes and systems, especially if they relate to the quote-to-cash life cycle.

Eric Friedrichsen: Next, we need to enhance elements of our internal operations to drive organizational effectiveness and customer outcomes.

Speaker Change: I'm pleased to announce that Richard Crum has joined Disco as our Chief Product Officer.

Eric Friedrichsen: I have worked extensively with Richard Edinburgh, and he will bring a wealth of experience to Disco from his time leading B2B organizations. Richard is customer-focused and commercially-minded. Any brings an intense focus and discipline to our product. Richard has a long legacy of growing people and aligning cross-functional teams around clear sets of priorities. We're also working to improve the effectiveness of our internal end-to-end business processes and systems, especially as they relate to the quote to cast life cycle.

Speaker Change: I worked extensively with Richard Attenberg, and he will bring a wealth of experience to disco from his time leading B2B organizations.

Speaker Change: Richard is customer-focused and commercially-minded. Any brings an intense focus and discipline to our product team.

Speaker Change: Richard has a long legacy of growing people and aligning cross-functional teams around clear sets of priorities.

Speaker Change: We're also working to improve the effectiveness of our internal end-to-end business processes and systems.

Eric Friedrichsen: These improvements will enable a faster and more scalable approach to sales, improve customer experience and enhance visibility into the effectiveness of our business decisions. This effort is well underway and is key to scaling our revenue. Customers love our products, and we want to ensure that our operational approach is a tailwind to further winning and growing our customers.

Eric Friedrichsen: These improvements will enable a faster and more scalable approach to sales, improved customer experience, and enhanced visibility into the effectiveness of our business decisions. This effort is well underway and is key to scaling our revenue. Customers love our products, and we want to ensure that our operational approach is a tailwind to further winning and growing our customers. Lastly, cultural improvement is about ensuring that Disco is an enjoyable and rewarding place to work.

Speaker Change: especially if they relate to the quote to cast life cycle.

Speaker Change: These improvements will enable a faster and more scalable approach to sales.

Speaker Change: Improves customer experience and enhance visibility into the effectiveness of our business decisions.

Speaker Change: This effort is well underway and is key to scaling our revenue.

Speaker Change: Customers love our products and we want to ensure that our operational approach is a tailwind to further winning and growing our customers.

Eric Friedrichsen: Lastly, cultural improvement is about ensuring that Disco is an enjoyable and rewarding place to work. It's a win-win. Engaged and satisfied employees will better serve our customers, who will reward us with more business as a result. We have done significant internal work around culture, including improving our practices to promote a transparent, healthy, and collaborative work environment. The data shows significant improvement in our culture already, and energy in the Disco hallways is palpable. When push comes to shove, culture starts at the top, and I'm committed to ensuring that Disco builds a remarkable reputation based on integrity, ethics, and respect.

Speaker Change: Lastly, cultural improvement is about ensuring that disco is an enjoyable and rewarding place to work.

Eric Friedrichsen: It's a win-win; engaged and satisfied employees will better serve our customers, who will reward us with more business as a result. We have done significant internal work around culture, including improving our practices to promote a transparent, healthy, and collaborative work environment. The data shows significant improvement in our culture already, and the energy in the disco hallways is palpable. When push comes to shove, culture starts at the top, and I'm committed to ensuring that Disco builds a remarkable reputation based on integrity, ethics, and respect. As Peter Drucker said, culture eats strategy for lunch.

Speaker Change: It's a win-win. Engaged and satisfied employees will better serve our customers, who will reward us with more business as a result.

Speaker Change: We have done significant internal work around culture, including improving our practices to promote a transparent, healthy and collaborative work environment.

Speaker Change: The data shows significant improvement in our culture already, and energy in the disco hallways is palpable.

Speaker Change: When push comes to shove, culture starts at the top, and I'm committed to ensuring that disco builds a remarkable reputation based on integrity, ethics, and respect.

Eric Friedrichsen: As Peter Drucker said, "Culture eats strategy for lunch." Continuing down our path of building a strong company culture will be a key ingredient in our future success.

Eric Friedrichsen: Continuing down our path of building a strong company culture will be a key ingredient and our future success. We have a journey ahead of us to enable this business, and it will not happen overnight. We are taking very clear steps in the right direction. Michael will speak more about this, but from a cost perspective, we don't expect a material change to our adjusted EBITDA in 2024.

Speaker Change: As Peter Drucker said, culture eats strategy for lunch.

Speaker Change: Continuing down our path of building a strong company culture will be a key ingredient.

Eric Friedrichsen: We have a journey ahead of us to enable this business, and it will not happen overnight. We are taking very clear steps in the right direction.

Speaker Change: and our future success.

Speaker Change: We have a journey ahead of us to enable this business, and it will not happen overnight.

Eric Friedrichsen: Michael will speak more to this, but from a cross perspective, we don't expect the material change to our adjusted EBITDA in 2024.

Speaker Change: We are taking very clear steps in the right direction.

Michael Lafair: Michael will speak more to this, but from a cost perspective, we don't expect a material change to our adjusted EBITDA in 2024.

Eric Friedrichsen: Now, I would like to focus on some customer highlights and the great work our product team has done over the past quarter. I was thoroughly impressed during the recent visit to one of our large AMWAR customers. This firm, which has a long-standing relationship with Disco, and manages a significant number of matters on our platform, is currently piloting Cecilia Q&A on a complex matter. As a reminder, Disco Cecilia Q&A is a tool that allows users to use natural language questions about the documents in their databases and receive detailed narrative responses along with specific source citations. The customer chose this particular case for the pilot due to its size, with over 3 million documents, and its subject matter, with which complex and rendered traditional search techniques less precise and less effective.

Eric Friedrichsen: Now, I would like to focus on some customer highlights and the great work our product team has done over the past quarter. I was thoroughly impressed during a recent visit to one of our large AMLOC customers. This firm, which has a long-standing relationship with Disco and manages a significant number of matters on our platform, is currently piloting Cecilia Q&A on a complex matter. As a reminder, Disco Cecilia Q&A is a tool that allows users to use natural language questions about the documents in their databases and receive detailed narrative responses along with specific source citations. So the customer chose this particular case for the pilot due to its size, with over three million documents in its subject matter, which was complex and rendered traditional search techniques less precise and less effective.

Michael Lafair: Now, I would like to focus on some customer highlights and the great work our product team has done over the past quarter.

Michael Lafair: I was thoroughly impressed during a recent visit to one of our large AMLOG customers.

Michael Lafair: This firm, which has a long-standing relationship with Disco and manages a significant number of matters on our platform,

Michael Lafair: is currently piloting Cecilia Q&A on a complex matter.

Speaker Change: As a reminder, just goes to say a Q&A. It's a tool that allows users to use natural language questions about the documents and their databases and receive detailed narrative responses along with specific source citations.

Speaker Change: So, the customer chose this particular case for the pilot due to its size, with over 3 million documents, and it's subject matter, with which complex and rendered traditional search techniques less precise and less effective.

Eric Friedrichsen: The ability to ask questions and receive responses with documented support was highly appealing to the customer. The case team was impressed with Cecilia Q&A's ability to submit questions and receive responses with references to supporting documents. Effective querying of a large population of documents that led to finding key documents also helps the legal team quickly provide their client with initial takeaways and actionable recommendations. This pilot's early findings demonstrate Cecilia Q&A can be a powerful investigative tool early in a case. In this example, Cecilia Q&A could be leveraged much more effectively than traditional search to prove or refute allegations of generic misconduct.

Eric Friedrichsen: The ability to ask questions and receive responses with documented support was highly appealing to the customer. The case team was impressed with the suite of Q&A's ability to submit questions and receive responses with references to supporting documents. Effective querying of a large population of documents that led to finding key documents also helped the legal team quickly provide their client with initial takeaways and actionable recommendations. This pilot's early findings demonstrate Sicilia Q&A can be a powerful investigative tool early in a case. In this example, succinct Q&A could be leveraged much more effectively than traditional search to prove or refute allegations of generic misconduct.

Michael Lafair: The ability to ask questions and receive responses with documented support was highly appealing to the customer.

Speaker Change: The case team was impressed with the Q&A's ability to submit questions and receive responses with references to supporting documents.

Operator: Ladies and gentlemen, thank you for standing by and welcome to CS Disco's second 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.

Speaker Change: Effective querying of a large population of documents that led to finding key documents also helped the legal team quickly provide their client with initial takeaways and actionable recommendations.

Speaker Change: This pilot's early findings demonstrates so you Q&A can be a powerful investigative tool early in the case.

Speaker Change: In this example, succinct Q&A could be leveraged much more effectively than traditional search to prove or refute allegations of generic misconduct.

Eric Friedrichsen: Relying on Cecilia Q&A's ability to understand subtle language, the legal team was able to identify highly relevant documents very early on with a limited number of tailored natural language questions. The legal team is now using these documents to assess potential risks to formulate a broader strategy for the case and to assist the client in making informed decisions.

Eric Friedrichsen: Relying on Cecilia Q&A's ability to understand subtle language, the legal team was able to identify highly relevant documents very early on with a limited number of tailored natural language questions. The legal team is now using these documents to assess potential risk, to formulate a broader strategy for the case, and to assist the client in making informed decisions.

Operator: I would now like to hand the conference over to your first speaker today.

Cecilia: Relying on Cecilia Q&A's ability to understand subtle language, the legal team was able to identify highly relevant documents very early on with a limited number of tailored natural language questions.

Aleksey Lakchakov: Head and investor relations, Aleksey Lakchakov, to go ahead. Good afternoon and thank you for joining us on today's conference call to discuss the financial results for Disco's second quarter of fiscal year, 2024.

Cecilia: The legal team is now using these documents to assess potential risks to formulate a broader strategy for the case and to assist the client in making informed decisions.

Aleksey Lakchakov: With me on today's call our Eric Friedrichsen Disco's Chief Executive Officer, Michael LaFair Disco's Chief Financial Officer. Today's call will include forward-looking statements within the meaning of the safe hardware provisions of the private securities litigation reform act of 1995, including but not limited to statements regarding our financial outlook on 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.

