Q2 2024 KLDiscovery Inc Earnings Call
Operator: Good day, everyone. Welcome to KLDiscovery's Q2 2024 Financial Results Conference call. At this time, I would like to hand the call over to Ms. Dawn Wilson. Please go ahead.
Good day, everyone. Welcome to KLDiscovery's Q2 2024 Financial Results Conference call. At this time, I would like to hand the call over to Ms. Dawn Wilson. Please go ahead.
Dawn Wilson: Thank you, Operator. Welcome to KLDiscovery's Q2 2024 conference call. Today's call contains forward-looking statements within the meaning of the federal securities laws, but these statements are not guarantees of future performance. Actual results may differ materially from these forward-looking statements due to assumptions, risk, and uncertainties that are described in more detail in our earnings press release issued yesterday and filings with the FEC. KLDiscovery undertakes no obligation to amend, update, or clarify these forward-looking statements made as of today unless required by law.
Dawn Wilson: Thank you, Operator. Welcome to KLDiscovery's Q2 2024 conference call. Today's call contains forward-looking statements within the meaning of the federal securities laws. These statements are not guarantees of future performance.
actual result may differ materially from these forward-looking statements due to assumptions risk and uncertainties that are described in more detail in our earnings press release issued yesterday and filings with the sec
KAO Discovery undertakes no obligation to amend, update, or clarify these forward-looking statements made as of today unless required by law.
Dawn Wilson: During this call, we will also present non-GAAP financial measures such as EBITDA and adjusted EBITDA, which were not prepared in accordance with GAAP. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure is shown in detail in our press release issued last night, along with definitions for those terms and a discussion of certain limitations. Management believes that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations.
Dawn Wilson: During this call, we will also present non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which were not prepared in accordance with GAAP.
Dawn Wilson: Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure are shown in detail in our press release issued last night, along with definitions for those terms and a discussion of certain limitations.
Dawn Wilson: Management believes that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations.
Dawn Wilson: Our non-GAAP financial measure should only be considered in addition to, and not in isolation from, or as a substitute for, or superior to, any GAAP measure. Please refer to our press release for how to access the replay of this call. I will now turn the call over to our CEO, Chris Weiler.
Dawn Wilson: Our non-GAAP financial measures should only be considered in addition to, and not in isolation from,
Dawn Wilson: or as a substitute for or superior to any GAP measure, please refer to our press release on how to access the replay of this call. I will now turn the call over to our CEO, Chris Weiler.
Chris Weiler: Thank you, Dawn, and thank you all for joining us today for KLDiscovery's second quarter 2024 financial results conference call. My name is Chris Weiler, and I am the CEO and co-founder of KLDiscovery.
Christopher Weiler: Thank you, Dawn, and thank you all for joining us today for KLDiscovery's second quarter. Importantly, as of June 30, 2024, the number of our legal technology clients increased to 6,239 by 1.4% year-over-year, and the number of Nebula clients increased to 1,708, up approximately 3% year-over-year. Utilizing our solutions is an important indicator of our market penetration, our business growth, our firm loan hold lenders, our revolving credit facility lender, and the largest shareholder in an exchange agreement with our convertible debenture holder. Importantly, the signing of these transaction documents.
Chris Weiler: Thank you, Dawn, and thank you all for joining us today for KLDiscovery's second quarter.
Chris Weiler: 2024 Finance Results Conference Call. My name is Chris Weiler and I am the CEO and co-founder of KLDiscovery.
Chris Weiler: As always, I'm grateful to our industry-leading team for their hard work and continued dedication to bringing our strategic vision to life and delivering innovative solutions and stellar service to our entire global client base. Our financial results year-to-date demonstrate KLDiscovery's ability to generate meaningful revenues. For the second quarter of 2024, we reported total revenue of $79 million, with legal technology revenue of $72.1 million and data recovery revenue of $6.9 million.
Dawn Wilson: As always, I am grateful to our industry-leading team for their hard work.
Dawn Wilson: and continued dedication to bring in our strategic vision to life and delivering innovative solutions and stellar service to our entire global client base
Dawn Wilson: Our financial results, year-to-date, demonstrate KLDiscovery's ability to generate meaningful revenues for the second quarter of 2024.
Christopher Weiler: We reported total revenue of $79 million, with legal technology revenue of $72.1 million, and data recovery revenue of $6.9 million.
