Ladies and gentlemen, thank you for standing by and welcome to the CS Disco Fourth Quarter and Fiscal Year 2021 Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Lee Robinson, CS Disco Investor Relations. Please go ahead.

Good afternoon and thank you for joining us on today’s conference call to discuss the financial results for Disco’s fourth quarter and fiscal year 2021. With me on today’s call are Kiwi Camara, Disco’s Founder and Chief Executive Officer and Michael Lafair, Disco’s Chief Financial Officer. During today’s call, we will review our financial results for both the fourth quarter and fiscal year 2021 and discuss our guidance for the first quarter and full fiscal year 2022. 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. Today’s call will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to statements regarding our financial outlook, including our guidance for the first quarter in fiscal year 2022, our market opportunity, market position, product strategy and growth opportunities. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management’s beliefs and assumptions only as of the date made. Information on factors that could affect the outcome of the matters covered by these forward-looking statements is included in our filings with the SEC from time-to-time, including the section titled Risk Factors in the quarterly report on Form 10-Q for the quarter ended September 30, 2021, filed with the SEC on November 10, 2021. Additional information will be made available in our annual report on Form 10-K for the year ended December 31, 2021. 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 paired in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release. And now, I’d like to turn the call over to Kiwi.

Thanks, Lee. Good afternoon and welcome to our fourth quarter and fiscal year 2021 earnings call. This will be Disco’s 10th year in business. I want to begin by thanking the many Discovians past and present, whose hard work, dedication and belief have resulted in so many remarkable achievements over the last 9 years. We would not be here without them. 2021 was a banner year for Disco. In addition to our IPO in July, we continued to innovate in both features and platform across all our products, added many new customers and expanded many of our existing customers and continued to add top talent to our team across every function. Software is coming to legal, and we believe we are well positioned to build a large and enduring business on top of that fundamental transformation. Let me begin with a brief overview of our business for those of you who are new to the Disco story. At Disco, we are going after the $767 billion market for legal services, replacing services with software. Every large company, regardless of industry or vertical, has legal needs and a legal function. But historically, the legal function has been underserved by technology. Our product help the legal function by leveraging artificial intelligence and cloud computing to automate or accelerate large categories of legal work. We seek to automate the parts of the practice of law that don’t require human legal judgment so that lawyers can focus on the kinds of work they went to law school to do. Several key trends are powering the legal functions’ shift from services to software. First is the explosion in the volume and variety of enterprise data that may be relevant in legal matters and the velocity with which that data is created. Legal matters today can…

Thank you, Kiwi. We are thrilled with what we achieved in 2021. Before I dive into our earnings results, I wanted to reflect on a couple of things. I’ve now been with Disco for over 4 years, and every day, I am amazed at the work and progress our entire Disco team has accomplished since I joined. 4 years ago, we had no $1 million customers, and today, our top 20 customers in 2021 each spent more than $1 million with us. All the growth and innovation that Disco has gone through to have the kind of results we are reporting today is a true testament to the R&D teams that build our products, the go-to-market teams that sell our products and nurture our customers, and the G&A teams that make this kind of growth and expansion feasible. I am incredibly excited for the future and next phase in Disco’s story. And with that, let’s discuss our results and guidance. In Q4 2021, revenue was $33.8 million, up 76% year-over-year. We had another strong quarter, with growth coming from new customers and continued strong expansion of existing customers. Full year 2021 revenue was $114.3 million, up 67% year-over-year. Full year revenue growth was driven by several factors, including strong growth in sales across all products, increased customer count, increased international sales and on average larger client wins and increased existing client spend on the Disco platform, true validation that what we built resonates and is valued by our customers. We are incredibly pleased with our dollar-based net retention rate as of December 31, 2021 of 146%, an exceptional outcome on the back of an incredibly strong year attributed to broad-based acceleration and expansion across our customer base as well as a number of customers with especially rapid expansion over the…

[Operator Instructions] Your first question comes from the line of Koji Ikeda from Bank of America. Your line is now open.

Hey guys. Thanks for taking the questions. Congrats on a great quarter. Just a couple of questions here. First question on Hold360 and Request360. Kiwi, thank you very much for the color on the features of the products there, I was looking through the deck, and it looks like maybe one of them becomes a new SKU. Is that the right way to think about this? One of these products is a new actual growth lever for you guys from a product perspective? The other one, does that eventually get integrated within another product, and I guess, the big-picture question here, too, is that could these new products and features help accelerate the adoption of Review and Case Builder?