Eric Friedrichsen: Next, we are pleased to announce the launch of Cecilia AutoReview, now generally available and set to be showcased at the ILTA Conference next week. In our testing with top Am Law firms, the results were outstanding. Disco's testing of Cecilia AutoReview on customer data demonstrated review speeds of 3,800 documents per hour over a 24-hour period. Equivalent to a 140-person review team working an 8-hour day. And precision and recall metrics 10-20% higher than typical from human reviewers. Our customers can now leverage this technology on live cases to accelerate the reviews. Firms adopting this technology will revolutionize their workflows, reducing first-pass review times from weeks to hours while maintaining or even improving quality.

Speaker Change: Next, we are pleased to announce the launch of Cecilia Auto Review, now generally available and set to be showcased at the ill-to-conference next week.

Speaker Change: In our testing with top AmLaw firms, the results were outstanding.

Disco: Disco's testing of Cecilia auto review on customer data demonstrated review speeds of 3,800 documents per hour over a 24-hour period.

Disco: Equivalent to a 140-person review team working an 8-hour day.

Aleksey Lakchakov: In addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be thrown on our investor relations website at ir.csdesco.com. Forward-looking statements involving known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the data made.

Disco: and Precision and Recall metrics tend to 20% higher than typical from human reviewers. Our customers can now leverage this technology on live cases to accelerate the reviews.

Eric Friedrichsen: Our customers can now leverage this technology on live cases to accelerate their reviews. Firms adopting this technology will revolutionize their workflows, reducing first pass review times from weeks to hours, while maintaining or even improving quality, using natural language to describe tags and documents to be tagged. Cecilia Auto Review offers an efficient and effective solution.

Disco: firms adopting this technology will revolutionize their workflows, reducing first-pass review times from weeks to hours while maintaining or even improving quality.

Eric Friedrichsen: Using natural language to describe tags and documents to be tagged, Cecilia AutoReview offers an efficient and effective solution. We're very excited to bring this powerful technology to our customers.

Disco: Using natural language to describe tags and documents to be tagged.

Eric Friedrichsen: We're very excited to bring this powerful technology to our customers. Cecilia Q&A has shown promising growth in its first six months since it was released. We're seeing positive feedback from our customers and early indications showing meaningful uplift in software revenue for matters where Cecilia Q&A has been implemented. We already have a number of customers eager to begin using Cecilia Auto Review. However, we're cautious that material adoption of these technologies will take time, and we don't anticipate a significant revenue impact in the current year.

Silia: So Silia ought to review, offers an efficient and effective solution.

Aleksey Lakchakov: Information of 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 10Q for the quarter-end of March 31st, 2024, followed the SEC on May 9th, 2024, and the company's upcoming quarterly report on form 10Q for the quarter-end of June 30th, 2024. In addition, during today's call, we will discuss non-gap financial measures. These non-gap financial measures are in addition to another substitute for or superior to measures of financial performance prepared in accordance with GAP.

Disco: We're very excited to bring this powerful technology to our customers.

Eric Friedrichsen: Cecilia Q&A has shown promising growth in its first six months since it's been released. We're seeing positive feedback from our customers and early indications showing meaningful uplift and software revenue for matters where Cecilia Q&A has been implemented. We already have a number of customers eager to begin using Cecilia AutoReview.

Cecilia: Cecilia Q&A has shown promising growth in its first six months since it's been released. We're seeing positive feedback from our customers and early indication showing meaningful uplift in software revenue for matters where Cecilia Q&A has been implemented.

Eric Friedrichsen: However, we're cautious that material adoption of these technologies will take time, and we don't anticipate significant revenue impact in the current year.

Cecilia: We already have a number of customers eager to begin using Cecilia Auto Review.

Speaker Change: However, we're cautious that material adoption of these technologies will take time and we don't anticipate significant revenue impact in the current year.

Eric Friedrichsen: The heartbeat of our platform remains e-discovery. It is our core offering and ultimately, with the vast majority of our customers, care about most today. We are committed to providing the leading solution in the market and reflecting our customers' feedback in the upcoming product releases.

Eric Friedrichsen: The heartbeat of our platform remains eDiscovery. It is our core offering and ultimately what the vast majority of our customers care about most today. We're committed to providing the leading solution in the market and reflecting our customers' feedback in the upcoming product release. In Q2, we had a significant capability release called in-app mass redaction. This is a key eDiscovery functionality because it is specifically targeted at large matters and enables users to redact thousands of gigabytes worth of data at once.

Aleksey Lakchakov: Reconciliation between GAP and non-gap financial measures and a discussion of the limitations of using non-gap measures versus the closest GAP equivalent is available on our earnings release.

Cecilia: The heartbeat of our platform remains eDiscovery.

Cecilia: It is our core offering and ultimately what the vast majority of our customers care about most today.

Eric Friedrichsen: And with that, I'd like to turn the call over to Eric.

Cecilia: We are committed to providing the leading solution in the market and reflecting our customers' feedback in the upcoming product releases.

Eric Friedrichsen: In Q2, we have a significant capability release called In-app mass reductions. This is a key e-discovery functionality because it specifically targets for large matters and enables users to redact thousands of gigabytes' worth of data at once. Orders will no longer need to draw reduction boxes over sensitive data, scour documents one by one for sensitive information, and spend expensive hours on this task. Now information like credit card numbers, source security numbers, addresses, or other specific terms and patterns can be redacted with a simple user interface. This release has been frequently requested, and we're excited for our customers to start relying.

Cecilia: In Q2, we had a significant capability release called in-app mass redactions.

Cecilia: This is a key eDiscovery functionality.

Cecilia: Because it is specifically targeted for large matters and enables users to redact thousands of gigabytes worth of data at once.

Eric Friedrichsen: Lawyers will no longer need to draw redaction boxes over sensitive data, scour documents one by one for sensitive information, and spend hours on this task. Now, information like credit card numbers, social security numbers, addresses, or other specific terms and patterns can be redacted with a simple user interface.

Cecilia: Lawyers will no longer need to draw redaction boxes over sensitive data, scour documents one by one for sensitive information, and spend expansive hours on this task.

Eric Friedrichsen: I am excited to share my thoughts and my reflections. However, first, I'd like to go through the incredible results. Total revenue for the second quarter of 2024 was $36 million, up 5% versus the same quarter last year. Software revenue in Q2 was $29.3 million, up 8% over the prior year. This was the fifth quarter in a row of year-over-year growth for our business and a new high watermark for our total revenue.

Cecilia: Now, information like credit card numbers, social security numbers, addresses, or other specific terms and patterns can be redacted with a simple user interface.

Eric Friedrichsen: This release has been frequently requested, and we're excited for our customers to start relying on it. In summary, it's been a wonderful first 100 days at Disco. We had strong revenues this quarter, our business is growing, we have over 1,400 satisfied customers, and an amazing product out there. I'm impressed with our team, and I'm energized by our customers. We know what we need to do, and we are getting everyone aligned around the same priority. I am proud of what our team has accomplished over the last few months, and I'm incredibly optimistic about our future. With that, I'll turn it over to Mike.

Speaker Change: This release has been frequently requested and we're excited for our customers to start relying on it.

Eric Friedrichsen: on it.

Eric Friedrichsen: In summary, it's been a wonderful first 100 days at Disco. We had strong revenues this quarter; our business is growing. We have over 1400 satisfied customers and amazing product outcomes. I'm impressed with our team, and I'm energized by our customers. We know what we need to do, and we are getting everyone aligned around the same priorities.

Speaker Change: In summary, it's been a wonderful first 100 days at disco. We had strong revenues this quarter, our businesses growing. We have over 1,400 satisfied customers and amazing product outcomes.

Eric Friedrichsen: Services revenue was $6.7 million in the second quarter. Adjusted EBITDA was negative $4.7 million, or negative 13% adjusted EBITDA margin. We entered the quarter with 1449 total customers, $130 million of cash, and no debt. There are many exciting things that I want to discuss this quarter. While our team made considerable progress in sales and product development, our ultimate goal is to accelerate revenue growth and to further strengthen our position in the market.

Speaker Change: I'm impressed with our team and I'm energized by our customers.

Cecilia: We know what we need to do, and we are getting everyone aligned around the same priorities.

Eric Friedrichsen: I am proud of what our team has accomplished over the last few months, and I'm incredibly optimistic about our future.

Speaker Change: I am proud of what our team has accomplished over the last few months and I'm incredibly optimistic about our future.

Michael Lafair: With that, I'll turn it over to Michael. Thank you, Eric. In Q2 2024, total revenues were 36 million, up 5% year every year. Software revenues were 29.3 million, up 8% year every year. We had some softness in software in April that impacted the full quarter, but we saw improvement in May and June. Services revenue were 6.7 million, down 7% year every year. The year every year decline in services is due to a decline from strong revenue usage we saw in Q2 of 2023.

Michael Lafair: Eric. In Q2 2024, total revenues were $36 million, up 5% year over year. Software revenues were $29.3 million, up 8% year over year. We had some softness in software in April that impacted the full quarter, but we saw improvement in May and June. Services revenue was $6.7 million, down 7% year over year. The year over year decline in services revenue is due to a decline from the strong review usage we saw in Q2 of 2023.

Speaker Change: With that, I'll turn it over to Michael.

Michael Lafair: Thank you, Eric.

Michael Lafair: In Q2, 2024, color revenues were 36 million up 5% year every year. Software revenues were 29.3 million up 8% year every year. We had some softness and software in April that impacted the full quarter. But we saw improvement in May and June.

Eric Friedrichsen: On today's call, first, I will share my observations from my first three months at Disco. Second, I will highlight our primary areas of focus and our approach to accelerating revenue growth. Third, I will share some exciting updates on the product run. From my initial observations, I am more convinced than ever that Disco is a fantastic company with a bright future. I have visited all of our offices across the globe and met with many employees in various departments.

Speaker Change: Services revenue were $6.7 million, down 7% year-over-year. The year-over-year decline in services is due to a decline from strong review usage we saw in Q2 of 2023.

Michael Lafair: 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.

Michael Lafair: 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. Adjust the EBITDA is also a non-GAAP financial measure. Our gross margin in Q2 was 75%. As we mentioned before, our gross margins fluctuate from periods 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 Q2 is 14.3 million for 40% of revenue compared to 47% of revenue in Q2 of the prior year.

Michael Lafair: Our gross margin in Q2 was 75%. 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 Q2 was $14.3 million, or 40% of revenue, compared to 47% of revenue in Q2 of the prior year. The year-over-year decline is predominantly driven by a combination of lower total headcount and redistribution of our investment within sales and marketing.