Chris Weiler: As of June 30, 2024, we had 7,650 legal technology matters and 1,381 matters under our flagship eDiscovery Platform Nebula. Additionally, as of June 30, 2024, the number of our legal technology clients increased to 6,239, up 1.4% year-over-year, and the number of Nebula clients increased to 1,708, up approximately 3% year-over-year. We have a strong track record of growing our client base, and we believe that our ability to continue increasing the number of clients utilizing our solutions is an important indicator of our market penetration, our business growth, and our future opportunities. For the 12 months ended June 30th, 2024.
Dawn Wilson: As of June 30, 2024, we had 7,650 legal technology matters and 1,381 matters under our flagship eDiscovery Platform, Nebula.
Dawn Wilson: Importantly, as of June 30th, 2024, the number of our legal technology clients increased to 6,239 of 1.4 percent year-over-year.
Speaker Change: and the number of nevo clines increased to one thousand and seven hundred and eight up approximately three percent year-over-year
Dawn Wilson: We have a strong track record of growing our client base, and we believe that our ability to continue increasing the number of clients Utilizing our solutions is an important indicator of our market penetration our business growth
Christopher Weiler: and our future opportunities
Speaker Change: The 12 months ended June 30, 2024. Our legal technology net revenue return was 90%.
Chris Weiler: Our legal technology net revenue retention was 90%. We aim to further enhance our net revenue retention by boosting the number of subscription-based solutions we offer and expanding the range of our Nebula products to drive robust product adoption. As we announced last quarter, we are in the process of finalizing a milestone transaction that will strengthen KLDiscovery's financial position by significantly decreasing its long-term debt. Additionally, we believe the stronger capital structure following the expected transaction will serve to underpin our growth model and focus on investment in our market-leading client solution.
Speaker Change: We aim to further enhance our net revenue retention by boosting the number of subscription-based solutions we offer and expanding the range of our Nebula products to drive robust product adoption.
Dawn Wilson: As we announced last quarter, we are in the process of finalizing a milestone transaction
Christopher Weiler: that will strengthen KL Discovery's financial position by significantly decreasing its long-term debt. Additionally, we believe the stronger capital structure following the expected transaction will serve to underpin our growth model and focus on investment in our market-leading client solutions.
Chris Weiler: Most recently, on July 3rd, 2024, we entered into a transaction support agreement with our convertible DeVenture holders, firm loan hold lenders, revolving credit facility lender, and largest shareholder in an exchange agreement with our convertible debenture holder. Importantly, the signing of these transaction documents reflects the continued strong support of our DeVenture holders, firm loan lenders, revolving credit facility lender, and our largest shareholder, who The transaction is expected to close in the third quarter of 2024.
Christopher Weiler: Most recently, on July 3, 2024, we entered into a transaction support agreement with our convertible debenture holders, firm loan lenders, revolving credit facility lender, and largest shareholder in an exchange agreement with our convertible debenture holders.
Dawn Wilson: importantly the sign of these transaction documents
Dawn Wilson: reflects the continued strong support of our debenture holders, firm loan lenders, revolving credit facility lender, and our largest shareholder who are confident in our prospects and business strategy. The transaction is expected to close in the third quarter of 2024.
Chris Weiler: Our flagship e-discovery platform, Nebula, continues to shine and has become a foundational element of our financial performance. Our existing customers are using Nebula more than ever, and the platform has also been responsible for attracting an influx of new customers to KLDiscovery. Nebula delivered exceptional results in the second quarter of 2024 with platform revenue of 51% year-over-year, which included an incremental $8.4 million by expanding the use of Nebula processing across virtually all legal technology engagements. Nebula's strong financial results were primarily driven by increased utilization, as evidenced by steady growth of both active users and data volumes on the platform. The secret to Nebula's success is simple.
Christopher Weiler: Our flagship e-discovery platform Nebula continues to shine and has become a foundational element of our financial performance.
Christopher Weiler: our existing customers are using neb more than ever and the platform has also been responsible for attracting an influx of new customers to cale discovery
Christopher Weiler: Nebula delivered exceptional results in the second quarter of 2024 with platform revenue of 51% year-over-year, which includes an incremental $8.4 million by expanding the use of Nebula processing across virtually all legal technology engagements.
Christopher Weiler: Nebula's strong financial results were primarily driven by increased utilization, as evidenced by steady growth of both active users and data volumes on the platform. We believe that e-discovery technology should be reliable and make it easier for our clients to do their jobs effectively. We built Nebula with that exact philosophy in mind, and it's already proven to be a winning strategy. Nebula is making a real difference in the legal community, and we expect our roadmap to build on that success and reach even more users whose professions can be changed for the better through Nebula.
