CS Disco(LAW) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial and Business Highlights DISCO reported $38.1 million in total revenue for Q2 2025, with improved adjusted EBITDA, and expanded its AI-powered legal tech solutions in Europe and the UK Financial Highlights DISCO achieved $38.1 million in total revenue for Q2 2025, a 6% year-over-year increase, with software revenue growing 12% to $32.7 million, while GAAP net loss remained flat and adjusted EBITDA significantly improved to negative $2.7 million | Metric | Q2 2025 | Q2 2024 | YoY Change | | :----------------- | :------------- | :------------- | :------- | | Software Revenue (million USD) | $32.7 | - | +12% | | Total Revenue (million USD) | $38.1 | $36.0 | +6% | | GAAP Net Loss (million USD) | $(10.8) | $(10.8) | Flat | | Adjusted EBITDA (million USD) | $(2.7) | $(4.7) | Improved | Recent Business Highlights DISCO advanced its business by launching Auto Review, a generative AI automation tool, in Europe and the UK, releasing Searchable AV Transcriptions, and seeing a 150% increase in Cecilia AI platform adoption for multi-TB cases - Auto Review, a generative AI automation review tool, launched in the EU and UK[5] - Searchable AV Transcriptions tool was introduced, automatically converting audio and video files into searchable text[5] - Cases utilizing the Cecilia AI platform for multi-TB matters increased by 150% from December 2024 to June 2025[5] Financial Outlook DISCO provides its financial projections for Q3 and the full fiscal year 2025, including expected ranges for software revenue, total revenue, and adjusted EBITDA Third Quarter 2025 Outlook DISCO forecasts Q3 2025 software revenue between $32.75 million and $33.75 million, total revenue between $37.5 million and $39.5 million, and adjusted EBITDA between negative $5.0 million and negative $3.0 million | Metric | Range (million USD) | | :----------------- | :--------------- | | Software Revenue | $32.75 - $33.75 | | Total Revenue | $37.5 - $39.5 | | Adjusted EBITDA | $(5.0) - $(3.0) | Fiscal Year 2025 Outlook DISCO raised its FY 2025 outlook, projecting software revenue between $128.0 million and $134.0 million, total revenue between $148.0 million and $158.0 million, and adjusted EBITDA between negative $17.0 million and negative $13.0 million | Metric | Range (million USD) | | :----------------- | :--------------- | | Software Revenue | $128.0 - $134.0 | | Total Revenue | $148.0 - $158.0 | | Adjusted EBITDA | $(17.0) - $(13.0) | Chief Financial Officer Transition Michael Lafair will step down as DISCO's CFO by the end of 2025, transitioning to an advisory role while the company conducts an external search for his successor - Michael Lafair will resign as Chief Financial Officer, effective no later than the end of 2025[7] - Following his resignation, Michael Lafair will serve as an advisor to DISCO[7] - The company has initiated an external search process for a successor[7] Conference Call Information DISCO hosted its Q2 earnings conference call and webcast on August 6, 2025, with replays available via phone until August 27 and online for 12 months - The conference call and webcast were held on August 6, 2025, to discuss second-quarter financial results[9] - A telephone replay is available until August 27, 2025, and the webcast replay will be archived on ir.csdisco.com for 12 months[10] About DISCO DISCO (NYSE: LAW) delivers comprehensive, innovative modern litigation solutions through its intuitive cloud-native platform, leveraging AI technology to help law firms and enterprises achieve faster, smarter outcomes - DISCO offers a comprehensive, innovative cloud-native platform focused on modern litigation technology[11] - The company utilizes AI technology to help law firms and enterprises achieve faster, smarter litigation outcomes[11] Use of Non-GAAP Financial Measures This section defines DISCO's non-GAAP financial measures, outlines their limitations, and explains management's rationale for using them to assess operational performance Definition and Adjustments DISCO employs non-GAAP metrics like Adjusted EBITDA, non-GAAP gross profit, and non-GAAP operating expenses, adjusting GAAP net loss to exclude depreciation, amortization, income taxes, interest, stock-based compensation, payroll taxes on stock transactions, shareholder litigation, and other non-recurring items for core operational performance reflection - Adjusted EBITDA is derived from GAAP net loss by excluding depreciation, amortization, income tax expense, interest