Cecilia: Adjusted Evidence, also a non-gap financial measure.

Michael Lafair: Our gross margin in Q2 was 75%.

Eric Friedrichsen: It is clear that we have high caliber, eager and talented employees who are dedicated to Disco. We have some of the brightest minds in the legal technology industry who have a strong ambition to deliver the absolute best products and services to our customers. I have also met face-to-face with over 20 customers, mostly from our largest AMLog 100 and corporate customer base. Very directly from our customers has been enlightening. Their appreciation for our solution is evident.

Michael Lafair: 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 Lafair: Sales and Marketing expense for Q2 is 14.3 million, or 40% of revenue compared to 47% of revenue in Q2 of the prior year. The year every year defined as predominantly driven by a combination of lower total head count and redistribution of our investment within sales and marketing.

Michael Lafair: The year every year decline is predominantly driven by a combination of lower total headcount and redistribution of our investment within sales and marketing. Research and development expense for Q2 is 10.8 million for 30% of revenue compared to 31% of revenue in Q2 of the prior year. We are relatively flat year every year with a R&D spend. General and administrative expense in Q2 was 8 million for 22% of revenue compared to 21% of revenue in Q2 of the prior year. General and administrative expenses were relatively flat year every year. Operating loss in Q2 was 5.9 million for representing an operating margin of negative 17%, compared to negative 25% in Q2 of the prior year.

Michael Lafair: Research and Development Expense for Q2 was $10.8 million, or 30% of revenue, compared to 31% of revenue in Q2 of the prior year. We were relatively flat year-over-year with our R&D spend. General and Administrative Expense for Q2 was $8 million, or 22% of revenue, compared to 21% of revenue in Q2 of the prior year. General and Administrative Expenses were relatively flat year-over-year.

Michael Lafair: Research and development expense for Q2 was $10.8 million for 30% of revenue, compared to 31% of revenue in Q2 of the prior year. We were relatively flat year-over-year with our R&D spend.

Eric Friedrichsen: They have used competitors products in the past, which provides them with very valuable reference points. Consistently, customers expressed their love for our products, ease of use, workflow efficiency, speed and reliability. They love that Disco is a significant improvement over the legacy solutions that they have used in the past. I heard stories directly from these customers about saving hundreds of hours of work by switching to Disco e-discovery, finding pivotal evidence quickly with Cecilia Q&A, and gaining significant value by leveraging our services team as a true strategic partner.

Michael Lafair: General and administrative expense in Q2 was $8 million, or 22% of revenue, compared to 21% of revenue in Q2 of the prior year. General and administrative expenses were relatively flat year over year.

Michael Lafair: Operating loss in Q2 was $5.9 million, representing an operating margin of negative 17%, compared to negative 25% in Q2 of the prior year. Adjusted EBITDA was negative $4.7 million in Q2, representing an adjusted EBITDA margin of negative 13%, compared to an adjusted EBITDA margin of negative 22% in Q2 of the prior year. The net loss in Q2 was $4.4 million, or negative 12% of revenue, compared to a net loss of $6.5 million, or negative 19% of revenue, in Q2 of the prior year.

Michael Lafair: operating loss in Q2 is 5.9 million representing an operating margin of negative 17%.

Michael Lafair: Adjusted EBITDA was negative 4.7 million in Q2 for representing an adjusted EBITDA margin of negative 13%, compared to an adjusted EBITDA margin of negative 22% in Q2 of the prior year. Net loss in Q2 was 4.4 million or negative 12% of revenue compared to a net loss of 6.5 million or negative 19% of revenue in Q2 of the prior year. Net loss per share for Q2 was 7 cents compared to 11 cents per share for Q2 of the prior year.

Michael Lafair: compared to negative 25% in Q2 of the prior year.

Michael Lafair: Adjusted EBITDA was negative $4.7 million in Q2, representing an adjusted EBITDA margin of negative 13 percent compared to an adjusted EBITDA margin of negative 22 percent in Q2 of the prior year.

Michael Lafair: Net loss in Q2 is 4.4 million, or negative 12% of revenue compared to a net loss of 6.5 million, or negative 19% of revenue in Q2 of the prior year. Net loss for share for Q2 is 7 cents compared to 11 cents per share for Q2 of the prior year.

Eric Friedrichsen: So in terms of where we'll focus, it's all about customer focus, operational effectiveness and cultural improvement. Those are the three areas that we'll drive our revenue accelerate.

Michael Lafair: The net loss per share for Q2 was $0.07, compared to $0.11 per share for Q2 of the prior year. Turning to the balance sheet and cash flow statement, we ended Q2 with $130 million in cash and cash equivalents and no debt. This included the impact of the $20 million share repurchase program completed in the quarter.

Eric Friedrichsen: Foundation. Becoming a customer focused organization is absolutely paramount. Over the last few months, we segmented our customer base and began shifting resources to focus the attention on our most important top customers and prospects. We have a platform that's highly valued by legal teams and a services organization that provides world-class experiences and outcomes. However, I heard firsthand from several Disco champions at our largest customers that they need Disco's help in promoting our platform within their organizations. We're executing on a plan right now to enable our customer champions to do exactly that.

Michael Lafair: Turning to the balance sheet and cash flow statement, we handed Q2 with 130 million in cash and cash equivalents and no debt. This included the impact of the $20 million share repurchase program completed in the quarter. Operating cash flow for the first two quarters of 2024 was negative $8 million compared to negative $21.8 million in the same period of the prior year.

Speaker Change: Turning to the balance sheet and cash flow statement, we ended Q2 with $130 million in cash and cash equivalents and no debt. This included the impact of the $20 million share repurchase program completed in the quarter.

Michael Lafair: Operating cash flow for the first two quarters of 2024 was negative $8 million compared to negative $21.8 million in the same period of the prior year. Turning to the outlook for Q3, 2024, we are providing total revenue guidance in the range of $35.3 million to $37.3 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 $7 million to negative $5 million.

Michael Lafair: Operating cash flow for the first two quarters of 2024 was negative $8 million compared to negative $21.8 million in the same period of the prior year.

Michael Lafair: Turning to the outlook for Q3 2024, we are providing total revenue guidance in the range of 35.3 million to 37.3 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 $7 million to negative $5 million. For fiscal year 2024, we anticipate total revenue guidance in the range of 143 million, 247 million, and software revenue guidance in the range of 118.5 million, 220.5 million. We expect Adjusted EBITDA to be in the range of 23 million to negative 19 million.

Michael Lafair: Turning to the outlook for Q32024, we are providing total revenue guidance in the range of 35.3 million to 37.3 million in software revenue guidance in the range of 29.5 million to 30.5 million.

Michael Lafair: We expect the Justity bid audit to be in the range of negative $7 million to negative $5 million.

Eric Friedrichsen: Our industry and the problems we solve are complicated. The US and international legal systems and regulations have unique rules and requirements and complex workflows that our solutions are designed to address elegantly. Because of the complexity that's inherent in our space, our sales and marketing team needs to be exceptionally well-enabled to understand the customer's needs, their rules, and their related value propositions. We're rebuilding our sales enablement function to help you adjust that.

Michael Lafair: For fiscal year 2024, we anticipate total revenue guidance in the range of $143 million to $147 million and software revenue guidance in the range of $118.5 million to $120.5 million. We expect adjusted EBITDA to be in the range of negative $23 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?

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: We expect to justice EBITDA to be in the range of negative 23 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. Operators.

Operator: Now I'd like to turn the call over to the operator to open up the line for Q&A. Operators? Thank you. At this time, I would like to remind everyone that in order to ask a question, press star and then the number one on your telephone keypad. Your first question comes from a line of Brian Essex with J.P. Morgan. Your line has opened.

Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad. Your first question comes from the line of Brian Essex with J.P. Morgan. Your line is open.

Eric Friedrichsen: We will improve how we communicate Disco's value, navigate potential objections in the sales process, and sell the entire platform offering not just a point solution. We're focused on adding high caliber sales leaders who are experienced and sophisticated, account-based enterprise sales motions. We believe that augmenting our existing reps with talent that is experienced and enterprise-level sales will elevate our performance across the board. We've already added several talented, quote-a-carrying sales reps and managers just this past quarter and we'll be focused on adding additional talent in the coming quarters in line with our plan.

Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad.

Speaker Change: Your first question comes from the line of Brian Essex with J.P. Morgan. Your line is open.

Brian Essex: Hi, good afternoon, and thank you for taking the question. Maybe for Eric, if you could help us understand, like, within your customer base is 1,400 plus customers. How many would fall into the large law corporate litigation to keep bucket? And what is the big savior of that customer cohort? They're growing faster than the rest of the customers, and maybe there's a get a get a sense of the underlying dynamics from, you know, as it relates to like, like, total customer number that we see. Brian, absolutely, you know, big law and law 100 customers are the biggest producer of revenue for us.

Brian Essex: Hi, good afternoon, and thank you for taking the question. Maybe for Eric, if you could help us understand something like if within your customer base is 1400 plus customers, how many would fall into the large-law corporate litigation boutique bucket, and what is their behavior?

Brian Essex: Hi, good afternoon and thank you for taking the question. Maybe for Eric, if you could help us understand like if within your within your customer basis, 1400 plus customers,

Speaker Change: How many would fall into the large law corporate litigation to keep bucket, and what is the big savior of that customer cohort? The growing faster than the rest of the customers, and maybe just to get a sense of the underlying dynamics.

Eric Friedrichsen: , , , , , , , , , , , , , ,

Eric Friedrichsen: Customers and maybe just to get a sense of the underlying dynamics, from, you know, as it relates to the total number of customers that we... Sure, Brian, absolutely. You know, big, big law, AMLA 100 customers are the biggest producer of revenue for us. And in fact, if you look at our top customers, approximately 300 customers in general, they generate 75% of our revenue, which is comprised of quite a few AMLA 100 customers in that group.

Eric Friedrichsen: We have started to resource and align our marketing, sales development, and customer success teams to our top customers which are predominantly big law, corporate, and larger litigation critiques. Finally, when it comes to customer focus, we are rolling out an account-based targeting strategy to ensure that demand generation is focused on our top account priorities and we're shifting a significant amount of field marketing resources to better support and more focused customer set of events.

Speaker Change: from what you know as it relates to like like total customer number that we see.

Speaker Change: Sure, Brian, absolutely. You know, Big Law and Law 100 customers are the biggest producer of revenue for us.

