CS Disco, Inc. Q1 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the CS Disco First Quarter of Fiscal Year 2022 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. After the speakers' remarks, there will be a question-and-answer session. 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 first quarter 2022. With me on today’s call are Kiwi Camara, Disco’s Co-Founder and Chief Executive Officer and Michael Lafair, Disco’s Chief Financial Officer. During today’s call, we will review our financial results for the first quarter of fiscal year 2022 and discuss our guidance for the second quarter and an update on full fiscal year 2022. 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 second quarter and fiscal year 2022, our market opportunity, market position, product strategy, and growth opportunities. 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. 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 company's financial results is included in its filings with the SEC from time-to-time, including the section titled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25th, 2022 as amended on April 29th of 2022 and the upcoming Form 10-Q for the quarter ended March 31st, 2022. 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. 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. With that, I’d like to turn the call over to Kiwi.

Thank you for joining our Q1 2022 earnings call. I'm tremendously proud of what we've built and how we've continued to innovate to create a comprehensive legal technology platform that transforms the way the legal industry works. I continue to be excited about the future of Disco and our goal to be the technology that powers legal. In the simplest of terms, our ethos at Disco is to build and offer technology that frees lawyers to actually practice law, and most importantly, achieve better legal outcomes in a more efficient tech-enabled way. I will begin with a brief overview of our Q1 2022 financial results. We are pleased to have achieved another quarter of strong growth across the business; revenue grew to $34.5 million, up 63% year-over-year. Notably, we had a record month in March for e-discovery usage growth. Our international revenue nearly doubled year-on-year attributable in part to the continued expansion of our U.K. team. These results reflect our ability to continue to increase adoption and penetration with existing clients, win new clients, and expand multi-product usage across our platform. We are thrilled with the continued growth and adoption of our software-powered solutions by lawyers who see the value in shifting to a technology-first approach. I will highlight a few key achievements from the quarter: capturing more of the corporate legal value chain in producing meaningful product enhancements, continued successful scale-out and execution by our go-to-market organization, and a few illustrative customer success stories. In Q1 2022, we expanded our platform to capture a larger portion of the legal value chain and continue our mission to build a complete solution for legal departments' needs. Historically, we have done this organically by growing our existing products and building new products in-house, like early case assessment and case builder. In Q1, we completed our first acquisition, acquiring LegalHold and DataRequest technologies from Congruity360 that address some of the most pressing needs of corporate legal departments. Our acquired Disco Hold product automates the manual work that is necessary to comply with corporate preservation requirements, which has become critical with increasing volumes of enterprise data that corporations must capture and save for regulatory requirements or legal demands. In particular, Disco Hold excels at connecting to and holding in place data in modern cloud systems of record, such as Office 365. The discovery request product dramatically simplifies the process of tracking and responding to subpoenas and other data access requests. With this acquisition, we move closer to the start of the corporate legal value chain, access a new segment of the market, and gain a new entry point with customers. We're excited to add these products to our platform and the team that came to Disco with that. We are at the early stages of introducing Disco Hold and Disco Request to our existing clients and presenting Disco's full spectrum of products to the clients that already use Hold and Request. In March, following the close of the acquisition, we ported over all the existing Hold and Request clients to Disco and completed more than one demo per day as the Hold product. As we fully integrate the Disco Hold and Disco Request products into our go-to-market motion over the coming months, we look forward to expanding our multi-product strategy and helping our clients streamline their legal processes from start to finish. This broadening of our platform offering is consistent with our strategic vision, which we discussed on our fiscal year 2021 annual earnings call. Our focus on improving clients' daily user experience drives innovation and customer satisfaction. We continuously roll out product enhancements to make the daily lives of lawyers easier and their legal processes more efficient. We were pleased to hear from customers that Disco's AI is a key competitive advantage and one of the primary reasons they choose to use Disco. In Q1, we introduced time tracking in review, which allows customers to measure and report on reviewer productivity, including documents per hour, time spent in app, or time spent per document. This feature and the corresponding metrics enable customers and managers to assess the performance of document reviewers and view how much time is spent on any given review. In addition, tracking time in the app allows customers to reconcile billing entries for review activity with the actual time spent using Disco. This was a highly requested feature from customers and we are thrilled to be able to offer it to them. We also released enhancements to our native Excel reduction capabilities and to the reusable filter components that are part of our application architecture and are shared between Disco products like e-discovery and Case Builder. We are also pleased to announce new Evidence Management functionality in Disco Case Builder. Today, the platform's annotations page provides case teams with a holistic view of all annotated testimony from across all of their depositions and witnesses on a single screen from which litigators