Total Revenue of $35.6 Million, A Year over
Year Increase of 7%
CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial
results for its first quarter ended March 31, 2024.
“We are happy to announce that this quarter we saw our fourth
consecutive quarter of year-over-year revenue growth as well as the
launch of new core platform and Cecilia AI features,” said Scott
Hill, Incoming Chair of the Board of Directors and former Chief
Executive Officer. “We are also excited to introduce Eric
Friedrichsen as the CEO of DISCO. Eric’s deep operational
background in sales and product, combined with a history of scaling
software businesses and building organizations with strong
cultures, makes him uniquely positioned to lead DISCO into the next
stage.”
First Quarter 2024 Financial Highlights:
- Software revenue was $29.9 million, up 9% compared to the first
quarter of 2023.
- Total revenue was $35.6 million, up 7% compared to the first
quarter of 2023.
- GAAP net loss was $10.6 million, compared to $20.4 million in
the first quarter of 2023.
- Adjusted EBITDA was ($5.2) million, compared to ($13.0) million
in the first quarter of 2023.
Recent Business Highlights:
- New CEO: DISCO appointed Eric Friedrichsen as the new
CEO of DISCO, beginning April 29, 2024.
- Customer Count: DISCO grew to 1,442 customers as of
March 31, 2024, a 4% increase compared to March 31, 2023.
- Cecilia Deposition Summaries: DISCO unveiled Cecilia
Deposition Summaries, an advanced tool that gives lawyers fast
analysis of witness testimony.
Second Quarter and Full Year 2024 Financial Outlook
As of May 9, 2024, DISCO is issuing the following outlook for
the second quarter of 2024 and fiscal year 2024:
Second quarter of 2024:
- Software revenue in the range of $29.0 - $30.0 million.
- Total revenue in the range of $34.5 - $36.5 million.
- Adjusted EBITDA in the range of ($7.5) - ($5.5) million.
Fiscal year 2024:
- Software revenue guidance in the range of $120.0 - $124.0
million.
- Total revenue guidance in the range of $143.0 - $151.0
million.
- Adjusted EBITDA in the range of ($26.0) - ($19.0) million.
DISCO’s second 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, May 9, 2024, to discuss its first quarter
2024 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 Thursday, May 30, 2024, a telephone replay will be
available by dialing (800) 770-2030 from the United States or +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; restructuring charges; 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,
restructuring charges, 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 Annual
Report on Form 10-K for the year ended December 31, 2023, filed
with the SEC on February 22, 2024. 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 March 31, 2024.
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.
Condensed Consolidated Balance
Sheets
(in thousands, except par
value amounts)
(unaudited)
March 31,
2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
148,679
$
159,551
Accounts receivable, net
24,501
26,993
Prepaid expenses and other current
assets
5,388
5,795
Total current assets
178,568
192,339
Property and equipment, net
9,518
9,663
Operating lease right-of-use assets
7,878
8,143
Primary law intangible asset, net
14,000
14,000
Other intangible assets, net
610
681
Goodwill
5,898
5,898
Other assets
804
823
Total assets
$
217,276
$
231,547
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
1,995
$
5,234
Accrued expenses
6,341
5,502
Accrued salary and benefits
3,134
6,230
Deferred revenue
3,501
4,285
Operating leases
1,983
1,826
Finance leases
41
41
Total current liabilities
16,995
23,118
Operating leases, non-current
6,702
7,136
Finance leases, non-current
148
158
Other liabilities
278
800
Total liabilities
24,123
31,212
Commitments and contingencies
Stockholders’ equity
Preferred stock $0.005 par value, 100,000
shares authorized and no shares issued and outstanding as of March
31, 2024 and December 31, 2023
—
—
Common stock $0.005 par value, 1,000,000
shares authorized as of March 31, 2024 and December 31, 2023;
61,101 and 61,010 shares issued and outstanding as of March 31,
2024 and December 31, 2023, respectively
306
306
Additional paid-in capital
444,040
440,408
Accumulated deficit
(251,193
)
(240,379
)
Total stockholders’ equity
193,153
200,335
Total liabilities and stockholders’
equity
$
217,276
$
231,547
CS DISCO, INC.
Condensed Consolidated
Statements of Operations and Comprehensive Loss
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
March 31,
2024
2023
Revenue
$
35,571
$
33,129
Cost of revenue
8,852
8,277
Gross profit
26,719
24,852
Operating expenses:
Research and development
12,079
15,772
Sales and marketing
15,808
19,060
General and administrative
11,164
12,300
Total operating expenses
39,051
47,132
Loss from operations
(12,332
)
(22,280
)
Other income (expense)
Interest and other income
1,986
1,947
Interest and other expense
(150
)
8
Loss from operations before income
taxes
(10,496
)
(20,325
)
Income tax provision
(86
)
(40
)
Net loss attributable to common
stockholders
$
(10,582
)
$
(20,365
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.17
)
$
(0.34
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
61,188
59,410
CS DISCO, INC.