Eric Friedrichsen: And in fact, if you look at our top approximately 300 customers in general, they generate 75% of our revenue, which is comprised of quite a few and law 100 customers in that group.

Speaker Change: And in fact, if you look at our top approximately 300 customers in general, they generate 75% of our revenue, which is comprised of quite a few AmLaw 100 customers in that group.

Eric Friedrichsen: So if we look at like the net ads for the quarter, you know, is this a function of the larger customers growing and the smaller customers churning off or maybe to kind of put it a different way, like, what's going on within the rest of the customer base and how are you managing the ability to kind of like retain and stabilize that customer base within your customer across the platform? Yeah, you know, historically, disco was all about net new customer acquisition, regardless of whether those customers were big customers or small customers or customers with big potential or small potential.

Eric Friedrichsen: So, if we look at like the net asks for the quarter, you know, is this a function of the larger customers growing and the smaller customers turning off, or maybe you need to kind of put it differently, like what's going on within the rest of the customer base and how are you managing the ability to kind of like retain and stabilize that customer base within your customer across the platform? Yeah, you know, historically, Disco was all about net new customer acquisition, regardless of whether those customers were big customers or small customers, or customers with big potential or small potential.

Eric Friedrichsen: We've added key senior roles for the marketing this quarter including the vice president of demand generation to support this initiative. We believe that these changes as well as other initiatives that we're currently working on will drive better experiences and outcomes for our customers and result in more demand for our software.

Speaker Change: So if we look at like the net apps for the quarter, you know, is this a function of the larger customers growing and the smaller customers churning off or maybe maybe to kind of put it a different way like what's going on within the

Speaker Change: The rest of the customer base and how are you managing the ability to kind of like retain and stabilize that customer base within your customer across the platform.

Eric Friedrichsen: It was really Disco was acquiring customers kind of at any rate. We've really shifted our focus as we put more focus on managing our largest customers, we've also put more focus on acquiring larger customers. And so, just like we're managing big law firms, big litigation boutiques, and corporations that tend to have a lot of litigation, we're doing the same thing from an acquisition standpoint. So we're, when we're acquiring customers, very much focused on acquiring the right customers where we think we can add the most value and where we have the opportunity to grow. It makes a lot of sense. Maybe the last one for me.

Eric Friedrichsen: Next, we need to enhance elements of our internal operations to drive organizational effectiveness and customer outcomes.

Speaker Change: Yeah, you know historically Disco was all about net new customer acquisition regardless of whether those customers

Eric Friedrichsen: I'm pleased to announce that Richard Crumb has joined Disco as our chief product officer. I worked extensively with Richard at Emburs and he will bring a wealth of experience to Disco from his time leading B2B organizations. Richard is customer focused and commercially minded and he brings an intense focus and discipline to our product.

Speaker Change: We're...

Eric Friedrichsen: It was really disco was acquiring customers kind of at any rate. We've really shifted our focus as we put more focus on managing our largest customers. We've also put focus on acquiring larger customers. And so, just like we're managing big law, big litigation boutiques, and corporations that tend to have a lot of litigation, we're doing the same thing from an acquisition standpoint. So we're, as we're acquiring customers, very much focused on acquiring the right customers where we think we can add the most value and where we have the opportunity to grow.

Speaker Change: Big customers are small customers or customers with big potential or small potential.

Speaker Change: It was um...

Speaker Change: Really Disco was acquiring customers kind of at any at any rate We've really shifted our focus as we put more focus on managing our largest customers We've also put focus on acquiring larger customers and so

Eric Friedrichsen: Team. Richard has a long legacy of growing people and aligning cross-functional teams around clear sets of priorities. We're also working to improve the effectiveness of our internal end-to-end business processes and systems, especially if they relate to the quote to cash life cycle. These improvements will enable a faster and more scalable approach to sales, improves customer experience and enhance visibility into the effectiveness of our business decisions. This effort is well underway and is key to scaling our revenue. Customers love our products and we want to ensure that our operational approach is a tailwind to further winning and growing our customers.

Speaker Change: Just like we're managing big law, big litigation boutiques and corporations that tend to have a lot of litigation. We're doing the same thing from an acquisition standpoint.

Speaker Change: So we're, as we're acquiring customers, very much focused on acquiring the right customers where we think we can add the most value and where we have the opportunity to grow.

Eric Friedrichsen: God, that makes a lot of sense. Maybe, maybe last one for me. In terms of those large customers, how do you look at that opportunity in terms of the catch rate or penetration of those customers? Is your large customer focused primarily on increasing penetration within the install base or going out for new logo lands? Yeah, you know, Brian, I'm glad you asked that. I've been in front of over 20 customers over the last 100 days in New York and Philly and DC and New Jersey and London and Dallas and a little bit of everywhere. And consistently, what I've heard from our champions of those costs.

Eric Friedrichsen: In terms of those large customers, how do you look at that opportunity in terms of the catch rate or penetration of those customers? Is your large customer focused primarily on increasing penetration within the install base or going out for a new logo layout? Yeah, you know, Brian; I'm glad you asked that.

Speaker Change: Got it. It makes a lot of sense. Maybe last one for me. In terms of those large customers, how do you look at that opportunity in terms of the catch rate or penetration of those customers? Is your large customer focused primarily on increasing penetration within the install base or going out for new logo lands?

Eric Friedrichsen: I've been in front of over 20 customers over the last 100 days in New York and Philadelphia and D.C. and New Jersey and London and Dallas and a little bit everywhere. And consistently, what I've heard from our championship customers, those customers are number one: they love our product. Number two, they want to expand the use of our product within their organizations. Number three, we don't have as big a wallet share as we might think we have.

Speaker Change: Brian and Guideas, that we, I've been in front of over 20 customers over the last 100 days in New York and Philly and DC and New Jersey and London and Dallas and a little bit of everywhere and consistently what I've heard from our campus of those customers.

Eric Friedrichsen: Lastly, cultural improvement is about ensuring that Disco is an enjoyable and rewarding place to work. It's a win-win. Engaged and satisfied employees will better serve our customers who will reward us with more business as a result. We have done significant internal work around culture, including improving our practices to promote a transparent, healthy and collaborative work environment. The data shows significant improvement in our culture already and energy in the Disco hallways is palpable.

Eric Friedrichsen: Summers are that, number one, they love our product. Number two, they want to expand the use of our product within their organizations. Number three: we don't have as big of wallet share as we might think we have. And number four, they want us to help them expand the platform usage within their firms. And so that's exactly what we're doing. We've built out a champion enablement approach, and we're focused on expanding our wallet share within our customer base. I should point out, you know, I spend a lot of time in the expense management industry with concurrent embers and the ERP industry with SAP.

Speaker Change: are that, number one, they love our product.

Speaker Change: Number two, they want to expand the use of our product within their organizations.

Eric Friedrichsen: And number four, they want us to help them expand the platform usage within their firms. And so that's exactly what we're doing. We've built out a champion enablement approach, and we're focused on expanding our wallet share within our customer base. I should point out, you know, I spent a lot of time in the expense management industry with Concurrent and Burse and in the ERP industry with SAP.

Speaker Change: Number three, we don't have as big of a wallet share as we might think we have, and number four, they want us to help them expand the platform.

Speaker Change: Usage within their firms. And so that's exactly what we're doing. We've built out a champion enablement approach, and we're focused on expanding our wallet share within our customer base.

Eric Friedrichsen: When push comes to shove, culture starts at the top and I'm committed to ensuring that Disco builds a remarkable reputation based on integrity, ethics, and respect. As Peter Drucker said, culture eats strategy for lunch. Continuing down our path of building a strong company culture will be a key ingredient in our future success. We have a journey ahead of us to enable this business and it will not happen overnight. We are taking very clear steps in the right direction.

Speaker Change: I should point out...

Brian Essex: And in those industries, when you're trying to win wallet share, a lot of times, you're actually trying to displace your competitors, and it can be pretty challenging. Those are long sales cycles that are, those are very complex. You know, one of the interesting things about our market is that matters begin and matters end. And there might be some disadvantages to that, but there are also some big advantages to that in the sense that we don't necessarily have to win every single matter right away.

Speaker Change: I spent a lot of time in the expense management industry with Concurrent and Burse, and in the ERP industry with SAP. And in those industries, when you're trying to win wallet share, a lot of times you're actually trying to displace your competitor, and it could be pretty challenging. Those are long sales cycles, those are very complex.

Eric Friedrichsen: And in those industries, when you're trying to win wallet share, a lot of times you're actually trying to displace your competitor. And it could be pretty challenging. Those are long sale cycles that are, those are very complex. You know, one of the interesting things about our market is that matters begin and matters end. And there might be some disadvantages to that, but there's also some big advantages to that in the sense that we don't have to necessarily win every single matter right away. We have to win the next matter. And once we win the second and the third matter, we get to the 6th matter, we start to get some traction.

Speaker Change: You know, one of the interesting things about our market

Eric Friedrichsen: Michael will speak more to this but from a cross perspective, we don't expect the material change to our adjusted EBITDA in 2024.

Speaker Change: is that matters begin and matters end and there might be some disadvantages to that but there's also some big advantages to that in the sense that we don't have to necessarily win every single matter right away we have to win the next matter.

Brian Essex: We have to win the next matter. And once we win the second and the third matter, we get to the fifth or the sixth matter, we start to get some traction. That's where we've got the opportunity to standardize a little bit more and win very large wallet shares within our customer. Got it. That makes sense. Thank you very much. I appreciate it. We'll step back into queue.

Speaker Change: And once we win the second and the third matter, we get to the fifth or the sixth matter, we start to get some traction. That's where we've got the opportunity to standardize a little bit more and win very large wallet shares within our customer base.

Eric Friedrichsen: That's where we've got the opportunity to standardize a little bit more and win very large wallet shares within our customer base.

Brian Essex: God, that makes sense. Thank you very much. I appreciate it. We'll step back and thank you. You bet.

Speaker Change: Got it. That makes sense. Thank you very much. I appreciate it. We'll step back into queue.

Mark Shappell: Your next question comes from the line of Mark Shappell with Loop City Markets. Your line is open.

Operator: Your next question comes from the line of Mark Schappel with Loop City Markets. Your line is open.

Speaker Change: Your next question comes from the line of Mark Shappel with Leap City Market. Your line is open.

