CS Disco - Q3 2023

Transcript

Alexey Lakchakov (Head of Investor Relations)

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for DISCO's third quarter of 2023. With me on today's call are Scott Hill, DISCO's 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, market opportunity, market position, product strategy, and growth opportunities, and developments in the legal technology industry. 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.

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 June 30, 2023, filed with the SEC on August 9, 2023, and the company's upcoming Form 10-Q for the quarter ended September 30, 2023. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.

Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalent is available in our earnings release. With that, I'd like to turn the call over to Scott.

Scott Hill (Interim CEO)

Thanks, Alexi. Good afternoon, everyone, and thank you for joining us. For those of you whom I have not yet met, I'm Scott Hill. I assumed the role of Chief Executive Officer about two months ago. Before we dive into the results, I would like to briefly introduce myself. I was the CFO of a company called Intercontinental Exchange, better known as ICE, from 2007 until 2021. I joined ICE not long after its IPO and helped lead a company that used innovative technology to fundamentally transform commodity and financial markets and generate strong growth and investor returns. I met Disco just after I retired from ICE and saw a company similarly poised to use technology to transform the legal industry and generate strong growth and returns.

I jumped at the chance to join Disco's board of directors in June 2021, shortly before we went public. More recently, the board asked me to step into the CEO role on an interim basis while we conduct a search for a permanent CEO. We are focused on finding a leader with demonstrated experience scaling businesses, leading high-functioning organizations, and building, enhancing, and maintaining a strong cultural foundation. Once we find our new CEO, I look forward to remaining on Disco's board of directors. Until then, I will strive every day to make a meaningful and positive contribution to the company, its employees, its customers, and its shareholders. There's a lot of work to be done. We've gone through a difficult couple of months, but we remain steadfast and focused on building the leading legal technology company.

I'm here to enable that strategic vision by removing obstacles and making decisions that propel the business forward. I'm excited to be a bridge to DISCO's next chapter. Although I've been here only a short while as CEO, and I'm still very much diving into the core of our operations, I've already spent considerable time speaking to our leadership team across all functions, meeting with our customers around the country, and listening to our employees. The magic that makes DISCO unique continues to permeate our company. Before diving into the quarter, I wanted to share some of my initial observations. First, I'm very impressed with the employees and talent we have at DISCO across all functional areas. Our team continues to work incredibly hard to build the best company possible. Their commitment and dedication in the face of numerous challenges is inspiring.

DISCO's ability to succeed is not dependent upon a single person, but a collective team focused on innovation and customer service. That is the DNA of the company, and that is what will help us regain our footing and enable our future success. Second, DISCO has extraordinary products. Our customers love them. Having gone on several trips to visit our largest and most sophisticated users, the anecdotes I've been hearing are eye-opening, and I see the beauty of our platform in a lot more detail. I have heard firsthand from general counsels and law firm partners and associates about the time savings and simplicity DISCO has brought to their legal operations. And when we showcase and demo our upcoming AI-focused products like Cecilia Q&A or Cecilia Timelines, their eyes light up. They see the power of our solutions and how it will positively impact the future of legal work.

Third, I'm confident in our product roadmap and strategy. We have world-class talent on the product and engineering side of the house, and the capabilities to build innovative solutions that can transform the legal industry. The pace and quality of that product development has never been better. Fourth, we've made progress within our go-to-market organization. We had our best revenue quarter as a company in Q3, and that momentum carried into October. However, there's more work to be done... We are operating in a market with embedded legacy software providers, and displacing those entrenched competitors takes time and requires great focus and execution. In particular, we are investing to enhance our approach to enterprise clients, both corporate legal functions and large law firms. Fifth, we need to engage with and invest in our most important asset, our people.

There are cultural elements at Disco that need to be improved, and that is one of my top priorities. Building a great company culture takes time, and we are committed to promoting a constructive and supportive work environment that will enable our team to realize their full potential to the benefit of our customers and shareholders. We are already taking the important first steps of this journey. With that, let's dive into our performance during the third quarter. Revenue for Q3, 2023, was a record $34.9 million. Adjusted EBITDA was -$1.5 million, a sequential improvement from the second quarter. We ended the quarter with $158 million of cash, no debt, and 1,449 customers, 10% more than a year ago. Michael will provide more details about the quarter shortly.