Thanks, Koji. Yes, the big, new product from a go-to-market point of view is Disco Hold. And the strategy there is to go one step earlier in the GC’s process. So, the way this works, when there is a new investigation or a demand letter comes in, the law requires the GC to issue legal holds, which are notifications to people who have data that they are required to preserve it and not delete it as part of general records’ retention policies and so on. And then the second step is to actually implement those holds, for example, in modern cloud services like 365, you can implement the holds in place, and then you collect that data. And then, the next step is Disco ediscovery, then Disco Review, then Disco Case Builder. So, the idea is you are providing a more complete product for general counsel. And once you are the provider of that hold in collection solution, the natural thing to do is to use our other products downstream.

Got it. Thanks Kiwi. And then just one follow-up here for Mike. Looking at the guidance, the revenue guidance for ‘22, help us reconcile kind of the starting point of 30% at the midpoint. You are finishing the year with a 146% NRR. So, the math implies that either one is way too low or the NRR is going to be coming down. So, I guess how can we think about the mechanics there? Thank you.

Koji, thanks for the question. Good question. So, we are really pleased with our outsized performance last year, with 67% growth year-over-year and also amazing Q4 growth of 76%. Really pleased with how the year turned out. As a relatively new public company, we are really prudent with our guidance. And as you know, we are usage-based so we just want to be conservative as we are providing guidance. In terms of dollar-based net retention, that number also is impacted by the variability in the usage base of the model, and so that could potentially come down again. But quite frankly, we are pleased with where that number has been all year, including where it was when we filed the S-1, and I believe it was 122%.

Got it. Thanks guys. Congrats again. Thank you.

[Operator Instructions] Your next question comes from the line of Tyler Radke from Citigroup. Your line is now open.

Hi. Good evening everyone. This is Boyoung on for Tyler Radke and thank you for taking the question. First, at a high level, I want to understand the magnitude of these acquisitions from a revenue and customer standpoint in year one. In the question before, you talked about the adoption benefits that you are getting from the other existing products that are on the platform. And then I had a follow-up. Thanks.

Sure. So, you should think of this principally as a technology acquisition, where we are adding a product to our platform that we will then use our go-to-market engine to push out, but it’s principally a technology acquisition. We did add a relatively small number compared to our existing customer base of logos, but they are marquee logos. There are a handful that overlap with our existing customer base. And one thing we were able to do in diligence is to use those existing customers as part of our diligence process to understand how they evaluated hold solutions and why they ultimately selected the products that we acquired. One large Disco customer, we were actually able to, in diligence, put this hold product into their sales motion, and they wound up selecting it. So, really good evidence there that this is the best product on the market.

Got it. And then I also wanted to ask for a little more additional context behind the deal. How long have you known the acquired asset? And what was the genesis of the relationship? And were there any other bidders out there that made the process a little more competitive? Anything along those lines would be helpful. And it seems like you already bounced some feedback off before you completed the transaction. Thanks.

Exactly. So we, of course, having been in this industry for 9 years now, keep our ears to the ground, hearing about new products, new companies and also, frankly, talking to customers and prospects about what they are seeing and what they find attractive. So, I think one of the big elements of this acquisition for us was consistent feedback, especially from large enterprises and especially when – from that tidal wave of RFPs that we talked about before that customers really want an integrated Hold, ediscovery, Review solution. So, we were going to enter this space either by building, buying or partnering. And as you also know, we invested in building up our product function with the addition of Kevin Smith, our new Chief Product Officer. One of his big remits is meeting with all these companies, understanding the innovation space, identifying things that might be good additions to the Disco platform. So, over a couple of quarters, Kevin and folks on his team got to know the team that has now joined Disco. And we went through the diligence process that I described with customers. We are very pleased with the results and are happy to have secured the deal.

Thank you so much.

Thank you. And your next question comes from the line of Brent Thill from Jefferies. Your line is now open.

Thanks. Michael, just back on the guide. I understand it’s conservative, but to go from 67% to 30%, I guess everyone’s just trying to understand. Look, in a world that reopens, one would think litigation would pick up and that the improvement of the customer retention and new wins and the investments you are putting into the sales team. So, I just – I am trying to reconcile, and I think many are that type of deceleration. Are we thinking about this right in terms of just – it does seem like as the world opens that you are going to see probably more tailwinds to the usage in your system. I want to make sure we underpin the underlying assumptions.