can search, review, edit and export the best evidence for use in depositions, motions practice, or trial all in seconds. Now, in addition to using the annotations page to identify and make strategic use of key excerpts of deposition testimony far faster than they otherwise could, legal teams are also empowered to compare the corresponding video evidence across witnesses on the same screen. Equipping litigators with a side-by-side analysis of depositions video clips not only allows them to more readily compare witnesses' presentation and potential case impact, but also to more confidently select and prepare the best evidence for the development of a winning case strategy. That is to build a stronger case faster. We take the performance of our platform seriously and continually invest in performance improvements across multiple aspects of our core products and platform. We have continued to optimize our data processing pipeline, critical for efficiency and user experience with the rising volumes and types of data that corporations have to deal with, and we make measurable improvements to document ingest and loading speeds. In addition to our investments in our products, we are pleased with the progress and productivity of our expanding go-to-market team. As we've talked about in the past, we have ambitious plans to expand our go-to-market organization, and we are making good progress toward that goal. In the last year, we have doubled our ranks of quota-carrying reps and we'll continue to build that team. In addition to growing scale, we are seeing growing productivity across many teams. Our sales development representative team, many of whom are recent hires, and who initiate lead generation and introduce prospects to Disco were more effective on a per head basis and in the aggregate than in any other quarter. And our customer success team, who often are the first to identify upsell or cross-sell opportunities, had a record win quarter with impressive product cross-sell and expansion of Disco usage within existing clients. We're excited to see the investment in our people generating solid business results. As demonstrated by our results in Q1, we continue to see great momentum across our client base and products. As we've done in prior earnings calls, we enjoy sharing customer anecdotes that demonstrate how the Disco platform is used by clients, how quickly adoption can ramp, and expand across our clients' legal organizations and the benefits that our clients see in using Disco. One of our key success stories is a new corporate client that was introduced to Disco through a partner at their external counsel, an Am Law 100 Firm. This corporate client became a six-figure multi-product client within their first quarter using Disco. This is a great example of the trends we've seen and discussed previously, where we're landing larger clients, clients ramping usage more quickly, and using more than one Disco product. The client's choice to try Disco and continue to increase usage on the Disco platform was initially driven by our ability to offer flexible product usage options, and the simplicity of our pricing model, which allows them to make an informed and financially transparent decision regarding their e-discovery and review needs. Another new corporate client in Q1 began when our sales team met with their Deputy General Counsel. They had a large case where they had not yet picked an e-discovery provider. The corporation was working with a litigation boutique as outside counsel and there was a lot of data, around 350,000 documents, to parse through for the case. To win the mandate, our team demonstrated Disco's ability to be a total solution for both outside counsel and the corporation's general counsel to manage data collection, e-discovery, and preparation for the case. They appreciated our ability to offer a predictable, flat fee, guaranteed pricing on review, despite the slight premium on our e-discovery software. Since the start, they've expressed their appreciation for the experience they've received from the Disco team, including daily updates on hot documents found in the review process. Our team's follow-ups to discuss trends in the documents and their ability to see these trends themselves using Disco's AI and the e-discovery user experience ultimately led to the completion of the initial review under their time deadline. We look forward to continuing to work with this client through the completion of the matter and hopefully securing a new long-term relationship. Additionally, we had a large Am Law client who has been with Disco since 2014 ramp up its usage and spend on Disco by more than 6x in Q1 2022 compared with the highest historic spend quarter. This is a great example of a couple of points we like to talk about: one, viral adoption, and two, multi-product usage and expansion. The lead lawyer who used Disco at a prior firm moved to his new firm and championed the increased use of Disco on new matters and among the other partners at the firm. This firm has steadily added new e-discovery matters, and more recently chose Disco Review for a large, highly complex, multiple defendant, multiple plaintiff case. This specific review matter had over 1 million documents under review using Disco over the last quarter. Notably, the client quoted Disco's AI as being a huge benefit in getting the evidence in a timely manner, faster than they initially thought possible. Lastly, we were very happy to have one of our oldest and largest clients, and one of the first Am Law 100 law firms to fully adopt Disco, review their multi-year subscription agreement with us. This type of long-term relationship is one we want to achieve across all clients and reaffirms their belief in the benefits of adopting and using Disco's products. We also once again participated and sponsored Legal Week in New York City, one of the premier legal industry conferences. During Legal Week, our team participated in thought leadership panels, conducted numerous product demos with tremendous positive feedback about the acquisition of our Hold and Request products, and made great connections with potential new clients who we are excited to continue the dialogue with and share the benefits of Disco. In summary, we are thrilled to have had another strong quarter and as we communicated last quarter, we will continue to invest behind our growth and scale the Disco organization to best serve our clients now and in the future. And with that, I'll turn it over to Michael.