Mark Shappell: Hi, this is Mark Shappell with a Loop Capital error question for you on your second priority of driving operational effectiveness throughout your organization. What was it during your company reviews that caused you to basically bring in a new leader on this front, as well as may changes in this area. Yeah, I think I think you may be speaking about bringing in Richard Krummer and each Chief Product Officer. Is that correct? That's right. Yeah. Okay. Great. Yeah. You know, I got to tell you again, I've been in front of 20 customers. They love our product. They need our help in expanding the use of their product throughout their organizations.

Mark Schappel: Hi, this is Mark Schappel with Loop Capital. Eric, I have a question for you on your second priority of driving operational effectiveness throughout the organization. What was it during your company reviews that caused you to basically bring in a new leader on this front, as well as make changes in this area?

Mark Schappel: Hi, this is Mark Schappel with Loop Capital. Eric, question for you on your second priority of driving operational effectiveness throughout the organization. What was it during your company reviews that

Eric Friedrichsen: The customer chose this particular case for the pilot due to its size with over 3 million documents and its subject matter with which complex and rendered traditional search techniques less precise and less effective. The ability to ask questions and receive responses with documented support was highly appealing to the customer. The case team was impressed with Cecilia Q&A's ability to submit questions and receive responses with references to supporting documents. Effective querying of a large population of documents that led to finding key documents also help the legal team quickly provide their client with initial takeaways and actionable recommendations.

Speaker Change: that caused you to basically bring in a new leader on this front as well as make changes in this area.

Eric Friedrichsen: Yeah, I think I think you may be speaking about bringing in Richard Krummer, our new chief product officer. Is that it?

Speaker Change: Yeah, I think you may be speaking about bringing in Richard Crummer, our new Chief Product Officer.

Mark Schappel: That's right. Yeah. Yeah. Okay. Great. Yeah. You know.

Eric Friedrichsen: I got to tell you, again, I've been in front of 20 customers, they love our product, they need our help in expanding the use of their product throughout their organization. And I got to tell you, when I had the opportunity to bring on talent like Richard Crum, I had worked with Richard before at Embers. He was our chief product officer at Embers. Richard brings in a very customer-focused mindset. He is extremely commercially oriented.

Speaker Change: That's right, yeah. Yeah, okay, great, yeah. You know, I gotta tell you, again, I've been in front of 20 customers, they love our product, they need our help in expanding the use of their product throughout their organizations.

Eric Friedrichsen: And I got to tell you, when I had the opportunity to bring on talent, like Richard Krummer, I had worked with Richard before at Emburs. He was our Chief Product Officer at Emburs. Richard brings in a very customer-focused mindset. He is extremely commercially oriented. He does a really great job of making sure that cross functionally people are aligning priorities around the right customer needs. And he's an extremely clear communicator, which is really helpful when you think about the work that we're doing to go expand our wallet share within our customer base. It was just the perfect opportunity.

Speaker Change: and I got to tell you, when I had the opportunity to bring on talent, like Richard Cromey, I had worked with Richard before at Embers, he was our chief product officer at Embers. Richard brings in a very customer-focused...

Eric Friedrichsen: He does a really great job of making sure that, cross-functionally, people are aligning priorities around the right customer needs. And he's an extremely clear communicator, which is really helpful when you think about the work that we're doing to expand our wallet share within our customer base. It was just the perfect opportunity, and so that's why I brought Richard along. Great, thanks. Then, with respect to the go-to-market changes, we are focusing more on the AML 100 customers.

Eric Friedrichsen: This pilot's early findings demonstrate Cecilia Q&A can be a powerful investigative tool early in a case. In this example, Cecilia Q&A could be leveraged much more effectively than traditional search to prove a refute allegations of generic misconduct. Relying on Cecilia Q&A's ability to understand subtle language, the legal team was able to identify highly relevant documents very early on with a limited number of tailored natural language questions. The legal team is now using these documents to assess potential risks to formulate a broader strategy for the case and to assist the client in making informed decisions.

Speaker Change: mindset, he is extremely commercially oriented, he does a really great job of making sure that

Speaker Change: Cross functionally, people are aligning priorities around the right customer needs. And he's an extremely clear communicator, which is really helpful when you think about the work that we're doing to go expand our wallet share within our customer base.

Mark Shappell: And so that's why I brought Richard on board. Great. Thanks.

Speaker Change: It was just the perfect opportunity and so that's why I brought Richard on board.

Eric Friedrichsen: And then, with respect to the go-to-market changes, we are focusing more on the M-wall 100 customers. You know, that typically requires a little bit different type of sales rep. And maybe you just talk about the type of rep you're bringing on board to target those customers. Yeah. You're absolutely right. You know, we've got some great talent here at Disco. And we've been adding to that talent. You know, we hired several new sales reps and leaders within the last few months. And we're continuing to do so. It is a different approach. It's a more enterprise-oriented type of sale.

Speaker Change: Great, thanks. Then, with respect to the go-to-market changes, we are focusing more on the AML 100 customers. You know, that typically requires a little bit different type of sales rep, and maybe you just talk about the type of rep you're bringing on board to target those customers.

Eric Friedrichsen: You know, that typically requires a little bit different type of sales rep, and maybe you just talk about the type of rep you're bringing on board to target those clients. Yeah, you're absolutely right.

Eric Friedrichsen: Next, we are pleased to announce the launch of Cecilia AutoReview, now generally available and set to be showcased at the Ilta Conference next week. In our testing with top Am law firms, the results were outstanding. Disco's testing of Cecilia AutoReview on customer data demonstrated review speeds of 3,800 documents per hour, over a 24-hour period. Equivalent to a 140-person review team working at 8-hour day. And precision and recall metrics 10-20% higher than typical from human reviewers.

Eric Friedrichsen: Yeah, you're absolutely right. You know, we've got some great talent here at Disco, and we've been adding to that talent. You know, we hired several new sales reps and leaders within the last few months, and we're continuing to do so. It is a different approach. It's a more enterprise-oriented type of sale, so it's important that we have people that understand, you know, multiple buyers that understand the legal tech space. So, you know, obviously, we're looking for that type of profile as we bring in new people, but we're also building out our sales enablement function and ensuring that we're enabling all of our sales teams to do a better job at expanding our wallet share within our customers.

Speaker Change: Yeah, you're absolutely right. You know, we've got some great talent here at Disco, and we've been adding to that talent. You know, we hired several...

Speaker Change: New sales.

Speaker Change: Rapps and leaders within the last few months.

Speaker Change: We're continuing to do so. It is a different approach. It's a more enterprise-oriented type of sale. It's important that we have people that understand multiple buyers, that understand the legal tech space.

Eric Friedrichsen: It's important that we have people that understand, you know, multiple buyers that understand the legal text space. So, you know, obviously, we're looking for that type of a profile as we're bringing in new people. But we're also building out our sales enablement function and ensuring that we're enabling all of our sales teams to do a better job at expanding our wallet share within our customer base.

Speaker Change: So, you know, obviously we're looking for that type of a profile as we're bringing in new people, but we're also building out our sales enablement function and ensuring that we're enabling all of our sales teams to do a better job at expanding our wallet share within our customer base.

Eric Friedrichsen: Our customers can now leverage this technology on live cases to accelerate the reviews. Firms adopting this technology will revolutionize their workflows, reducing first-pass review times from weeks to hours while maintaining or even improving quality. Using natural language to describe tags and documents to be tagged, Cecilia AutoReview offers an efficient and effective solution. We're very excited to bring this powerful technology to our customers.

Ian Black: Thank you. Your next question comes from the line of Ian Black with Needham. Your line is open.

Operator: Your next question comes from the line of Ian Black with Needham. Your line is open.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of E and Black with Needham, your line is open.

Ian Black: Hi, I think it's taken my question. How does the new Cecilia Outer Review differ from your existing Disco Review product? Yeah, that's great.

Ian Black: Hi, thanks for taking my question. How does the new Cecilia Auto Review differ from your existing Disco Review product? Yeah, that's great.

Speaker Change: Hi, thanks for taking my question. How does the new Cecilia Auto Review differ from your existing Disco Review product?

Eric Friedrichsen: Yeah, that's great. In auto review, I can't tell you how excited I am about auto review. I mean, first of all, generative AI in general is, is, is a technology that general counsels at corporations are very excited about. You know, GCs are looking for ways to reduce their costs and to get more efficient. And, you know, they're putting some pressure on their outside counsel to find ways to focus on providing legal judgment, but then to reduce costs for areas that typically require less legal judgment. And they believe that technological innovation is one way to get them there.

Eric Friedrichsen: In auto review, I can't tell you how excited I am about auto review. I mean, first of all, generative AI in general is a technology that general councils at corporations are very excited about. You know, GCs are looking for ways to reduce their costs and to get more efficient. And you know, they're putting some pressure on their outside counsel to find ways to focus on providing legal judgment, but then to reduce costs for areas that require typically less legal judgment. And they believe that technology innovation is one way to get them there. And then our law firm customers are excited about where AI can take them in their ability to differentiate themselves from their competitors.

Speaker Change: Yeah, that's great. In auto review, I can't tell you how excited I am about auto review. I mean, first of all, generative AI in general is a technology that...

Speaker Change: General counsels at corporations are very excited about.

Speaker Change: You know, GCs are looking for ways to reduce their costs and to get more efficient and

Eric Friedrichsen: However, we're cautious that material adoption of these technologies will take time and we don't anticipate significant revenue impact in the current year. The heartbeat of our platform remains e-discovery. It is our core offering and ultimately with the vast majority of our customers care about most today. We are committed to providing the leading solution in the market and reflecting our customers feedback in the upcoming product releases.

Speaker Change: They're putting some pressure on their outside council to find ways to focus on providing legal judgment that then to reduce costs for areas that require typically less legal judgment. And they believe that technology innovation is one way to get them there.

Eric Friedrichsen: And then our law firm customers are excited about where AI can take them in their ability to differentiate themselves from their competitors. They look at it not only as an opportunity to potentially get more efficient, but also to be able to very quickly do an early case assessment, to be able to give their clients an early perspective on the risks associated with their case, or even potentially to help them more quickly come up with case strategies.

