CS Disco Inc

Previous wording

We generate substantially all of our revenue from our customers’ actual usage of ourproduct offerings. Customers generally do not commit to purchase a specific amount of usage on ourproduct offerings and their usage can fluctuate based on the number and nature of legal matters they have at any particular time. As a result, our revenue and other financial results can fluctuate from period to period given the inherent unpredictability of the timing, duration and scope of legal casework. We also offer our customers the option to enter into subscriptions based on committed minimum usage on an annual or multi-year basis, which represented 11% and 12% of our revenue for thethree months ended March 31, 2024 and 2023, respectively. In addition, we generate revenue from a range of professional services aimed at accelerating the time-to-value for our customers.

Current wording

We generate substantially all of our revenue from our customers’ actual usage of ourproduct offerings. Customers generally do not commit to purchase a specific amount of usage on ourproduct offerings and their usage can fluctuate based on the number and nature of legal matters they have at any particular time. As a result, our revenue and other financial results can fluctuate from period to period given the inherent unpredictability of the timing, duration and scope of legal casework. We also offer our customers the option to enter into subscriptions based on committed minimum usage on an annual or multi-year basis, which represented 11% of our revenue for the three and six months ended June 30, 2024. In addition, we generate revenue from a range of professional services aimed at accelerating the time-to-value for our customers.

Previous wording

Our go-to-market strategy is focused on acquiring new customers and driving continued use and increased usage of ourproduct offerings for existing customers. We primarily sell through a direct sales force, which is organized based on the stages of our sales motion. Our sales organization is primarily segmented into sales development representatives, field sales, inside sales and our customer success team. In addition, ourplatform is designed such that customers can grant access to third parties, including law firms and other legal service providers, to use our product offerings on the customers’ behalf. This access facilitates widespread adoption of ourproduct offerings, as these law firms and other legal service providers often become customers on their own or recommend ourproduct offerings to other legal industry participants after realizing the benefits of ourproduct offerings. Likewise, if a law firm is our customer, the law firm may add users from its clients’ legal departments to ourplatform in order to collaborate with them. These users may then become champions and encourage the companies they work for to become customers.

Current wording

Our go-to-market strategy is focused on acquiring new customers and driving continued use and increased usage of ourproduct offerings for existing customers. We primarily sell through a direct sales force, which is organized based on the stages of our sales motion. Our sales organization is primarily segmented into sales development representatives, field sales, inside sales and our customer success team. In addition, ourplatform is designed such that customers can grant access to third parties, including law firms and other legal service providers, to use our product offerings on the customers’ behalf. This access facilitates adoption of ourproduct offerings, as these law firms and other legal service providers can become customers on their own or recommend ourproduct offerings to other legal industry participants after realizing the benefits of ourproduct offerings. Likewise, if a law firm is our customer, the law firm may add users from its clients’ legal departments to ourplatform in order to collaborate with them. These users may then become champions and encourage the companies they work for to become customers.

Previous wording

As of March 31, 2024, we had $148.7 million of cash and cash equivalents. We generated revenue of $35.6 million and $33.1 million in the three months ended March 31, 2024 and 2023, respectively, representing a period-over-period growth of

Current wording

As of June 30, 2024, we had $130.0 million of cash and cash equivalents. We generated revenue of $36.0 million and $34.3 million in the three months ended June 30, 2024 and 2023, respectively, and $71.6 million and $67.4 million in the six months ended June 30, 2024 and 2023, respectively, representing a period-over-period growth of 5% and 6%, respectively. Our net loss was $10.8 million and $14.9 million for the three months ended June 30, 2024 and 2023, respectively, and $21.4 million and $35.3 million for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

7%. Our net loss was $10.6 million and $20.4 million for the three months ended March 31, 2024 and 2023, respectively. We generated Adjusted EBITDA of $(5.2) million and $(13.0) millionfor the three months ended March 31, 2024 and 2023, respectively. See the section titled “—Non-GAAP Financial Measure” for the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP.

Current wording

We generated Adjusted EBITDA of $(4.7) million and $(7.4) million in the three months ended June 30, 2024 and 2023, respectively, and $(9.9) million $(20.4) million in the six months ended June 30, 2024 and 2023, respectively. See the section titled “—Non-GAAP Financial Measure” for the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP.

Previous wording

Our market is global and we believe there is a significant opportunity to expand internationally. In thethree months ended March 31, 2024, less than 10% of our revenue was generated by customers outside of the United States. We also expect to continue to expand our global employee headcount in India. International expansion, including our global sales efforts, will add increased complexity and cost to our business.