Within our core eDiscovery business, we have continued to make progress. We have seen a re-acceleration in usage over the last several months, which continued into October. We saw quarter-over-quarter growth in both active and early case assessment usage, which is very encouraging. Although ECA is still the fastest-growing data segment, we are also seeing growth in active. This is attributed to the hard work our sales team is doing to attract new matters and gigabytes to our platform, in addition to usage expansion among our existing customer base. Our product and engineering teams released some important new eDiscovery features during the third quarter. We introduced self-service capabilities for Slack, which is by far the fastest-growing data set among our customers. This new capability will allow customers to upload documents into eDiscovery without needing DISCO support, considerably reducing total ingest time for Slack data.

Our team also released eDiscovery Annotation, which allows much more intuitive and flexible collaboration between team members within DISCO eDiscovery. Customers can now annotate specific documents, alert their team, and start comment threads, creating a richer workflow for the legal team. We also added a witness management module to our Case Builder product. A task that has been historically performed in Excel and Word can now efficiently be conducted in a central, contextually rich interface. Finally, we continue to enhance our Cecilia Q&A capabilities to match how our users work with the addition of scoping. Scoping allows users additional control over the content being reviewed, such as documents related to a specific custodian. This allows our customers to find answers faster within specific document sets. This was the single most requested product enhancement to Cecilia based upon early customer trials.

In addition to delivering a solid third quarter and a fast start in October, our sales team has been busy introducing our customers to our new DISCO AI platform, Cecilia. We have embarked upon a nationwide customer roadshow, where we have been showcasing Cecilia Q&A, an integrated AI chatbot for large-scale eDiscovery, as well as Cecilia Timeline, which automatically generates timelines from preexisting legal documents. We are also previewing several other Cecilia skills on our product roadmap. Importantly, Cecilia is running in beta in support of over 20 active customer matters. Those customers are using Cecilia to rapidly understand critical facts in opposing productions, prepare for depositions, and gain insights into critical case strategy questions.

I've had the opportunity to join dozens of our AI roadshow events in my first few weeks, and the power of this technology to help our customers deliver better legal outcomes for their clients is clear. We've heard customers talk about how Cecilia can help minimize the time required for tedious tasks, such as building a timeline, a must-have for any case, but also time-consuming and expensive from a billing perspective. Customers also appreciate the efficiencies of document interrogation using Cecilia Q&A. In fact, one customer highlighted some critical documents their prior review had missed, but which Cecilia helped surface. We believe that the risks and costs associated with not using technology like Cecilia to augment lawyer capabilities is high. We are focused on continuing to build customer interest in generating financial returns on this important investment.

We also continue to invest in our long-term strategy to become an end-to-end legal technology provider. You saw us announce yesterday that we've licensed Fastcase's comprehensive U.S. primary law data. This will give us and our customers access to all federal and state laws, regulations, and court rules. Integrating facts and evidence with primary law into a single platform will further our ability to enable legal professionals to deliver optimal outcomes for their clients by leveraging our leading innovations around AI and intelligent workflow solutions. We look forward to sharing additional aspects of our strategy over the coming quarters. With regard to the path to profitability, we have made impressive progress, and we have much lower operating expenses now than in Q3 of last year....

My early observation, though, is that the way in which we have allocated resources may have swung too far and too fast from a growth-only focus to cost-cutting. We have to make sure we have a balance between cost efficiency and growth investments. I believe a balanced approach to profitability that combines prudent expense and resource management, along with investments in our people, products, and sales, will result in a more sustainable, profitable, and growing company. Two months into this role, I strongly believe we have the people, the products, and the customer relationships to reenergize our top line. We will have more concrete full year 2024 guidance on our fourth quarter earnings call in February. With that, I'll hand it over to Michael.

