Total Revenue of $34.3 Million, A Year over
Year Increase of 2%
CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial
results for its second quarter ended June 30, 2023.
“Over the last quarter we have seen significant progress towards
our path to profitability with an approximate 40% improvement in
Adjusted EBITDA quarter over quarter,” said Kiwi Camara, DISCO
Co-Founder and Chief Executive Officer. “We are very proud of the
progress DISCO has made over the last two years of being public. We
have scaled our business to over $130 million in revenue, grew our
customer count by more than 44%, augmented our platform with new
products and AI capabilities, and expanded our global footprint to
Canada and India. We are happy with the progress we have made as a
company and are excited to further our mission of providing a
magical solution to lawyers that empowers them to focus on
delivering better legal outcomes.”
Second Quarter 2023 Financial Highlights:
- Total revenue was $34.3 million, up 2% compared to the second
quarter of 2022.
- GAAP net loss was $14.9 million, compared to $20.2 million in
the second quarter of 2022.
- Adjusted EBITDA was ($7.4) million, compared to ($12.4) million
in the second quarter of 2022.
Recent Business Highlights:
- Customer Count: DISCO grew to 1,431 customers as of June
30, 2023, a 14% increase compared to the second quarter of
2022.
- Announcement of Cecilia Private Access: DISCO announced
Cecilia, an integrated AI chatbot for large-scale ediscovery, will
be made available for private access and is currently live and
integrated within select client databases.
- New Product Features: DISCO announced the release of
Dynamic Threading, In-App Translations, and Cloud Connector for
Office 365.
Third Quarter and Full Year 2023 Financial Outlook
As of August 9, 2023, DISCO is issuing the following outlook for
the third quarter of 2023 and fiscal year 2023:
Third quarter of 2023:
- Revenue in the range of $33.0 - $35.0 million.
- Adjusted EBITDA in the range of ($8.0) - ($6.0) million.
Fiscal year 2023:
- Revenue in the range of $135.0 - $145.0 million.
- Adjusted EBITDA in the range of ($34.0) - ($30.0) million.
DISCO’s third quarter and fiscal year 2023 financial outlook is
based on assumptions that are subject to change, many of which are
outside of its control. If actual results vary from these
assumptions, these expectations may change. There can be no
assurance that DISCO will achieve these results.
Reconciliation of Adjusted EBITDA on a forward-looking basis to
net loss, the most directly comparable GAAP measure, is not
available without unreasonable efforts due to the high variability
and complexity and low visibility with respect to the charges
excluded from this non-GAAP measure; in particular, the effects of
stock-based compensation expense specific to equity compensation
awards that are directly impacted by unpredictable fluctuations in
DISCO’s stock price. DISCO expects the variability of the above
charges to have a significant, and potentially unpredictable,
impact on its future GAAP financial results.
Conference Call Information
DISCO will host a conference call and webcast at 4:00 p.m. CT
(5:00 p.m. ET) today, August 9, 2023, to discuss its second quarter
2023 financial results and business highlights. The conference call
can be accessed by dialing (888) 300-4030 from the United States or
+1 (646) 970-1443 internationally with conference ID 8394292. The
live webcast of the conference call and other materials related to
DISCO’s financial performance can be accessed from DISCO’s investor
relations website at ir.csdisco.com.
Following the completion of the call until 10:59 p.m. CT (11:59
p.m. ET) on Wednesday, August 30, 2023, a telephone replay will be
available by dialing (800) 770-2030 from the United States, +1
(647) 362-9199 internationally with conference ID 8394292. A
webcast replay will also be available at ir.csdisco.com for 12
months.
About DISCO
DISCO (NYSE: LAW) provides a cloud-native, artificial
intelligence-powered legal solution that simplifies legal hold,
legal request, ediscovery, legal document review and case
management for enterprises, law firms, legal services providers and
governments. Our scalable, integrated solution enables legal
departments to easily collect, process and review enterprise data
that is relevant or potentially relevant to legal matters.