Current wording

Our market is global and we believe there is a significant opportunity to expand internationally. In thethree and six months ended June 30, 2024, less than 10% of our revenue was generated by customers outside of the United States. We also expect to continue to expand our global employee headcount in India. International expansion, including our global sales efforts, will add increased complexity and cost to our business.

Previous wording

In February 2022, we acquired legal workflow products from Congruity360, LLC, or Congruity, in a purchase that expanded our offerings to provide a modern digital solution for legal hold obligations and legal request compliance. We intend to continue to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our product offerings and bring talent to our company. We believe that the combination of our market leadership, deep legal expertise and powerful end-to-end platform provides an advantage in pursuing select acquisitions. We may be required to expend significant resources in connection with the pursuit of acquisitions and investments.

Current wording

In February 2022, we acquired legal workflow products from Congruity360, LLC, or Congruity, in a purchase that expanded our offerings to provide a modern digital solution for legal hold obligations and legal request compliance. On August 17, 2023, the Company executed a licensing agreement with Fastcase, Inc., whereby the Company received Fastcase’s library of U.S. case law, statutes, regulations and court rules (collectively “primary law”). The Company anticipates integrating primary law into its product offerings to automate drafting of legal documents and research memos and assist lawyers in identifying potential legal claims and defenses from new and historical case law, statutes, regulations and court rulings. We intend to continue to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our product offerings and bring talent to our company. We believe that the combination of our market leadership, deep legal expertise and powerful end-to-end platform provides an advantage in pursuing select acquisitions. We may be required to expend significant resources in connection with the pursuit of acquisitions and investments.

Previous wording

In the three months ended March 31, 2024 and 2023, usage-based revenue represented 89% and 88% of total revenue, respectively. In the three months ended March 31, 2024 and 2023 subscription revenue fees represented 11% and 12% of total revenue, respectively.

Current wording

In the three months ended June 30, 2024 and 2023, usage-based revenue represented 89% of total revenue, and subscription revenue fees represented 11% of total revenue. In the six months ended June 30, 2024 and 2023, usage-based revenue represented 89% and 88% of total revenue, respectively, and subscription revenue fees represented 11% and 12% of total revenue, respectively.

Previous wording

Sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions, stock-based compensation and allocated overhead costs. Sales and marketing expenses also include advertising costs and other expenses associated with our marketing and business development programs. In addition, sales and marketing expenses consist of travel-related expenses, software services dedicated for use by our sales and marketing organizations and outside services contracted for sales and marketing purposes. In the near term, we expect that our sales and marketing expenses will remain relatively consistent in absolute dollars but will continue to be our largest operating expense for the foreseeable future as we grow our business. Our sales and marketing expenses may fluctuate as a percentage of our revenue over time.

Current wording

Sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions, stock-based compensation and allocated overhead costs. Sales and marketing expenses also include advertising costs and other expenses associated with our marketing and business development programs. In addition, sales and marketing expenses consist of travel-related expenses, software services dedicated for use by our sales and marketing organizations and outside services contracted for sales and marketing purposes. In the near term, we expect that our sales and marketing expenses will increase in absolute dollars but will continue to be our largest operating expense for the foreseeable future as we grow our business. Our sales and marketing expenses may fluctuate as a percentage of our revenue over time.

Previous wording

General and administrative expenses consist of personnel-related costs associated with our finance, legal, human resources and administrative personnel, including salaries, benefits, bonuses, stock-based compensation and allocated overhead costs. General and administrative expenses also include external legal, accounting and other professional services fees, software services dedicated for use by our general and administrative functions, insurance and other corporate expenses. In the near term, we expect that our general and administrative expenses will increase in absolute dollars as our business grows but may fluctuate as a percentage of total revenue from period to period.

Current wording

General and administrative expenses consist of personnel-related costs associated with our finance, legal, human resources and administrative personnel, including salaries, benefits, bonuses, stock-based compensation and allocated overhead costs. General and administrative expenses also include external legal, accounting and other professional services fees, software services dedicated for use by our general and administrative functions, insurance and other corporate expenses. In the near term, we expect that our general and administrative expenses will decrease in absolute dollars but may fluctuate as a percentage of total revenue from period to period.

Previous wording

The following tables set forth our results of operations and such data as a percentage of our revenue for each of the periods presented.

