Ladies and gentlemen, thank you for joining us for CS Disco's Fourth Quarter and Fiscal Year 2022 Conference Call. All participants are currently in listen-only mode, and lines have been muted to avoid background noise. After the speakers finish, there will be a question-and-answer session. I will now turn it over to your first speaker, Alexi from CS Disco's Investor Relations. Please proceed.

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 2022. With me on today's call are Kiwi Camara, Disco's Founder and Chief Executive Officer, and Michael Lafair, Disco's Chief Financial Officer. Today's call will include forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to statements regarding our financial outlook, and future performance, our future capital expenditures, our market opportunity and 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 at ir.cscisco.com. 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 quarterly report on Form 10-Q for the quarter ended September 30, 2022, filed with the SEC on November 10, 2022, and the company's upcoming Annual Report on Form 10-K for the year ended December 31, 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. And with that, I'd like to turn the call over to Kiwi.

Thanks, Alexi. Good afternoon, and welcome to our fourth quarter and fiscal year 2022 earnings call. Before I dive into our results, I would like to thank all the Disco employees, customers, and partners who helped get us here. Disco was founded in 2013, so 2023 is a celebration of our first 10 years in business. In that time, hundreds of Discovians built this company from a lawyer's side project into a leading legal tech company. I am deeply proud of everything we have accomplished, and I'm excited for everything that is to come in our next 10 years. Turning now to our results, revenue for Q4 2022 was 32.5 million, and revenue for the full year 2022 was 135.2 million. Adjusted EBITDA for Q4 was negative 11.2 million, and adjusted EBITDA for the full year 2022 was negative 44.5 million. In addition to these overall results, we accomplished many great things in 2022. We grew revenue from our original Ediscovery product by more than 30% to more than 105 million. We continue to onboard new customers and expand our relationship with existing customers. We ended the year with over 1300 customers, 265 of whom spent over $100,000 with us in 2022, and 23 of whom spent over $1 million. We welcomed Discovians back to the office in Austin and London and opened the Disco office in New York City. We completed our first acquisition, adding Disco Hold and Request to our product portfolio. We saw amazing innovations by our product team, including topic clustering with automatic indexing, which enhanced the Disco experience for our global customer base. We launched an emerging leadership rotational program to develop the next generation of legal tech leaders and give us access to a steady stream of junior talent. And we received incredible feedback and praise from the industry, including recognition as a leader in the worldwide Ediscovery Early Case Assessment and Ediscovery Review Software 2022 vendor assessments by IDC Marketscape, specifically calling out the strengths in our corporate toolkit, scalability, and ease of use for customers. I cannot help but be encouraged by these achievements, and by the continued feedback that we received from customers and prospects, that they love our products, the experience of doing legal work in these products, and the results they are able to deliver, powered by our products. Going forward, we are focused on a plan that reaccelerates revenue growth and pulls forward our path to profitability. Revenue growth last year was impacted by a decline in usage of our review product, especially on large reviews, and by volatility in usage of all our products, including Ediscovery, especially in the latter part of the year. This was compounded by difficult comps created by exceptional growth in 2021. Difficult comps that will continue in Q1 of this year. We believe that the path to reaccelerating revenue growth lies in continued focus on go-to-market execution. Over the last six quarters since our IPO, we invested heavily to scale up our go-to-market organization. This involved rapid growth of our lead generation, inside and field sales, and customer success teams, as well as a scale out of marketing and the addition of new senior leaders and first-line managers. Our focus now is on ensuring that this larger go-to-market organization is operating effectively and efficiently, and that we continue to meet the market's needs, from a pricing and commercial strategy, customer support and service, and product point of view. We have also decided to materially accelerate our path to profitability and set a clear timeline for that important milestone. We believe that we can achieve positive EBITDA exiting 2024. In addition to revenue growth, our path to profitability includes increased efficiency across all functions at Disco, as well as changing our talent mix over time to take greater advantage of global talent as well as homegrown talent. On the non-staff side, we are taking a sharp look at our non-staff expenses, including software expenses, and other expenses that have historically been driven by headcount. And we believe we can further optimize our spend on cloud infrastructure, both the infrastructure used in our production environments to serve customers and in our development environment used by internal engineering teams. The transition to profitability is an important milestone in the maturation of any business. I and my senior leadership team are excited to lead Disco through this transition. We have tied 2023 incentive compensation plans, including for our senior leadership team, to both revenue and EBITDA targets with the goal of driving focus at every level on our twin goals of reaccelerating revenue growth and achieving profitability. I look forward to continuing to report on our progress toward profitability over the course of this year. Zooming out