Summary
CS Disco reported first-quarter revenue of $34.5 million, up 63% from the prior-year quarter. Gross profit rose 66% to $25.5 million. Gross margin was 74.0%, up 1.4 percentage points. Non-GAAP gross margin was 74%, compared with 73%. The company said about 65% of the revenue increase came from existing customers using more of its solution, while the remaining 35% came from new customers. Usage-based revenue represented 90% of total revenue, up from 87% a year earlier. Subscription revenue was 10% of total revenue, down from 13%. That shift matters because usage-based revenue can fluctuate with the number and nature of legal matters, while subscriptions provide more predictable minimum commitments. DISCO provides a cloud-native, AI-powered legal solution that simplifies ediscovery, legal document review, and case management. Its AI models continuously learn from legal work and can be reused across matters.
Profitability moved in the wrong direction. Operating loss widened to $11.8 million, and net loss widened to $11.8 million. Operating margin was negative 34.1%, down 20.6 percentage points. Diluted EPS was negative $0.20, a $0.02 narrowing of the loss per share. Adjusted EBITDA was negative $7.8 million, compared with negative $1.9 million a year earlier. The company said it expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars as it invests in growth. Sales and marketing will likely remain the largest operating expense. DISCO said it had no stock option grants in the quarter.
Operating cash flow was negative $11.4 million, down $6.9 million from the prior-year quarter. Capital expenditures were $0.6 million, up $0.04 million. Deferred revenue was $3.0 million. Remaining performance obligations were $22.1 million. In February 2022, DISCO acquired legal hold workflow solutions from Congruity360, LLC, its first acquisition. Management said the acquisition brings legal hold workflow technologies into the product portfolio and meets customer demand for solutions beyond ediscovery. The company also said it believes existing cash and cash equivalents will be sufficient to fund anticipated cash requirements for the next 12 months. DISCO operates in a single segment and sells primarily through a direct sales force. It also relies on law firms and legal services providers to drive adoption. International revenue was 5% of total revenue in the quarter. The company said it may engage in equity or debt financings to secure additional funds.
For the second quarter of 2022, DISCO guided revenue to $32.0 million to $34.0 million, representing year-over-year growth of 8% to 15%. It guided Adjusted EBITDA to negative $17.0 million to negative $15.0 million. For the full fiscal year 2022, the company guided revenue to $149.0 million to $153.0 million, representing year-over-year growth of 30% to 34%. It guided Adjusted EBITDA to negative $51.5 million to negative $43.5 million. Management listed several risks, including a history of operating losses, limited operating history, the ability to maintain and advance innovation and brand, add new customers, increase usage within existing customers, expand sales coverage, expand internationally, extend channel partnerships, expand the offering portfolio, pursue strategic acquisitions, comply with laws and regulations, protect against security breaches, compete effectively, and manage general market, political, economic, and business conditions. The company also flagged the ongoing COVID-19 pandemic, including variants, and the Russian military operations in Ukraine as factors that could affect its business. DISCO said it may pursue additional acquisitions and strategic investments that expand the functionality and value of its solution. The company said its outlook is based on assumptions that are subject to change and many of which are outside of its control.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $34.5M | $33.8M | +1.9% | — | — |
| Gross profit | $25.5M | $25.0M | +1.9% | — | — |
| Gross margin | 74.0% | 74.0% | -0.0 pp | — | — |
| Research & development | $12.3M | $10.6M | +15.8% | — | — |
| Sales & marketing | $16.4M | $15.2M | +8.2% | — | — |
| General & administrative | $8.5M | $8.2M | +4.4% | — | — |
| Total operating expenses | $37.3M | $34.0M | +9.7% | — | — |
| Operating income (loss) | -$11.8M | -$8.9M | -31.4% | — | — |
| Operating margin | -34.1% | -26.5% | -7.6 pp | — | — |
| Net income (loss) | -$11.8M | -$9.1M | -30.1% | — | — |
| Net margin | -34.4% | -26.9% | -7.4 pp | — | — |
| Diluted EPS | -$0.20 | -$0.27 | +$0.07 | — | — |
| Net retention rate | 146.0% | 146.0% | ±0.0 pp | — | — |
Risks
The company incurred a net loss of $11.8 million in FY2022 Q1, widened from a $2.9 million net loss in FY2021 Q1, and had an accumulated deficit of $139.3 million as of March 31, 2022. Operating loss also widened to $11.8 million from $2.8 million, and operating cash flow was negative $11.4 million, down from negative $4.5 million.
Usage-based revenue represented 90% of total revenue in FY2022 Q1, up from 87% in FY2021 Q1, and most customers do not have long-term contractual financial commitments and may reduce or cease usage at any time. Subscription revenue fell to 10% of total revenue from 13%.
The company derives a substantial portion of revenue from sales to its top 10% customers, and any purchasing reduction by these customers could disproportionately impact revenue.
The legal technology market is highly fragmented and competitive, with competitors including Consilio, Epiq, KLDiscovery, Deloitte, EY, KPMG, PwC, Nuix, OpenText, Relativity, RELX, Thomson Reuters, Everlaw, Logikcull and Reveal. Some competitors offer lower prices or bundle competing applications, creating pricing pressure.
Revenue grew 63% to $34.5 million in FY2022 Q1 from $21.1 million in FY2021 Q1, but the company cautions that recent rapid growth may not be indicative of future growth and its revenue growth rate may decline as the business matures and competition increases.
Sales cycles with enterprise customers can be long and unpredictable, and the company may incur significant sales and marketing expenses before generating corresponding revenue. The timing of legal matters can further extend sales cycles.
The company depends on senior management and key personnel, including Co-Founder and CEO Kiwi Camara, and faces intense competition for software developers, legal professionals and sales personnel, particularly in Austin, Texas and with remote work increasing competition.
The company relies on Amazon Web Services to host its solution and most operations, and any disruption, capacity limitation or material change in the AWS arrangement could interrupt service and harm customer relationships.
Unfavorable global economic conditions, reductions in legal spending, the ongoing COVID-19 pandemic and Russia's military operations in Ukraine could cause customers to decrease or delay legal spending or request pricing discounts.
In February 2022, the company acquired legal workflow solutions from Congruity360 for $5.3 million cash, and it may face difficulties integrating acquired technologies and diverting management attention.
The company operates in a highly regulated industry and is subject to federal, state, local and foreign laws governing the practice of law and e-discovery, and failure to comply could force changes to operations or harm the business.
The company has previously experienced material weaknesses in internal controls over financial reporting, including for the year ended December 31, 2019, and will need to comply with Section 404 for fiscal year 2022, which may require additional accounting staff and expenses.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP gross margin
Non-GAAP operating margin
Adjusted EBITDA margin
Summary, forecast, risks and KPIs are extracted from CS Disco, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.