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DISCO Announces Fourth Quarter and Fiscal Year 2021 Financial Results

Fourth Quarter Total Revenue of $33.8 Million, a Year over Year Increase of 76%

CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial results for its fourth quarter and fiscal year ended December 31, 2021.

“The legal industry is recognizing that cloud-native technology and applied artificial intelligence are game changers. As we close on our first calendar year as a public company, we believe our results demonstrate that DISCO is at the forefront of the industry’s modernization,” said Kiwi Camara, Co-Founder and CEO of DISCO. “Our ability to empower our customers to achieve better legal outcomes continues to drive demand for our offerings, as law firms and corporate legal departments turn to DISCO for our product innovation, for our expertise, and to use technology to transform the practice of law.”

Fourth Quarter 2021 Financial Highlights:

  • Total revenue was $33.8 million, up 76% compared to the fourth quarter of 2020.
  • GAAP net loss was $9.1 million, compared to $3.0 million in the fourth quarter of 2020.
  • Adjusted EBITDA was ($5.3) million, compared to ($2.1) million in the fourth quarter of 2020.

Fiscal Year 2021 Financial Highlights:

  • Total revenue was $114.3 million, up 67% compared to fiscal year 2020.
  • GAAP net loss was $24.3 million, compared to $22.9 million in fiscal year 2020.
  • Adjusted EBITDA was ($16.3) million, compared to ($19.9) million in fiscal year 2020.
  • Dollar based net retention rate of 146%, compared to 127% in fiscal year 2020.

Recent Business Highlights:

  • Built In Best Places to Work 2022: DISCO was recognized in the categories of Austin Best Places to Work, Austin Best Midsize Companies to Work For and Austin Best Paying Companies by Built In Austin.
  • Greater Austin Business Awards 2021: Kiwi Camara, CEO of DISCO, was awarded a CEO Award from the Greater Austin Chamber of Commerce.

First Quarter and Full Year 2022 Financial Outlook

As of February 24, 2022, DISCO is issuing the following outlook for the first quarter of 2022 and fiscal year 2022:

First quarter of 2022:

  • Revenue in the range of $30.0 - $31.0 million, representing year-over-year growth between 42% and 47%.
  • Adjusted EBITDA in the range of ($12.5) - ($11.5) million.

Fiscal year 2022:

  • Revenue in the range of $146.8 - $150.8 million, representing year-over-year growth between 28% and 32%.
  • Adjusted EBITDA in the range of ($51.5) - ($43.5) million.

DISCO’s first quarter and fiscal year 2022 financial outlook is based on a number of assumptions that are subject to change and many of which are outside of our control. If actual results vary from these assumptions, our expectations may change. There can be no assurance that we will achieve these results.

Reconciliation of Adjusted EBITDA on a forward-looking basis to 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 our stock price. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our 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 24, 2022, to discuss its fourth quarter and fiscal year 2021 financial results and business highlights. The conference call can be accessed by dialing (833) 989-2979 from the United States or +1 (236) 714-3974 internationally with conference ID 9399144. 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 Tuesday, March 17, 2022, a telephone replay will be available by dialing (800) 585-8367 from the United States, +1 (416) 621-4642 internationally with conference ID 9399144. 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 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, non-GAAP cost of revenue; non-GAAP gross profit; non-GAAP gross margin; non-GAAP research and development expense; non-GAAP sales and marketing expense; non-GAAP general and administrative expense; non-GAAP loss from operations; non-GAAP net loss attributable to common stockholders and non-GAAP net loss attributable to common stockholders per share (basic and diluted). 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, DISCO adjusts net loss for such items as depreciation and amortization expense; provision for income taxes; interest and other, net; stock-based compensation expense; payroll tax expense on employee stock transactions; refund of sales and use taxes related to sales tax in prior periods and other one-time, non-recurring items, when applicable. In the case of non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, and non-GAAP operating expenses (research and development expense, sales and marketing, general and administrative), DISCO adjusts the respective GAAP balances for stock-based compensation expense. In the case of non-GAAP loss from operations, non-GAAP net loss attributable to common stockholders, and non-GAAP net loss attributable to common stockholders per share, DISCO adjusts the respective GAAP balances for stock-based compensation expense and refund of sales and use taxes related to sales tax in prior periods.