from the coming year, what is next for Disco? The five pillars strategy that I outlined one year ago on our Q4 2021 earnings call remains our long-term strategy. The five pillars of that strategy are one, be the clear software leader by being the best at building software that lawyers love to use; two, be the platform of choice for general counsels; three, deliver outcomes using technology; four, be the legal tech portfolio owner with an extensible software platform; and five, be the center of the legal tech ecosystem. Pillar number one is built on our core strength combining world-class engineering with a deep love and respect for the law to build product experiences that feel magical to lawyers. Our focus on product and design, infused at every step of the process with deep legal domain expertise, enables us to build software that lawyers love to use, that is both powerful and simple, and that allows our customers to focus on the kind of work that requires human legal judgment. Our 2022 product releases included native Excel redactions, topic clustering with automatic indexing, and review metrics and time tracking in our core Ediscovery product. We also released evidence management in case builder and collect for Slack in hold. These features that many others also released in 2022 make it easier for lawyers to figure out what happened in litigation and investigations and find the evidence they need to prove those facts. In 2023, we intend to continue innovating on our current products, both bringing to market features our customers and prospects demand and introducing them to new capabilities made possible by continued advances in AI and analytics. In Q4, we made Disco's next generation AI architecture available to a limited set of customers. This new architecture improves precision and recall of the language models that power features like tag scoring and tag predictions that lawyers use to greatly accelerate or wholly automate legal document review. One capability enabled by this architecture is the ability to train a model based on documents in one language, for example, English, and use the model to find documents related to the same legal issue in a different language, for example, Japanese, even if humans have only reviewed documents that are in English. We believe these AI improvements, which we expect will enter general availability this year, will further accelerate the process of finding evidence in Disco Ediscovery, and improve the efficiency of Disco Review. We are operating in a time of continued and accelerating advances in AI and analytics. We look forward to applying these advances to more areas of legal work across our full product suite in the coming years. This brings us to pillar number two, being the platform of choice for general counsels. The largest legal budgets in the world continue to be controlled by the legal departments of large enterprises. The second pillar of our strategy is to become the platform of choice for these legal departments. As a reminder, we sell to corporate legal departments directly, as well as through law firms and legal services providers. In 2022, the number of corporate customers to which we sell directly increased to more than 450, representing more than 35% year-over-year growth. We believe that our investment into an end-to-end and full stack solution—that is our ability to provide not only Ediscovery, but also products like Disco Request and Disco Hold that are primarily used by in-house counsel—as well as downstream products like Disco Review and Disco Case Builder, has made our solution more attractive to corporate legal departments. These departments demand a single integrated platform to support legal work around investigations and disputes. We are now well positioned to provide that solution. One of my favorite customer examples is from a leading sharing economy tech company that has been a loyal Disco customer since 2019. In Q4, they signed a subscription that was two times the monthly amount they were paying at the beginning of 2022, bringing their annual spend to north of $1 million. Their counsel raved to us that Disco was a refreshingly excellent platform and very user friendly. Our customer loves Disco's technology-forward platform, which aligns with their vision of themselves as an innovator and technology leader. Another customer, a major global fast-food chain, increased their usage with Disco to over $1.3 million in 2022. They love Disco for several reasons. First, they find Disco gives them transparency into the work of their outside counsel, which allows for tighter control and greater efficiency across their global legal matters. Second, they love our simple to understand pricing, which provides them with cost certainty. And finally, Disco Review allows them to save hundreds of thousands of dollars through the application of AI and analytics compared to traditional brute-force approaches to legal document review. Additionally, a major U.S. conglomerate increased their spending with us to over $500,000 in 2022. This customer manages over 50 matters on Disco today. They started with Disco in 2019, with a small team of forward-thinking users, and have since expanded usage to dozens of team members. The feedback we receive from them is that, in addition to finding our platform intuitive and powerful, they love our responsive and engaged customer service, and frequent product updates that consistently keep up with their needs. Becoming the platform of choice for GCs remains a key strategic pillar for our next 10 years. We will push forward with winning general counsels and major enterprises and continue to prove to GCs why implementing Disco can enable them to deliver better legal outcomes for their companies, and do so more efficiently, especially in the current macroeconomic climate. Pillar number three is to deliver outcomes, not just tools. Disco Review is an example of delivering outcomes. We don't just give our clients better tools for doing legal document review. Instead, we use our technology, and especially Disco