References to “DISCO,” the “Company,” “our” or “we” in this
press release refer to CS Disco, Inc. and its subsidiaries on a
consolidated basis.
Use of Non-GAAP Financial Measures
DISCO uses the following non-GAAP financial measures: Adjusted
EBITDA, Adjusted EBITDA margin; non-GAAP cost of revenue; non-GAAP
gross profit; non-GAAP gross margin; non-GAAP research and
development expense; non-GAAP research and development expense as a
percentage of revenue; non-GAAP sales and marketing expense;
non-GAAP sales and marketing expense as a percentage of revenue;
non-GAAP general and administrative expense; non-GAAP general and
administrative expense as a percentage of revenue; non-GAAP loss
from operations; non-GAAP operating margin; non-GAAP net loss
attributable to common stockholders, non-GAAP net loss attributable
to common stockholders per share (basic and diluted) and non-GAAP
net loss attributable to common stockholders as a percentage of
revenue. Management believes that these non-GAAP financial measures
are useful measures of operating performance because they exclude
items that DISCO does not consider indicative of its core
performance.
In the case of Adjusted EBITDA and Adjusted EBITDA margin, DISCO
adjusts net loss for such items as depreciation and amortization
expense; income tax provision; interest and other, net; stock-based
compensation expense; payroll tax expense on employee stock
transactions; CEO Performance Award issuance expense; unoccupied
lease expense; restructuring charges; and other one-time,
non-recurring items, when applicable. In the case of non-GAAP cost
of revenue, non-GAAP gross profit and non-GAAP gross margin, DISCO
adjusts the respective GAAP balances for stock-based compensation
expense. In the case of non-GAAP research and development expense,
non-GAAP research and development expense as a percentage of
revenue, non-GAAP sales and marketing expense and non-GAAP sales
and marketing expense as a percentage of revenue, DISCO adjusts the
respective GAAP balances for stock-based compensation expense,
restructuring charges, and other one-time, non-recurring items,
when applicable. In the case of non-GAAP general and administrative
expense, non-GAAP general and administrative expense as a
percentage of revenue, non-GAAP loss from operations, non-GAAP
operating margin, non-GAAP net loss attributable to common
stockholders, non-GAAP net loss attributable to common stockholders
per share (basic and diluted) and non-GAAP net loss attributable to
common stockholders as a percentage of revenue, DISCO adjusts the
respective GAAP balances for stock-based compensation expense, CEO
Performance Award issuance expense, unoccupied lease expense,
restructuring charges, and other one-time, non-recurring items,
when applicable.
There are limitations associated with the use of these non-GAAP
financial measures. These non-GAAP financial measures are not
prepared in accordance with GAAP, do not reflect a comprehensive
system of accounting and may not be completely comparable to
similarly titled measures of other companies due to potential
differences in the exact method of calculation between companies.
Certain items that are excluded from these non-GAAP financial
measures can have a material impact on operating loss and net loss.
As a result, these non-GAAP financial measures have limitations and
should be considered in addition to, not as a substitute for or
superior to, the closest GAAP measures, or other financial measures
prepared in accordance with GAAP.
DISCO's management uses these non-GAAP measures as measures of
operating performance; to prepare DISCO's annual operating budget;
to allocate resources to enhance the financial performance of
DISCO's business; to evaluate the effectiveness of DISCO's business
strategies; to provide consistency and comparability with past
financial performance; to facilitate a comparison of DISCO's
results with those of other companies, many of which use similar
non-GAAP financial measures to supplement their GAAP results; and
in communication with DISCO’s board of directors concerning
financial performance.
Forward-Looking Statements
This press release contains forward-looking statements,
including, among other things, statements regarding DISCO’s future
financial performance, its ability to achieve profitability and the
ability of DISCO’s solutions to deliver better legal outcomes.
Words such as “may,” “should,” “will,” “believe,” “expect,”
“anticipate,” “target,” “project,” and similar phrases that denote
future expectation or intent regarding DISCO’s financial results,
operations, and other matters are intended to identify
forward-looking statements. You should not rely upon
forward-looking statements as predictions of future events.