Michael Lafair (CFO)

Thank you, Scott. In Q3 2023, revenue was $34.9 million. Although year-over-year revenue was up only 1%, we are starting to see a pickup in eDiscovery usage. As Scott mentioned, we are seeing growth in both ECA and active data on our platform. Within review, revenue came in below where it was in Q2, due to a $1 million review that ended, offset somewhat by the growth of our eDiscovery business. In discussing the remainder of the income statement, please note that unless otherwise specified, all references to our gross margin, operating expenses, and net loss are on a non-GAAP basis. Adjusted EBITDA is also a non-GAAP financial measure. Our gross margin in Q3 was 75%.

As we mentioned before, our gross margins fluctuate from period to period based on the nature of our customers' usage, for example, the amount and types of data ingested and managed on our platform. Sales and marketing expense for Q3 was $15.4 million, or 44% of revenue, compared to 54% of revenue in Q3 of the prior year. This represents a decrease of over $3.1 million in the quarter year-on-year. The decrease was primarily driven by a decrease in sales and marketing personnel costs. Research and development expense for Q3 was $10.1 million, or 29% of revenue, compared to 40% of revenue in Q3 of the prior year. This represents a decrease of approximately $3.7 million in the quarter year-on-year. This decrease was primarily driven by a reduction in research and development personnel costs.

General and administrative expense in Q3 was $6.6 million, or 19% of revenue, compared to 23% of revenue in Q3 of the prior year. This represents a decrease of approximately $1.3 million in the quarter year-over-year. The majority of the decrease was driven by a reduction in general and administrative personnel costs. Operating loss in Q3 was -$5.8 million, representing an operating margin of -17%, compared to -41% in Q3 of the prior year. In total, our Q3 operating expenses were over $8.1 million lower than Q3 of the prior year, representing an approximate 20% reduction in operating expenses.

Adjusted EBITDA was -$4.5 million in Q3, representing an adjusted EBITDA margin of -13%, compared to adjusted EBITDA margin of -38% in Q3 of the prior year. These results represent an adjusted EBITDA improvement of $8.5 million from Q3 of last year, bringing us closer to profitability. Net loss in Q3 was $3.9 million, or -11% of revenue, compared to a net loss of $14.1 million, or -41% of revenue in Q3 of the prior year. Net loss per share for Q3 was -$0.06 per share, compared to -$0.24 per share in Q3 of the prior year. Turning to the balance sheet and cash flow statement, we ended Q3 with $157.7 million in cash and cash equivalents and no debt.

Operating cash flow in the first three quarters of 2023 was -$28.7 million, compared to -$36.7 million in the same period of the year prior. Now, turning to the outlook. For Q4 2023, we are providing revenue guidance in the range of $34 million-$36 million and Adjusted EBITDA guidance in the range of -$7 million to -$5 million. For fiscal year 2023, we are providing revenue guidance in the range of $136.3 million-$138.3 million and Adjusted EBITDA guidance in the range of -$31.9 million to -$29.9 million. As Scott mentioned, we will provide our 2024 revenue and Adjusted EBITDA targets on our next earnings call.

At this point, we are not planning to significantly increase spending from current levels. However, we do expect to make some additional investments to set the company up for success in 2024 and beyond. Now, I would like to turn the call over to the operator to open up the line for Q&A. Operator?

Operator (participant)

Thank you, sir. At this time, I would like to remind our teleconference participants in order to ask a teleconference question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Eric Wood from TD Cowen. Please go ahead with your question.

Cole Erskine (VP)

Hey, guys, this is Cole on for Eric. Just want to get a better picture of kind of how sales rep productivity has been trending in the quarter. I know that last quarter you called it enablement, enablement initiatives, if you guys can just give us an update on that?

Michael Lafair (CFO)

Hey, thanks for the question. So we're really pleased about the performance in Q3. It was a record quarter, the best quarter, in the history of the company. And so in terms of rep productivity, you know, we're pleased with the direction of the business, and as we mentioned in our prepared remarks, we're very, very pleased with the pace of where the business is going and how the usage on the platform, in particular with respect to eDiscovery, has picked up into October. So we're pleased with how things are going.

