Fourth Quarter 2023 Total Revenue of $35.7
Million, A Year over Year Increase of 10%
CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial
results for its fourth quarter and fiscal year ended December 31,
2023.
“We were pleased to end 2023 with a 9% increase in customer
count and double digit revenue growth in the fourth quarter,” said
Scott Hill, Chief Executive Officer. “I am proud of what our team
has been able to accomplish during a challenging year, including
deploying key enhancements to our core platform, developing
innovative AI capabilities, establishing our India operation and
delivering sequential revenue growth every quarter. As we turn to
2024, we are focused on continuing to re-accelerate our revenue
growth, investing to enhance our software offerings including
advancing our innovative Cecilia capabilities, and strengthening
our operating framework to improve our efficiency and
profitability.”
Fourth Quarter 2023 Financial Highlights:
- Total revenue was $35.7 million, up 10% compared to the fourth
quarter of 2022.
- GAAP net loss was $5.8 million, compared to $18.7 million in
the fourth quarter of 2022.
- Adjusted EBITDA was ($1.0) million, compared to ($11.2) million
in the fourth quarter of 2022.
Fiscal Year 2023 Financial Highlights:
- Total revenue was $138.1 million, up 2% compared to fiscal year
2022.
- GAAP net loss was $42.2 million, compared to $70.8 million in
fiscal year 2022.
- Adjusted EBITDA was ($25.9) million, compared to ($44.5)
million in fiscal year 2022.
Recent Business Highlights:
- Customer Count: DISCO grew to 1,441 customers as of
December 31, 2023, a 9% increase compared to December 31,
2022.
- Launch of Cecilia AI Platform: DISCO announced
the general availability of its Cecilia AI platform, a
comprehensive suite of features that includes Cecilia Q&A and
Cecilia Timelines. Cecilia Q&A can answer questions using the
data included in a customer’s database, providing clear citations
to sources within the database. Cecilia Timelines allows attorneys
to automatically create smart timelines at the start of a matter
and produce comprehensive reviews with facts succinctly
summarized.
- New Product Features: DISCO released deeper integration
capabilities between Timelines and DISCO Ediscovery; new
capabilities to track user activity and last accessed user
information; production sharing, which allows lawyers to securely
and easily send legal productions to a third party; and
work-product protections which allows users to keep work
confidential from document viewers.
First Quarter and Full Year 2024 Financial Outlook
As of February 22, 2024, DISCO is issuing the following outlook
for the first quarter of 2024 and fiscal year 2024:
First quarter of 2024:
- Software revenue in the range of $29.5 - $30.5 million.
- Total revenue in the range of $34.5 - $36.5 million.
- Adjusted EBITDA in the range of ($8.0) - ($6.0) million.
Fiscal year 2024:
- Software revenue in the range of $120.0 - $127.0 million.
- Total revenue in the range of $143.0 - $155.0 million.
- Adjusted EBITDA in the range of ($26.0) - ($19.0) million.
DISCO’s first quarter and fiscal year 2024 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, February 22, 2024, to discuss its fourth
quarter and fiscal year 2023 financial results and business
highlights. The conference call can be accessed by dialing (888)
596-4144 from the United States or +1 (646) 968-2525
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 Thursday, March 14, 2024, a telephone replay will be
available by dialing (800) 770-2030 from the United States, +1
(609) 800-9909 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 cloud-native, artificial
intelligence-powered legal product offerings that simplify legal
hold, legal request, ediscovery, legal document review and case
management for enterprises, law firms, legal services providers and
governments. Our scalable, integrated product offerings enable
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; acquisition revaluation
expense; expenses associated with stockholder litigation; 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, acquisition
revaluation expense, expenses associated with stockholder
litigation, 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. 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
product offerings are 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
product offerings; (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 fluctuating interest rates;
and (xvi) the impact that global events, such as the Russia-Ukraine
and Israel-Hamas wars 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 September 30, 2023, filed
with the SEC on November 9, 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 Annual Report on
Form 10-K for the year ended December 31, 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)
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
159,551
$
203,244
Accounts receivable, net
26,993
22,720
Other current assets
5,795
5,576
Total current assets
192,339
231,540
Property and equipment, net
9,663
7,507
Operating lease right-of-use assets
8,143
9,824
Primary law intangible asset, net
14,000
—
Other intangible assets, net
681
962
Goodwill
5,898
5,898
Other assets
823
591
Total assets
$
231,547
$
256,322
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
5,234
$
8,485
Accrued expenses
5,502
4,705
Accrued salary and benefits
6,230
3,536
Deferred revenue
4,285
4,100
Operating leases
1,826
1,902
Finance leases
41
39
Total current liabilities
23,118
22,767
Operating leases, non-current
7,136
8,770
Finance leases, non-current
158
199
Other liabilities
800
950
Total liabilities
31,212
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
December 31, 2023 and 2022
—
—
Common stock $0.005 par value, 1,000,000
shares authorized as of December 31, 2023 and 2022; 61,010 and
59,190 shares issued and outstanding as of December 31, 2023 and
2022, respectively
306
296
Additional paid-in capital
440,408
421,569
Accumulated deficit
(240,379
)
(198,229
)
Total stockholders’ equity
200,335
223,636
Total liabilities and stockholders’
equity
$
231,547
$
256,322
CS DISCO, INC.