Yes. So, we don’t believe that we really had to tell whether it’s per se from COVID, aside for maybe that first quarter when COVID really hit. What I would say is, we are really pleased with what happened last year. And when we were sitting here with you pre-IPO, I don’t think I expect that we were going to perform as well as we did. I was confident we were going to perform well. But we came in, as you know, at 67% year-over-year. We want to be prudent in our guidance. We feel really good about the year. We are a usage-based model, as I have said before, but we also want to be prudent. It’s our third quarter, fourth quarter out.

Thank you. Your next question comes from the line of Scott Berg from Needham. Your line is now open.

This is John Godin filling on for Scott. Thanks for taking my question. As you guys think about continuing to ramp up the go-to-market motion, direct sales, just kind of curious how important is it from a customer and conversion perspective that those sales people have comprehensive understanding and ability to kind of speak the legal language? And kind of going from there, how long is it taking you guys kind of de-ramped reps ramp up to like help in understanding and be able to talk to customers? Thanks.

We think it’s, of course, quite important for any salesperson to speak the language of the people they are selling to. And because our domain is unusual, we have adopted a couple of strategies here. So first, we have three profiles of sales reps that we hire: one, our laterals from our industry, who obviously know how to speak the language; second are internal promotions from our SDR program, and that has actually generated 4 out of our top 10 quota-carrying rep performer. So, it’s a great feeder program. And over the course of their year or 2 years in our SDR program, they really learned the industry and our business. So, this issue is most acute for the third category of reps we hire, who are laterals from other high-growth software companies. What we have done for those new joiners and also for others at Disco is to make a relatively early investment several years ago now in building out our learning and development function through what we call Disco University. So, Disco University both runs formal new hire on-boarding, but also runs a series of training programs that teach people our sales motion, teach people our industry, certify people on the use of our products, and it’s the same certifications that are available to our customers and partners and so on. And then on top of that, we have a sales excellence program where we have folks who do ride-alongs with new salespeople, who listen in to their conversations and who provide real-time coaching, especially during their first six months of ramp with us. We find that salespeople are generally producing deals within their first six months. But what we find is that their productivity actually continues to increase as they grow their tenure with Disco all the way up to month 24, where they sort of stabilize because at that point, they are doing as much business as they can handle as a rep.

Thank you. Your next question comes from the line of DJ Hynes from Canaccord. Your line is now open.

Hey guys. Congrats on the stellar growth. Kiwi, this may be a silly question, but do you have to be in the cloud to effectively leverage AI in the review process? I am just trying to assess like, how much of a carrot are those time and cost savings in terms of being a catalyst to kind of coy discovery system upgrades?

Yes. That’s a sharp question. So, it’s not being in the cloud that’s the magic, it’s leveraging elastic compute in the cloud. So, if you just take old software and kind of airlift it to run in the cloud, alright, it’s in the cloud and you may get some of the security benefits of the cloud, but you are not taking advantage of the key technology innovation that makes the cloud special. And so what that is, we called elastic compute in the cloud, but it’s the ability to not have to worry about compute capacity when you write software. And this applies to our AI system in terms of training models, scoring data, updating the scores on that data and so on. But it also applies to lots of other parts of the product experience at Disco. So, when we think about ingesting huge volumes of enterprise data and not having your data sit in a queue or when we think about doing an incredible number of updates to our indexes based on all the lawyer work traffic that’s happening in our system, all of these are things that you just couldn’t do in an on-premise environment because they require huge amounts of compute that are super spiky. So, that’s the magic.

Thank you. Your next question comes from the line of Derrick Wood from Cowen and Company. Your line is now open.

Congrats as well from me. Kiwi, I mean if you look at the KPIs, you guys had a great year in a lot of respects. But in hearing over the last few quarters some of the stories you have talked about, it sounds like you have had a handful or two of large customers that really leaned into the Disco platform, and I suspect there is maybe a big driver behind the 146% retention rate. [Technical Difficulty]

Not sure if it’s us, but your audio has cut out. We cannot – operator, we couldn’t hear the rest of that question.

Mr. Derrick Wood, please go ahead with your question. Your line is cutting in and out.

[Technical Difficulty] I don’t know where – I was just saying it seems like you had a handful…

Hi Derrick, it’s kind of choppy, but I think the gist of the question is, there are some big customers. And so in the hopes that, that is your question, Michael will answer that one.