Christopher Weiler: Nebula's strong financial results were primarily driven by increased utilization as evidenced by steady growth of both active users and data volumes on the platform.
Chris Weiler: The platform creates a model user experience through ease of use, powerful tools focused on practical solutions, and reliability. eDiscovery is more complex than ever, and balancing complex data challenges alongside legal and regulatory requirements and constrained timelines can be overwhelming for even the savviest of legal practitioners. We believe that e-discovery technology should be reliable and make it easier for our clients to do their jobs effectively. We built Nebula with that exact philosophy in mind, and it's already proven to be a winning strategy.
Speaker Change: the secret to nulous success is simple the platform creates a model user experience through ease of use powerful tools focused on practical solutions and reliability e discovery is more complex than ever and balancing complex data challenges alongside legal and regulatory requirements
Speaker Change: And constrained timelines can be overwhelming for even the savviest of legal practitioners.
Christopher Weiler: We believe that eDiscovery technology should be reliable and make it easier for our clients to do their jobs effectively.
Christopher Weiler: We built Nebula with that exact philosophy in mind and it's already proven to be a winning strategy. Nebula is making a real difference in the legal community and we expect our roadmap to build on that success and reach even more users whose professions can be changed for the better through Nebula.
Chris Weiler: Nebula is making a real difference in the legal community, and we expect our roadmap to build on that success and reach even more users whose professions can be changed for the better through Nebula. One notable example of that is in the regulatory space; DOJ and FTC second requests, PCB, SIRs, or CMA phase two projects are extremely complex, large scale, and high stakes.
Chris Weiler: Helping clients navigate the challenges posed by these engagements requires the highest level of expertise. Precise Execution and Technological Sophistication has established itself as one of only a few trusted providers with the reputation and track record of consistently supporting these high-value engagements, resulting in these engagements becoming a key element of our revenue. We've had tremendous success leveraging Nebula for other complex and large-scale engagements to date and expect to begin offering Nebula for DOJ and FTC second requests in late Q3.
Speaker Change: One notable example of that is in the regulatory space, DOJ and FTC second requests.
Speaker Change: dcbirrs or cma face two projects are extremely complex
Speaker Change: large-scale and high stakes. Helping clients navigate the challenges posed by these engagements requires the highest level of expertise.
Speaker Change: Precise Execution and Technological Sophistication
Speaker Change: jale discovery has established itself
Speaker Change: as one of only a few trusted providers with the reputation and track record of consistently supporting these high-value engagements.
Christopher Weiler: Resulting in these engagements became a key element of our revenue.
Christopher Weiler: We've had tremendous success leveraging Nebula for other complex
Speaker Change: and largescale engagements to date and expect to begin offering neul for doj and ftc second cl in l q three
Chris Weiler: With KLDiscovery's deep bench of experienced professionals and a revolutionary product like Nebula that is laser focused on meeting the workflow needs of these engagements in the most user-friendly and efficient manner possible, we are confident that Nebula will increase its footprint in the regulatory legal community. Another adjacent market Nebula is breaking into is medical record management. There are dozens of use cases for medical records and legal proceedings, and there are shockingly few solutions available to help address those needs.
Christopher Weiler: With KLDiscovery's deep bench of experienced professionals and a revolutionary product like Nebula that is laser-focused on meeting the workflow needs of these engagements in the most user-friendly and efficient manner possible, we are confident that Nebula will increase its footprint in the regulatory legal community. We are now introducing Nebula into the equation, leveraging our purpose-built, AI-driven solutions to meet these challenges head-on. We plan to continue developing and honing this offering within Nebula and expect to see high demand amongst legal professionals who will, We plan to bring our franchise offering to even more qualified individuals and grow this aspect of our business. We're confident that our approach will enable us to navigate the evolving e-discovery landscape effectively and achieve our long-term goals. I will now turn the call over to our CFO, Dawn Wilson.
Christopher Weiler: with ke discoveries deep bench of experience professionals and a revolutionary product like neba that is laser focused on meeting the workflow needs of these engagements in the most user friendly and efficient manner possible we are confident in neul will increase its footprint in the regulatory legal community
Christopher Weiler: Another adjacent market Nebula is breaking into is medical record management.