AI, to deliver the ultimate outcome of reviewing documents with higher quality and greater efficiency than legacy approaches that rely on people and process rather than technology. By delivering the outcome that customers care about, we are able to sell them what they ultimately want to buy and reduce the friction that they might otherwise feel around adopting new AI-powered technology. Our reliance on technology to deliver these outcomes allows us to do so at fundamentally superior gross margins compared to legacy approaches that rely principally on people and process. While revenue from our review product encountered headwinds in 2022 relative to an amazing year in 2021, primarily due to a shortfall in review usage on very large matters, we remain firmly convinced that full-stack offerings like Disco Review are the future. AI-powered technology-driven approaches to legal document review, and ultimately to many other kinds of legal work, will supplant legacy approaches that rely primarily on people and process. We have begun to broaden our review offering beyond pure legal document review to areas like deposition preparation and deposition summarization, built on top of Disco Case Builder. Over time, we expect to introduce more of these full-stack products that leverage Disco technology to deliver ultimate outcomes while simultaneously increasing quality, reducing costs, and making total legal spend more predictable. Pillar number four is to be the legal tech portfolio owner. This means continuing to broaden our product portfolio so that customers can use Disco to power more and more kinds of legal work. We made great progress on this pillar in 2022, with our acquisition and integration of Disco Request and Disco Hold and our release of Collect for Slack as part of Disco Hold. We have also continued to invest in the development of Disco Ediscovery, Disco Review, and Disco Case Builder. We look forward to continuing to build out our legal tech portfolio, both organically and through strategic acquisitions and partnerships. Adding more products to our portfolio can accelerate revenue growth in several ways. First, with more products, we can deliver more value to our customers and increase the revenue we are able to generate per customer. Second, with more products, we give our customers more ways to begin their Disco adoption journey and then expand across our product portfolio over time. Third, with more products, it is more difficult for competitors who offer point solutions that compete with only one or two of our products to displace our relationships with existing customers who prefer to buy a portfolio of products from us. Lastly, with more products, we can introduce commercial models that encourage our customers to commit spend to Disco, with the confidence that they will be able to use that spend across a wider variety of legal work, even as the nature of their legal needs changes from period to period. In 2022, our multiproduct attach rate calculated as the percentage of customers at year-end, who generated revenue for us in 2022 from their use of more than one Disco product during the year was 11%. The number of customers using multiple products at any one time varies substantially based on, among other things, the inception and completion of litigation, investigations, and other legal matters. Increasing multiproduct adoption across our existing customer base can be a material driver of revenue growth in the future. Finally, pillar number five is operating at the center of the legal tech ecosystem. We have continued to invest in our partnerships with law firms and legal services providers who deliver services and build businesses powered by Disco technology. In addition to our direct sales efforts, these partnerships give us more ways to reach corporate legal departments. We invited several of our legal services provider partners to join us at our annual company kickoff in January and have incentivized our direct sales force to work collaboratively with these partners to grow new and existing customer relationships in 2023. More recently, in some of our product releases, we have provided API endpoints that allow these partners to more deeply integrate their own offerings and business processes into our platform. We have released features like organization metrics that enable these partners to build dashboards that give them visibility into all their work on Disco. Beyond technology, we have invested in the Disco ecosystem through programs like Disco University, which provides on-demand training and rigorous certifications for users and other ecosystem participants. Disco for Schools makes Disco technology available in law schools and paralegal training programs to prepare the next generation of customers for careers powered by Disco. Disco pro bono allows nonprofits and lawyers engaged in pro bono work to gain access to the Disco platform for free or at greatly reduced rates. We also continue to be active participants in many of the leading industry conferences, seeking to add value as more and more people in the legal industry embrace the move to the cloud and the adoption of legal tech. Lawyers and other legal professionals who continue to move through their careers remain a driver of revenue growth at Disco. We seek to maintain and develop relationships with these individuals across multiple companies. Already several million dollar-plus customers have originated from these long-term relationships, and we are proud of our many alumni who have gone on to positions with our customers or elsewhere in the growing legal tech industry. If we are successful at executing on pillar number five over the next 10 years, we will make an affiliation with Disco into an important credential and career accelerator for the next generation of leaders in legal tech. We believe that our five pillars strategy can drive healthy and sustainable growth over the next 10 years as we make Disco truly synonymous with legal tech. Now I'll hand it over to Michael to discuss our financial results and guidance.

