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DISCO Announces First Quarter 2022 Financial Results

Total Revenue of $34.5 Million, a Year over Year Increase of 63%

CS Disco, Inc. (“DISCO”) (NYSE: LAW) today announced financial results for its first quarter ended March 31, 2022.

“This quarter marked a milestone for DISCO with our first acquisition, bringing legal hold workflow technologies into our product portfolio and meeting our customers’ demand to continue to deliver solutions beyond ediscovery,” said Kiwi Camara, Co-Founder and CEO of DISCO. “In addition, our impressive results and growth continue to demonstrate how the market is embracing the shift from on-premise software to cloud software, the shift away from services to software-based solutions, and the adoption of artificial intelligence to improve legal outcomes.”

First Quarter 2022 Financial Highlights:

  • Total revenue was $34.5 million, up 63% compared to the first quarter of 2021.
  • GAAP net loss was $11.8 million, compared to $2.9 million in the first quarter of 2021.
  • Adjusted EBITDA was ($7.8) million, compared to ($1.9) million in the first quarter of 2021.

Recent Business Highlights:

  • Legal Hold Acquisition: DISCO acquired legal hold workflow solutions from Congruity360, LLC in exchange for cash and contingent consideration. These critical legal workflow capabilities will integrate with DISCO’s market-leading cloud-based ediscovery platform and provide a modern, digital solution for legal hold obligations and legal request compliance.
  • Early Matters Greater Austin: DISCO was selected as a Best Place for Working Parents in Austin by Early Matters Greater Austin.

First Quarter and Full Year 2022 Financial Outlook

As of May 12, 2022, DISCO is issuing the following outlook for the second quarter of 2022 and fiscal year 2022:

Second quarter of 2022:

  • Revenue in the range of $32.0 - $34.0 million, representing year-over-year growth between 8% and 15%.
  • Adjusted EBITDA in the range of ($17.0) - ($15.0) million.

Fiscal year 2022:

  • Revenue in the range of $149.0 - $153.0 million, representing year-over-year growth between 30% and 34%.
  • Adjusted EBITDA in the range of ($51.5) - ($43.5) million.

DISCO’s second 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, May 12, 2022, to discuss its first quarter 2022 financial results and business highlights. The conference call can be accessed by dialing (888) 550-5431 from the United States or +1 (646) 960-0807 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, June 2, 2022, 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 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; income tax provision; interest and other, net; stock-based compensation expense; payroll tax expense on employee stock transactions 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, non-GAAP operating expenses (research and development expense, sales and marketing, general and administrative), 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.

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 and the integration of acquired technology assets. 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 global events, such as the ongoing COVID-19 pandemic, including variants of COVID-19, or other public health crises, and the Russian military operations in Ukraine, 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, 2021, filed with the SEC on February 25, 2022, as amended on April 29, 2022. 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, 2022.

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,

2022

 

December 31,

2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

238,576

 

 

$

255,477

 

Accounts receivable, net

 

24,930

 

 

 

20,740

 

Other current assets

 

3,662

 

 

 

4,634

 

Total current assets

 

267,168

 

 

 

280,851

 

Property and equipment, net

 

5,848

 

 

 

5,335

 

Operating lease right-of-use assets

 

609

 

 

 

864

 

Intangible assets, net

 

1,173

 

 

 

 

Goodwill

 

5,898

 

 

 

 

Other assets

 

384

 

 

 

351

 

Total assets

$

281,080

 

 

$

287,401

 

Liabilities, redeemable convertible preferred stock, and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

7,545

 

 

$

4,686

 

Accrued expenses

 

3,816

 

 

 

2,844

 

Accrued salary and benefits

 

4,503

 

 

 

7,955

 

Deferred revenue

 

3,035

 

 

 

2,175

 

Operating leases

 

627

 

 

 

890

 

Finance lease

 

70

 

 

 

99

 

Total current liabilities

 

19,596

 

 

 

18,649

 

Other liabilities

 

653

 

 

 

75

 

Total liabilities

 

20,249

 

 

 

18,724

 

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, 2022 and December 31, 2021

 

 

 

 

 

Common stock $0.005 par value, 1,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 58,427 and 58,010 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

293

 

 

 

291

 

Additional paid-in capital

 

399,851

 

 

 

395,850

 

Accumulated deficit

 

(139,313

)

 

 

(127,464

)

Total stockholders’ equity

 

260,831

 

 

 

268,677

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

$

281,080

 

 

$

287,401

 

CS DISCO, INC.

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)

 

 

Three Months Ended

March 31,

 

2022

 

2021

Revenue

$

34,468

 

 

$

21,131

 

Cost of revenue

 

8,969

 

 

 

5,788

 

Gross profit

 

25,499

 

 

 

15,343

 

Operating expenses:

 

 

 

Research and development

 

12,318

 

 

 

6,262

 

Sales and marketing

 

16,419

 

 

 

7,876

 

General and administrative

 

8,519

 

 

 

4,053

 

Total operating expenses

 

37,256

 

 

 

18,191

 

Loss from operations

 

(11,757

)

 

 

(2,848

)

Other income (expense)

 

 

 

Interest and other income

 

30

 

 

 

13

 

Interest and other expense

 

(93

)

 

 

(57

)

Loss from operations before income taxes

 

(11,820

)

 

 

(2,892

)

Income tax provision

 

(29

)

 

 

(36

)

Net loss

$

(11,849

)

 

$

(2,928

)

Less accretion of redeemable convertible preferred stock

 

 

 

 

(26

)

Net loss attributable to common stockholders

$

(11,849

)

 

$

(2,954

)

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

$

(0.20

)

 

$

(0.22

)

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

 

57,972

 

 

 

13,388

 

CS DISCO, INC.