Current wording

The following tables set forth our results of operations and such data as a percentage of our revenue for each of the periods presented (in thousands):

Previous wording

(1)Includes stock-based compensation expense as follows:

Current wording

(1)Includes stock-based compensation expense as follows (in thousands):

Previous wording

(2)Includes restructuring charges as follows:

Current wording

(2)Includes restructuring charges as follows (in thousands):

Previous wording

Total revenue increased by $2.4 million, or 7%, for the three months ended March 31, 2024 compared to the same period in 2023. Revenue related to new customers added since March 31, 2023 contributed $5.7 million, which was partially offset by a $3.3 million decrease in revenue from customers that existed as of March 31, 2023. The change in revenue from existing customers was driven by decreases in usage of our product offerings by several of our existing customers.

Current wording

Total revenue increased by $1.7 million, or 5%, for the three months ended June 30, 2024 compared to the same period in 2023. Revenue related to new customers added since June 30, 2023 contributed $5.0 million, which was offset by a $3.3 million decrease in revenue from customers that existed as of June 30, 2023. The change in revenue from existing customers was driven by decreases in usage of our product offerings by several of our existing customers.

Previous wording

Revenue generated from our software product offerings increased by $2.3 million, or 9%, for the three months ended March 31, 2024 compared to the same period in 2023 due to increases in usage of our software product offerings. Revenue generated from our services product offerings increased $0.1 million, or 2%, for the three months ended March 31, 2024 compared to the same period in 2023. This change was driven by increases in usage of our services product offerings by several of our existing customers, particularly within professional services.

Current wording

Revenue generated from our software product offerings increased by $2.3 million, or 8%, for the three months ended June 30, 2024 compared to the same period in 2023 due to increases in usage of our software product offerings. Revenue generated from our services product offerings decreased by $0.5 million, or 7%, for the three months ended June 30, 2024 compared to the same period in 2023. This change was driven by decreases in usage of our services product offerings by several of our existing customers, particularly within managed review.

Previous wording

Total cost of revenue increased by $0.6 million, or 7%, for the three months ended March 31, 2024 compared to the same period in 2023. This change was primarily driven by a $0.5 million increase in costs for cloud hosting as a result of increased usage of our product offerings and a $0.3 million increase in salary and benefits costs. This increase was partially offset by a $0.3 million decrease in outsourced staffing vendor fees.

Current wording

Total cost of revenue increased by $0.2 million, or 3%, for the three months ended June 30, 2024 compared to the same period in 2023. This change was primarily driven by a $0.3 million increase in costs for cloud hosting as a result of increased usage of our software product offerings and a $0.4 million increase in salary and benefits costs. This increase was partially offset by a $0.6 million decrease in outsourced staffing vendor fees.

Previous wording

Research and development expenses decreased by $3.7 million, or 23%, for the three months ended March 31, 2024 compared to the same period in 2023. The change was primarily driven by a decrease of $3.6 million in personnel costs, including stock-based compensation, as a result of reduced headcount and the expansion of our operations to lower-cost international locations, and a $0.5 million decrease in nonrecurring restructuring charges related to our reduction in force in January 2023. These decreases were partially offset by a reduction in capitalized development of $0.2 million.

Current wording

Research and development expenses decreased by $0.4 million, or 3%, for the three months ended June 30, 2024 compared to the same period in 2023. The change was primarily driven by a decrease of $0.4 million in personnel costs, including stock-based compensation, as a result of the expansion of our operations to lower-cost international locations, and a $1.0 million decrease in nonrecurring restructuring charges related to our reduction in force in May 2023. These decreases were partially offset by a reduction in capitalized software development of $0.8 million.

Previous wording

Sales and marketing expenses decreased by $3.3 million, or 17%, for the three months ended March 31, 2024 compared to the same period in 2023. The change was primarily related to a decrease of $2.6 million in personnel costs, including stock-based compensation and variable compensation, for our sales personnel as a result of reduced headcount. Additionally, technology and travel related costs decreased $0.3 million and $0.2 million, respectively. In addition to these decreases, $0.3 million of the decrease was due to nonrecurring restructuring charges related to our reductions in force in January 2023. These decreases were partially offset by a $0.3 million increase in marketing expenses.

Current wording

Sales and marketing expenses decreased by $5.8 million, or 16%, for the six months ended June 30, 2024 compared to the same period in 2023. The change was primarily related to a decrease of $4.3 million in personnel costs, including stock-based compensation and variable compensation, for our sales personnel as a result of decreased headcount. Additionally, travel related costs decreased $0.2 million. In addition, $0.8 million of the decrease was due to nonrecurring restructuring charges related to our reductions in force in January and May 2023.