Thank you, Kiwi. In Q4 2022, revenue was 32.5 million, a decline of 4% year-over-year. The year-over-year decline in the quarter is primarily attributable to the smaller matters we saw in review, resulting in lower total revenue. Full year 2022 revenue was 135.2 million, up 18% year-over-year. Full year revenue growth was driven by the addition of new customers and expansion of existing customers offset by a significant contraction in review revenue. Our Ediscovery business finished with revenues north of 105 million, and growth of over 30% year-over-year. We saw a lower revenue growth rate in Ediscovery in the back half of 2022 compared to the front half. Our dollar-based net retention rate as of December 31, 2022, was 106%. This drop from our DNR of 146% last year is primarily due to the ending of large reviews we've previously discussed. While overall DNR was 106%, for Ediscovery, DNR was 120% for the year, demonstrating the resilience of Ediscovery in 2022. As we've said before, there will be variability in our dollar-based net retention rate based on the timing of revenue and the contribution from existing and new customers. 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 Q4 was 76%, up from 74% in Q4 of the prior year. Gross margin for fiscal year 2022 was 75%, up from 73% for fiscal year 2021. As a reminder, our gross margins fluctuate from period to period based on the nature of our customers' usage, for example, the amount and types of data ingested and managed on our platform. We expect gross margin to continue to be within the bands we've historically seen. Sales and marketing expense for Q4 was 16.9 million, or 52% of revenue, compared to 43% of revenue in Q4 of the prior year. This represents an increase of approximately 2.5 million in the quarter, year-on-year, as we completed the sixth quarter scale out of our go-to-market organization. For fiscal year 2022, sales and marketing expense was 68.7 million, or 51% of revenue, compared to 40% of revenue for fiscal year 2021, an increase of approximately 22.9 million year-on-year. As Kiwi mentioned and as we mentioned last quarter, we feel we have reached the appropriate scale of our business in terms of headcount. Moving forward, we will be more focused on sales, execution, and efficiency. Research and development expense during Q4 was 13.4 million, or 41% of revenue, compared to 28% of revenue in Q4 of the prior year. This represents an increase of over 4 million in the quarter year-on-year, as we continue to invest in innovation. During fiscal year 2022, research and development expenses were 51.2 million, or 38% of revenue, compared to 28% of revenue in fiscal year 2021, an increase of approximately 18.9 million year-on-year. General and administrative expense in Q4 was 6.5 million, or 20% of revenue, compared to 21% of revenue in Q4 of the prior year. This represents a decrease of over 0.5 million in the quarter year-on-year. General and administrative expense in fiscal year 2022 was 30.1 million, or 22% of revenue, compared to 20% of revenue in fiscal year 2021, an increase of over 6.7 million year-on-year as we scaled our back-office functions to keep pace with the growth of the company. Operating loss in Q4 was 12.1 million, representing a margin of negative 37% compared to negative 17% in Q4 of the prior year. Operating loss for fiscal year 2022 was 48 million, representing a margin of negative 36% compared to negative 16% in 2021. Adjusted EBITDA was negative 11.2 million in Q4, a margin of negative 34% compared to a margin of negative 16% in Q4 of the prior year. We want to point out that operating expenses in Q4 were approximately 3.3 million lower than in Q3. This was primarily driven by lower incentive compensation in line with our performance. We do not expect to benefit from these savings in Q1 2023. Adjusted EBITDA in fiscal year 2022 was negative 44.5 million, a margin of negative 33% compared to a margin of negative 14% in 2021. Net loss in Q4 was 10.8 million, or negative 33% of revenue, compared to a net loss of 6 million, or negative 18% of revenue in Q4 of the prior year. Net loss in fiscal year 2022 was 47 million, or negative 35% of revenue, compared to net loss of 18.8 million, or negative 16% of revenue in 2021. Net loss per share for fiscal year 2022 was $0.80 per share, compared to $0.57 per share for fiscal year 2021. Turning to the balance sheet and cash flow statement, we ended the year with 203.2 million in cash and cash equivalents. Operating cash flow for 2022 was negative 46 million compared to negative 21.6 million in the prior year. Now turning to the outlook. For Q1 2023, we're providing revenue guidance in the range of 30.5 million to 32.5 million. Please keep in mind that we're facing a difficult comp due to a strong Q1 last year, especially in review. For Q1 2023, we're providing adjusted EBITDA guidance in the range of negative 16.5 million to negative 14.5 million, representing adjusted EBITDA margin of negative 49% at the midpoint. For fiscal year 2023, we're providing revenue guidance in the range of 135 million to 145 million and adjusted EBITDA range of negative 42 million to negative 38 million, representing adjusted EBITDA margin of negative 29% at the midpoint. Additionally, we are targeting a Q4 2023 adjusted EBITDA margin in the negative teens. This guidance implies reacceleration of our business relative to the last few quarters. Additionally, as Kiwi said in his remarks, we're focused on a plan that pulls forward our task to profitability with positive adjusted EBITDA exiting 2024. We're very excited about 2023 and the progress our team is working towards. We have the right people, strategy, and vision at Disco to lead us forward into our next 10 years. Now, I would like to turn the call over to the operator to open up the line for Q&A.

