CS Disco, Inc. — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, with comparison to 2021. CS Disco provides cloud-native, AI-enabled legal software for legal hold, legal requests, e-discovery, document review and case management. Revenue is predominantly usage-based and varies with the timing and activity of customers’ legal matters.
Financial and operating performance
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $135.2 million | $114.3 million | Up 18%; 37% of the increase came from existing-customer usage and adoption, and 63% from new customers. |
| Gross profit / gross margin | $101.0 million / 75% | $83.2 million / 73% | Margin improved as cost of revenue grew more slowly than revenue. |
| Operating expenses | $172.8 million | $107.1 million | Up 61%; R&D rose 72%, sales and marketing 55%, and G&A 59%. |
| Operating loss | $71.8 million | $23.8 million | Operating margin was (53)% versus (21)%. |
| Net loss | $70.8 million | $24.3 million | Net loss per share was $1.20 versus $0.73. |
| Adjusted EBITDA (non-GAAP) | $(44.5) million | $(16.3) million | Loss widened; management expects improvement over the long term as the business scales. |
| Cash and cash equivalents | $203.2 million | $255.5 million | Down $52.2 million during 2022. |
| Cash flows | Operating: $(46.0) million Investing: $(9.7) million Financing: $3.5 million | Operating: $(21.6) million Investing: $(3.1) million Financing: $221.7 million | Operating cash use increased; 2021 financing included IPO proceeds. |
| Debt and liquidity | No debt outstanding | — | Management said cash was expected to fund anticipated requirements for the next 12 months. |
- Customer count increased to 1,327 from 1,126. Large customers—defined as those generating more than $100,000 of revenue in the prior 12 months—numbered 265 and accounted for 78% of revenue, compared with 214 and 81% in 2021.
- Dollar-based net retention fell to 106% from 146%, indicating materially slower expansion among the comparable customer base.
- Usage-based revenue was 89% of revenue in both years; subscriptions represented 11% in both years. Less than 10% of 2022 revenue came from customers outside the United States.
- Stock-based compensation expense was $21.7 million, up from $5.6 million. It was excluded from the company’s Adjusted EBITDA measure.
Material changes, outlook and risks
- Operating costs rose substantially, particularly personnel costs, as the company expanded. G&A also reflected a full year of public-company costs, headquarters relocation costs and Congruity acquisition-related revaluation expense.
- In February 2022, DISCO acquired legal workflow solutions from Congruity for approximately $6.1 million in cash, including an $0.8 million holdback, plus up to $2.0 million of contingent consideration. The acquisition added legal-hold and legal-request products.
- In January 2023, the company committed to a workforce reduction of approximately 62 employees, about 9% of its global workforce, to lower its cost structure and accelerate its path to profitability. It estimated related charges of $0.9 million to $1.1 million.
- The filing provides no specific 2023 revenue or earnings guidance. Management cited economic uncertainty and planned to review spending, capital expenditures and strategic investments during 2023.
- Key risks include usage volatility tied to legal matters, falling net retention, customer concentration among larger accounts, competition and pricing pressure, and dependence on AWS cloud infrastructure. Data security, privacy and evolving AI regulation are also significant risks.
- Contractual commitments at year-end totaled $68.0 million, including $54.0 million for cloud-platform services. The company reported no litigation expected to have a material adverse effect, while noting that litigation outcomes are inherently uncertain.
- After year-end, the company reported that 2022 revenue targets for employee PSUs were not met; those PSUs expired without vesting. The 20210 filing also disclosed subsequent RSU and PSU grants, adding future stock-based compensation expense.
Most important facts for investors to verify
- Whether usage growth and customer retention stabilize after retention fell from 146% to 106%, and whether customer usage remains resilient as legal matters conclude.
- Whether the 2023 workforce reduction and other cost controls reduce operating and cash losses without materially harming growth or customer service.
- How cash burn compares with the $203.2 million year-end cash balance and the company’s cloud and other contractual commitments.
- The scale and persistence of stock-based compensation, including the CEO performance award, and the effect of equity awards on dilution.
- Whether large-customer revenue exposure, AWS reliance, and cybersecurity and privacy risks change materially.