Previous wording

General and administrative expenses decreased by $1.1 million, or 9%, for the three months ended March 31, 2024 compared to the same period in 2023. This change was primarily attributable to a $1.4 million decrease in personnel costs, including stock-based compensation, as a result of the expansion of our operations to lower-cost international locations, and a $0.2 million decrease in nonrecurring restructuring charges related to our reduction in force in January 2023. These decreases were partially offset by an increase of $0.9 million in professional services cost.

Current wording

General and administrative expenses decreased by $1.3 million, or 6%, for the six months ended June 30, 2024 compared to the same period in 2023. This change was primarily attributable to a $2.4 million decrease in personnel costs, including stock-based compensation, as a result of the expansion of our operations to lower-cost international locations, a $0.2 million decrease in insurance, and a $0.2 million decrease in nonrecurring restructuring charges related to our reductions in force in January and May 2023. These decreases were partially offset by an increase of $1.8 million in professional services costs, of which $0.6 million was due to legal fees related to stockholder litigation.

Previous wording

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented:

Current wording

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented (in thousands):

Previous wording

We have financed operations primarily through customer payments and net proceeds from sales of equity securities, including our IPO in July 2021. As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents, totaling $148.7 million. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. We believe our existing cash and cash equivalents will be sufficient to fund anticipated cash requirements for the next 12 months. We believe we will meet our longer-term expected future cash requirements primarily from a combination of cash flow from operating activities and available cash and cash equivalents. We may also engage in equity or debt financings to secure additional funds.

Current wording

We have financed operations primarily through customer payments and net proceeds from sales of equity securities, including our IPO in July 2021. As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents, totaling $130.0 million. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. We believe our existing cash and cash equivalents will be sufficient to fund anticipated cash requirements for the next 12 months. We believe we will meet our longer-term expected future cash requirements primarily from a combination of cash flow from operating activities and available cash and cash equivalents. We may also engage in equity or debt financings to secure additional funds.

Previous wording

Our principal cash requirements consist of obligations under our operating leases and purchase commitments to our cloud hosting providers and other vendors. There were no changes in our material cash requirements during the three months ended March 31, 2024 from the material cash requirements disclosed in our Annual Report on Form 10-K.

Current wording

Our principal cash requirements consist of obligations under our operating leases and purchase commitments to our cloud hosting providers and other vendors. There were no changes in our material cash requirements during the six months ended June 30, 2024 from the material cash requirements disclosed in our Annual Report on Form 10-K.

Previous wording

Our future capital requirements will depend on many factors, including our revenue growth rate, usage of our product offerings, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, and the continuing market acceptance of our product offerings. Although fluctuations in general macroeconomic conditions, such as the current inflationary environment and rising interest rates, the Russia-Ukraine and Israel-Hamas wars, have not materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments throughout 2024. We have considered the impacts of these factors on our liquidity and capital resources to date, and we do not currently expect them to impact our ability to meet future liquidity needs.

Current wording

Our future capital requirements will depend on many factors, including our revenue growth rate, usage of our product offerings, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, and the continuing market acceptance of our product offerings. Although fluctuations in general macroeconomic conditions, such as the current inflationary environment, rising interest rates and the Russia-Ukraine and Israel-