Thank you, Kiwi. I'm pleased to discuss the details of another strong quarter and provide guidance for Q2 2022 and an update on our outlook for fiscal year 2022. I'd like to reiterate that our business is primarily a usage-based model that is driven by the number and nature of matters, volume of data, length of time on the platform, and other factors that may impact revenue in any given quarter. As Kiwi mentioned, Q1 revenue was $34.5 million, up 63% year-over-year. We had strong performance with growth coming from increasing usage from existing customers and new customer wins particularly in e-discovery as well as increased usage across all of our products versus the same quarter in the prior year. In discussing the remainder of the income statement, please note that unless otherwise specified, all references to our expenses, operating results, and share count are on a non-GAAP basis. Our gross margin in Q1 was 74%, up from 73% in Q1 of the prior year. As a reminder, our gross margin fluctuates from period to period based on, for example, the amounts and types of data ingested and managed on our platform. We expect gross margin to continue to be within the bands we've historically seen. Sales and marketing expense in Q1 was $15.6 million or 45% of revenue compared to 37% of revenue in Q1 of the prior year. This represents an increase of over $7.8 million in the quarter year-on-year. As we've previously mentioned, we are focused on expanding and investing in our go-to-market organization. We have historically been very measured and efficient in our go-to-market organization and feel that now is the right time to invest in scale along with the sustained levels of elevated growth we've achieved in the U.S. and internationally. We've made key hires to help with this effort, including our new Head of Human Resources, Jignasha Grooms, who started with us a couple of weeks ago. Jignasha brings key expertise and experience in scaling international operations across functions. Research and development expense in Q1 was $10.9 million or 32% of revenue compared to 29% of revenue in Q1 of the prior year. This represents an increase of over $4.8 million in the quarter year-on-year as we continue to invest in our product, platform, and new features to help our clients. General and administrative expenses in Q1 were $7.7 million or 22% of revenue compared to 18% of revenue in Q1 of the prior year. This represents an increase of over $3.8 million in the quarter year-on-year. We've strategically added to our G&A organization following our IPO to support the increasing scale of our business. Operating loss in Q1 was $8.6 million, representing a margin of negative 25% compared to negative 11% in Q1 of the prior year. Adjusted EBITDA was negative $7.8 million in Q1, a margin of negative 23% compared to a margin of negative 9% in Q1 of the prior year. Overall, our EBITDA was better than guidance due to the increase in revenue, and some hiring, onboarding, and other investments pushed from Q1 into Q2 and further quarters. Net loss in Q1 was $8.6 million or negative 25% of revenue compared to a net loss of $2.4 million, or negative 12% of revenue in Q1 of the prior year. Net loss per share in Q1 was $0.16 cents per share compared to a net loss per share of $0.18 in Q1 of the prior year. Turning to the balance sheet and cash flow statement, we ended Q1 with $238.6 million in cash and cash equivalents. Operating cash flow in Q1 was negative $11.4 million compared to negative $4.5 million in Q1 of the prior year. Now, turning to the outlook. For Q2 2022, we're providing revenue guidance in the range of $32 million to $34 million, representing 12% year-over-year growth at the midpoint. For Q2 2022, we are providing adjusted EBITDA in the range of negative $17 million to negative $15 million, representing adjusted EBITDA margin of negative 48% at the midpoint. As I mentioned on our last quarterly call, we do anticipate operational costs to continue to grow in Q2 and throughout the year as we continue to invest in our product, go-to-market team, and G&A. For the full fiscal year 2022, we're raising our revenue guidance in the range of $149 million to $153 million, representing 32% growth at the midpoint. For the full fiscal year 2022, we continue to expect adjusted EBITDA between negative $51.5 million to negative $43.5 million, representing adjusted EBITDA margin of negative 31% at the midpoint. In summary, we're delighted with our strong start to the year and continue to be excited about where we're headed and the opportunity in front of us. We will continue to build innovative solutions and a scalable platform that fully serves legal teams and transforms the way legal work is done. We will continue to build our organization to keep pace with our growth and have the right people in place to attain our goals. We will also continue to go after a market share in a large market that is ripe for technological disruption and discuss leadership in its transformation. I'd like to now turn the call over to the operator to open up the lines for Q&A.

