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DISCO Announces First Quarter 2024 Financial Results

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 quart...

Business Wire

Total Revenue of $35.6 Million, A Year over Year Increase of 7%

AUSTIN, Texas: 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

 

 

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