Yes, Derrick. So, we – what we have seen, and we have talked about this on prior calls is, we have seen quicker adoption of our multiproduct strategy. And so there are a few customers, but this is actually fairly broad-based in terms of a large number of customers. And we – this is in the numbers, 20 customers last year for $1 million or more. And so we did have some customers that started in Q4 of the prior year. And then when you run the dollar-based net retention, it was a big number. But the reality is it was a good number all year, and so we were pleased with what it was when we went public. We are also seeing kind of broad-based. It’s not like there’s this huge concentration. And so we feel really, really good about the growth this year and we feel good about the numbers where we ended last year across the board.

Thank you. Your next question comes from the line of Parker Lane from Stifel. Your line is now open.

Yes. Hi. Thanks for taking the question and congrats on the quarter. A lot of true success in the Review and Case Builder arena, as you pointed to some nice traction there in 2021. Curious if you could talk about those customers that haven’t crossed the goal line and adopted these new solutions. What are the main points of feedback that they are giving you? What is it going to take to get them across the goal line? And is there an inflection point that you believe you will reach there, or maybe have you already reached that?

Yes. We are – so we think one of the big growth opportunities going forward, not just for next year, but the next 5 years is driving increased attach on products two and three, Disco Review and Disco Case Builder. And then I think what you are seeing play out is the first phase of a very long-term strategy, which is to continue adding more products like that, where we get leverage both from the technology platform we have built and from the distribution that we have built. In terms of what it takes to continue driving increased adoption of Review and Case Builder, I think point number one is, it would be hard for me to imagine doing much better than we actually did, right. We grew Review adoption by more than 3x year-on-year last year, but not immaterial base. I think what you are seeing in the industry is a growing awareness that as enterprise data continues to explode in volume and as the number of legal requests continues to explode from multiple jurisdictions, solutions that are based on people and process alone simply can’t keep up. You need an AI-based, software-based solution because that’s the only way you can deal with a real scale. So, I think as more and more parts of the market come to believe what I just said, by seeing the results on a handful of matters and then growing their adoption over time, that is what is driving growth in our Review business.

Appreciate the feedback. Thanks Kiwi.

And your next question comes from the line of Mark Schappel from Loop Capital.

Hi. Thank you for taking my question and nice job on the quarter. Kiwi, starting with you, I just wondered if you could just provide some insight on how the legal service providers are responding to your threat – or as you just discussed, threat in the marketplace? Are they adopting or increasing their adoption, maybe discovering tools on their own? Are they by fighting on price? Maybe you could just talk a little bit about what you are seeing.

Sure. Look, we both cooperate with and compete with legal services providers. There are a number of legal services providers, some of whom I talked about in my prepared remarks, who have seen that there is a software revolution coming to legal and who have decided to get onboard. And these legal services providers make wonderful partners. They have been through our certification programs. They often have rich relationships in parts of the market where our direct sales force is not scaled. And it is a core part of our strategy to work with them and have them participate in the tremendous growth that I think software will bring to legal tech. But of course, there are many other services providers who are sticking to their guns and view their differentiation as being around people, process and relationships and say things like, “We are technology-agnostic.” And our point of view is to be technology agnostic in a time when the technology is fundamentally shifting and is enabling things that were simply impossible before is the wrong decision. And when we take business from these folks, we compete with them every day, customers are agreeing with us. So, it’s an industry in transition, I think is the way to think about what’s going on with the services providers. In terms of how they are competing with us, number one is to kind of repeat the mantra I put in their mouths, right, people, process and relationships over technology. Number two, some of them have attempted to build in-house kind of internal product-type solutions. And what we would say about that is there is a level of expertise in building Silicon Valley-grade software that I don’t think is present at a lot of these companies. And then third, as you say, sometimes they attempt to compete on price, and our response to that is to encourage customers to examine not the cost of their ediscovery solution but rather total project cost, which we drive down dramatically because of the fundamental increase in efficiency that comes from using software rather than services.

Great. Thank you. That’s helpful.

Thank you. And there are no further questions at this time. I would like to turn back the call over to Kiwi Camara, Co-Founder and CEO. [Technical Difficulty]

Thank you for joining us today. I am thrilled with our 2021 results, and I am excited to continue building in 2022. We have big ambitions and full confidence in our ability to scale, add new product innovations, attract increasing numbers of customers and continue the technological revolution of the legal industry. We will continue to aggressively invest in our business and the growth opportunities in front of us. In turn, we fully believe in our ability to drive long-term growth and redefine how legal professionals practice law. We thank you for your interest in Disco and for joining our fourth quarter and fiscal year 2021 earnings call.

Ladies and gentlemen, thank you for your participation. This concludes the call. You may now disconnect.