The outcome of the events described in these forward-looking
statements is subject to known and unknown risks, uncertainties,
and other factors that may cause DISCO’s actual results,
performance, or achievements to differ materially, including (i)
our history of operating losses; (ii) our limited operating
history; (iii) our ability to maintain and advance our innovation
and brand; (iv) our ability to effectively add new customers; (v)
our ability to effectively increase usage and penetration with our
existing customer base; (vi) our ability to expand our sales
coverage and establish a digital sales channel; (vii) our ability
to expand internationally; (viii) our ability to extend and
strengthen our channel partnerships and integrations; (ix) our
ability to expand our offering portfolio to a wider range of legal
processes outside of our current core offerings; (x) our dependence
on revenue from customer usage, which fluctuates based on the
timing of and activity driven by legal matters for which our
solution is used, and any shortfall of large matters on our
platform; (xi) our ability to pursue strategic acquisitions and
strategic investments to expand the functionality and value of our
solution; (xii) our ability to comply or remain in compliance with
laws and regulations that currently apply or become applicable to
our business in the jurisdictions in which we operate; (xiii) the
potential that our computer or electronic systems, applications or
services, or those of any third parties on whom we depend, fail or
suffer security or data privacy breaches or other unauthorized or
improper access to, use of, or destruction of our proprietary or
confidential data, employee data, or personal data; (xiv) our
ability to compete effectively with existing competitors and new
market entrants; (xv) the impact of fluctuations in general
macroeconomic conditions, such as the current inflationary
environment and rising interest rates; and (xvi) the impact that
global events, such as the COVID-19 pandemic, including variants of
COVID-19 or other public health crises, the Russian military
operations in Ukraine and any related economic downturn could have
on our or our customers’ businesses, financial condition and
results of operations.
The forward-looking statements contained in this press release
are also subject to additional risks, uncertainties, and factors,
including those more fully described in our filings with the
Securities and Exchange Commission (“SEC”), including our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2023, filed
with the SEC on May 10, 2023. Further information on potential
risks that could affect actual results will be included in the
subsequent periodic and current reports and other filings that we
make with the SEC from time to time, including our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2023.
Forward-looking statements represent DISCO’s management’s
beliefs and assumptions only as of the date such statements are
made. We undertake no obligation to update any forward-looking
statements made in this press release to reflect events or
circumstances after the date of this press release or to reflect
new information or the occurrence of unanticipated events, except
as required by law.
CS DISCO, INC.
Consolidated Balance
Sheets
(in thousands, except par
value amounts)
(unaudited)
June 30, 2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
178,919
$
203,244
Accounts receivable, net
24,577
22,720
Other current assets
3,717
5,576
Total current assets
207,213
231,540
Property and equipment, net
8,638
7,507
Operating lease right-of-use assets
9,124
9,824
Intangible assets, net
821
962
Goodwill
5,898
5,898
Other assets
721
591
Total assets
$
232,415
$
256,322
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
5,122
$
8,485
Accrued expenses
4,386
4,705
Accrued salary and benefits
5,124
3,536
Deferred revenue
3,310
4,100
Operating leases
1,982
1,902
Finance leases
40
39
Total current liabilities
19,964
22,767
Operating leases, non-current
7,969
8,770
Finance leases, non-current
179
199
Other liabilities
424
950
Total liabilities
28,536
32,686
Commitments and contingencies
Stockholders’ equity
Preferred stock $0.005 par value, 100,000
shares authorized and no shares issued and outstanding as of June
30, 2023 and December 31, 2022
—
—
Common stock $0.005 par value, 1,000,000
shares authorized as of June 30, 2023 and December 31, 2022; 60,056
and 59,190 shares issued and outstanding as of June 30, 2023 and
December 31, 2022, respectively
301
296
Additional paid-in capital
437,087
421,569
Accumulated deficit
(233,509
)
(198,229
)
Total stockholders’ equity
203,879
223,636
Total liabilities and stockholders’
equity
$
232,415
$
256,322
CS DISCO, INC.