Christopher Weiler: There are dozens of use cases for medical records and legal proceedings and there are shockingly few solutions available to help address those needs
Chris Weiler: We are now introducing Nebula into the equation, leveraging our purpose-built AI-driven solutions to meet these challenges head on. We plan to continue developing and honing this offering within Nebula and expect to see high demand amongst legal professionals who, we believe, are desperately seeking better solutions for their medical record needs. On the topic of innovation, I would like to take a moment to highlight our client portal. This innovative solution allows our clients to access critical case and financial metrics across the EDRM, including up-to-date reporting and proactive alerting on the current period work-in-progress spending and overall project-to-date costs relative to budget, as well as a host of other critical metrics and KPIs that our clients rely on to manage their portfolio of engagements In the third quarter of 2024, we expect to make invoices automatically available on the client portal, which has been highly requested by our customers.
Christopher Weiler: We are now introducing Nebula into the equation, leveraging our purpose-built, AI-driven solutions to meet these challenges head-on. We plan to continue developing and honing this offering within Nebula and expect to see high demand amongst legal professionals who
Speaker Change: are we believe are desperately seeking better solutions for their medical record needs.
Speaker Change: on a topicof innovation
Dawn Wilson: I would like to take a moment to highlight our client portal.
Speaker Change: this innovative solutionalizer clients to access critical case and financial meroic metrics across the edm including uptodate reporting and proactive alerting on the current period work and progress spending an overall project to date costs relative to budget
Dawn Wilson: as well as a host of other critical metrics and KPIs that our clients rely on to manage their portfolio of engagements with KLDiscovery. In the third quarter of 2024, we expect to make invoices automatically available on the Client Portal, which has been highly requested by our customers.
Chris Weiler: Finally, we will continue to aggressively market our one-of-a-kind franchise offering. We have been encouraged by the market's response to this offering so far, particularly among seasoned entrepreneurs looking to start their next venture and existing businesses operating adjacent to eDiscovery. Supported by a significantly strengthened financial position resulting from the expected closing of our capital restructuring transaction, we plan to bring our franchise offering to even more qualified individuals and grow this aspect of our business. The avenues we discuss today are only part of our company's dynamic growth strategy.
Christopher Weiler: finally we will continue to aggressively market are one of a kind franchise offering
Christopher Weiler: We have been encouraged by the market's response to this offering so far, particularly among seasoned entrepreneurs looking to start their next venture and existing businesses operating adjacent to eDiscovery.
Dawn Wilson: supported by a significantly strengthened financial position resulting from the expected closing of our capital restructuring transaction, we plan to bring our franchise offering to even more qualified individuals and grow this aspect of our business.
Dawn Wilson: The avenues we discuss today are only part of our company's dynamic growth strategy. Overall, our focus remains squarely centered on our clients and pushing forward with the exceptionally high levels of innovation and service quality that they have come to expect from KLD.
Chris Weiler: Overall, our focus remains squarely centered on our clients and pushing forward with the exceptionally high levels of innovation and service quality that they have come to expect from KLD. This quarter, we made significant strides in our core strategic initiatives as we continue to expand nebula utilization and the adoption of our subscription-based solution. We believe these efforts have positioned us to better serve our clients and enhance our revenue growth projections. Looking ahead, KLDiscovery is poised for continued success with a clear vision for the future.
Dawn Wilson: This quarter we made significant strides in our core strategic initiatives as we continue to expand nebula utilization and the adoption of our subscription based solutions. We believe these efforts have positioned us to better serve our clients and enhance our revenue growth trajectory.
Dawn Wilson: Looking ahead, KLDiscovery is poised for continued success with a clear vision for the future. We've reinvigorated by the continued positive response from our clients, which reflects our strong market position and the value of our solutions.
Chris Weiler: We're reinvigorated by the continued positive response from our clients, which reflects our strong market position and the value of our solution. Our global team, seasoned and resilient, is more motivated than ever to drive our objectives forward. Coupled with the expected post-transaction reinforced financial foundation, we believe we are well-equipped to execute our strategy and deliver on our vision. We remain committed to leveraging our robust technology platform and global reach to capitalize on growth opportunities and enhance shareholder value. We're confident that our approach will enable us to navigate the evolving e-discovery landscape effectively and achieve our long-term goals. I will now turn the call over to our CFO, Dawn Wilson.
Dawn Wilson: Our global team, seasoned and resilient, is more motivated than ever to drive our objectives forward. Coupled with the expected post-transaction reinforced financial foundation, we believe we are well-equipped to execute our strategy and deliver on our vision.
Dawn Wilson: We remain committed to leveraging our robust technology platform and global reach to capitalize on growth opportunities and enhance
Christopher Weiler: shareholder value. We're confident that our approach will enable us to navigate the evolving e-discovery landscape effectively and achieve our long-term goals. I will now turn the call over to our CFO , Dawn Wilson.