Thank you. Your first question comes from Koji Ikeda with Bank of America.

So I was thinking about or looking at the guidance for this year, and I was wondering, are there any large matters that you're already anticipating to come off the platform this year? And how should we be thinking about the seasonality of growth beyond the first quarter? Anything to call out specifically, the second, third or fourth quarter that we should be aware about?

Koji, there are no specific matters that we're aware of that are big ticket items that will roll off. I do think it's fair to say what we talked about on our last earnings call, which is that in this macro environment, we do have some large customers who come to Disco and say, "Hey, how can you help me optimize my spend?" And obviously, we have a few different responses there. The first of which is, we can help you spend less by moving more of your business to the Disco platform across multiple products. But certainly, in some instances, we wind up providing discounts to those large customers for whom Disco is a material line item, but no big cases that are scheduled to come off.

Got it. Thank you, Kiwi, for that. And I wanted to follow up with Michael on the comment of the adjusted EBITDA profitability exiting 2024. Just any sort of other color you can provide maybe other than scale and growth driving model leverage, anything specific to call out that could be driving that path to profitability. Thanks, guys.

Good question, Koji, thank you. So in light of the macro environment, we've decided to pull forward our path to profitability. We have shown the ability to do this in the past. There are obviously a number of different levers that can get us there. How that will be achieved is going to be based on how things go over the next kind of eight quarters. We'll provide updates as we go along each quarter.

Your next question comes from the line of Tyler Radke with Citi.

Hi, this is Kylie Tobin on for Tyler Radke. Thanks for taking the question. Starting off on the generative AI theme and your integration into the Disco architecture. What has the feedback been from those initial beta customers? And how are you thinking about the monetization opportunity long-term? How does this impact the review business and is it built into your margin and guidance outlook for next year? Thanks.

AI has been a core differentiator for Disco from the beginning. We began investing in an AI Lab eight years ago and have incorporated AI technologies as they've improved in the broader market into multiple product offerings over time, everything from tag scoring and tag predictions to our release last year of topic clustering with automatic indexing. The most recent architectural improvement that you're talking about has delivered a great improvement in both the precision and recall of the language models that we use to help automate and accelerate legal document review. Customers get the benefit of that both in Disco Ediscovery, when they're doing reviews themselves and when they use Disco Review to buy the ultimate outcome of documents reviewed in legal matters. In short, what this technology is able to do is allow us to review matters with higher quality even more quickly than was done before. Now our review pricing model is generally based on the number of documents submitted. When review deals are priced that way, an increase in the efficiency of the review redounds to Disco's benefit. On the Ediscovery side, when the customer is doing the review themselves or using an outside law firm or legal services provider to do the review, the AI translates into increased value that Disco delivers to the customer because it reduces the amount of their spend on those third-party legal services. Going forward, I think we're just at the beginning of a very exciting time in the integration of generative AI and other AI techniques into Disco's products. We look forward to sharing more product announcements, not only in Ediscovery but in some of our newer products like Disco Case Builder and Disco Hold. We have not baked in any incremental AI pricing or incremental AI margins into the numbers that we've guided. So if we over the course of this year and next year release capabilities that are independently priced in this area, we would expect that to be upside to the model.

Thanks. That's really helpful. And just one more on the customer count. We noticed that it dipped a bit off Q3 ending at 1500. Did you see churn this quarter? And if so, was that anticipated in guidance? Or did that full-year customer count fall short of your expectations? Thanks so much.

Hey, I appreciate the question. So customer count actually did increase sequentially from Q3. We also saw increased customer count in the corporate segment. So we're not seeing what you're seeing, it definitely went up.

Your next question comes from the line of Jackson Ader with SVB Moffett.

Just curious if we think about review case that your kind of three largest products Ediscovery, Review, and Case Builder. What kind of growth expectations are factored into guidance for each of those for this year?