Consolidated Statements of
Operations and Comprehensive Loss
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Revenue
$
34,276
$
33,710
$
67,405
$
68,178
Cost of revenue
9,039
8,489
17,316
17,458
Gross profit
25,237
25,221
50,089
50,720
Operating expenses:
Research and development
13,258
15,181
29,030
27,499
Sales and marketing
18,053
18,931
37,113
35,350
General and administrative
10,917
11,065
23,217
19,584
Total operating expenses
42,228
45,177
89,360
82,433
Loss from operations
(16,991
)
(19,956
)
(39,271
)
(31,713
)
Other income (expense)
Interest and other income
2,129
29
4,076
59
Interest and other expense
4
(200
)
12
(293
)
Loss from operations before income
taxes
(14,858
)
(20,127
)
(35,183
)
(31,947
)
Income tax provision
(57
)
(44
)
(97
)
(73
)
Net loss attributable to common
stockholders
$
(14,915
)
$
(20,171
)
$
(35,280
)
$
(32,020
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.25
)
$
(0.35
)
$
(0.59
)
$
(0.55
)
Weighted average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
59,856
58,344
59,648
58,159
CS DISCO, INC.
Consolidated Statements of
Cash Flows
(in thousands)
(unaudited)
Six Months Ended June
30,
2023
2022
Cash flow from operating activities:
Net loss
$
(35,280
)
$
(32,020
)
Adjustments to reconcile net loss to cash
used in operations:
Depreciation and amortization
1,957
1,155
Stock-based compensation
14,092
8,728
Charge to allowance for credit losses
1,356
367
Loss (Gain) on disposal of long-lived
assets
1
(1
)
Unoccupied lease charges
—
798
Non-cash operating lease costs
699
513
Changes in operating assets and
liabilities:
Accounts receivable
(3,214
)
(3,935
)
Other current assets
1,819
1,671
Other long-term assets
(124
)
(387
)
Accounts payable
(3,186
)
2,966
Accrued expenses and other
1,616
(1,703
)
Deferred revenue
(790
)
211
Operating lease liabilities
(722
)
(525
)
Other liabilities
(30
)
(16
)
Net cash used in operating activities
(21,806
)
(22,178
)
Cash flow from investing activities:
Purchases of property, equipment and
capitalized internal-use software development costs
(2,497
)
(1,868
)
Proceeds from disposal of equipment
1
—
Cash paid for acquisitions
(1,180
)
(5,310
)
Net cash used in investing activities
(3,676
)
(7,178
)
Cash flow from financing activities:
Proceeds from public offering, net of
underwriting discounts and commissions and other offering costs
—
(284
)
Proceeds from exercise of stock
options
283
2,656
Net proceeds from issuance of common stock
under Employee Stock Purchase Plan
932
—
Repurchase of common stock related to net
share settlement
(38
)
(264
)
Principal payments on finance lease
obligations
(20
)
(42
)
Net cash provided by financing
activities
1,157
2,066
Net decrease in cash and cash
equivalents:
(24,325
)
(27,290
)
Cash and cash equivalents at beginning of
period
203,244
255,477
Cash and cash equivalents at end of
period
$
178,919
$
228,187
Supplemental disclosure:
Cash paid for taxes
$
430
$
248
Non-cash investing and financing
activities:
Property and equipment included in
accounts payable and accrued liabilities
$
203
$
920
Acquisition holdback
$
—
$
800
Contingent consideration related to
acquisition
$
753
$
593
CS DISCO, INC.