Speaker Change: And then our law firm customers are excited about where AI can take them in their ability to differentiate themselves from their competitors. They look at it not only as an opportunity to potentially get more efficient,

Eric Friedrichsen: They look at it not only as an opportunity to potentially get more efficient, but also to be able to very quickly do an early case assessment to be able to give their clients an early perspective on the risks associated with their case. Or even potentially help them more quickly come up with case strategy. So they look at it as an opportunity to be able to deliver faster outcomes and better outcomes for their clients, and many of our law firm customers want to differentiate themselves.

Eric Friedrichsen: In Q2, we have a significant capability release called in-app mass reductions. This is a key e-discovery functionality because it specifically targets for large matters and enables users to redact thousands of gigabytes worth of data at once. Orders will no longer need to draw reduction boxes over sensitive data, scoured documents one by one for sensitive information, and spend expensive hours on this task. Now information like credit card numbers, source security numbers, addresses, or other specific terms and patterns can be redacted with a simple user interface. This release has been frequently requested and we're excited for our customers to start relying, on it.

Speaker Change: But also, to be able to very quickly do an early case assessment, to be able to give their clients

Speaker Change: an early perspective on the risks associated with their case, or even potentially help them more quickly come up with case strategy. So they look at it as an opportunity to be able to deliver faster outcomes and better outcomes for their clients. And, you know, many of our law firm customers.

Eric Friedrichsen: So they look at it as an opportunity to be able to deliver faster outcomes and better outcomes for their clients. And, you know, many of our law firm customers want to differentiate themselves. I think that one of the things that it's really important to point out is that lawyers are typically risk averse.

Eric Friedrichsen: I think that one of the things that's really important to point out is that lawyers are typically risk averse. And the way we have designed Cecilia Auto Review is set up to help even the most risk-averse types of lawyers. Every document, first of all, we can review every single document, whereas typically test technical technical technology assisted reviewed can't review every single document, but with auto review in the next we can review every single document. Secondly, we have AI services wrapped into consulting services wrapped into the product such that we are helping our clients make sure that they are writing the tag tag explanations in the right way.

Speaker Change: want to differentiate themselves.

Speaker Change: I think that one of the things that's really important to point out is that [inaudible]

Eric Friedrichsen: And the way we have designed Cecilia Auto Review is set up to help even the most risk-averse types of lawyers review every document. First of all, we can review every single document, whereas typically, technology-assisted review can't review every single document. But with automated review in the mix, we can review every single document. Secondly, we have AI services wrapped into consulting services, wrapped into the product, such that we are helping our clients make sure that they are writing the tag tag explanations in the right way. And then, as the documents get tagged, there is a description for why every single document was tagged based on the tag instructions that were given at the very beginning.

Speaker Change: Lawyers are typically risk-averse, and the way we have designed Cecilia Auto Review is set up to help even the most risk-averse types of lawyers.

Eric Friedrichsen: In summary, it's been a wonderful first 100 days at Disco. We had strong revenues this quarter, our business is growing, we have over 1400 satisfied customers and amazing product outcomes. I'm impressed with our team and I'm energized by our customers. We know what we need to do and we are getting everyone aligned around the same priorities. I am proud of what our team has accomplished over the last few months and I'm incredibly optimistic about our future.

Speaker Change: Every document, first of all, we can review every single document, whereas typically test technical technology assisted, reviewed, can't review every single document with auto review in the next, we can review every single document.

Speaker Change: Secondly, we have AI services wrapped into, consulting services wrapped into the product.

Speaker Change: Such that we are helping our clients make sure that they are writing the tag, tag explanations in the right way. And then as the documents get tagged, there is a description for why every single document was tagged based on the tag instructions that were given at the very beginning. And then we're providing...

Eric Friedrichsen: And then, as the documents get tagged, there is a description for why every single document was tagged based on the tag instructions that were given at the very beginning. And then we're providing precision and recall reporting and metrics, which are 10 to 20 percent better than human review as part of the process as well.

Michael Lafair: With that, I'll turn it over to Michael. Thank you, Eric. In Q2 2024, total revenues were 36 million, up 5% year every year. Software revenues were 29.3 million, up 8% year every year. We had some softness in software in April that impacted the full quarter but we saw improvement in May and June. Services revenue were 6.7 million, down 7% year every year. The year every year decline in services is due to a decline from strong revenue usage we saw in Q2 of 2023.

Eric Friedrichsen: And then we're providing Precision and Recall Reporting and Metrics, which are 10 to 20 percent better than human review as part of the process as well. So it's, you know, we're very excited about the prospects for Cecilia auto review. Obviously, it's very, very early days. But the early testing that our clients have done, being able to process and review 3,800 documents in an hour, they are pretty, pretty optimistic about the future.

Speaker Change: Precision and Recall Reporting and Metrics which are

Eric Friedrichsen: So we're very excited about the prospect, specifically auto review. Obviously, it's very, very early days. But the early testing that our clients have done, the getting able to process and review 3,800 documents in an hour, it's pretty optimistic about the future there.

Speaker Change: 10 to 20 percent better than human review as part of the process as well. So it's it's

Speaker Change: You know, we're very excited about the prospects for silly auto review. Obviously it's very, very early days But the early testing that our clients have done, the getting able to process and review 3800 documents in an hour It's pretty optimistic about the future there

Michael Lafair: 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-gap basis. Adjust the EBITDA is also a non-gap financial measure. Our gross margin in Q2 was 75%. As we mentioned before, our gross margins fluctuate from periods based on the nature of our customers' usage. For example, the amount and types of data ingested and managed on our platform.

Operator: Thank you.

Brent Phil: And I would like to remind everybody, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Brent Phil with Jeffries; your line is open.

Operator: And I would like to remind everybody, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Brent Thill with Jeffreys. Your line is open. Thank you.

Speaker Change: And I would like to remind everybody if you would like to ask a question, please press star and the number one on your telephone keypad.

Speaker Change: Your next question comes from the line of Brent Thill with Jeffreys. Your line is open.

Luv Sodha: Thank you, Eric and Michael, for taking my questions.

Brent Thill: Thank you. Thank you, Eric and Michael, for taking my questions. This is Luv Sodha on behalf of Brent Thill.

Luv Sodha: This is Luv Sodha on for Brent Hill. Maybe first one for you, Eric, now that you've been at Disco for a few days, given your time there, what assessments have you made about the opportunity set? And just in terms of improving execution, what are the changes that you need to make? Besides hiring, obviously, Richard Crum. Yeah, thanks, thanks, luv. You know, as far as the observations that I've had so far, I mean, I think the first one I would just say is that, you know, I've been to every one of our offices. It's been to India, where we have a very strong cross-functional team that covers many different areas of our business; multiple trips to a New York office, to a London office, and then, of course, many trips to our Austin headquarters.

Love Soda: Thank you, Eric and Michael for taking my questions. This is love soda on for Brent too.

Luv Sodha: Maybe the first one for you, Eric, now that you've been at Disco for a few days, you know, given your time there, what assessments have you made about the opportunity set? And just in terms of improving execution, what are the changes you need to make? Besides hiring, obviously, Richard Crumb.

Michael Lafair: Sales and marketing expense for Q2 is 14.3 million for 40% of revenue compared to 47% of revenue in Q2 of the prior year. The year every year decline is predominantly driven by a combination of lower total headcount and redistribution of our investment within sales and marketing. Research and development expense for Q2 is 10.8 million for 30% of revenue compared to 31% of revenue in Q2 of the prior year. We are relatively flat year every year with a R&D spend.

Brent Thill: Maybe first one for you Eric, you know, now that you've been at this school for a few days, you know, given you a time there, what assessments have you made about the opportunity set?

Speaker Change: And just in terms of improving execution, what are the changes do you need to make besides hiring obviously Richard Crum?

Eric Friedrichsen: Yeah, thanks. Thanks, Luv.

Speaker Change: Thank you very much for watching this video, and if you enjoyed this video, please hit the like, and subscribe button.

Michael Lafair: General and administrative expense in Q2 was 8 million for 22% of revenue compared to 21% of revenue in Q2 of the prior year. General and administrative expenses were relatively flat year every year. Operating loss in Q2 was 5.9 million for representing an operating margin of negative 17%, compared to negative 25% in Q2 of the prior year. Adjusted EBITDA was negative 4.7 million in Q2 for representing an adjusted EBITDA margin of negative 13%, compared to an adjusted EBITDA margin of negative 22% in Q2 of the prior year.

Eric Friedrichsen: Yeah, thanks Love. You know, as far as the observations that I've had so far, I mean, I think the first one I would just say is that

Eric Friedrichsen: You know, as far as the observations that I've had so far, I mean, I think the first one I would just say is that, you know, I've been to every one of our offices. We've been to India, where we have a very strong cross-functional team that covers many different areas of our business, multiple trips to our New York office, to our London office, and then, of course, many trips to our Austin headquarters.

Speaker Change: I've been to every one of our offices. We've been to India, where we have a very strong, cross-functional team that covers many different areas of our business, multiple trips to our New York office, to our London office, and then, of course, many trips to our Austin headquarters. We've got really incredible talent that's.

Eric Friedrichsen: We've got really incredible talent that's very well versed in the legal tech industry and in e-discovery specifically, people that care a lot about our customers. And I've been really impressed at how they're working together. Got low egos, a lot of collaboration, so that part's obviously very, very positive. I think there's opportunities for us to add more talent, experienced people who have been there and done it before and helped scale companies from where Disco is today. A multiple hundreds of millions of revenue, and we've begun to do that. And we've done it. I talked about hiring sales leaders and sales reps.

Eric Friedrichsen: We've got really incredible talent that's very well-versed in the legal tech industry and in e-discovery specifically, people that care a lot about our customers. And I've been really impressed at how they're working together. They have low egos, a lot of collaboration, so that part's, you know, obviously very, very positive.

Speaker Change: very well versed in the legal tech.

Speaker Change: Industry and eDiscovery specifically, people that care a lot about our customers.

Speaker Change: And I've been really impressed at how they're working together. Got low egos, a lot of collaboration, so that part's, you know, obviously very, very positive. I think there's, you know, opportunities for us to add more talent, experienced.

Michael Lafair: Net loss in Q2 was 4.4 million or negative 12% of revenue compared to a net loss of 6.5 million or negative 19% of revenue in Q2 of the prior year. Net loss per share for Q2 was 7 cents compared to 11 cents per share for Q2 of the prior year.