Consolidated Statements of
Operations and Comprehensive Loss
(in thousands, except per
share amounts)
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Revenue
$
35,742
$
32,537
$
138,090
$
135,190
Cost of revenue
8,693
8,071
34,948
34,163
Gross profit
27,049
24,466
103,142
101,027
Operating expenses:
Research and development
10,528
16,065
51,623
59,258
Sales and marketing
14,311
18,178
68,132
72,839
General and administrative
9,887
10,248
33,232
40,738
Total operating expenses
34,726
44,491
152,987
172,835
Loss from operations
(7,677
)
(20,025
)
(49,845
)
(71,808
)
Other income (expense)
Interest and other income
2,039
1,279
8,306
1,702
Interest and other expense
80
134
(168
)
(473
)
Loss from operations before income
taxes
(5,558
)
(18,612
)
(41,707
)
(70,579
)
Income tax provision
(282
)
(75
)
(443
)
(186
)
Net loss attributable to common
stockholders
$
(5,840
)
$
(18,687
)
$
(42,150
)
$
(70,765
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.10
)
$
(0.32
)
$
(0.70
)
$
(1.20
)
Weighted average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
60,810
59,096
60,139
58,753
CS DISCO, INC.
Consolidated Statements of
Cash Flows
(in thousands)
Year Ended
December 31,
2023
2022
Cash flow from operating activities:
Net loss
$
(42,150
)
$
(70,765
)
Adjustments to reconcile net loss to cash
used in operations:
Depreciation and amortization
4,159
2,974
Stock-based compensation
16,158
21,737
Charge to allowance for credit losses
2,432
1,294
Loss (gain) on disposal of long-lived
assets
41
(1
)
Unoccupied lease charges
—
1,127
Remeasurement of contingent
consideration
500
540
Non-cash operating lease costs
1,681
1,452
Changes in operating assets and
liabilities:
Accounts receivable
(6,705
)
(3,274
)
Other current assets
(310
)
(989
)
Other long-term assets
(226
)
(237
)
Accounts payable
(4,091
)
3,186
Accrued expenses and other
4,226
(4,199
)
Deferred revenue
185
1,621
Operating lease liabilities
(1,710
)
(614
)
Other liabilities
279
134
Net cash used in operating activities
(25,531
)
(46,014
)
Cash flow from investing activities:
Purchases of property, equipment and
capitalized internal-use software development costs
(4,859
)
(4,378
)
Purchase of primary law intangible
asset
(14,000
)
—
Proceeds from disposal of equipment
4
—
Cash paid for acquisitions
(1,180
)
(5,310
)
Net cash used in investing activities
(20,035
)
(9,688
)
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
543
4,059
Net proceeds from issuance of common stock
under Employee Stock Purchase Plan
1,459
—
Repurchase of common stock related to net
share settlement
(89
)
(264
)
Principal payments on finance lease
obligations
(40
)
(42
)
Net cash provided by financing
activities
1,873
3,469
Net increase (decrease) in cash and cash
equivalents:
(43,693
)
(52,233
)
Cash and cash equivalents at beginning of
period
203,244
255,477
Cash and cash equivalents at end of
period
$
159,551
$
203,244
CS DISCO, INC.
Consolidated Statements of
Cash Flows (continued)
(in thousands)
Year Ended
December 31,
2023
2022
Supplemental disclosure:
Cash paid for taxes
$
766
$
397
Non-cash investing and financing
activities:
Property and equipment included in
accounts payable and accrued liabilities
$
448
$
240
Acquisition holdback
$
—
$
800
Contingent consideration related to
acquisition
$
481
$
1,133
CS DISCO, INC.