Well, we don't disaggregate the growth targets by product. I can tell you that we expect that ordering to remain the same over the course of the year. From an operational point of view, our main focus is executing on this multiproduct full stack strategy that I talked about as part of our five pillars. We think the right metric for that is a new metric that we shared on the call today, which is multiproduct attach rate measured as the percentage of your end customers who use multiple products over the course of that year. That metric stands at 11%. It's up very materially year-over-year. Our goal is to continue to drive an increase in that metric by getting more new customers to land with our second, third, fourth, and fifth products, and getting both existing customers and new customers to expand across multiple products as they use the Disco platform for more and more categories of legal work.

Okay. All right. That's fair. And then, if we just think, like we rewind to a couple years ago, can you think about the growth that maybe you were expecting at this point in your company lifecycle relative to the growth slowdown that you're actually experiencing? I'm curious how much you would attribute this to maybe competitive products, catching up to the capabilities that Disco enjoyed maybe, again, a couple years ago.

I think it's interesting. We had four quarters of unexpectedly good growth, and then four quarters where we were paying somewhat the penalty of that unexpectedly good growth. An interesting thing to do is to look at the models that we provided around the time of the IPO and compare the revenue number we thought we would be at last year to the revenue number we actually delivered. So there's a little bit of we pulled forward some growth, and then we had some slower growth on the back end of that. Of course, we believe that we can and need to and have a plan to reaccelerate growth going forward. I think the key ingredients to that, beyond tightening up go-to-market execution, is right? Every opportunity is sacred, expand every customer, and so on, all the things I talked about in our five-pillar strategy. Things like extending our reach into corporate, the number of customers is up to 450 and up 35% year-over-year, and then driving multiproduct attach rate that's 11%, up very materially year-over-year. On the competitive landscape, I don't actually think much has changed over the last year specifically. I think if you go back three to five years ago, there were a number of ideas that were new to the market, that Disco championed, and that our competitors were often skeptical of—things like moving to the cloud, the focus on the end-user experience of lawyers, a direct sales model where we sell directly to the ultimate buyers, whether in legal departments or at law firms, reliance on AI and analytics, full stack with products like Disco Review. These were things, if you go back, many of our competitors would have been skeptical of them. Now our competitors are embracing them and trying to say we too, are like Disco. So that has certainly changed. We're focused on continuing to deepen our differentiation in those core areas, but I think what we're doing now is again, introducing some ideas to market that our current competitors are skeptical of. This is skating to where the puck is going now. These are things like our investment in multiproduct and our investment in full-stack, the idea that you can build one continuous platform to handle the full spectrum of legal work. Today I discussed five products that can handle the full spectrum of work around disputes and investigations. You can deliver not only tools but also the ultimate outcomes through offerings like Disco Review. I talked about how we're beginning to broaden that offering to leverage technologies that we've built in products like Disco Case Builder. So that's where I think we're continuing to lead the market, and that's how I'd sum up the competitive landscape.

Your next question comes from the line of Derrick Wood with Cowen.

Oh, great. Thanks. It's Andrew on for Derrick. Kiwi, last quarter, you talked about increasing investments in marketing CSMs and lead generation. Just curious how those are starting to pay off and what kind of channels are most effective in driving new leads?

If we start with SDRs. They process inbound leads and do outbound outreach to those warm and cold targets. We've steadily scaled up the SDR team over the last six quarters as part of our go-to-market scale out. That is sort of unambiguously going very well, both on a unit basis and an aggregate basis. We're seeing increased productivity from that team measured in terms of the number of sales accepted leads that they generate. We’ve also made progress in building specialty SDR teams, for example, an SDR team that is focused on new direct corporate origination, selling to the General Counsel, Deputy General Counsel, Head of Legal Operations. That's an area where we initially had some skepticism about the prospect of SDR lead generation, just because it’s harder to get those sorts of people on the phone through a cold call. But actually, we've built out a corporate SDR team that's been tremendously productive. This has contributed to some of the metrics we shared on the call, like the 35% year-over-year growth in the number of corporate direct relationships, now up to 450. On the customer success side, we've also seen strong results with that team, setting records both on an individual and aggregate basis in terms of the upsell and cross-sell opportunities that they identify. If you think about how we're positioning the CS team for the coming year, we think it can be a huge driver of growth. For example, taking the large number of customers at Disco that are under $100,000 in spend and getting them to double the number of matters that they have in our platform would blow the plan out of the park. There's a tremendous opportunity for us to do things that shorten the adoption journey for new and existing customers from the historical three to five years or longer to something much shorter. We’ve seen enough customers do it quickly now that we know it can be done. On the marketing side, I think we're earlier in the journey wherein, by marketing, I mean things like digital marketing, field marketing, and so on. We're seeing early promising results, and we're scaling our spend based on those results over time. But we expect to continue making progress in those areas over the course of 2023.