Cole Erskine (VP)

Great, thanks. And then just one more on the net new customer number that was lower than it's been the past couple of quarters. So, you know, kind of in tandem with the sales rep productivity, has that productivity shifted to more of a focus on existing customers and, you know, kind of selling into them more? Or, you know, what are you seeing on the new customer front?

Scott Hill (Interim CEO)

Yeah, hey, it's Scott, and I'll take this. It's interesting the way you phrase the question. It's not a focus on existing or a focus on new, it's a focus on both. And that's one of the things in the couple of months that I've been here that I think we need to do a better job of from a sales standpoint is, you know, it's not corporate or transactional, it's not corporate or Am Law, it's all of that. And so I was pleased to see the customer count up again 10% year-over-year. Pleased to see that it's trended up as we've moved through the year, and I think that's a great opportunity for us.

It gives us a larger customer base to sell into, but it's also the case that we've got this great existing set of customers that I think we can do a better job of selling into as well. So I like to see the customer count grow. We're clearly focused on continuing that trend, but again, we wanna do both. I think in the quarter, we did a pretty good job of that.

We saw some growth in existing customers, we saw growth in new customers, and that's a trend that I'm really working hard with Luke and the sales team to focus on as we move forward, and to take the steps that we can do to enable that team to be able to not do either/or, but to do both.

Cole Erskine (VP)

Great. Appreciate the color. Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Scott Berg from Needham and Company. Please go ahead with your question.

Robert Morelli (Research Analyst)

Hi, this is Rob Morelli in for Scott Berg. Thanks for taking the question. Your four-tier revenue guidance is a touch light from the implied guide last quarter. You know, is this a difference, you know, based on less new customers signing with Ricoh or, are existing customers, I guess, using, you know... Is usage less than what was previously expected?

Michael Lafair (CFO)

Yeah. So we, we feel good about the usage, and in particular on eDiscovery into October, into the beginning of Q4. In terms of the guidance, we have provided guidance based on what we believe the number will land, based on all the information we have as of today, and we feel good about that number. Obviously, we, we would like to beat the guidance, but the number that we provided is the number based on all the facts we have today that we believe we're gonna land based on where we are now.

Robert Morelli (Research Analyst)

Got it. And then with the addition of Primary Law, you know, what does that do for the Disco platform competitively? You know, and also, like, how do the economics work for Disco? Thanks.

Scott Hill (Interim CEO)

Yeah. So, I'll start and then I'll let Michael walk you through the financial aspects of it. But, you know, I think the way that I would think about it is, you know, we've built an amazing platform that today helps lawyers understand all of the facts and the evidence in their case. And so, you know, whether it's in our eDiscovery platform today or using Case Builder or, you know, we've been demoing Cecilia and basically interrogating Cecilia on all your facts and evidence, it makes the workload of understanding your facts far more efficient than it has historically been. What the Primary Law does is allow us to go from, "What are my facts?" to, "What law is relevant to those facts?

How do the facts and law intersect?" And again, I think that's a really big step forward on our overall goal strategically to be an end-to-end platform. A place where lawyers can come in and work with their facts and evidence, come in and understand the relevant laws, and use all of that information to determine what the best path forward is with their clients. And so I think that's the great opportunity. I imagine so, in a world where Cecilia becomes an expert on 100% of your documents and your facts, imagine if that witness also knew 100% of the relevant law, how powerful that can be. And so I think for what's a relatively small investment, we have the opportunity to create an incredibly powerful offering for our customers.

Michael, you wanna talk a little bit about the financial?

Michael Lafair (CFO)

Again, in terms of the financial impact of this, I mean, we spent it's a $14 million investment that gives us access to all of Primary Law, as we described in the release that went out yesterday, for five years, as well as regular updates of that law. So when I go back from almost six years ago when I joined the business, this has been a vision of the business from, I believe, the inception, and especially from since when I joined. And as Scott mentioned, the concept that we have the evidence, and we have our technology to help review that evidence, and then we also have the law at the same time that we're going to build into the product, it's very, very powerful.

