Summary
CS Disco closed fiscal 2021 with rapid top-line growth but wider losses. Fourth-quarter revenue was $33.8 million, up 76% from the fourth quarter of 2020. Full-year revenue was $114.3 million, up 67% from fiscal 2020. Gross profit was $25.0 million in the quarter, up 80.8%, and $83.2 million for the year, up 73.4%. Gross margin was 74.0% in the quarter, up 1.9 percentage points, and 72.8% for the year, up 2.7 percentage points. The company still posted an operating loss of $8.95 million in the quarter, compared with an operating loss of $2.96 million in the prior-year quarter. The full-year operating loss was $23.8 million, compared with $22.5 million in fiscal 2020. GAAP net loss was $9.1 million in the quarter, compared with $3.0 million in the prior-year quarter. The full-year net loss was $24.3 million, compared with $22.9 million in fiscal 2020. Diluted EPS for the full year was negative $0.73, compared with negative $1.74 in fiscal 2020, so the per-share loss narrowed.
Operating metrics showed strong expansion. Dollar-based net retention was 146%, compared with 127% in fiscal 2020. The customer count reached 1,126 as of December 31, 2021, up from 825 a year earlier. Large customers, defined as those with more than $100,000 in revenue over the previous 12 months, totaled 214, up from 141. Large customers accounted for about 81% of fiscal 2021 revenue, compared with 74% in fiscal 2020. Usage-based revenue represented 89% of total revenue in fiscal 2021, while subscription revenue represented 11%; in fiscal 2020, those figures were 86% and 14%. Less than 10% of revenue came from outside the United States in 2021. Adjusted EBITDA was negative $5.3 million in the fourth quarter, compared with negative $2.1 million in the prior-year quarter, and negative $16.3 million for fiscal 2021, compared with negative $19.9 million in fiscal 2020.
Management issued guidance for the first quarter of 2022 and for full fiscal year 2022. First-quarter 2022 revenue is expected in the range of $30.0 million to $31.0 million, representing year-over-year growth between 42% and 47%. First-quarter 2022 adjusted EBITDA is expected in the range of negative $12.5 million to negative $11.5 million. For full fiscal year 2022, revenue is expected in the range of $146.8 million to $150.8 million, representing year-over-year growth between 28% and 32%. Full-year 2022 adjusted EBITDA is expected in the range of negative $51.5 million to negative $43.5 million. The outlook assumes conditions that are subject to change and many of which are outside the company's control. A reconciliation of forward-looking adjusted EBITDA to the most directly comparable GAAP measure is not available without unreasonable efforts because of high variability and low visibility on charges excluded from the non-GAAP measure, particularly stock-based compensation tied to unpredictable stock price fluctuations.
The quarter's results came with familiar risks. The company has a history of operating losses and a limited operating history. It must maintain and advance its innovation and brand, add new customers, increase usage and penetration within its existing customer base, expand sales coverage, build a digital sales channel, expand internationally, extend channel partnerships and integrations, broaden its offering portfolio, and pursue strategic acquisitions and investments. Other risks include compliance with laws and regulations, potential failures or security and data privacy breaches in its or third parties' systems, competition from existing and new entrants, general market, political, economic, and business conditions, and the ongoing COVID-19 pandemic. The company also has significant future cash requirements. Cloud platform purchase commitments total $71.9 million, with $17.9 million due in less than one year, $36.0 million due in two to three years, and $18.0 million due in four to five years. Operating lease commitments are $911 thousand, finance lease commitments are $101 thousand, and other purchase commitments are $1.36 million. Operating cash flow was negative $2.85 million in the fourth quarter, compared with negative $5.01 million in the prior-year quarter, and negative $21.64 million for fiscal 2021, compared with negative $22.71 million in fiscal 2020. Capital expenditures were $0.77 million in the quarter, compared with $0.52 million in the prior-year quarter, and $3.11 million for fiscal 2021, compared with $1.90 million in fiscal 2020. Deferred revenue was $2.20 million at December 31, 2021, compared with $1.60 million at December 31, 2020. Remaining performance obligations were $17.40 million at December 31, 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $33.8M | $29.9M | +13.2% | — | — |
| Gross profit | $25.0M | $22.0M | +13.6% | — | — |
| Gross margin | 74.0% | 73.8% | +0.2 pp | — | — |
| Research & development | $10.6M | $9.7M | +10.2% | — | — |
| Sales & marketing | $15.2M | $13.2M | +15.2% | — | — |
| General & administrative | $8.2M | $8.3M | -1.3% | — | — |
| Total operating expenses | $34.0M | $31.1M | +9.3% | — | — |
| Operating income (loss) | -$8.9M | -$9.1M | +1.3% | — | — |
| Operating margin | -26.5% | -30.4% | +3.9 pp | — | — |
| Net income (loss) | -$9.1M | -$9.2M | +1.3% | — | — |
| Net margin | -26.9% | -30.9% | +4.0 pp | — | — |
| Diluted EPS | -$0.27 | -$0.19 | -$0.08 | — | — |
| Customers | 1,126 | — | — | — | — |
| Net retention rate | 146.0% | — | — | — | — |
Risks
Revenue was $114.3 million for FY2021, up 67.1% from FY2020, but the filing warns that recent rapid growth may not be indicative of future growth and that the revenue growth rate may decline due to maturation, competition, or failure to take advantage of growth opportunities. The company expects to continue substantial spending on infrastructure, sales and marketing, and product development, which may not produce increased revenue growth.
