Total Revenue of $34.9 Million, A Year over
Year Increase of 1%
CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial
results for its third quarter ended September 30, 2023.
“We are pleased with our third quarter results, which included
record-breaking revenue and a 10% year over year increase in
customer count,” said Scott Hill, Chief Executive Officer. “Among
other highlights for the quarter, we executed a licensing agreement
for all historical United States case law, statutes, regulations,
and court rulings, including regular data updates. Once integrated
into our product, this new feature will further the Company’s
ability to serve the needs of legal professionals as they transform
legal work with our leading innovations around AI and intelligent
workflow solutions. We are energized about the future and believe
that the Company is on the right strategic track in terms of our
product roadmap and growth strategy.”
Third Quarter 2023 Financial Highlights:
- Total revenue was $34.9 million, up 1% compared to the third
quarter of 2022.
- GAAP net loss was $1.0 million, compared to $20.1 million in
the third quarter of 2022.
- Adjusted EBITDA was ($4.5) million, compared to ($13.1) million
in the third quarter of 2022.
Recent Business Highlights:
- Customer Count: DISCO grew to 1,449 customers as of
September 30, 2023, a 10% increase compared to the third quarter of
2022.
- Announcement of Primary Law: DISCO announced a licensing
agreement with Fastcase, Inc. for comprehensive United States
primary law data, including all federal and state laws, regulations
and court rulings. The Company anticipates integrating primary law
into its solution to automate drafting of legal documents and
research memos, and assist lawyers in identifying potential legal
claims and defenses.
- New Product Features: DISCO released self-service
capabilities for Slack, DISCO Ediscovery Annotations, and the
Witness Management module for Case Builder.
Fourth Quarter and Full Year 2023 Financial Outlook
As of November 9, 2023, DISCO is issuing the following outlook
for the fourth quarter of 2023 and fiscal year 2023:
Fourth quarter of 2023:
- Revenue in the range of $34.0 - $36.0 million.
- Adjusted EBITDA in the range of ($7.0) - ($5.0) million.
Fiscal year 2023:
- Revenue in the range of $136.3 - $138.3 million.
- Adjusted EBITDA in the range of ($31.9) - ($29.9) million.
DISCO’s fourth 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, November 9, 2023, to discuss its third
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 Thursday, November 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 and the impact of DISCO’s new primary law
feature. 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, the Israel-Hamas war 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 June 30, 2023, filed with
the SEC on August 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 Quarterly Report on Form
10-Q for the quarter ended September 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.
Condensed Consolidated Balance
Sheets
(in thousands, except par
value amounts)
(unaudited)
September 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
157,652
$
203,244
Accounts receivable, net
27,103
22,720
Other current assets
6,292
5,576
Total current assets
191,047
231,540
Property and equipment, net
9,182
7,507
Operating lease right-of-use assets
8,637
9,824
Primary law intangible asset, net
14,000
—
Other intangible assets, net
751
962
Goodwill
5,898
5,898
Other assets
730
591
Total assets
$
230,245
$
256,322
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
6,485
$
8,485
Accrued expenses
4,161
4,705
Accrued salary and benefits
5,526
3,536
Deferred revenue
2,966
4,100
Operating leases
1,905
1,902
Finance leases
40
39
Total current liabilities
21,083
22,767
Operating leases, non-current
7,560
8,770
Finance leases, non-current
169
199
Other liabilities
389
950
Total liabilities
29,201
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
September 30, 2023 and December 31, 2022
—
—
Common stock $0.005 par value, 1,000,000
shares authorized as of September 30, 2023 and December 31, 2022;
60,619 and 59,190 shares issued and outstanding as of September 30,
2023 and December 31, 2022, respectively
304
296
Additional paid-in capital
435,279
421,569
Accumulated deficit
(234,539
)
(198,229
)
Total stockholders’ equity
201,044
223,636
Total liabilities and stockholders’
equity
$
230,245
$
256,322
CS DISCO, INC.
Condensed Consolidated
Statements of Operations and Comprehensive Loss
(in thousands, except per
share amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Revenue
$
34,943
$
34,475
$
102,348
$
102,653
Cost of revenue
8,939
8,634
26,255
26,092
Gross profit
26,004
25,841
76,093
76,561
Operating expenses:
Research and development
12,065
15,694
41,095
43,193
Sales and marketing
16,708
19,311
53,821
54,661
General and administrative
128
10,906
23,345
30,490
Total operating expenses
28,901
45,911
118,261
128,344
Loss from operations
(2,897
)
(20,070
)
(42,168
)
(51,783
)
Other income (expense)
Interest and other income
2,191
364
6,267
423
Interest and other expense
(260
)
(314
)
(248
)
(607
)
Loss from operations before income
taxes
(966
)
(20,020
)
(36,149
)
(51,967
)
Income tax provision
(64
)
(38
)
(161
)
(110
)
Net loss attributable to common
stockholders
$
(1,030
)
$
(20,058
)
$
(36,310
)
$
(52,077
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.02
)
$
(0.34
)
$
(0.61
)
$
(0.89
)
Weighted average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
60,350
58,641
59,896
58,322
CS DISCO, INC.
