Summary
DISCO's fiscal 2022 fourth quarter showed a revenue decline and a much wider loss. Revenue was $32.54 million for the quarter, down 3.8% from the prior-year quarter. Gross profit was $24.47 million, down 2.2%. Gross margin was 75.2%, up 1.2 percentage points. The operating loss was $20.02 million, compared with an operating loss of $8.95 million in the prior-year quarter, so the loss widened. Net loss was $18.69 million, compared with a net loss of $9.11 million, also a widened loss. Operating margin was negative 61.5%, down 35.1 percentage points. The quarter's cost base grew faster than revenue.
Full-year results grew on the top line but profitability deteriorated. Revenue for fiscal 2022 was $135.19 million, up 18.2% from fiscal 2021. Gross profit was $101.03 million, up 21.4%. Gross margin was 74.7%, up 1.9 percentage points. The operating loss was $71.81 million, compared with an operating loss of $23.83 million, so the loss widened. Net loss was $70.76 million, compared with a net loss of $24.34 million, a widened loss. Diluted EPS was negative $1.20, compared with negative $0.73, so the loss per share widened. Operating margin was negative 53.1%, down 32.3 percentage points. Operating cash flow used $46.01 million, compared with $21.64 million used in the prior year. Capital expenditures were $4.38 million, up 40.9%. Deferred revenue was $4.10 million, up 86.4% from the prior-year quarter. Remaining performance obligations were $21.50 million, up 23.6%.
Operational metrics were mixed. DISCO ended 2022 with 1,327 customers, up from 1,126 at the end of 2021. Large customers, defined as those with more than $100,000 in revenue over the previous 12 months, rose to 265 from 214. Large customers accounted for 78% of revenue in 2022, down from 81% in 2021. The dollar-based net retention rate fell to 106% from 146%. Adjusted EBITDA was negative $44.5 million for 2022, compared with negative $16.3 million for 2021. In January 2023, management committed to a restructuring plan to cut about 62 employees, roughly 9% of the global workforce. The plan aims to reduce the cost structure and accelerate the path to profitability. Management also expects research and development and sales and marketing expenses to increase in absolute dollars as the business grows.
Risks remain significant. Revenue depends on customer usage, which fluctuates with the timing, duration and scope of legal matters. Management noted that macroeconomic conditions, including inflation, rising interest rates and the Russia-Ukraine war, could slow information technology spending. The company also faces competition, pricing pressure and the need to expand sales coverage and international presence. Less than 10% of 2022 revenue came from outside the United States. Future capital requirements may require additional equity or debt financing. Cloud platform purchase commitments total $54.0 million, with $18.0 million due in less than one year. The restructuring may help, but the company still reported a large full-year net loss and negative operating cash flow.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2022 | Q3 FY2022 | QoQ | Q4 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $32.5M | $34.5M | -5.6% | $33.8M | -3.8% |
| Gross profit | $24.5M | $25.8M | -5.3% | $25.0M | -2.2% |
| Gross margin | 75.2% | 75.0% | +0.2 pp | 74.0% | +1.2 pp |
| Research & development | $16.1M | $15.7M | +2.4% | $10.6M | +51.0% |
| Sales & marketing | $18.2M | $19.3M | -5.9% | $15.2M | +19.8% |
| General & administrative | $10.2M | $10.9M | -6.0% | $8.2M | +25.5% |
| Total operating expenses | $44.5M | $45.9M | -3.1% | $34.0M | +31.0% |
| Operating income (loss) | -$20.0M | -$20.1M | +0.2% | -$8.9M | -123.8% |
| Operating margin | -61.5% | -58.2% | -3.3 pp | -26.5% | -35.1 pp |
| Net income (loss) | -$18.7M | -$20.1M | +6.8% | -$9.1M | -105.2% |
| Net margin | -57.4% | -58.2% | +0.7 pp | -26.9% | -30.5 pp |
| Diluted EPS | -$0.32 | -$0.34 | +$0.02 | -$0.27 | -$0.05 |
| Customers | 1,327 | — | — | 1,126 | +17.9% |
| Net retention rate | 106.0% | — | — | 146.0% | -40.0 pp |
Risks
The company derives a substantial portion of revenue from its top 10% customers, and large customers accounted for approximately 78% of revenue for FY2022 and 81% for FY2021. Loss or reduced purchasing by these customers could disproportionately reduce revenue.
A significant majority of revenue is directly correlated with customers' usage, which depends on the timing and activity of litigation, investigations and other legal matters. Operating results have fluctuated with the inception and conclusion of large legal matters, and DISCO Review usage can materially impact quarter-to-quarter revenue fluctuations even though it is currently a small proportion of annual revenue.
Dollar-based net retention rate was 106% as of December 31, 2022 compared with 146% as of December 31, 2021, and MD&A states it could decrease over time as the customer base matures and the denominator grows. Customers under usage-based contracts can cancel or reduce usage at any time.
The filing states annual revenue growth rate declined from 2021 to 2022; Q4 FY2022 revenue decreased 3.8% from Q4 FY2021 to $32.5 million, while FY2022 revenue rose 18.2% to $135.2 million. Historical growth may not indicate future growth, and the growth rate may continue to decline due to maturation, competition or failure to exploit opportunities.
The market is highly fragmented and competitive, including legal services providers such as Consilio, Epiq and KLDiscovery, legacy software providers such as Nuix, OpenText and Relativity, and cloud providers such as Everlaw and Logikcull. Many competitors have greater resources and may bundle or discount offerings, potentially reducing demand or pricing.
FY2022 net cash used in operating activities increased to $46.0 million from $21.6 million in FY2021, and net loss was $70.8 million for FY2022 compared with $24.3 million for FY2021. The company may need additional equity or debt financing, which may not be available on favorable terms and could dilute stockholders.
MD&A and risk factors cite COVID-19, rising inflation, Federal Reserve interest rate increases and the Russia-Ukraine war as creating global economic uncertainty. In downturns, businesses may slow information technology spending and reduce legal spending, which could harm demand.
In January 2023, the company committed to a plan to reduce its workforce by approximately 62 employees, or approximately 9% of its global workforce, to reduce cost structure and accelerate the path to profitability. Execution may disrupt operations or fail to achieve the intended savings.
Success depends on senior management and key employees, including Co-Founder and CEO Kiwi Camara. The loss of one or more of these personnel could harm the business, and many senior managers may receive significant proceeds from sales of company equity, which may reduce motivation to remain.
The company currently hosts its solution and supports most operations using AWS, and AWS is not obligated to renew agreements on commercially reasonable terms. A transition from AWS would be technically difficult, expensive and time consuming, and service disruption could reduce customer use.
SaaS KPIs
All quarters →Adjusted EBITDA
Total Customers
Dollar-Based Net Retention Rate
Summary, forecast, risks and KPIs are extracted from CS Disco, Inc.'s SEC filings for Q4 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 2, 2026.