Thank you. We will take our first question from Koji Ikeda with Bank of America. Your line is open.

Thank you, Mike, for addressing my questions. I have a couple of inquiries regarding the second quarter guidance. Noting that your guidance shows a quarter-over-quarter decrease, which is similar to your first quarter guidance when you spoke during the fourth quarter calls, I wanted to clarify if there are specific factors we should consider for the second quarter. Are there any seasonal influences or issues related to items that have already been removed from the platform that we should be aware of? Any insights you can provide to help us understand the quarter-over-quarter decline would be appreciated.

Hey, Koji, it's Michael, really great question. As you know, since we went public, we've actually guided down every single quarter sequentially. And part of that really has to do with the fact that we're a usage-based model. And on a quarter-to-quarter basis, there can be variability in the numbers. We're also very prudent in our approach to guidance as we've discussed many, many times. We have raised our full year guidance for the year; we've really good visibility into the full year. We feel really confident about that number, and that's kind of where we are with our guidance.

Got it. Got it super helpful there. Just wanted to be sure. Second question, maybe for Kiwi. Okay, so congrats on the acquisition of Congruity360. It adds that legal hold technology, also that legal request compliance technology. And we were talking to a couple of people within the legal industry, and they mentioned that adding this capability really would help drive enterprise adoption of Disco. And I wanted to ask you, why is that? What is it particularly about this legal hold that is so important within the enterprises?

I think it's two things, Koji. First is the part of the platform that in-house counsel, so the lawyers who work in the corporate legal department are most likely to engage with directly. And second is the earliest stage of the process. So, let me talk about that a little bit. If you think about a big piece of litigation, it might start out being handled by the corporate legal department, where they do the initial assessment of the case, they interview business side people, they collect data, they implement legal holds. But as the case matures, if it doesn't settle, they will typically engage outside counsel, a law firm, to go handle the actual litigation of the case. And so it often winds up that even though a corporation is our client and is using the product initially to collect and conduct early case assessment data, down the line, the principal users are at a law firm that is representing the company and that piece of litigation. So the advantage of having the Hold and Request products is that we have the products, which are corporate customers, the person who's ultimately paying our bills is actually using it directly in the course of one of these legal matters. The second point is when they use it. For because this Request product is the product used first, and then Disco Hold is the product used second by the time the case is underway. The client is in some sense deeply invested in using our platform, and the natural next step is to proceed to use products like Disco E-discovery, then Discovery Review, and then Discovery Case Builder. And so I think that's why you're hearing customers say there's a lot of value in a single integrated solution.

