Summary
CS Disco reported $36.00 million of total revenue for its fiscal 2024 second quarter, up 5.0% from the prior-year quarter. Gross profit rose 5.9% to $26.72 million, and gross margin reached 74.2%, up 0.6 percentage points from 73.6%. The growth rate is modest for a software company at this stage, and the company still spends more than it earns. New customers added since June 30, 2023 more than offset lower usage from the existing base, according to the filing. Year to date, revenue of $71.58 million was up 6.2% and gross profit of $53.44 million was up 6.7%, with a gross margin of 74.7%.
The bottom line improved faster than the top line. GAAP net loss was $10.83 million for the quarter, compared with a loss of $14.92 million in the prior-year quarter, and the operating loss narrowed to $12.38 million from $16.99 million. Diluted loss per share was $0.18, versus $0.25. Operating margin was -34.4%, up 15.2 percentage points from -49.6%. Over the six months, net loss narrowed to $21.42 million from $35.28 million, diluted loss per share narrowed to $0.35 from $0.59, and operating margin was -34.5%, up 23.7 percentage points from -58.3%.
The cost base keeps shrinking. Research and development, sales and marketing and general and administrative spending all fell in absolute dollars, helped by moving work to lower-cost international locations and by the absence of the restructuring charges that weighed on the prior-year periods. Adjusted EBITDA, a non-GAAP measure, was negative $4.7 million for the quarter against negative $7.4 million a year earlier, and negative $9.9 million for the six months against negative $20.4 million. Stock-based compensation, which Adjusted EBITDA excludes, was $6.06 million in the quarter and $11.73 million year to date.
Cash generation is the brighter spot. Operating cash flow was negative $0.65 million in the quarter, versus negative $7.05 million a year earlier, and negative $7.98 million for the six months, versus negative $21.81 million. Capital expenditures were $0.66 million, down 60.2% from $1.65 million, and $1.35 million year to date, down 46.1%. Deferred revenue was $3.52 million, up 6.3%, and remaining performance obligations were $19.30 million, up 3.8%. Neither backlog measure is growing quickly, which fits a model where customers commit to little in advance. The company also paid $20.1 million for share repurchases during the six months, which sits in financing outflows.
Management pointed to 1,449 customers as of June 30, 2024 and to two product releases in the period: in-app mass redactions and Cecilia Doc Summaries, a generative AI tool for summarizing documents. Richard Crum took over as chief product officer on July 15, 2024. The company also intends to launch sources of primary law through its Fastcase license in 2025. Guidance for the third quarter of 2024 calls for Adjusted EBITDA of negative $7.0 million to negative $5.0 million. For the full fiscal year 2024, the Adjusted EBITDA outlook is negative $23.0 million to negative $19.0 million.
The filing lists the same risks that have hung over this story: a history of operating losses, revenue tied to how much customers use the platform and to the timing of large legal matters, competition, and macroeconomic pressure from inflation, rising interest rates, and the Russia-Ukraine and Israel-Hamas wars. Customers outside the United States generate less than 10% of revenue, so growth remains largely domestic. Subscription contracts with committed minimum usage produced 11% of revenue for both the three and six months ended June 30, 2024, leaving the bulk of the top line exposed to casework volatility.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $36.0M | $35.6M | +1.2% | $34.3M | +5.0% |
| Gross profit | $26.7M | $26.7M | -0.0% | $25.2M | +5.9% |
| Gross margin | 74.2% | 75.1% | -0.9 pp | 73.6% | +0.6 pp |
| Research & development | $12.9M | $12.1M | +6.7% | $13.3M | -2.8% |
| Sales & marketing | $15.5M | $15.8M | -2.0% | $18.1M | -14.2% |
| General & administrative | $10.7M | $11.2M | -4.0% | $10.9M | -1.9% |
| Total operating expenses | $39.1M | $39.1M | +0.1% | $42.2M | -7.4% |
| Operating income (loss) | -$12.4M | -$12.3M | -0.4% | -$17.0M | +27.1% |
| Operating margin | -34.4% | -34.7% | +0.3 pp | -49.6% | +15.2 pp |
| Net income (loss) | -$10.8M | -$10.6M | -2.4% | -$14.9M | +27.4% |
| Net margin | -30.1% | -29.8% | -0.3 pp | -43.5% | +13.4 pp |
| Diluted EPS | -$0.18 | -$0.17 | -$0.01 | -$0.25 | +$0.07 |
Risks
Risk factors state the revenue growth rate has declined from prior periods and may continue to decline. MD&A reports revenue up 5% for the quarter and up 6% for the six months ended June 30, 2024, with growth dependent on new customers as existing customer usage decreased.
Substantially all revenue is usage-based and tied to the timing of litigation and legal matters. MD&A says existing customer revenue decreased $3.3 million in the quarter and $5.0 million in the six months ended June 30, 2024, offset by new customer revenue of $5.0 million and $9.2 million, respectively. DISCO Review usage can materially impact quarter-to-quarter revenue.
Top 10% customers represent a substantial portion of revenue, so loss or reduced purchasing by significant customers could disproportionately impact revenue. Risk factors note revenue has fluctuated with the inception and conclusion of large legal matters.
The market is highly fragmented and competitive, with competitors including Consilio, Epiq, KLDiscovery, Relativity, Everlaw, and Reveal/Logikcull. Some competitors have greater resources and can bundle offerings or offer lower prices, creating pricing pressure.
The departure of former CEO Kiwi Camara in September 2023 and ensuing negative publicity disrupted business and may impair the ability to attract, recruit, and retain key employees. A new CEO was appointed in April 2024 and a new Chief Product Officer in July 2024, and a culture reassessment is underway.
Success depends on continued innovation of AI for legal documents, including DISCO Review and the ediscovery chatbot Cecilia. Failure to keep pace with rapid technological change or delays in launching primary law access in 2025 could reduce competitiveness.
The September 2023 purported stockholder class action remains pending, while the November 2023 matter was dismissed in January 2024. MD&A reports $0.4 million of legal fees related to stockholder litigation in the quarter and $0.6 million in the six months ended June 30, 2024, and additional securities litigation or activism could divert management and increase costs.
The usage-based pricing model has limited operating history, and the company may need to change pricing or grant concessions, which could reduce revenue, gross margin, and cash flow. Subscription revenue was 11% of revenue for the quarter and six months ended June 30, 2024.
Unfavorable economic conditions, inflation, rising interest rates, and the Russia-Ukraine and Israel-Hamas wars may cause customers to slow IT spending and reduce legal spending. Risk factors note a recession or fear of recession could harm the business.
The platform relies on AWS to host operations, and any disruption, capacity limitation, or unfavorable renewal could cause downtime, higher costs, and customer loss. Switching providers would be technically difficult, expensive, and time consuming.
Sales, use, VAT, and GST tax nexus remains uncertain, and taxing authorities may challenge the company's positions, resulting in substantial tax payments and administrative burdens. Changes in tax law, including R&D capitalization rules, could raise the effective tax rate.
Officers, directors, and associated investment funds collectively beneficially owned a majority of outstanding common stock as of June 30, 2024, limiting other stockholders' influence and potentially causing strategic decisions not aligned with other holders.
The Board approved a $20.0 million stock repurchase program in March 2024, which was fully utilized as of June 30, 2024. Future repurchases could increase stock price volatility and diminish cash reserves needed for growth.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP gross margin
Non-GAAP operating margin
Adjusted EBITDA margin
Total Customers
Summary, forecast, risks and KPIs are extracted from CS Disco, Inc.'s SEC filings for Q2 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.