We also have an option to renew for another five years, and then we have additional options to renew beyond that. So it's a really exciting opportunity, for not a large investment from a cash perspective, to build it into our product and give our customers really the full spectrum from the e-discovery piece to what is the law?

Robert Morelli (Research Analyst)

Got it. That's helpful. I guess with that option, is it another $14 million investment after five years, or is there disclosure there?

Michael Lafair (CFO)

We haven't disclosed what the option price is, but it's. We just haven't disclosed that.

D.J. Hynes (Analyst)

Got it. Thanks for the color.

Operator (participant)

Thank you. Our next question comes from the line of Mark Schappel from Loop Capital Markets. Please go ahead with your question.

Mark Schappel (Managing Director and Senior Research Analyst)

Hi, thank you for taking my question. Michael, I was wondering if you could just provide some additional details on your activity around your review, review product. For instance, are you expecting any additional legal matters to kind of wind down on the platform in the next quarter or two?

Michael Lafair (CFO)

Yeah, I mean, so all of our business, as you know, is usage-based, or most of our business is usage-based. So, so matters will end when a case ends, or when a case may settle, or a judge may make a decision in one way or another that could cause the customer to actually have to load up a whole bunch of new data on the system, or in the alternative, if a case settles, remove data from the system. So it's the review piece, and we mentioned this in the script, there was a large review that ended in the prior quarter, in Q2, that was a, you know, significant amount of... It, it was a $1 million-plus review. That review ended and had an impact on our Q3 numbers.

In terms of the guidance we've provided, and we've provided some color on October, we feel really good about e-discovery and the usage on e-discovery that's kinda happened over the last couple of months and into October.

Mark Schappel (Managing Director and Senior Research Analyst)

Okay, thanks. And then, Michael, with respect to your prepared remarks around needing to make some additional investments next year, I was wondering if you could just elaborate a little more on that?

Scott Hill (Interim CEO)

Yeah, so it's Scott. Let me take that one. So I think, you know, from my standpoint, two months into the role, there are a couple of areas that I think are important for us, as I said in my prepared remarks, to strike a balance between prudent investment and not losing sight of the opportunity to grow. You know, I look at an amazing group of people inside the company and an amazing set of products that have been developed and are being developed. And again, that's just not my opinion, that's from me spending probably three or four dozen meetings with customers. But, you know, I think it's important that we really enhance the ability of our sales team to get out and sell those great products to our customers.

As I said earlier, the growing number of customers gives us a growing amount of opportunity. You know, there are a couple of places where, you know, for example, we really have dialed back significantly in our investments in our sales operations function. We've largely, you know, disinvested in our customer success function, and all of those are necessary to support the sales team to be successful with customers. And so we're gonna make some investments to improve those areas and enhance those areas, so our sales team can focus on what they do best, which is sell.

The other thing I think the company has done a really good job this year of focusing on performance management with regards to the field sales, but I think it's left us a little under capacity in the field right now, and so we're gonna make some investments to make sure we've got the right capacity in the field. So those investments are about further enabling the sales team, about supplementing the sales team, to give us the team on the field, that has the opportunity to go out and consistently win. Because ultimately, as we move along the path towards profitability, I think a path that is a combination of prudent investment and top-line growth is really the only sustainable way to get there.

Mark Schappel (Managing Director and Senior Research Analyst)

Great. Thank you. That's helpful.

Operator (participant)

Thank you. Our next question comes from the line of D.J. Hynes from Canaccord. Please go ahead with your question.

D.J. Hynes (Analyst)

Hey, good evening, guys. Scott, maybe I could stay on that thread. You know, I hear your comments in the prepared remarks that the pendulum has swung kinda too far towards cost optimization. Is that a hint in any way that you guys are backing away from the Q3 2024 EBITDA breakeven target?

Scott Hill (Interim CEO)

Yeah, I'm two months into the job. I'm not backing away from anything, nor am I leaping ahead. All I'm saying is, I think there are areas that... You know, as I move from kind of 30,000 feet at the board level down to, you know, 10 feet at the CEO level, I think some rebalancing needs to occur. You know, I'll give you another example. Our team has worked incredibly hard as we moved through this year to deliver on the products. I mentioned the pace of productivity out of our engineering team is better than it's ever been.