Reconciliation from GAAP to
Non-GAAP Results
(in thousands, except for
percentages and per share amounts)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net loss
$
(14,915
)
$
(20,171
)
$
(35,280
)
$
(32,020
)
Depreciation and amortization expense
1,005
700
1,957
1,155
Income tax provision
57
44
97
73
Interest and other, net
(2,133
)
171
(4,088
)
234
Stock-based compensation expense
6,868
5,522
14,092
8,728
Payroll tax expense on employee stock
transactions
134
135
244
409
CEO Performance Award issuance expense
—
386
—
386
Unoccupied lease expense
—
798
—
798
Restructuring charges
1,574
—
2,590
—
Adjusted EBITDA
$
(7,410
)
$
(12,415
)
$
(20,388
)
$
(20,237
)
Adjusted EBITDA margin
(22
)%
(37
)%
(30
)%
(30
)%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Cost of revenue
$
9,039
$
8,489
$
17,316
$
17,458
Non-GAAP adjustments:
Stock-based compensation expense
(271
)
(234
)
(502
)
(394
)
Non-GAAP cost of revenue
$
8,768
$
8,255
$
16,814
$
17,064
Non-GAAP gross profit
$
25,508
$
25,455
$
50,591
$
51,115
Non-GAAP gross margin
74
%
76
%
75
%
75
%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Research and development
$
13,258
$
15,181
$
29,030
$
27,499
Non-GAAP adjustments:
Stock-based compensation expense
(1,729
)
(2,073
)
(3,919
)
(3,500
)
Restructuring charges
(1,001
)
—
(1,510
)
—
Non-GAAP research and development
$
10,528
$
13,108
$
23,601
$
23,999
Non-GAAP research and development as a %
of revenue
31
%
39
%
35
%
35
%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Sales and marketing
$
18,053
$
18,931
$
37,113
$
35,350
Non-GAAP adjustments:
Stock-based compensation expense
(1,360
)
(1,380
)
(2,751
)
(2,201
)
Restructuring charges
(471
)
—
(648
)
—
Non-GAAP sales and marketing
$
16,222
$
17,551
$
33,714
$
33,149
Non-GAAP sales and marketing as a % of
revenue
47
%
52
%
50
%
49
%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
General and administrative
$
10,917
$
11,065
$
23,217
$
19,584
Non-GAAP adjustments:
Stock-based compensation expense
(3,508
)
(1,835
)
(6,920
)
(2,633
)
CEO Performance Award issuance expense
—
(386
)
—
(386
)
Unoccupied lease expense
—
(798
)
—
(798
)
Restructuring charges
(102
)
—
(432
)
—
Non-GAAP general and administrative
$
7,307
$
8,046
$
15,865
$
15,767
Non-GAAP general and administrative as a %
of revenue
21
%
24
%
24
%
23
%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Loss from operations
$
(16,991
)
$
(19,956
)
$
(39,271
)
$
(31,713
)
Operating margin
(50
)%
(59
)%
(58
)%
(47
)%
Non-GAAP adjustments:
Stock-based compensation expense
6,868
5,522
14,092
8,728
CEO Performance Award issuance expense
—
386
—
386
Unoccupied lease expense
—
798
—
798
Restructuring charges
1,574
—
2,590
—
Non-GAAP loss from operations
$
(8,549
)
$
(13,250
)
$
(22,589
)
$
(21,801
)
Non-GAAP operating margin
(25
)%
(39
)%
(34
)%
(32
)%
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net loss attributable to common
stockholders
$
(14,915
)
$
(20,171
)
$
(35,280
)
$
(32,020
)
Non-GAAP adjustments:
Stock-based compensation expense
6,868
5,522
14,092
8,728
CEO Performance Award issuance expense
—
386
—
386
Unoccupied lease expense
—
798
—
798
Restructuring charges
1,574
—
2,590
—
Non-GAAP net loss attributable to common
stockholders
$
(6,473
)
$
(13,465
)
$
(18,598
)
$
(22,108
)
Non-GAAP net loss per share
$
(0.11
)
$
(0.23
)
$
(0.31
)
$
(0.38
)
Weighted average shares used to compute
basic and diluted net loss per share
59,856
58,344
59,648
58,159
Non-GAAP income attributable to common
stockholders as a % of revenue
(19
)%
(40
)%
(28
)%
(32
)%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230808359002/en/
Investor Relations IR@csdisco.com
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