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $7.3 million, a decrease of $7.4 million from net cash used in operating activities of $14.8 million for the three months ended March 31, 2023. The change in cash flow used in operations was primarily due to a decrease in net loss of $9.8 million. Fluctuations in net loss are further explained in the Comparison of the Three Months Ended March 31, 2024 and 2023 section included elsewhere in Management’s Discussion and Analysis. The decrease in cash used in operating activities was also due to a $3.9 million decrease in accounts receivable related to increased collections from customers. These decreases in cash used in operating activities were partially offset by a decrease in stock-based compensation of $1.6 million primarily related to the cancellation of the CEO Performance Award, a decrease in accounts payable and accrued expenses of $3.4 million related to timing of payments and $0.2 million related to cash paid for the acquisition of legal workflow products from Congruity, an increase in other current assets of $0.3 million related to various prepaid expenses, and a $0.9 million decrease in deferred revenue as performance obligations are satisfied.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $8.0 million, a decrease of $13.8 million from net cash used in operating activities of $21.8 million for the six months ended June 30, 2023. The change in cash flow used in operations was primarily due to a decrease in net loss of $13.9 million. Fluctuations in net loss are further explained in the Comparison of the Six Months Ended June 30, 2024 and 2023 section included elsewhere in Management’s Discussion and Analysis. The decrease in cash used in operating activities was also due to a $3.7 million decrease in accounts receivable related to increased collections from customers. These decreases in cash used in operating activities were partially offset by a decrease in stock-based compensation of $2.4 million primarily related to the cancellation of the CEO Performance Award, a decrease in accounts payable and accrued expenses of $0.6 million, and an increase in other current assets of $0.8 million related to various prepaid expenses.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $0.7 million, a decrease of $1.3 million from net cash used in investing activities of $2.0 million for the three months ended March 31, 2023. The change in cash used in investing activities was primarily related a $1.2 million decrease in cash paid for the acquisition of legal workflow products from Congruity, as well as a $0.2 million decrease in purchases of purchases of property, equipment and capitalized internal-use software development costs.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 was $1.3 million, a decrease of $2.3 million from net cash used in investing activities of $3.7 million for the six months ended June 30, 2023. The change in cash used in investing activities was primarily related a $1.2 million decrease in cash paid for the acquisition of legal workflow products from Congruity, as well as a $1.2 million decrease in purchases of purchases of property, equipment and capitalized software development costs.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2024 was $2.9 million, a change of $4.0 million from net cash provided by financing activities of $1.2 million for the three months March 31, 2023. The change in cash flows was primarily related to the repurchase of common stock related to the share repurchase program of $2.7 million, a decrease in proceeds from exercises of stock options of $0.3 million due to a decrease in option exercise activity, a decrease in net proceeds received from the issuance of common stock under the ESPP of $0.6 million, as well as a $0.5 million increase in cash paid for the acquisition of legal workflow products from Congruity.

Current wording

Net cash used in financing activities for the six months ended June 30, 2024 was $20.2 million, a change of $21.4 million from net cash provided by financing activities of $1.2 million for the six months June 30, 2023. The change in cash flows was primarily related to an increase in cash paid for the 2024 share repurchase program of $20.1 million, as well as a $0.5 million increase in cash paid for the acquisition of legal workflow products from Congruity, partially offset by a decrease in proceeds from exercises of stock options of $0.3 million due to a decrease in option exercise activity, and a decrease in net proceeds received from the issuance of common stock under the ESPP of $0.6 million.

Previous wording

On May 20, 2022, the Compensation Committee approved the CEO Performance Award to Kiwi Camara, our Co-Founder who was then serving as the Chief Executive Officer, subject to approval of our stockholders at the 2022 Annual Meeting of Stockholders. The CEO Performance Award is a 10-year nonstatutory stock option, the vesting of which is tied solely to achieving stock price milestones. The milestone price requirement is considered a market condition under ASC Topic 718 Compensation - Stock Compensation. The grant date fair value of the CEO Performance Award was estimated using Monte Carlo simulations based on the following key assumptions:

Current wording

On May 20, 2022, the Compensation Committee approved the CEO Performance Award to Kiwi Camara, our Co-Founder who was then serving as the Chief Executive Officer, subject to approval of our stockholders at the 2022 Annual Meeting of Stockholders. The CEO Performance Award was a 10-year nonstatutory stock option, the vesting of which was tied solely to achieving stock price milestones. The milestone price requirement was considered a market condition under ASC Topic 718 Compensation - Stock Compensation. The grant date fair value of the CEO Performance Award was estimated using Monte Carlo simulations based on the following key assumptions:

Previous wording

•Fair value of the common stock. The fair value of our underlying common stock is determined by the closing price of our common stock on the date of grant, as reported by the NYSE.

Current wording

•Fair value of the common stock. The fair value of our underlying common stock was determined by the closing price of our common stock on the date of grant, as reported by the NYSE.

Previous wording

•Expected volatility. The expected volatility is derived from a weighted average of DISCO’s volatility and the historical volatilities of the common stock of several entities with characteristics similar to ours, such as the size and operational and economic similarities to our principal business operations.

Current wording

•Expected volatility. The expected volatility was derived from a weighted average of DISCO’s volatility and the historical volatilities of the common stock of several entities with characteristics similar to ours, such as the size and operational and economic similarities to our principal business operations.

Previous wording

•Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the CEO Performance Award.

Current wording

•Risk-free interest rate. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the CEO Performance Award.

Previous wording

•Expected dividend. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

Current wording

•Expected dividend. The expected dividend was assumed to be zero as we have never paid dividends and had no plans to pay any dividends on our common stock.