Eric Friedrichsen: I think there are, you know, opportunities for us to add more talent, experienced people who have been there and done it before and helped scale companies from where Disco is today to multiple hundreds of millions of revenue, and we've begun to do that. I talked about hiring sales leaders and sales reps. We talked about hiring our chief product officer, Richard Crum. We are also in the process of interviewing for a general counsel and are in the process of interviewing for a senior vice president of operations.

Speaker Change: people who have been there and done it before and helped scale companies from where Jesco is today to multiple hundreds of millions of revenue and we've begun to do that and we've done it. I talked about hiring

Eric Friedrichsen: We talked about hiring our Chief Product Officer, Richard Crum. We are also in a process of interviewing for a general counsel and a process of interviewing for a senior vice president of operations. And so there are certainly some opportunities to kind of round out the talent, and we're going through that process as we speak. And then we also talked about some of the investments that we're making in processes and systems, things like our quote to cash project, you know, building out our customer success team and our sales enablement team. It's incredible how far disco has come.

Michael Lafair: Turning to the balance sheet and cash flow statement, we handed Q2 with 130 million in cash and cash equivalence and no debt. This included the impact of the $20 million share repurchase program completed in the quarter. Operating cash flow for the first two quarters of 2024 was negative 8 million compared to negative 21.8 million in the same period of the prior year. Turning to the outlook for Q3 2024, we are providing total revenue guidance in the range of 35.3 million to 37.3 million in software revenue guidance in the range of 29.5 million to 30.5 million.

Speaker Change: Sales leaders and sales reps. We talked about hiring our chief product officer Richard Crum

Speaker Change: We are also in the process of interviewing for a general counsel and in the process of interviewing for...

Eric Friedrichsen: And so there certainly is some opportunity to kind of round out the talent, and we're going through that process as we speak. And then we also talked about some of the investments that we're making in processes and systems, things like our quote-to-cash project, you know, building out our customer success team and our sales enablement team. It's incredible how far Disco has come, 1,449 customers, 140 million in revenue, you know, but there are just some things that we are building right now that are going to put us into a position to be able to scale to a much, much bigger company in the future.

Speaker Change: a senior vice president of operations. And so there certainly are some opportunity to kind of round out the talent and we're going through that process as we speak. And then we also talked about some of the investments that we're making in processes and systems, things like our Quote to Cash project.

Speaker Change: You know, building out our customer success team and our sales enablement team.

Eric Friedrichsen: 1,449 customers, 140 million in revenue.

Speaker Change: It's incredible how far Disco has come. 1,449 customers, 140 million in revenue, but there's just some things that we are building right now that are gonna put us into a position to be able to scale to a much, much bigger company in the future.

Michael Lafair: We expect adjusted EBITDA to be in the range of negative 7 million to negative 5 million. For fiscal year 2024, we anticipate total revenue guidance in the range of 143 million, 247 million, and software revenue guidance in the range of 118.5 million, 220.5 million. We expect Adjusted EBITDA to be in the range of 23 million to negative 19 million.

Eric Friedrichsen: But there's just some things that we are building right now that are going to put us into a position to be able to scale to a much, much bigger company in the future. Got it.

Luv Sodha: Got it. And one quick follow-up question for Michael, if I may. You know, Michael, obviously, you've had a few quarters where you've come in line with the guide, I guess, and, you know, you're pulling some of the second-half guide, if you will. Could you just walk us through, like, what would give you more confidence in getting to a more beat-and-race cadence, you know, in the future?

Michael Lafair: And one quick follow-up for Michael, if I may. You know, Michael, obviously, you know, you've had a few quarters where you've come in line with the guide. I guess, and you know, you're, you're pulling some of the second half guide, if you will. Could you just walk us through like what would give you more confidence in getting to a more beaten race cadence, you know, in the future? Thanks. Thanks, love. I mean, I feel really confident about the direction of the business is going and the changes that have already been put in place and the strategy that Eric outlined in his prepared remarks.

Speaker Change: Carter, and one quick follow-up for Michael Lafair May.

Speaker Change: You know, Michael, obviously, you know, you've had a few quarters where you've come in line with the guide.

Speaker Change: I guess, you know, you're pulling some of the second half guide, if you will, could you just walk us through, like, what would give you more confidence in getting to a more beat and race cadence, you know, in the future?

Operator: Now I'd like to turn the call over to the operator to open up the line for Q&A. Operators? Thank you. At this time, I would like to remind everyone in order to ask a question, press star, and then the number one on your telephone keypad.

Michael Lafair: Thanks, thanks, love. I mean, I feel really confident about the direction of the business going and the changes that have already been put in place and the strategy that Eric outlined in his prepared remarks. In terms of the guide, as we finish each quarter, finish q1, finish q2, we have narrowed the range based on for the full year based on how our performance was in the first half and also based on our best estimate of where we think we're going to land.

Brian Essex: Your first question comes from a line of Brian Essex with J.P. Morgan. Your line has opened.

Speaker Change: Thanks, I feel really confident about the direction of the business is going and the changes that have already put in place and the strategy that Eric

Eric Friedrichsen: Hi, good afternoon and thank you for taking the question. Maybe for Eric, if you could help us understand, like, within your customer base is 1400 plus customers. How many would fall into the large law corporate litigation to keep bucket? And what is the big savior of that customer cohort? They're growing faster than the rest of the customers and maybe there's a get a get a sense of the underlying dynamics from, you know, as it relates to like, like, total customer number that we see.

Michael Lafair: In terms of the guide, as we finish each quarter, finish Q1, finish Q2, we have narrowed the range based on for the full year, based on how our performance was in the first half, and also based on our best estimate of where we think we're going to land. And of course, you know, we would like to do better. I'm also optimistic about the direction of the business, and I feel really good about the strategic direction of the company. And, but it, you know, right now we give the best estimate on where we think we're going to land, and we did, we did it now in the range a little bit based on the fact that we're closer to the end of the year.

Eric Friedrichsen: outlined in his prepared remarks.

Speaker Change: In terms of the guide, as we finish each quarter, finish Q1, finish Q2, we have narrowed the range for the full year based on how our performance was in the first half and also based on our best estimate of

Michael Lafair: Of course, we would like to do better. I'm also optimistic about the direction of the business, and I feel really good about the strategic direction of the company. But right now, we give our best estimate on where we think we're going to land, and we did narrow the range a little bit based on the fact that we're closer to the end of the year.

Eric Friedrichsen: where we think we're going to land. Of course, you know...

Eric Friedrichsen: We would like to do better. I'm also optimistic about the direction of the business, and I feel really good about.

Eric Friedrichsen: Brian, absolutely, you know, big law and law 100 customers are the biggest producer of revenue for us. And in fact, if you look at our top approximately 300 customers in general, they generate 75% of our revenue, which is comprised of quite a few and law 100 customers in that group. So if we look at like the net ads for the quarter, you know, is this a function of the larger customers growing and the smaller customers churning off or maybe to kind of put it a different way, like, what's going on within the rest of the customer base and how are you managing the ability to kind of like retain and stabilize that customer base within your customer across the platform?

Eric Friedrichsen: and the strategic direction of the company. But right now we give the best estimate on where we think we're going to land and we did it narrow the range a little bit based on the fact that we're closer to the end of the year.

Michael Lafair: Scott, are you just a quick follow-up? Are you baking in additional conservatism in the second half? Or is it the same philosophy as before? It's the same philosophy as before.

Luv Sodha: Got it. Are you, just a quick follow-up, sorry? Are you baking in additional conservatism in the second half, or is it the same philosophy as before? It's the same philosophy as before.

Eric Friedrichsen: Are you making an additional conservatism in the second half, or is it the same philosophy as before? It's the same philosophy as before.

Michael Lafair: It's the same philosophy as before.

Operator: Scott, thank you. And there are no further questions at this time.

Speaker Change: Got it. Thank you.

Operator: questions at this time. I will turn the call back over to Eric Friedrichsen, CEO, for closing.

Eric Friedrichsen: I will turn the call back over to Eric Friedrichsen, CEO, for closing remarks. Thank you very much. And thanks to all of you for joining our earnings call today. And for your continued support and your interest in disco, your confidence in us drives our commitment to deliver strong results in sustainable growth. I want to extend my gratitude to our dedicated disco employees whose hard work and innovation are the foundation of our success, as well as to our customers who have been amazing supporters and partners to disco. Together we've achieved significant milestones and we're poised to capture even greater opportunities ahead.

Eric Friedrichsen: And there are no further questions at this time. I will turn the call back over to Eric Friedrichsen, CEO , for closing remarks.

Eric Friedrichsen: Thank you very much. And thanks to all of you for joining our earnings call today. And for your continued support and your interest in Disco. Your confidence in us drives our commitment to deliver strong results and sustainable growth. I want to extend my gratitude to our dedicated disco employees whose hard work and innovation are the foundation of our success, as well as to our customers who have been amazing supporters and partners to Disco.

Eric Friedrichsen: Thank you very much and thanks to all of you for joining our earnings call today and for your continued support and your interest in disco. Your confidence in us drives our commitment to deliver strong results in sustainable growth.

Eric Friedrichsen: Yeah, you know, historically, disco was all about net new customer acquisition, regardless of whether those customers were big customers or small customers or customers with big potential or small potential. It was really disco was acquiring customers kind of at any rate. We've really shifted our focus as we put more focus on managing our largest customers. We've also put focus on acquiring larger customers. And so just like we're managing big law, big litigation boutiques and corporations that tend to have a lot of litigation, we're doing the same thing from an acquisition standpoint.

Eric Friedrichsen: I want to extend my gratitude to our dedicated disco employees, whose hard work and innovation are the foundation of our success, as well as to our customers, who have been amazing supporters and partners to disco.

Eric Friedrichsen: Together, we've achieved significant milestones, and we're poised to capture even greater opportunities ahead. To our investors, your trust and your investment are invaluable. We remain focused on executing our strategic initiatives, driving long-term value, and maintaining transparent communication. We look forward to sharing our progress in the quarters to come. Once again, thank you for your time today. Thank you for your unwavering support, and have a great day.

Speaker Change: Together we've achieved significant milestones and we're poised to capture even greater opportunities ahead.

Eric Friedrichsen: To our investors, your trust and your investment are invaluable. We remain focused on executing our strategic initiatives, driving long-term value, and maintaining transparent communication. We look forward to sharing our progress in the quarters to come.

Speaker Change: To our investors, your trust.