Got it. Got it. Thanks so much for taking my questions, Kiwi and Michael. Thank you so much.

We'll take our next question from Tyler Radke with Citi. Your line is open.

Hey, thank you for taking the question. So there's been a lot of discussion in the investor world about usage-based models and some concerns that as we get into a more tough economic backdrop, customers can pull back spending a little bit faster on usage-based models. And I'm curious about your perspective on this and to what extent would you characterize the health of the spending environment in Q1 and as things progressed here into Q2? Thank you.

Sure. So first of all, Q1 was a terrific quarter, as you can see in the numbers, big beat and 63% year-on-year growth. In terms of the broader question, I think the COVID quarter was really a great test of how resilient our usage-based business model would be to customer-side stress. And you'll recall that in the COVID year, we had one sequentially flat quarter in Q2 of that year. And then we accelerated in Q3 and Q4, ultimately delivering more than 40% year-on-year growth for the full year. I think that's a good indicator of what a really bad economic situation might do to our business. The last observation I'll make is that often in law firms, people think about the corporate or transactional partners, lawyers who do M&A or securities, or project finance as carrying the law firm in times when the economy is booming. And then in times when the economy is doing less well, it's the litigation or disputes side of the house that tends to carry the overall fortunes of the law firm. And so there's a sense in which litigation disputes have historically been regarded as counter-cyclical. If you think about all the litigation that was created in the wake of the 2008 crisis, or the dot-com crisis, those are some good examples. I don't know that I would go so far as to say that Disco's business is counter-cyclical. But what I would say is that the demand for legal services and people's exposure to legal requirements continues independent of the position in the economic cycle.

That's helpful perspective. Thanks, Kiwi. A follow-up for Michael, obviously, there's been a lot of pressure out there on company's profitability. And I'm curious now that you've been public for some time and several quarters, and as you look at your spending plan for the year, just kind of how you've adjusted your plan, if at all, if you've thought about areas of incremental efficiencies and just kind of some of the puts and takes in operating margin outlook? Thank you.

Thanks, Tyler, really good question. So, as we issued in the release earlier today, we have reaffirmed our guidance for the full year adjusted EBITDA and we raised our revenue. The macro environment is obviously interesting to watch. But from a business perspective, we're going after the $767 billion market, we saw a small piece of that overall market. And so we really do not want to change our spending profile, because we believe as we continue to expand, those investments are going to pay back in multiples. So, that's kind of where we are sitting.

And we'll take our next question from Brent Thill with Jefferies. Your line is open.

Thanks, Michael. Just following up on the expense question. With the escalating loss, where are all investments going? You mentioned the doubling of the sales team. Are you continuing on that track? Or do you double again this year? Can you just give us a sense of where the big investments are going?

Yes, I mean, we're continuing to scale our go-to-market. Kiwi and I have talked about that since the IPO in terms of really doubling down on our go-to-market team. And continuing to get efficiency from those investments, we're going to monitor those investments as we continue to make them and also continue to invest in the product to scale out our solution, to continue our market lead in the product and the solution that we have.

And Kiwi, when you think about beyond e-discovery, the other families of apps that you have, can you just talk to the importance now in the model, and over time, what you're seeing in that multi-product adoption?