You know, the products that we're developing, the skills that we're developing for Cecilia are remarkable, and I'm not convinced that the rewards have kept up with that for the team. And so I think there's an investment in our people. I said it in our in my prepared remarks, you know, I think the most important asset we have is our people. And so I think there's an investment that needs to be made there. So I'm in no way today suggesting that it's a significant investment in terms of dollars, but it is significant in terms of what I believe it will result in.

That is an even more motivated employee population, an even more motivated and enabled sales team, and I think that will help us get back to the growth company that we were, and help enable, as I said, a more sustainable profitability as we move forward as a company.

D.J. Hynes (Analyst)

Yeah. Understood. Thank you. Michael, a follow-up for you. So increase revenue sequentially now for three quarters in a row. Sounds like you're pretty constructive on the trends that you're seeing through October. Is there anything you're seeing in the business today that would lead you to think that that trend of sequential growth doesn't persist into Q4?

Michael Lafair (CFO)

Look, DJ, it's a really good question. I mean, we feel good about the recent trends in the business over the last few months, in particular, with respect to eDiscovery and additional data on the platform and into October. And so we feel good about all those trends. We are usage-based, and so cases will end, and cases will get added back to the platform. So I'm cautiously optimistic about the trends in the business, and I'm really pleased in terms of where they've been going the last few months.

D.J. Hynes (Analyst)

Okay. One last quick clarification from me. I believe I heard you say that that large client review ended in Q2. Is that correct? So there was no bleed of revenue from that into Q3.

Michael Lafair (CFO)

I don't actually know exactly offhand if it... There may have been a little bit of a tail into Q3. I'm not sure offhand, but the million-dollar plus was all in Q2, and there could have been a little bit of a tail, but if it was, it wasn't material.

D.J. Hynes (Analyst)

Okay. Thank you, guys. I appreciate the color.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press the star followed by the one on your telephone keypad. Our next question comes from the line of Koji Ikeda from Bank of America Securities. Please go ahead with your question.

Koji Ikeda (Director of Equity Research)

Hey, Scott. Hey, Michael. Thanks for taking the questions. Michael, I just wanted to circle back into some of your prepared remarks about 2024, you know, realizing you're not guiding on the revenue side, but you did make a comment on operating expenses. I think I heard you right where you said you're trying to hold operating expenses flat for next year. Does that mean, like, on a 4Q guidance run rate basis, or ... Just trying to understand exactly what you meant by that, you know, holding expenses flat?

Michael Lafair (CFO)

I think what I said was no significant increase from where we are now, is what I said. We're gonna have more to come back to you with more color and detail in Q1 when we report Q4.

Koji Ikeda (Director of Equity Research)

Okay. Okay, got it. And then, you know, just, just thinking about that and, you know, some of Scott's comments on potential revenue growth drivers from here, you know, I, I guess, you know, you guys are doing a good job of, of trying to control what you can, which is, you know, investing in the growth levers that you are. And when, when we're looking at the, the model, is it safe to say or safe to assume that the primary function here to drive growth, you know, given the, given the, the revenue recognition, usage-based model of your, of your revenue, it's customers, right? It's, it's trying to land as many customers as you can, and customer growth is gonna be the best indication of, of future growth for this business.

Scott Hill (Interim CEO)

Yeah, look, it's Scott, and Michael will know the numbers better than I do, but clearly, our ability to continue to grow customers is a net positive from a revenue standpoint. But as I said to the earlier question, I think we have to continue to drive new customers, but then we also need to continue to build the relationships with existing customers to sell them more. You know, if they're an e-discovery customer, that's fantastic, but if they have a review coming up in front of them, we need to be selling them on our review team. We have an outstanding review team, and we need to make sure our customers, our existing customers, know about that review team.

You know, again, an e-discovery flag planted in the ground is fantastic, but have we shown them Case Builder and all of the skills that we have in Case Builder? The ability today, on a subscription basis, to have Case Builder and use Cecilia's skills to develop a timeline, to do witness management, are they aware of that offering?