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended

March 31,

 

2022

 

2021

Cash flow from operating activities:

 

 

 

Net loss

$

(11,849

)

 

$

(2,928

)

Adjustments to reconcile net loss to cash used in operations:

 

 

 

Depreciation and amortization

 

455

 

 

 

424

 

Stock-based compensation

 

3,206

 

 

 

488

 

Charge to allowance for credit losses

 

180

 

 

 

130

 

Non-cash operating lease costs

 

255

 

 

 

242

 

Non-cash interest

 

 

 

 

21

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(4,370

)

 

 

(2,171

)

Other current assets

 

965

 

 

 

(75

)

Other long-term assets

 

(39

)

 

 

 

Accounts payable

 

2,773

 

 

 

679

 

Accrued expenses and other

 

(3,253

)

 

 

(2,167

)

Deferred revenue

 

556

 

 

 

1,110

 

Operating lease liabilities

 

(263

)

 

 

(249

)

Net cash used in operating activities

 

(11,384

)

 

 

(4,496

)

Cash flow from investing activities:

 

 

 

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

 

(631

)

 

 

(586

)

Cash paid for acquisitions

 

(5,310

)

 

 

 

Net cash used in investing activities

 

(5,941

)

 

 

(586

)

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

 

970

 

 

 

222

 

Repurchase of common stock related to net share settlement

 

(233

)

 

 

(50

)

Principal payments on finance lease obligations

 

(29

)

 

 

(27

)

Net cash provided by financing activities

 

424

 

 

 

145

 

Net increase (decrease) in cash:

 

(16,901

)

 

 

(4,937

)

Cash & cash equivalents at beginning of period

 

255,477

 

 

 

58,569

 

Cash & cash equivalents at end of period

$

238,576

 

 

$

53,632

 

Supplemental disclosure:

 

 

 

Cash paid for interest

$

 

 

$

12

 

Cash paid for taxes

$

102

 

 

$

16

 

Non-cash investing and financing activities:

 

 

 

Accretion of preferred stock to redemption value

$

 

 

$

26

 

Property and equipment included in accounts payable and accrued liabilities

$

244

 

 

$

 

Acquisition holdback

$

800

 

 

$

 

Contingent consideration related to acquisition

$

593

 

 

$

 

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,

 

2022

 

2021

Net loss

$

(11,849

)

 

$

(2,928

)

Depreciation and amortization expense

 

455

 

 

 

424

 

Income tax provision

 

29

 

 

 

36

 

Interest and other, net

 

63

 

 

 

44

 

Stock-based compensation expense

 

3,206

 

 

 

488

 

Payroll tax expense on employee stock transactions

 

275

 

 

 

4

 

Adjusted EBITDA

$

(7,821

)

 

$

(1,932

)

Adjusted EBITDA margin

 

(23

)%

 

 

(9

)%

 

 

Three Months Ended

March 31,

 

2022

 

2021

Cost of revenue

$

8,969

 

 

$

5,788

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

(160

)

 

 

(8

)

Non-GAAP cost of revenue

$

8,809

 

 

$

5,780

 

Non-GAAP gross profit

$

25,659

 

 

$

15,351

 

Non-GAAP gross margin

 

74

%

 

 

73

%

 

 

Three Months Ended

March 31,

 

2022

 

2021

Research and development

$

12,318

 

 

$

6,262

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

(1,427

)

 

 

(201

)

Non-GAAP research and development

$

10,891

 

 

$

6,061

 

Non-GAAP research and development as a % of revenue

 

32

%

 

 

29

%

 

 

Three Months Ended

March 31,

 

2022

 

2021

Sales and marketing

$

16,419

 

 

$

7,876

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

(821

)

 

 

(83

)

Non-GAAP sales and marketing

$

15,598

 

 

$

7,793

 

Non-GAAP sales and marketing as a % of revenue

 

45

%

 

 

37

%

 

 

Three Months Ended

March 31,

 

2022

 

2021

General and administrative

$

8,519

 

 

$

4,053

 

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

(798

)

 

 

(196

)

Non-GAAP general and administrative

$

7,721

 

 

$

3,857

 

Non-GAAP general and administrative as a % of revenue

 

22

%

 

 

18

%

 

 

Three Months Ended

March 31,

 

2022

 

2021

Loss from operations

$

(11,757

)

 

$

(2,848

)

Operating margin

 

(34

)%

 

 

(13

)%

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

3,206

 

 

 

488

 

Non-GAAP loss from operations

$

(8,551

)

 

$

(2,360

)

Non-GAAP operating margin

 

(25

)%

 

 

(11

)%

 

 

Three Months Ended

March 31,

 

2022

 

2021

Net loss attributable to common stockholders

$

(11,849

)

 

$

(2,928

)

Non-GAAP adjustments:

 

 

 

Stock-based compensation expense

 

3,206

 

 

 

488

 

Non-GAAP net loss attributable to common stockholders

$

(8,643

)

 

$

(2,440

)

Non-GAAP net loss per share

$

(0.15

)

 

$

(0.18

)

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

 

57,972

 

 

 

13,388

 

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

 

(25

)%

 

 

(12

)%

 

Contacts

Investor Relations

Lee Robinson

DISCO Investor Relations

IR@csdisco.com

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