Yes, I think we talked a lot about this in our full year earnings call, where we laid out a sort of five pillar strategy towards becoming the company that builds technology that powers legal work everywhere this legal work is done. And I think being multi-product is a very core part of that strategy. So, if you look at what we've done, historically, we started with e-discovery going really deep on one of the most expensive and problematic parts of the legal process: review of millions, tens of millions or even hundreds of millions of documents that are involved in legal disputes, investigations, or other kinds of legal matters. Then from there, we expanded both later in time in the process with products like Disco Review and Disco Case Builder and then earlier in time with products like Disco Early Case Assessment, Disco Hold, and Disco Request. Hopefully, the strategy there is coming clear. Our idea is to give corporate customers more and more places where they can begin to engage with our platform and start using the platform. And then to encourage them to adopt a multi-product solution regardless of where they start. So a customer can start with Hold, and then it can be very natural for them to expand to e-discovery and Review and Case Builder downstream. Or a customer might come to us initially with an interest in Disco Review and then find that it's better to use the platform to manage testimony as well as documents, expand to Case Builder, and then find that actually, they should manage their whole litigation portfolio in the platform and implement a solution like Hold or Request as an enterprise-wide solution. So that's the idea, to create more entry points by building products that cater to different kinds of legal needs. And then once the customer is on the platform, they have that magic discovery experience. And that is something that you can use to cross-sell them into other Disco products over time.

Can you quantify the percentage of revenue beyond e-discovery? Or is that something you're not breaking out?

We don't disaggregate revenue by product line. You can get some sense just by estimating when we've introduced the various products. Disco E-discovery is obviously the most mature of our products. It was our original product. Our second product, Disco Review, was introduced next, and then Disco Case Builder. So at least in a sense of ranking, you can get information there. I'll tell you the reason we don’t disaggregate is that we believe that over time, we're going to continue to introduce more products. And we think of those products just as different ways of using the same underlying platform. So we don't really care whether a customer starts out by using Hold or Case Builder or Request or E-discovery or Review; what we want to do is to get them using our platform somehow, right? Whatever is easiest for them, and then drive adoption of the platform across more and more categories of their legal work over time, which should enable us to capture a growing percentage of their overall legal budget over time.

Great. Thank you.

And we will take our next question from Scott Berg with Needham. Your line is open.

Hi, Kiwi and Michael, congratulations on the strong quarter. I appreciate you taking my questions. I have two. First, Kiwi, I want to mention some recent work in the e-discovery space. One point raised by a law firm was that the complexities today are significantly greater than they were 10 or 15 years ago due to the increased number of data formats, such as Slack, Teams, video calls, and other applications, which makes processing them challenging. Are you currently seeing this as a reason customers are looking to adopt the Disco platform, or is it merely a secondary factor in their decision to choose you?

Yes. So we see growing demand for the newer kinds of data. So Slack has been a huge explosion in demand, supporting Office 365, supporting Zoom recordings. And then different industries have their own specialized things. So for example, construction has a lot of CAD/CAM, some of the newer software companies that probably many of you cover, have introduced their own formats that then need to be supported in downstream e-discovery applications. So that is a driver. I wouldn't say that it's the number one driver. The number one driver is not so much the explosion of the variety of data; it's the explosion in the sheer volume, right? So it's not so much that Slack is a difficult file type to handle. Instead, when you collect Slack, you might collect 10 Slack messages for every one email that you use to collect when people were principally using email. And so you'll see this continuation of a trend where, when I started practicing law 20 years ago, maybe a big case was a million documents. And then a big case became 10 million documents. And now a big case is 100 million documents. And what that drives is a demand for systems that are highly performant, even under that kind of extreme load. And that today remains, I think, the number one reason why customers switch to Disco: it’s amazing performance regardless of the scale of the database. The second thing it drives is a need for a more efficient way to actually understand what's in those documents and to find the evidence. And that's the shift away from brute force associates flipping through documents to AI-powered review solutions, which can actually keep up with the explosion in the scale of the data.