Great, thanks. And then, Kiwi, in terms of the quota carrying sales capacity, maybe give us a flavor for— you have hired a lot over the past one to two years, and you're at a place where you don't need to grow that number much higher, but maybe give us a feel for what percentage of reps are productive currently, and as those reps you've hired ramp cannot help accelerate growth in over this year. Thanks.

Yes. That's exactly our bet. We believe that as our newer freshman classes of reps go through their ramp, they will contribute materially to growth in 2023 and 2024. In terms of the newer reps, the way we think about rep ramp is to compare the productivity of the new reps to the productivity of historical Disco reps when they were at similar tenures, let's say six months, 12 months, and so on. Our newer reps are performing well compared to our historical reps when they were at similar tenure bands.

Your next question comes from the line of Brent Thill with Jefferies.

Hi, this is Luv Sodha on for Brent Thill. Michael, maybe first question for you. Could you just give us some color as to what is baked into the guide? Are you baking in a higher than historical level of conservatism? And then, you mentioned that the Ediscovery growth did slow down in the back half of the year. Are you baking that into what you're guiding for next year?

Yes, Luv, thanks for the question. There’s a lot that goes into our guidance. The guidance obviously implies a reacceleration and it's a combination of Ediscovery review and just the overall business. I wouldn’t read more into that, other than that.

Got it. And I guess, on that point, Kiwi, what gives you more confidence that you can reaccelerate growth? Is there anything internal in terms of execution, or do you feel like you have the resources you need to drive better growth over the next year?

I do. Over the last six quarters, we more or less stuck to our guns, investing in the scaling out of the company to go pursue the five pillars strategy that I've been talking about. That was true in every function, both R&D and S&M. Now, we're very focused on helping those new team members go through their ramp and become productive as they contribute to growth in 2023 and 2024. In response to one of the earlier questions, I gave you some color in terms of how the SDR, CSM, and quota-carrying sales rep teams are doing. Zooming out from that color, and thinking about some of the underlying metrics that can help analysts and investors understand our business, we pointed to a number of things in our prepared remarks. We continue to experience strong customer growth, up to more than 1300 customers today. We also continue to grow customers at the higher spend levels, 265 customers spending more than $100,000 with us last year and 23 spending more than a million. We’re succeeding at penetrating the market with decision-makers who control the largest legal budgets, that is the general counsel of large enterprises. We're up to 450 direct corporate relationships, a number that is up 35% year-over-year. Our multiproduct and full-stack strategy is working with an 11% multiproduct attach rate up materially year-over-year, but also low enough that there’s tremendous room to expand that multiproduct attach rate and for expansion of that multiproduct attach rate to be a material driver of growth. Our original product, Disco Ediscovery, still makes up a large majority of our overall revenue, north of 105 million for last year, up 30% year-over-year and importantly with 120% dollar-based net retention. So both at the micro level in terms of what we're seeing in execution on the teams, and also zoomed out at an operating metrics level, there are many reasons to be optimistic about the prospect for reaccelerating growth in our business.

Your next question comes from the line of Robert Morelli with Needham.

Hi. This is Rob stepping in for Scott Berg here. Thanks for taking my question. When you look at bookings of the last two quarters, or the pipeline into fiscal year '23, has the composition of modules changed much versus the beginning of the year?

No.

Got it. Okay. And then, just given the legal litigation industries are lightly sensitive to economic movements, how should we view the drivers to why customers would slowdown or accelerate the decision to replace their existing legal tech platforms in the softened macro? Thank you.

I think the impact of the macro in our business has puts and takes. On one hand, as I talked about earlier when you have very large Disco customers and their spend with Disco is a material line item in the current climate, there's pressure to go reduce that spend. We have to work with those customers. Sometimes we succeed at maintaining or expanding their spend; other times we provide discounts. We try to extend deals and do things like that in connection with providing discounts, but that's definitely a headwind created by macro. Additionally, at Disco, we are much less likely to engage in pilots for new software products or otherwise undertake new programs. Generalized resistance to the new that is created in times of macroeconomic stress is also a headwind to the acquisition of new logos. On the tailwind side, we have a product that delivers ROI by reducing and making more predictable material line items spent, which is the cost of billed hours by professional services and lawyer time in handling what are often very large and impactful disputes and investigations for large enterprises. Put more simply, we help General Counsel save money. This is a tailwind in a time where suddenly many of our customers are much more EBITDA-focused than they would have been two years ago. It’s hard to say how these puts and takes shake out, but that’s some of the color that we’re hearing from customers and experiencing in the field.