With our corporate clients, you know, we made an acquisition a couple of years ago of a hold product, and having lived in the corporate world, you know, within the last couple of years and been in a company where on occasion you got those hold notices, showing the GCs of those companies that opportunity, our existing customers, that opportunity, I think is a great way for us to establish a foothold from which we can grow. And so my mantra with the sales team has been, it's not, do we do transaction or subscription? It's not, do we sell e-discovery or review?

We should do it all, and we should use the portfolio of products that we have and that we're developing to attract new customers without question, but we should certainly take advantage of the 1,449 customers that we have to sell them more. You know, as I look at this company, I don't in any way see us having an issue of a lack of opportunity to gain new customers, to sell more into existing customers. I think the field is open. I think the products we have are there. I think we have a terrific sales team, and we're gonna make investments to enable them more. And so it's both.

Yes, you should expect us to continue to grow customers, but you should also expect us, as we move forward, to talk about what we're doing to sell our existing customers more.

Koji Ikeda (Director of Equity Research)

Got it. Thanks, Scott. Thanks, Michael, for taking the questions. Really appreciate it.

Operator (participant)

Thank you. Our final question comes from the line of Brent Thill from Jefferies. Please go ahead with your question.

Luv Sodha (Research Analyst)

Hi, this is Luv Sodha on for Brent Thill. Thank you, Scott, and thank you, Michael, for taking my questions. Over the past few quarters, you've highlighted maybe a continued optimization in, you know, some of your larger customers, you know, as they're renegotiating some of their spend. Is it fair to assume that the comments you made in terms of eDiscovery, usage improving, does that apply to those larger customers as well?

Scott Hill (Interim CEO)

Yeah, the improvement we're seeing, again, is—this is my theme for the call, I guess—is across all of our customers. So we are seeing improvements with the existing customers. And again, some of what you're talking about with the existing customers, where we're negotiating, that's the exact opportunity I'm talking about, where we can go to those customers and say, "Hey, it's more than eDiscovery. Let me talk to you about the opportunity to buy Case Builder, to buy Review, to..." It, when it's available in the fourth quarter, "to buy Cecilia." And so it is absolutely the case that we are seeing some growth in our existing customers, particularly as we work through the wave of some of the larger cases that had come off earlier in the year.

But I definitely see an opportunity in those customer conversations to really sell the breadth of the company and the breadth of the products and allow us to see the usage go up related to that.

Luv Sodha (Research Analyst)

Got it. Just a quick follow-up on, you know, thank you for the net new adds commentary. But wanted to dig in, I guess, on an absolute basis, it was only 18 customers added, versus, let's say, you know, the six-quarter average has been around 50. So I guess it is somewhat of a step down. So was there anything different in terms of churn or any additional color you can add there? Thank you.

Scott Hill (Interim CEO)

Yeah, I don't think I'd say 18 up is a step down. It's a smaller step up, but it's a step up. And it's okay, I don't have the numbers right in front of me, but I'm pretty confident in saying that it's been a step up each quarter for the last eight-12 quarters. And that's the trend you want. Would I have liked 18 to have been 81? Sure. Are we focused on continuing to drive more customers? Absolutely. But you know, I don't wanna apologize for another sequential improvement in our customer count, because again, that's 18 more customers that can buy the breadth of the products we have to offer.

Luv Sodha (Research Analyst)

Got it. Thank you.

Operator (participant)

There are no further questions at this time. Scott Hill, CEO, I turn the call back over to you.

Scott Hill (Interim CEO)

Thank you, Bhavesh. This has been a challenging year for our company. I want to thank our employees for their resilience and maintaining a remarkable focus on continuing to innovate and serve our customers. I also want to reiterate my commitment to working with all of you to make Disco a great place to work. Importantly, I want to thank our customers for their continued confidence and business. We're committed to continuing to help you be more efficient by delivering innovative technology solutions. Thank you for joining us today, and thank you for your interest in Disco.

Operator (participant)

Thank you. This concludes today's conference call. We thank you for participating, and you may now disconnect.