Summary
CS Disco posted revenue of $35.57 million for the quarter ended March 31, 2024, up 7.4% from $33.13 million in the prior-year quarter. Software revenue rose 9% year over year, and the company called it the fourth consecutive quarter of year-over-year revenue growth. Gross profit was $26.72 million, up 7.5%, while gross margin stayed flat at 75.1% against 75.0%. GAAP net loss was $10.58 million, narrowed from $20.36 million, and diluted loss per share was $0.17, narrowed from $0.34.
The cost base did most of the work. Operating loss was $12.33 million, narrowed from $22.28 million, and operating margin moved to -34.7% from -67.3%. Adjusted EBITDA, a non-GAAP measure, was negative $5.2 million against negative $13.0 million a year earlier. Operating cash flow was negative $7.33 million, up from negative $14.75 million in the prior-year quarter. Capital expenditures fell 18.5% to $0.69 million from $0.84 million. Management attributed the lower expense levels to reduced headcount and a shift of work to lower-cost international locations.
Revenue quality is the open question. Growth came from customers added since March 31, 2023, and spending by customers that existed a year earlier declined, driven by lower usage of the product offerings by several existing accounts. DISCO bills largely on consumption, so that mix cuts both ways. Subscription contracts with committed minimum usage were 11% of revenue in the quarter and 12% a year earlier. Deferred revenue, current portion, fell 16.0% to $3.50 million from $4.17 million, while remaining performance obligations rose 7.1% to $21.20 million from $19.80 million.
The quarter also brought leadership and product change. Eric Friedrichsen became CEO on April 29, 2024, and Scott Hill, the former CEO, moved to chair of the board. DISCO grew to 1,442 customers as of March 31, 2024, a 4% increase from March 31, 2023, and unveiled Cecilia Deposition Summaries, a tool that gives lawyers fast analysis of witness testimony.
Guidance covers the second quarter of 2024 and the full fiscal year 2024. For the second quarter, the company guided to Adjusted EBITDA of negative $7.5 million to negative $5.5 million. For the full fiscal year, it guided to Adjusted EBITDA of negative $26.0 million to negative $19.0 million. It did not reconcile forward-looking Adjusted EBITDA to net loss, citing the variability of stock-based compensation and the potentially significant impact of those charges on future GAAP results.
Risks are substantial. DISCO lists its history of operating losses and limited operating history, its dependence on customer usage that swings with the timing, duration and scope of legal matters, and the shortfall of large matters on the platform. Usage-based revenue follows the start and finish of litigation and investigations, so results have fluctuated and are expected to keep doing so. Macroeconomic conditions, including inflation, rising interest rates, and the Russia-Ukraine and Israel-Hamas wars, could slow customer spending. Competition, new customer additions, sales coverage, channel partnerships and international expansion are all named as challenges, and less than 10% of revenue came from customers outside the United States in the quarter. Management expects research and development expense to rise in absolute dollars near term, says sales and marketing will stay the largest operating expense, and believes existing cash will cover requirements for the next 12 months.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $35.6M | $35.7M | -0.5% | $33.1M | +7.4% |
| Gross profit | $26.7M | $27.0M | -1.2% | $24.9M | +7.5% |
| Gross margin | 75.1% | 75.7% | -0.6 pp | 75.0% | +0.1 pp |
| Research & development | $12.1M | $10.5M | +14.7% | $15.8M | -23.4% |
| Sales & marketing | $15.8M | $14.3M | +10.5% | $19.1M | -17.1% |
| General & administrative | $11.2M | $9.9M | +12.9% | $12.3M | -9.2% |
| Total operating expenses | $39.1M | $34.7M | +12.5% | $47.1M | -17.1% |
| Operating income (loss) | -$12.3M | -$7.7M | -60.6% | -$22.3M | +44.6% |
| Operating margin | -34.7% | -21.5% | -13.2 pp | -67.3% | +32.6 pp |
| Net income (loss) | -$10.6M | -$5.8M | -81.2% | -$20.4M | +48.0% |
| Net margin | -29.8% | -16.3% | -13.4 pp | -61.5% | +31.7 pp |
| Diluted EPS | -$0.17 | -$0.70 | +$0.53 | -$0.34 | +$0.17 |
Risks
Revenue growth rate has declined from prior periods and may continue to decline. For the three months ended March 31, 2024, total revenue increased 7% to $35.6 million, but revenue from customers existing as of March 31, 2023 decreased $3.3 million, offset by $5.7 million from new customers.
A significant majority of revenue is directly correlated with customer usage, which depends on the timing of litigation, investigations, and other legal matters. Usage-based revenue represented 89% of total revenue for the three months ended March 31, 2024, and operating results have fluctuated with the inception and conclusion of large legal matters.
A limited number of customers, specifically the top 10% of customers, represent a substantial portion of revenue. Loss of or reduced purchasing by these customers could materially and disproportionately impact revenue and cause significant fluctuations.
The September 2023 departure of former CEO Kiwi Camara and ensuing negative publicity have disrupted the business and may harm the ability to attract, recruit, and retain key employees. The company also needs to hire a new CEO and is reassessing aspects of its corporate culture.
A purported stockholder class action filed in September 2023 remains pending, while a November 2023 class action was dismissed in January 2024. Securities litigation could result in substantial costs and divert management attention, and additional litigation may be filed.
The market for legal technology solutions is highly fragmented and competitive, with competitors including large legal services providers, legacy on-premise software providers, and cloud software providers. Some competitors have greater resources and may offer lower prices or bundle competing applications, creating pricing pressures.
Unfavorable global economic conditions, including inflation, rising interest rates, and the Russia-Ukraine and Israel-Hamas wars, could cause reductions in legal spending and harm the business. MD&A highlights these conditions as a macroeconomic consideration for FY2024 Q1.
Usage of DISCO Review, the AI-powered document review offering, decreases and increases more significantly with the completion and inception of litigation, investigations, and other legal matters than other offerings. This can materially impact quarter-to-quarter revenue fluctuations even though it currently constitutes a small proportion of overall annual revenues.
In March 2024, the board approved a new stock repurchase program for up to $20.0 million, with $2.7 million utilized as of March 31, 2024. Repurchases could increase stock price volatility and diminish cash reserves, potentially impacting the ability to finance growth or acquisitions.
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 work in legal matters can further extend sales cycles.
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 FY2024 (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 2, 2026.