Dawn Wilson: Thank you, Chris. For the second quarter of 2024, we reported total revenue of $79 million, with legal technology revenue of $72.1 million, which included Nebula revenue of $14.1 million and data recovery revenue of $6.9 million.
Dawn Wilson: Thank you, Chris. For the second quarter of 2024, we reported total revenue of $79 million, with legal technology revenue of $72.1 million, which included Nebula revenue of $14.1 million and data recovery revenue of $6.9 million. Nebula continues to drive legal technology revenue growth, delivering revenue of $28.8 million year-to-date as of June 30, 2024, which includes an incremental $8.4 million for Nebula processing services for non-Nebula-hosted engagements. Nebula revenue growth was 51% over year-to-date revenues as of June 30, 2023.
Dawn Wilson: thankyou gri for the second quarter of two thousand and twenty four we reported total revenue of seventy nine million with legal technology revenue of seventy two point one million which includes nebula revenue of fourteen point one million and data recovery revenue of six point nine million
Dawn Wilson: Nebula continues to drive legal technology revenue growth, delivering revenue of $28.8 million year-to-date June 30, 2024, which includes an incremental $8.4 million for Nebula processing services for non-Nebula-hosted engagements.
Dawn Wilson: Nebula revenue growth was 51% over year-to-date revenues as of June 30, 2023. Year-to-date June 30, 2024 nebula revenues are 18% of our total revenues.
Dawn Wilson: Year-to-date June 30, 2024, Nebula revenues are 18% of our total revenue. Our net loss was $25.3 million for the second quarter of 2024. Q2 2024 EBITDA was negative $0.5 million, while Q2 2024 adjusted EBITDA was $13.3 million. Our liquidity includes our cash and cash equivalents, which were $33.8 million on June 30, 2024. As of today, we have $38 million drawn on the revolving credit facility. As Chris mentioned on July 3rd, 2024, we entered into a transaction support agreement with our convertible debenture holders, term loan lenders, revolving credit facility lender, and largest shareholder and an exchange agreement with our convertible debenture holders.
Dawn Wilson: net loss was twenty five point three million for the second quarter of two thousand and twenty four two two twotwenty and twenty four ebitda was negative point five million while q two two thousand and twenty four adjusted e bitda was thirteen point three million
Dawn Wilson: Our liquidity includes our cash and cash equivalents, which were $33.8 million on June 30, 2024. As of today, we have $38 million drawn on the revolving credit facility.
Dawn Wilson: As Chris mentioned, on July 3, 2024, we entered into a transaction support agreement with our convertible debenture holders, term loan lenders, revolving credit facility lender, and largest shareholder, and an exchange agreement with our convertible debenture holders.
Speaker Change: this will provide a significant reduction in our long-term debt and costly interest rate payments of which strengthen our balance sheet and reinforce our financial foundation with a bolstered financial position and deleverageed to balance sheet
Speaker Change: In closing, we continue to be diligent, agile, and build upon our strong foundation and momentum as we look forward to completing the restructuring of our convertible debentures. I will now turn the call back over to Chris for final comments.
Chris Weiler: Thank you, Dawn, and thanks to everyone for joining the call this morning. Go KLD, one unique fingerprint. Very excited about our future, and thanks for joining.
Speaker Change: Thank you, Dawn, and thanks, everyone, for joining the call this morning. Go KLD, one unique fingerprint. Very excited about our future, and thanks for joining.
Operator: And everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect. Please wait, the next conference will begin shortly.
Speaker Change: And everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Weiler, Dawn Wilson, KLDiscovery
Dawn Wilson: This will provide a significant reduction in our long-term debt and costly interest rate payments as we strengthen our balance sheet and reinforce our financial foundation with a bolstered financial position and a leveraged balance sheet. In closing, we continue to be diligent, agile, and build upon our strong foundation and momentum as we look forward to completing the restructuring of our convertible debenture. I will now turn the call back over to Chris for final comments.
Operator: Christopher Weiler, Dawn Wilson, KLDiscovery Christopher Weiler, Dawn Wilson, KLDiscovery Christopher Weiler, Dawn Wilson, KLDiscovery Christopher Weiler, Dawn Wilson, KLDiscovery Christopher Weiler Christopher Weiler Christopher Weiler Christopher Weiler Christopher Weiler Please wait, the conference will begin shortly.