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 our board of directors concerning DISCO's 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 ability to pursue strategic acquisitions and strategic investments to expand the functionality and value of our solution; (xi) 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; (xii) 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; (xiii) our ability to compete effectively with existing competitors and new market entrants; (xiv) general market, political, economic, and business conditions; and (xv) the impact that the ongoing COVID-19 pandemic 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 quarterly period ended September 30, 2021, filed with the SEC on November 10, 2021. 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, 2021.

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)

 

 

December 31,

 

 

2021

 

 

 

2020

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

255,477

 

 

$

58,569

 

Accounts receivable, net

 

20,740

 

 

 

12,912

 

Other current assets

 

4,634

 

 

 

1,364

 

Total current assets

 

280,851

 

 

 

72,845

 

Property and equipment, net

 

5,335

 

 

 

3,873

 

Operating lease right-of-use assets

 

864

 

 

 

1,850

 

Other assets

 

351

 

 

 

539

 

Total assets

$

287,401

 

 

$

79,107

 

Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

4,686

 

 

$

3,588

 

Accrued expenses

 

2,844

 

 

 

641

 

Accrued salary and benefits

 

7,955

 

 

 

5,240

 

Deferred revenue

 

2,175

 

 

 

1,642

 

Operating leases

 

890

 

 

 

1,018

 

Finance lease

 

99

 

 

 

112

 

Total current liabilities

 

18,649

 

 

 

12,241

 

Operating lease, non-current

 

 

 

 

890

 

Finance lease, non-current

 

 

 

 

99

 

Other liabilities, non-current

 

75

 

 

 

 

Total liabilities

 

18,724

 

 

 

13,230

 

Commitments and contingencies

 

 

 

Redeemable convertible preferred stock $0.005 par value, issuable in Series A-F no shares and 178,967 shares authorized as of December 31, 2021 and 2020, respectively; no shares and 35,793 shares issued and outstanding as of December 31, 2021 and 2020, respectively; no aggregate liquidation preference as of December 31, 2021 and $161,134 aggregate liquidation preference as of December 31, 2020

 

 

 

 

160,800

 

Stockholders’ equity (deficit)

 

 

 

Preferred stock $0.005 par value, 100,000 and no shares authorized, as of December 31, 2021 and 2020, respectively; no shares issued and outstanding as of December 31, 2021 and 2020

 

 

 

 

 

Common stock $0.005 par value, 1,000,000 and 277,406 shares authorized as of December 31, 2021 and 2020, respectively; 58,010 and 13,533 shares issued and outstanding as of December 31, 2021 and 2020, respectively

 

291

 

 

 

68

 

Additional paid-in capital

 

395,850

 

 

 

8,129

 

Accumulated deficit

 

(127,464

)

 

 

(103,120

)

Total stockholders’ equity (deficit)

 

268,677

 

 

 

(94,923

)

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

$

287,401

 

 

$

79,107

 

CS DISCO, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Revenue

$

33,810

 

 

$

19,186

 

 

$

114,342

 

 

$

68,444

 

Cost of revenue

 

8,786

 

 

 

5,347

 

 

 

31,098

 

 

 

20,449

 

Gross profit

 

25,024

 

 

 

13,839

 

 

 

83,244

 

 

 

47,995

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

10,639

 

 

 

5,954

 

 

 

34,414

 

 

 

26,599

 

Sales and marketing

 

15,169

 

 

 

7,387

 

 

 

47,045

 

 

 

31,061

 

General and administrative

 

8,163

 

 

 

3,461

 

 

 

25,614

 

 

 

13,893

 

Refund of sales and use taxes

 

 

 

 

 

 

 

 

 

 

(1,057

)

Total operating expenses

 

33,971

 

 

 

16,802

 

 

 

107,073

 

 

 

70,496

 

Loss from operations

 

(8,947

)

 

 

(2,963

)

 

 

(23,829

)

 

 

(22,501

)

Other income (expense)

 

 

 

 

 

 

 

Interest and other income

 

32

 

 

 

22

 

 

 

106

 

 

 

155

 

Interest and other expense

 

(222

)

 

 

(37

)

 

 

(540

)

 

 

(456

)

Loss from operations before income taxes

 