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2023
2022
Cash flow from operating activities:
Net loss
$
(36,310
)
$
(52,077
)
Adjustments to reconcile net loss to cash
used in operations:
Depreciation and amortization
3,011
2,079
Stock-based compensation
11,211
14,393
Charge to allowance for credit losses
1,801
853
Loss (Gain) on disposal of long-lived
assets
1
(1
)
Unoccupied lease charges
—
1,127
Non-cash operating lease costs
1,187
983
Changes in operating assets and
liabilities:
Accounts receivable
(6,184
)
(2,317
)
Other current assets
(775
)
(1,831
)
Other long-term assets
(124
)
(387
)
Accounts payable
(1,928
)
2,058
Accrued expenses and other
1,791
(1,474
)
Deferred revenue
(1,134
)
261
Operating lease liabilities
(1,207
)
(469
)
Other liabilities
(46
)
149
Net cash used in operating activities
(28,706
)
(36,653
)
Cash flow from investing activities:
Purchases of property, equipment, and
capitalized internal-use software development costs
(3,587
)
(3,727
)
Purchase of primary law intangible
asset
(14,000
)
—
Proceeds from disposal of equipment
1
—
Cash paid for acquisitions
(1,180
)
(5,310
)
Net cash used in investing activities
(18,766
)
(9,037
)
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
514
3,923
Net proceeds from issuance of common stock
under Employee Stock Purchase Plan
1,459
—
Repurchase of common stock related to net
share settlement
(64
)
(264
)
Principal payments on finance lease
obligations
(29
)
(40
)
Net cash provided by financing
activities
1,880
3,335
Net decrease in cash and cash
equivalents:
(45,592
)
(42,355
)
Cash and cash equivalents at beginning of
period
203,244
255,477
Cash and cash equivalents at end of
period
$
157,652
$
213,122
Supplemental disclosure:
Cash paid for taxes
$
500
$
280
Non-cash investing and financing
activities:
Property and equipment included in
accounts payable and accrued liabilities
$
307
$
105
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
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net loss
$
(1,030
)
$
(20,058
)
$
(36,310
)
$
(52,077
)
Depreciation and amortization expense
1,054
924
3,011
2,079
Income tax provision
64
38
161
110
Interest and other, net
(1,931
)
(50
)
(6,019
)
184
Stock-based compensation expense
(2,881
)
5,665
11,211
14,393
Payroll tax expense on employee stock
transactions
175
87
419
497
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
329
—
1,127
Restructuring charges
—
—
2,590
—
Adjusted EBITDA
$
(4,549
)
$
(13,065
)
$
(24,937
)
$
(33,301
)
Adjusted EBITDA margin
(13
)%
(38
)%
(24
)%
(32
)%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Cost of revenue
$
8,939
$
8,634
$
26,255
$
26,092
Non-GAAP adjustments:
Stock-based compensation expense
(270
)
(274
)
(772
)
(668
)
Non-GAAP cost of revenue
$
8,669
$
8,360
$
25,483
$
25,424
Non-GAAP gross profit
$
26,274
$
26,115
$
76,865
$
77,229
Non-GAAP gross margin
75
%
76
%
75
%
75
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Research and development
$
12,065
$
15,694
$
41,095
$
43,193
Non-GAAP adjustments:
Stock-based compensation expense
(2,001
)
(1,916
)
(5,920
)
(5,416
)
Restructuring charges
—
—
(1,510
)
—
Non-GAAP research and development
$
10,064
$
13,778
$
33,665
$
37,777
Non-GAAP research and development as a %
of revenue
29
%
40
%
33
%
37
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Sales and marketing
$
16,708
$
19,311
$
53,821
$
54,661
Non-GAAP adjustments:
Stock-based compensation expense
(1,277
)
(753
)
(4,028
)
(2,954
)
Restructuring charges
—
—
(648
)
—
Non-GAAP sales and marketing
$
15,431
$
18,558
$
49,145
$
51,707
Non-GAAP sales and marketing as a % of
revenue
44
%
54
%
48
%
50
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
General and administrative
$
128
$
10,906
$
23,345
$
30,490
Non-GAAP adjustments:
Stock-based compensation expense
6,429
(2,722
)
(491
)
(5,355
)
CEO Performance Award issuance expense
—
—
—
(386
)
Unoccupied lease expense
—
(329
)
—
(1,127
)
Restructuring charges
—
—
(432
)
—
Non-GAAP general and administrative
$
6,557
$
7,855
$
22,422
$
23,622
Non-GAAP general and administrative as a %
of revenue
19
%
23
%
22
%
23
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Loss from operations
$
(2,897
)
$
(20,070
)
$
(42,168
)
$
(51,783
)
Operating margin
(8
)%
(58
)%
(41
)%
(50
)%
Non-GAAP adjustments:
Stock-based compensation expense
(2,881
)
5,665
11,211
14,393
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
329
—
1,127
Restructuring charges
—
—
2,590
—
Non-GAAP loss from operations
$
(5,778
)
$
(14,076
)
$
(28,367
)
$
(35,877
)
Non-GAAP operating margin
(17
)%
(41
)%
(28
)%
(35
)%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net loss attributable to common
stockholders
$
(1,030
)
$
(20,058
)
$
(36,310
)
$
(52,077
)
Non-GAAP adjustments:
Stock-based compensation expense
(2,881
)
5,665
11,211
14,393
CEO Performance Award issuance expense
—
—
—
386
Unoccupied lease expense
—
329
—
1,127
Restructuring charges
—
—
2,590
—
Non-GAAP net loss attributable to common
stockholders
$
(3,911
)
$
(14,064
)
$
(22,509
)
$
(36,171
)
Non-GAAP net loss per share, basic and
diluted
$
(0.06
)
$
(0.24
)
$
(0.38
)
$
(0.62
)
Weighted average shares used to compute
basic and diluted net loss per share
60,350
58,641
59,896
58,322
Non-GAAP net loss attributable to common
stockholders as a % of revenue
(11
)%
(41
)%
(22
)%
(35
)%
View source
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Investor Relations IR@csdisco.com
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