Eric Friedrichsen: and your investment are invaluable. We remain focused on executing our strategic initiatives, driving long-term value and maintaining transparent communication.

Eric Friedrichsen: So we're as we're acquiring customers very much focused on acquiring the right customers where we think we can add the most value and where we have the opportunity to grow. God, that makes a lot of sense.

Operator: Once again, thank you for your time today. Thank you for your own weight-bearing sport and have a great day. Thank you.

Eric Friedrichsen: We look forward to sharing our progress in the quarters to come.

Eric Friedrichsen: Once again, thank you for your time today. Thank you for your unwavering sport and have a great day.

Eric Friedrichsen: Maybe maybe last one for me. In terms of those large customers, how do you look at that opportunity in terms of the catch rate or penetration of those customers? Is your large customer focused primarily on increasing penetration within the install base or going out for new logo lands? Yeah, you know, Brian, I'm glad you asked that. I've been in front of over 20 customers over the last 100 days in New York and Philly and DC and New Jersey and London and Dallas and a little bit of everywhere.

Operator: Thank you. This concludes today's conference call. You may now disconnect.

Operator: This concludes today's conference call.

Operator: You may now disconnect.

Speaker Change: Thank you. This concludes today's conference call. You may now disconnect.

Eric Friedrichsen: And consistently, what I've heard from our champions of those costs. Summers are that, number one, they love our product. Number two, they want to expand the use of our product within their organizations. Number three, we don't have as big of wallet share as we might think we have. And number four, they want us to help them expand the platform usage within their firms. And so that's exactly what we're doing. We've built out a champion enablement approach and we're focused on expanding our wallet share within our customer base.

Eric Friedrichsen: I should point out, you know, I spend a lot of time in the expense management industry with concurrent embers and the ERP industry with SAP. And in those industries, when you're trying to win wallet share, a lot of times you're actually trying to displace your competitor. And it could be pretty challenging. Those are long sale cycles that are, those are very complex. You know, one of the interesting things about our market is that matters begin and matters end.

Eric Friedrichsen: And there might be some disadvantages to that, but there's also some big advantages to that in the sense that we don't have to necessarily win every single matter right away. We have to win the next matter. And once we win the second and the third matter, we get to the 6th matter, we start to get some traction. That's where we've got the opportunity to standardize a little bit more and win very large wallet shares within our customer base. God, that makes sense.

Brian Essex: Thank you very much. I appreciate it. We'll step back and thank you. You bet.

Mark Schappel: Your next question comes from the line of Mark Shappell with Loop City Markets. Your line is open. Hi, this is Mark Shappell with a loop capital error question for you on your second priority of driving operational effectiveness throughout your organization. What was it during your company reviews that caused you to basically bring in a new leader on this front, as well as may changes in this area. Yeah, I think I think you may be speaking about bringing in Richard Krummer and each chief product officer.

Mark Schappel: Is that correct? That's right. Yeah. Okay. Great. Yeah. You know, I got to tell you again, I've been front of 20 customers. They love our product. They need our help in expanding the use of their product throughout their organizations. And I got to tell you, when I had the opportunity to bring on talent, like Richard Krummer, I had worked with Richard before at Emburs. He was our chief product officer at Emburs.

Mark Schappel: Richard brings in a very customer focused mindset. He is extremely commercially oriented. He does a really great job of making sure that cross functionally people are aligning priorities around the right customer needs. And he's an extremely clear communicator, which is really helpful when you think about the work that we're doing to go expand our wallet share within our customer base. It was just the perfect opportunity.

Eric Friedrichsen: And so that's why I brought Richard on board. Great. Thanks. And then with respect to the go-to-market changes, we are focusing more on the M-wall 100 customers. You know, that typically requires a little bit different type of sales rep. And maybe you just talk about the type of rep you're bringing on board to target those customers. Yeah. You're absolutely right. You know, we've got some great talent here at Disco. And we've been adding to that talent.

Eric Friedrichsen: You know, we hired several new sales reps and leaders within the last few months. And we're continuing to do so. It is a different approach. It's a more enterprise oriented type of sale. It's important that we have people that understand, you know, multiple buyers that understand the legal text space. So, you know, obviously, we're looking for that type of a profile as we're bringing in new people. But we're also building out our sales enablement function and ensuring that we're enabling all of our sales teams to do a better job at expanding our wallet share within our customer base. Thank you.

Ian Black: Your next question comes from the line of Ian Black with Needham. Your line is open. Hi, I think it's taken my question.

Eric Friedrichsen: How does the new Cecilia Outer Review differ from your existing Disco Review product? Yeah, that's great. In auto review, I can't tell you how excited I am about auto review. I mean, first of all, generative AI in general is a technology that general councils at corporations are very excited about. You know, GCs are looking for ways to reduce their costs and to get more efficient. And you know, they're putting some pressure on their outside council to find ways to focus on providing legal judgment, but then to reduce costs for areas that require typically less legal judgment.

Eric Friedrichsen: And they believe that technology innovation is one way to get them there. And then our law firm customers are excited about where AI can take them in their ability to differentiate themselves from their competitors. They look at it not only as an opportunity to potentially get more efficient, but also to be able to very quickly do an early case assessment to be able to give their clients an early perspective on the risks associated with their case.

Eric Friedrichsen: Or even potentially help them more quickly come up with case strategy. So they look at it as an opportunity to be able to deliver faster outcomes and better outcomes for their clients and many of our law firm customers want to differentiate themselves. I think that one of the things that's really important to point out is that lawyers are typically risk averse. And the way we have designed Cecilia auto review is set up to help even the most risk averse types of lawyers.

Eric Friedrichsen: Every document, first of all, we can review every single document, whereas typically test technical technical technology assisted reviewed can't review every single document, but with auto review in the next we can review every single document. Secondly, we have AI services wrapped into consulting services wrapped into the product such that we are helping our clients make sure that they are writing the tag tag explanations in the right way. And then as the documents get tagged, there is a description for why every single document was tagged based on the tag instructions that were given at the very beginning.

Eric Friedrichsen: And then we're providing precision and recall reporting and metrics which are 10 to 20 percent better than human review as part of the process as well. So we're very excited about the prospect specifically auto review, obviously it's very, very early days. But the early testing that our clients have done, the getting able to process and review 3800 documents in an hour, it's pretty optimistic about the future there. Thank you.

Operator: And I would like to remind everybody if you would like to ask a question, please press star and the number one on your telephone keypad.

Luv Sodha: Your next question comes from the line of Brent Phil with Jeffries, your line is open. Thank you, Eric and Michael for taking my questions. This is Luv Sodha on for Brent Hill.

Eric Friedrichsen: Maybe first one for you, Eric, now that you've been at Disco for a few days, given your time there, what assessments have you made about the opportunity set? And just in terms of improving execution, what are the changes that you need to make? Besides hiring, obviously, Richard Crum. Yeah, thanks, thanks, Luv. You know, as far as the observations that I've had so far, I mean, I think the first one I would just say is that, you know, I've been to every one of our offices.

Eric Friedrichsen: It's been to India where we have a very strong cross-functional team that covers many different areas of our business, multiple trips to a New York office, to a London office, and then, of course, many trips to our Austin Headquarters. We've got really incredible talent that's very well versed in the legal tech industry and in e-discovery specifically, people that care a lot about our customers. And I've been really impressed at how they're working together.

Eric Friedrichsen: Got low egos, a lot of collaboration, so that part's obviously very, very positive. I think there's opportunities for us to add more talent, experienced people who have been there and done it before and helped scale companies from where Disco is today. A multiple hundreds of millions of revenue, and we've begun to do that. And we've done it. I talked about hiring sales leaders and sales reps. We talked about hiring our chief product officer, Richard Crum.

Eric Friedrichsen: We are also in a process of interviewing for a general counsel and a process of interviewing for a senior vice president of operations. And so there are certainly are some opportunity to kind of round out the talent and we're going through that process as we speak. And then we also talked about some of the investments that we're making in processes and systems, things like our quote to cash project, you know, building out our customer success team and our sales enablement team.

Eric Friedrichsen: It's incredible how far Disco has come. 1449 customers, 140 million in revenue. But there's just some things that we are building right now that are going to put us into a position to be able to scale to a much, much bigger company in the future. Got it.

Michael Lafair: And one quick follow up for Michael, if I may, you know, Michael, obviously, you know, you've had a few quarters where you've come in line with the guide. I guess, and you know, you're, you're, you're pulling some of the second half guide, if you will. Could you just walk us through like what would give you more confidence in getting to a more beaten race cadence, you know, in the future? Thanks. Thanks, love.

Michael Lafair: I mean, I feel really confident about the direction of the business is going and the changes that have already been put in place and the strategy that Eric outlined in his prepared remarks. In terms of the guide, as we finish each quarter, finish Q1 finish Q2, we have narrowed the range based on for the full year, based on how our performance was in the first half, and also based on our best estimate of where we think we're going to land.

Michael Lafair: And of course, you know, we, we would like to do better. I'm also optimistic about the direction of the business and I feel really good about the strategic direction of the company. And, but it, you know, right now we give the best estimate on where we think we're going to land, and we did, we did it now in the range a little bit based on the fact that we're closer to the end of the year. Scott, are you just a quick follow-up? Are you baking in additional conservatism in the second half? Or is it the same philosophy as before? It's the same philosophy as before. Scott, thank you.

Operator: And there are no further questions at this time.

Eric Friedrichsen: I will turn the call back over to Eric Friedrichsen, CEO for closing remarks. Thank you very much. And thanks to all of you for joining our earnings call today.

Eric Friedrichsen: And for your continued support and your interest in disco, your confidence in us drives our commitment to deliver strong results in sustainable growth. I want to extend my gratitude to our dedicated disco employees whose hard work and innovation are the foundation of our success as well as to our customers who have been amazing supporters and partners to disco. Together we've achieved significant milestones and were poised to capture even greater opportunities ahead. To our investors, your trust, and your investment are invaluable, we remain focused on executing our strategic initiatives, driving long-term value and maintaining transparent communication. We look forward to sharing our progress in the quarters to come.

Operator: Once again, thank you for your time today. Thank you for your own weight-bearing sport and have a great day. Thank you.

Operator: This concludes today's conference call. You may now disconnect.

Q2 2024 CS Disco Inc Earnings Call

Request a DemoDemo

LAW

Disco

Earnings