(9,137

)

 

 

(2,978

)

 

 

(24,263

)

 

 

(22,802

)

Income tax provision

 

29

 

 

 

(13

)

 

 

(81

)

 

 

(71

)

Net loss

$

(9,108

)

 

$

(2,991

)

 

$

(24,344

)

 

$

(22,873

)

Less accretion of redeemable convertible preferred stock

 

 

(23

)

 

(56

)

 

(92

)

Net loss attributable to common stockholders

$

(9,108

)

 

$

(3,014

)

 

$

(24,400

)

 

$

(22,965

)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.16

)

 

$

(0.23

)

 

$

(0.73

)

 

$

(1.74

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

57,451

 

 

 

13,281

 

 

 

33,208

 

 

 

13,171

 

CS DISCO, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

Cash flow from operating activities:

 

 

 

Net loss

$

(24,344

)

 

$

(22,873

)

Adjustments to reconcile net loss to cash used in operations:

 

 

 

Depreciation and amortization

 

1,674

 

 

 

1,624

 

Stock-based compensation

 

5,603

 

 

 

1,993

 

Charge to allowance for credit losses

 

833

 

 

 

451

 

Loss (Gain) on disposal of long-lived assets

 

(1

)

 

 

6

 

Non-cash operating lease costs

 

986

 

 

 

1,337

 

Non-cash interest

 

240

 

 

 

70

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(8,662

)

 

 

(6,001

)

Other current assets

 

(3,168

)

 

 

(24

)

Other long-term assets

 

(24

)

 

 

31

 

Accounts payable

 

1,091

 

 

 

(397

)

Accrued expenses and other

 

4,615

 

 

 

2,263

 

Deferred revenue

 

533

 

 

 

224

 

Operating lease liabilities

 

(1,018

)

 

 

(1,416

)

Net cash used in operating activities

 

(21,642

)

 

 

(22,712

)

Cash flow from investing activities:

 

 

 

Purchases of property, equipment and capitalized internal-use software development costs

 

(3,107

)

 

 

(1,904

)

Net cash used in investing activities

 

(3,107

)

 

 

(1,904

)

Cash flow from financing activities:

 

 

 

Debt issuance costs

 

 

 

 

(176

)

Proceeds from debt

 

 

 

 

23,302

 

Repayment of debt

 

 

 

 

(23,302

)

Proceeds from public offering, net of underwriting discounts and commissions and other offering costs

 

219,811

 

 

 

 

Proceeds from exercise of stock options

 

2,288

 

 

 

447

 

Proceeds from exercise of warrants

 

146

 

 

 

 

Net proceeds from the issuance of redeemable convertible preferred stock

 

 

 

 

59,934

 

Repurchase of common stock related to net share settlement

 

(476

)

 

 

(138

)

Principal payments on finance lease obligations

 

(112

)

 

 

(106

)

Net cash provided by financing activities

 

221,657

 

 

 

59,961

 

Net increase in cash:

 

196,908

 

 

 

35,345

 

Cash & cash equivalents at beginning of period

 

58,569

 

 

 

23,224

 

Cash & cash equivalents at end of period

$

255,477

 

 

$

58,569

 

Supplemental disclosure:

 

 

 

Cash paid for interest

$

105

 

 

$

365

 

Cash paid for taxes

$

97

 

 

 $

87

 

Non-cash investing and financing activities:

 

 

 

Accretion of preferred stock to redemption value

$

56

 

 

$

92

 

Conversion of preferred stock to common stock upon initial public offering

 $

160,856

 

 

 $

 

Costs related to initial public offering included in accounts payable and accrued liabilities

 $

284

 

 

 $

 

 

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,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Net loss

$

(9,108

)

 

$

(2,991

)

 

$

(24,344

)

 

$

(22,873

)

Depreciation and amortization expense

 

420

 

 

 

410

 

 

 

1,674

 

 

 

1,624

 

Provision for income taxes

 

(29

)

 

 

13

 

 

 

81

 

 

 

71

 

Interest and other, net

 

190

 

 

 

15

 

 

 

434

 

 

 

301

 

Stock-based compensation expense

 

3,095

 

 

 

495

 

 

 

5,603

 

 

 

1,993

 

Payroll tax expense on employee stock transactions

 