The company has incurred net losses in each fiscal year since inception, including a net loss of $24.3 million for FY2021, and had an accumulated deficit of $127.5 million as of December 31, 2021. It expects to continue incurring significant costs to support growth, making it difficult to achieve or sustain profitability.
A limited number of customers represent a substantial portion of revenue, and large customers accounted for approximately 81% of FY2021 revenue, up from 74% in FY2020. Loss of or reduced purchasing by top customers could disproportionately impact revenue.
Usage-based revenue represented 89% of total FY2021 revenue, up from 86% in FY2020, and most customers do not have long-term contractual financial commitments and may reduce or cease use at any time. Customers can also negotiate lower rates in exchange for renewal or expansion.
The legal technology market is highly fragmented and competitive, with competitors including Consilio, Epiq, KLDiscovery, Deloitte, EY, KPMG, PwC, Nuix, OpenText, Relativity, Everlaw, Logikcull, and Reveal. Some competitors have greater resources and may offer lower prices or bundle competing applications.
The company's success depends on continued innovation of its artificial intelligence system for legal documents and on adapting to rapid technological change. If competitors deliver more efficient or lower-cost AI-enabled legal solutions, demand for DISCO's solution could be adversely affected.
The company relies on AWS to host its solution and support most operations, and any disruption, capacity limitation, or material change in the AWS arrangement could interrupt service and harm customer relationships. Switching to another cloud provider would be technically difficult, expensive, and time consuming.
Sales cycles with enterprise customers can be long and unpredictable because they depend on the timing and duration of legal matters and lengthy evaluation processes. The company may incur significant sales and marketing expenses before recognizing corresponding revenue.
The ongoing COVID-19 pandemic, including variants, has caused court closures and delays in collecting enterprise data, which delayed increases in usage and reduced revenue growth. Future restrictions or customer budget constraints could again decrease or delay legal spending.
The company depends on senior management, including CEO Kiwi Camara, and on skilled software engineers and sales personnel, and competition for such personnel is intense, particularly in Austin, Texas. Many competitors have greater resources and can offer greater compensation.
International expansion is a growth strategy, but less than 10% of FY2021 revenue came from customers outside the United States, and expansion creates operational, regulatory, tax, and currency challenges. The solution was developed primarily for U.S. legal practice and may require substantial updates for other jurisdictions.
The company has previously experienced material weaknesses in internal controls over financial reporting, including for FY2019, and will be required to comply with Section 404 for FY2022. Failure to maintain effective controls could result in inaccurate financial reporting or regulatory sanctions.
The company charges customers based on usage across multiple dimensions and has limited experience determining optimal pricing, having changed its pricing model in the past. Frequent or significant users may demand price concessions, which could reduce revenue, gross margin, and cash flow.
The company has funded operations primarily through customer payments, equity sales including its July 2021 IPO, and borrowings, and may require additional funds. If financing is unavailable on acceptable terms, it may be unable to invest in growth, and equity issuances would dilute stockholders.
The company may be required to collect sales, use, VAT, or GST in additional jurisdictions, and taxing authorities may challenge its nexus or tax characterization. This could result in substantial tax payments, administrative burdens, and increased customer costs.
Net operating loss carryforwards could expire unused or be limited under Section 382 if the company has experienced or experiences ownership changes. This may prevent use of a material portion of NOLs even if the company achieves profitability.
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 Q4 FY2021 (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.