Your next question comes from the line of Parker Lane with Stifel.

Hi, this is Matthew Kikkert on for Parker. Thanks for taking my questions. Could you talk a bit about your acquisitions Hold and Request, how those integrations progressed? What's the traction been like? And have you been surprised by anything with those solutions so far?

We're pleased with the success of the integration, both from an engineering and product point of view and from the go-to-market point of view. I wouldn't say we've been surprised. I think the acquisition has played out more or less in line with the case that was made internally to justify it. So what was that case? We think, first, that we added a number of great enterprise customers who were preexisting Hold and Request customers, and second, we opened the door to a new kind of conversation with both existing Ediscovery, Review, and Case Builder customers and prospects who are entirely new to the Disco ecosystem. There are many conversations we're having now with some of those corporate new logos that I talked about, where the product they're landing on is Hold or Request. Even if they don't start by buying that, that’s a driver of the first conversation. Maybe they start with one of our other products, say Ediscovery or Review or Case Builder and expand Hold and Request over time. So, if you take a step back, Hold and Request are great components of two of our five pillars. First, becoming the platform of choice for general counsels. These are technologies that are principally used by the GC and in-house lawyers. Second, our pillar around multiproduct and full stack. These two products enable us to deliver a really end-to-end solution handling all aspects of litigation, investigations, and other kinds of legal disputes.

Your last question today comes from the line of DJ Hynes with Canaccord.

Hey, guys. This is Luke on for DJ. Thanks for taking my question. So going back to that customer count question, correct me if I'm wrong on that, but I'm calculating nine net new customer additions this quarter, going from 1327 or 1318 to 1327. That's down from average net adds of 55 in the prior three quarters. Now, that's a pretty significant drop-off, especially after having just finished tripling sales capacity here. So I guess the question is, is there some increased churn component? Is it just becoming more difficult to add new customers in this environment? Or is this just sort of an outlier quarter?

I think it’s early to say whether it’s an outlier quarter or not. I talked about some of the not really specific to Disco but generic headwinds that the macro environment creates in terms of adding new customers. I can say in terms of color that it doesn't feel like something has fundamentally changed, but of course, we'll see over the next few quarters as that continues to play out.

Okay. Regarding your EBITDA guidance, it suggests a considerable decline over the year. Could you discuss the strategies you have to achieve that target and whether much of that work has already been done, particularly in Q1? Thanks.

I think Michael answered a version of this question earlier, so I'll give you my thoughts. Hopefully, they're additive. The big difference in the guidance we're providing is that we've pulled forward and made a commitment around our path to profitability. That commitment is manifested in our EBITDA guidance for full-year '23 in the commitment to be in mid-teens negative EBITDA in Q4 of '23, and then to have positive EBITDA exiting 2024. Now, in terms of how we get there, there are four big levers. Number one is, of course, we’re accelerating revenue growth. I’ve given lots of reasons why we think there’s a reasonable prospect of reaccelerating revenue growth. Number two, which we talked about a bit in the prepared remarks, is that we think there are further opportunities to optimize our infrastructure spend, both on the development environment which hits R&D OpEx and the production environment which hits COGS. So we think there may be upside to gross margins going forward as we make those optimizations. Then on the OpEx side, think about staff and non-staff. In terms of staff, the general strategy is over time to increase our mix of global talent and homegrown talent relative to our earlier mix, which we believe will reduce the unit cost of talent over time. Lastly, on the non-staff side, we're of course, taking a sharp pencil to every line item of non-staff expenses, with a particular focus on expenses like certain items of software that have historically scaled with headcount. The exact mix of those four components that we use to attain our profitability commitment is going to unfold as we see how the business progresses over the course of this year. But net of everything, what we're saying today is that we're committed to achieving the profitability targets that we've discussed on the call. This concludes our question-and-answer session for today. I would now like to turn the call back to Kiwi Camara, Co-founder and CEO. Thank you. Thank you for joining us today. At Disco, we will continue our march to be the legal technology leader and make the everyday lives of lawyers easier, smarter, and more efficient. We thank you for your interest in Disco and for joining our fourth quarter and fiscal year 2022 earnings call.

This concludes today's call. Thank you for attending. You may now disconnect.