160

 

 

 

6

 

 

 

264

 

 

 

20

 

Refund of sales and use taxes

 

 

 

 

 

 

 

 

 

 

(1,057

)

Adjusted EBITDA

$

(5,272

)

 

$

(2,052

)

 

$

(16,288

)

 

$

(19,921

)

Adjusted EBITDA margin

 

(16

) %

 

 

(11

) %

 

 

(14

) %

 

 

(29

) %

 

 

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Cost of revenue

$

8,786

 

 

$

5,347

 

 

$

31,098

 

 

$

20,449

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

(29

)

 

 

(8

)

 

 

(57

)

 

 

(28

)

Non-GAAP cost of revenue

$

8,757

 

 

$

5,339

 

 

$

31,041

 

 

$

20,421

 

Non-GAAP gross profit

$

25,053

 

 

$

13,847

 

 

$

83,301

 

 

$

48,023

 

Non-GAAP gross margin

 

74

%

 

 

72

%

 

 

73

%

 

 

70

%

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Research and development

$

10,639

 

 

$

5,954

 

 

$

34,414

 

 

$

26,599

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

(1,294

)

 

 

(208

)

 

 

(2,081

)

 

 

(864

)

Non-GAAP research and development

$

9,345

 

 

$

5,746

 

 

$

32,333

 

 

$

25,735

 

Non-GAAP research and development as a % of revenue

 

28

%

 

 

30

%

 

 

28

%

 

 

38

%

 

 

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Sales and marketing

$

15,169

 

 

$

7,387

 

 

$

47,045

 

 

$

31,061

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

(695

)

 

 

(88

)

 

 

(1,258

)

 

 

(335

)

Non-GAAP sales and marketing

$

14,474

 

 

$

7,299

 

 

$

45,787

 

 

$

30,726

 

Non-GAAP sales and marketing as a % of revenue

 

43

%

 

 

38

%

 

 

40

%

 

 

45

%

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

General and administrative

$

8,163

 

 

$

3,461

 

 

$

25,614

 

 

$

13,893

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

(1,077

)

 

 

(191

)

 

 

(2,207

)

 

 

(766

)

Non-GAAP general and administrative

$

7,086

 

 

$

3,270

 

 

$

23,407

 

 

$

13,127

 

Non-GAAP general and administrative as a % of revenue

 

21

%

 

 

17

%

 

 

20

%

 

 

19

%

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Loss from operations

$

(8,947

)

 

$

(2,963

)

 

$

(23,829

)

 

$

(22,501

)

Operating margin

 

(26

) %

 

 

(15

) %

 

 

(21

) %

 

 

(33

) %

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

3,095

 

 

 

495

 

 

 

5,603

 

 

 

1,993

 

Refund of sales and use taxes

 

 

 

 

 

 

 

 

 

 

(1,057

)

Non-GAAP loss from operations

$

(5,852

)

 

$

(2,468

)

 

$

(18,226

)

 

$

(21,565

)

Non-GAAP operating margin

 

(17

) %

 

 

(13

) %

 

 

(16

) %

 

 

(32

) %

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Net loss attributable to common stockholders

$

(9,108

)

 

$

(3,014

)

 

$

(24,400

)

 

$

(22,965

)

Non-GAAP adjustments:

 

 

 

 

 

 

 

Stock-based compensation expense

 

3,095

 

 

 

495

 

 

 

5,603

 

 

 

1,993

 

Refund of sales and use taxes

 

 

 

 

 

 

 

 

 

 

(1,057

)

Non-GAAP net loss attributable to common stockholders

$

(6,013

)

 

$

(2,519

)

 

$

(18,797

)

 

$

(22,029

)

Non-GAAP net loss per share

$

(0.10

)

 

$

(0.19

)

 

$

(0.57

)

 

$

(1.67

)

Weighted average shares used to compute basic and diluted net loss per share

 

57,451

 

 

 

13,281

 

 

 

33,208

 

 

 

13,171

 

Non-GAAP income attributable to common stockholders as a % of revenue

 

(18

) %

 

 

(13

) %

 

 

(16

) %

 

 

(32

) %

 

Contacts

Investor Relations Contact

Lee Robinson

DISCO Investor Relations

IR@csdisco.com

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