Got it. That's helpful. And then you all have spoken a lot about sales and marketing investments and doubling of the core bearing reps headcount in the year-over-year basis. But how should we think about the growth in sales and marketing overall, how much of it is going towards these direct resources versus your ability to press them to partner accelerator a little bit to drive more indirect sales?

So we remain optimistic about the partner channel over the medium term. As is no secret, I believe that the products we're building are the future of the industry. And those products, when they're adopted, they just fundamentally change what it is that the channel does. They reduce the need for services by replacing services with software. Now that's obviously a difficult transition for partners to make. And so you see folks who are early in the adoption cycle, partners who've been with us for six, seven, eight years now. You'll see some larger partners who are beginning to dip their toes in the water with Disco. And we've talked about some of those on the past couple of earnings calls. And I think over time, you'll get to a tipping point where more of these folks build large businesses on top of Disco. But we're not there yet. The bulk of our go-to-market effort today is direct. And we don't believe that we're dependent on converting the channel, right? We'd like to bring the channel along. But for those who don't come along, we're perfectly happy to compete with them in the market. We do that every day. So in terms of where investment is going, it mirrors kind of our current sources of revenue, which is to say that the bulk of the investment is going into our direct sales force, and some investment is going into building up this channel program. Again, we're very optimistic about the growth of the channel over the medium term.

Great. That's all I have. Thanks for taking my questions.

And we will take our next question from David Hynes with Canaccord. Your line is open.

Hey, this is Luke on for DJ. Thanks for taking the question. So Kiwi, you called out the March quarter in particular being a record month for e-discovery growth? Could you just expand on what you saw there? Maybe what that implies for the shape of Q1, and then to what degree you've seen that momentum fold into April and May so far?

Well, what we saw is sort of exactly what we said. We saw a tremendous spike in usage, specifically of our e-discovery product, and specifically in March. We're very excited about the growth of our business, both e-discovery and really all the other products. And we look forward to sharing with you some updates on what's unfolded in Q2 on the Q2 earnings call.

And we will take our next question from Derrick Wood with Cowen. Your line is open.

Thank you and congratulations on a strong quarter. Michael, I'd like to begin with your guidance. I noticed that you exceeded the midpoint of your Q1 guidance by $4 million, yet you've only raised the full year outlook by about $2 million. Is there a pull-forward dynamic at play, or have you become more conservative in your assumptions due to macro factors or other considerations? Also, I observed that the Q2 guidance has a wider revenue range than usual. Is there any particular reason for that?

Not really, Derrick, thank you for the question. We were very satisfied with the 63% year-over-year growth in Q1, which exceeded our guidance by 12%. For the full year, we have increased our outlook, and this is only our fourth quarterly conference call. We want to be cautious with our guidance, which is why we raised the full year expectations.

And just to be clear, there's nothing you're seeing from a macro demand perspective that has you changing any of your assumptions. Obviously, it sounds like you're raising the full year. So I would assume not.

That is correct.

Okay. And then the 10-K showed that 81% of revenue from $100,000 plus customers last year. That was a nice uptick from 74% in the previous two years. Does that reflect more concerted focus up-market and perhaps going to be less focused at the lower end of the market? Or does that just kind of reflect the maturity of your base? And having a lot more graduates to the $100k level. And just any thoughts on how you see that number trending forward would be helpful.

It's more the latter. It reflects the maturation of the base rather than any fundamental change in the segments that we're targeting. But it is both. So if you look at Disco's story over time, we started out by selling to litigation boutiques and the clients of those boutiques. And that was our original segment because they tended to have entrenched relationships with one of our competitors. And then, over time, we began selling up-market to the Am Law 200 and then directly to corporate legal departments. In general, when you have a corporate legal direct sale, you're getting a larger chunk of their wallet upfront and it grows more quickly. And so those accounts tend to be larger, just again, because you're dealing with them directly rather than accessing them through the law firm channel. So there is a little bit of that going on. But our focus on selling to corporate legal departments has been underway for several years now. So that's not a change that you're seeing in the more recent numbers. What you're seeing in the numbers is really, again, this trend we've talked about a couple of times, where customers are starting out spending more and they're growing their spend more quickly. So whereas in the past, it might have taken three, four, or five years to get a customer to middle six figures, low seven figures. Now you have some customers, and we talked about some examples in our prepared remarks, doing that ramp more quickly, some of them inside of the year, some of them over the course of one year to two years, but certainly more quickly than the historical average.