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
2024
2023
Cash flow from operating activities:
Net loss
$
(10,582
)
$
(20,365
)
Adjustments to reconcile net loss to cash
used in operations:
Depreciation and amortization
1,075
952
Stock-based compensation
5,673
7,224
Charge to allowance for credit losses
564
831
Non-cash operating lease costs
265
218
Changes in operating assets and
liabilities:
Accounts receivable
1,927
(1,963
)
Prepaid expenses and other current
assets
409
676
Other long-term assets
17
(124
)
Accounts payable
(2,838
)
(1,765
)
Accrued expenses and other
(2,738
)
(248
)
Deferred revenue
(784
)
69
Operating lease liabilities
(278
)
(242
)
Other liabilities
(40
)
(15
)
Net cash used in operating activities
(7,330
)
(14,752
)
Cash flow from investing activities:
Purchases of property, equipment and
capitalized software development costs
(688
)
(844
)
Cash paid for acquisitions
—
(1,180
)
Net cash used in investing activities
(688
)
(2,024
)
Cash flow from financing activities:
Proceeds from exercise of stock
options
10
260
Net proceeds from issuance of common stock
under Employee Stock Purchase Plan
360
932
Repurchase of common stock related to net
share settlement
(39
)
(15
)
Repurchase of common stock related to
share repurchase program
(2,718
)
—
Cash Paid for acquisitions
(457
)
—
Principal payments on finance lease
obligations
(10
)
(10
)
Net cash provided by (used in) financing
activities
(2,854
)
1,167
Net decrease in cash and cash
equivalents:
(10,872
)
(15,609
)
Cash and cash equivalents at beginning of
period
159,551
203,244
Cash and cash equivalents at end of
period
$
148,679
$
187,635
Supplemental disclosure:
Cash paid for taxes
$
198
$
125
Non-cash investing and financing
activities:
Property and equipment included in
accounts payable and accrued liabilities
$
56
$
204
Contingent consideration related to
acquisition
$
481
$
753
CS DISCO, INC.
Reconciliation from GAAP to
Non-GAAP Results
(in thousands, except for
percentages and per share amounts)
(unaudited)
Three Months Ended
March 31,
2024
2023
Net loss
$
(10,582
)
$
(20,365
)
Depreciation and amortization expense
1,075
952
Income tax provision
86
40
Interest and other, net
(1,836
)
(1,955
)
Stock-based compensation expense
5,673
7,224
Payroll tax expense on employee stock
transactions
193
110
Restructuring charges
—
1,016
Expenses associated with stockholder
litigation
199
—
Adjusted EBITDA
$
(5,192
)
$
(12,978
)
Adjusted EBITDA margin
(15
)%
(39
)%
Three Months Ended
March 31,
2024
2023
Cost of revenue
$
8,852
$
8,277
Non-GAAP adjustments:
Stock-based compensation expense
(385
)
(231
)
Non-GAAP cost of revenue
$
8,467
$
8,046
Non-GAAP gross profit
$
27,104
$
25,083
Non-GAAP gross margin
76
%
76
%
Three Months Ended
March 31,
2024
2023
Research and development
$
12,079
$
15,772
Non-GAAP adjustments:
Stock-based compensation expense
(2,092
)
(2,190
)
Restructuring charges
—
(509
)
Non-GAAP research and development
$
9,987
$
13,073
Non-GAAP research and development as a %
of revenue
28
%
39
%
Three Months Ended
March 31,
2024
2023
Sales and marketing
$
15,808
$
19,060
Non-GAAP adjustments:
Stock-based compensation expense
(1,080
)
(1,391
)
Restructuring charges
—
(177
)
Non-GAAP sales and marketing
$
14,728
$
17,492
Non-GAAP sales and marketing as a % of
revenue
41
%
53
%
Three Months Ended
March 31,
2024
2023
General and administrative
$
11,164
$
12,300
Non-GAAP adjustments:
Stock-based compensation expense
(2,116
)
(3,412
)
Restructuring charges
—
(330
)
Expenses associated with stockholder
litigation
(199
)
—
Non-GAAP general and administrative
$
8,849
$
8,558
Non-GAAP general and administrative as a %
of revenue
25
%
26
%
Three Months Ended
March 31,
2024
2023
Loss from operations
$
(12,332
)
$
(22,280
)
Operating margin
(35
)%
(67
)%
Non-GAAP adjustments:
Stock-based compensation expense
5,673
7,224
Restructuring charges
—
1,016
Expenses associated with stockholder
litigation
199
—
Non-GAAP loss from operations
$
(6,460
)
$
(14,040
)
Non-GAAP operating margin
(18
)%
(42
)%
Three Months Ended
March 31,
2024
2023
Net loss attributable to common
stockholders
$
(10,582
)
$
(20,365
)
Non-GAAP adjustments:
Stock-based compensation expense
5,673
7,224
Restructuring charges
—
1,016
Expenses associated with stockholder
litigation
199
—
Non-GAAP net loss attributable to common
stockholders
$
(4,710
)
$
(12,125
)
Non-GAAP net loss per share, basic and
diluted
$
(0.08
)
$
(0.20
)
Weighted average shares used to compute
basic and diluted net loss per share
61,188
59,410
Non-GAAP net loss attributable to common
stockholders as a % of revenue
(13
)%
(37
)%
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Investor Relations Contact IR@csdisco.com
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