Reconciliation from GAAP to
Non-GAAP Results
(in thousands, except for
percentages and per share amounts)
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Net loss
$
(5,840
)
$
(18,687
)
$
(42,150
)
$
(70,765
)
Depreciation and amortization expense
1,148
895
4,159
2,974
Income tax provision
282
75
443
186
Interest and other, net
(2,119
)
(1,413
)
(8,138
)
(1,229
)
Stock-based compensation expense
4,947
7,344
16,158
21,737
Payroll tax expense on employee stock
transactions
51
23
470
520
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
—
—
1,127
Restructuring charges
—
—
2,590
—
Acquisition revaluation expense
500
540
500
540
Expenses associated with stockholder
litigation
74
—
74
—
Adjusted EBITDA
$
(957
)
$
(11,223
)
$
(25,894
)
$
(44,524
)
Adjusted EBITDA margin
(3
)%
(34
)%
(19
)%
(33
)%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Cost of revenue
$
8,693
$
8,071
$
34,948
$
34,163
Non-GAAP adjustments:
Stock-based compensation expense
(264
)
(270
)
(1,036
)
(938
)
Non-GAAP cost of revenue
$
8,429
$
7,801
$
33,912
$
33,225
Non-GAAP gross profit
$
27,313
$
24,735
$
104,178
$
101,965
Non-GAAP gross margin
76
%
76
%
75
%
75
%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Research and development
$
10,528
$
16,065
$
51,623
$
59,258
Non-GAAP adjustments:
Stock-based compensation expense
(1,847
)
(2,652
)
(7,767
)
(8,068
)
Restructuring charges
—
—
(1,510
)
—
Non-GAAP research and development
$
8,681
$
13,413
$
42,346
$
51,190
Non-GAAP research and development as a %
of revenue
24
%
41
%
31
%
38
%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Sales and marketing
$
14,311
$
18,178
$
68,132
$
72,839
Non-GAAP adjustments:
Stock-based compensation expense
(1,338
)
(1,232
)
(5,366
)
(4,186
)
Restructuring charges
—
—
(648
)
—
Non-GAAP sales and marketing
$
12,973
$
16,946
$
62,118
$
68,653
Non-GAAP sales and marketing as a % of
revenue
36
%
52
%
45
%
51
%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
General and administrative
$
9,887
$
10,248
$
33,232
$
40,738
Non-GAAP adjustments:
Stock-based compensation expense
(1,498
)
(3,190
)
(1,989
)
(8,545
)
CEO Performance Award issuance expense
—
—
—
(386
)
Unoccupied lease expense
—
—
—
(1,127
)
Restructuring charges
—
—
(432
)
—
Acquisition revaluation expense
(500
)
(540
)
(500
)
(540
)
Expenses associated with stockholder
litigation
(74
)
—
(74
)
—
Non-GAAP general and administrative
$
7,815
$
6,518
$
30,237
$
30,140
Non-GAAP general and administrative as a %
of revenue
22
%
20
%
22
%
22
%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Loss from operations
$
(7,677
)
$
(20,025
)
$
(49,845
)
$
(71,808
)
Operating margin
(21
)%
(62
)%
(36
)%
(53
)%
Non-GAAP adjustments:
Stock-based compensation expense
4,947
7,344
16,158
21,737
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
—
—
1,127
Restructuring charges
—
—
2,590
—
Acquisition revaluation expense
500
540
500
540
Expenses associated with stockholder
litigation
74
—
74
—
Non-GAAP loss from operations
$
(2,156
)
$
(12,141
)
$
(30,523
)
$
(48,018
)
Non-GAAP operating margin
(6
)%
(37
)%
(22
)%
(36
)%
Three Months Ended
December 31,
Year Ended
December 31,
2023
2022
2023
2022
Net loss attributable to common
stockholders
$
(5,840
)
$
(18,687
)
$
(42,150
)
$
(70,765
)
Non-GAAP adjustments:
Stock-based compensation expense
4,947
7,344
16,158
21,737
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
—
—
1,127
Restructuring charges
—
—
2,590
—
Acquisition revaluation expense
500
540
500
540
Expenses associated with stockholder
litigation
74
—
74
—
Non-GAAP net loss attributable to common
stockholders
$
(319
)
$
(10,803
)
$
(22,828
)
$
(46,975
)
Non-GAAP net loss per share, basic and
diluted
$
(0.01
)
$
(0.18
)
$
(0.38
)
$
(0.80
)
Weighted average shares used to compute
basic and diluted net loss per share
60,810
59,096
60,139
58,753
Non-GAAP net loss attributable to common
stockholders as a % of revenue
(1
)%
(33
)%
(17
)%
(35
)%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240221754847/en/
Investor Relations Contact IR@csdisco.com
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