And we will take our next question from Parker Lane with Stifel. Your line is open.

Yes. Hi. Thanks for taking the questions. Congrats on the quarter. Kiwi, I think you pointed to strong sales efficiency in the SDR channel this quarter, perhaps the best basis you've had in any other quarter. What are some of the factors that you would attribute to that sales efficiency gain? And do you expect that to continue here throughout the year?

Yes, this has been a focus for us for a long time, especially over the past year. There have been several changes. First, we've successfully added some excellent directors and managers who are enhancing performance on the team. Second, we have refined our hiring approach to identify the right candidates for these positions. Third, we've made significant investments in learning and development. We have a program called DISCO University, which we've mentioned in previous calls. DISCO University now offers comprehensive onboarding training for various core sales roles, including SDRs, along with follow-up experiential learning, coaching, and certifications to increase product knowledge. Additionally, as SDRs advance in their careers at DISCO, we have effective bridge programs managed by DISCO University to prepare them for successful roles as CSMs, AEs, or other positions within our go-to-market organization. There isn't a single solution; it's about consistently improving a little each month and quarter, leading to compounding gains over time.

Got it. And when we look at the international teams today, would you say that there's room for improvement on productivity, just given how new that organization is? Or is that holding up fairly well compared to the U.S. counterparts?

I believe there's potential for improvement in productivity, and we strive to enhance our performance daily. One of our core values is the idea of continuous improvement, applicable to everyone, whether you're in sales, engineering, or accounting. We believe that robust systems play a crucial role in our success. We've established a strong business intelligence organization that rigorously measures various aspects, allowing us to identify what works and what doesn't, leading to areas for progress. This analytical framework enables our teams to experiment freely, identify successful strategies, and share them across the organization. In the U.K., we’re seeing a remarkable example of this in action, as it's functioning like a mini start-up. They have innovated the approaches of their sales development representatives, customer success personnel, and sales teams in dealing with clients. Some of these innovations have been adopted in the U.S., while others did not yield the same results. The U.K. has been very successful and has fostered innovation that positively impacts performance in the U.S. Moreover, at a broader level, the U.K. market is still in its early stages of growth, and we are investing in it because of the impressive outcomes it has produced, even though there is still much potential for growth ahead.

This is Ken filling in for Mark Schappel. Thank you for taking my question. I would like to ask, the company has an aggressive hiring plan this year, and the markets particularly good IT talent continues to be tight, so to date, where are you in respect to the hiring plan? Are you on plan or ahead or behind?

As of now, we are on plan. So it took us a little while to get there. You’ll remember in the past two earnings calls, I described us as sort of getting there, but not quite there, and now we're there. In terms of how we recruit great people to DISCO, I think it's a combination of offering people the opportunity to work on a mission that matters. In our case, using technology to strengthen the rule of law and then how do you build a culture that empowers people to really do things that at other places might be regarded as impossible and that greatly accelerates their careers. And we're proud not only of our recruitment, the recruitment side of the engine but also at the fact that we have never really suffered from a spike in attrition due to the so-called resignation.

There are no further questions at this time. I will now turn the call back to Co-founder and CEO, Mr. Kiwi Camara, for closing remarks.

Thank you for joining us today. At Disco, our ultimate vision is to strengthen the rule of law through the use of technology, and we're just getting started. We thank you for your interest in Disco and for joining our Q1 2022 earnings call.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.