and other income (expense), net, stock-based compensation expense, payroll taxes related to employee stock transactions, shareholder litigation expenses, and other non-recurring items[14] - Non-GAAP cost of revenue, gross profit, research and development expense, sales and marketing expense, general and administrative expense, loss from operations, and net loss primarily adjust for stock-based compensation expense and shareholder litigation expenses[14][15] Limitations of Non-GAAP Measures Non-GAAP financial measures do not conform to GAAP, may not be fully comparable to other companies, and exclude items that could significantly impact operating and net losses, thus serving as supplementary information rather than replacements for GAAP metrics - Non-GAAP financial measures are not prepared in accordance with GAAP and may not be fully comparable to those of other companies[16] - Certain excluded items can have a significant impact on operating loss and net loss[16] - These measures should be considered as a supplement to, not a substitute for, or superior to, GAAP measures[16] Management's Use of Non-GAAP Measures Management utilizes non-GAAP measures to evaluate operating performance, formulate annual budgets, allocate resources, assess business strategies, ensure consistency and comparability in financial results, and communicate financial performance to the board - Management uses non-GAAP measures to assess operating performance, formulate annual budgets, and allocate resources[17] - These metrics are used to evaluate the effectiveness of business strategies and provide consistency and comparability with past financial performance[17] - They are also used for comparisons with other companies and to communicate financial performance to the board of directors[17] Forward-Looking Statements This press release contains forward-looking statements regarding DISCO's future financial results and business plans, which are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations, including operational losses, limited operating history, innovation capacity, customer acquisition and retention, market expansion, reliance on customer usage, and macroeconomic conditions - Forward-looking statements are not predictions of future events, and actual results may differ materially due to known and unknown risks and uncertainties[18][19] - Key risks include a history of operating losses, limited operating history, ability to innovate and maintain brand, ability to acquire and retain customers and penetrate existing customer base, ability to expand sales coverage and internationally, reliance on customer usage, and macroeconomic conditions[19] - Further details on risks are available in the company's periodic reports filed with the SEC, including the Form 10-Q for the quarter ended March 31, 2025[20] Investor Relations Contact Investor relations inquiries can be directed to IR@csdisco.com - The investor relations contact email is IR@csdisco.com[22] Condensed Consolidated Financial Statements This section presents DISCO's condensed consolidated balance sheets, statements of operations and comprehensive loss, and statements of cash flows for the specified periods Condensed Consolidated Balance Sheets As of June 30, 2025, DISCO's total assets were $164.87 million, a decrease from $180.32 million on December 31, 2024, with corresponding reductions in total liabilities and stockholders' equity | Metric (thousand USD) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------- | :--------------- | :----- | | Total Assets | $164,872 | $180,320 | $(15,448) | | Total Liabilities | $26,977 | $32,806 | $(5,829) | | Total Stockholders' Equity | $137,895 | $147,514 | $(9,619) | Condensed Consolidated Statements of Operations and Comprehensive Loss In Q2 2025, DISCO's total revenue reached $38.11 million, a $2.10 million year-over-year increase, with GAAP net loss at $10.81 million, largely flat; first-half total revenue was $74.76 million, with a net loss of $22.21 million Q2 2025 vs. Q2 2024 (thousand USD) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | YoY Change | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Revenue (thousand USD) | $38,106 | $36,005 | +$2,101 | | Gross Profit (thousand USD) | $28,423 | $26,717 | +$1,706 | | Operating Loss (thousand USD) | $(11,810) | $(12,384) | +$574 | | Net Loss (thousand USD) | $(10,812) | $(10,834) | +$22 | | Net Loss Per Share (Basic and Diluted) (USD) | $(0.18) | $(0.18) | $0.00 | First Half 2025 vs. First Half 2024 (thousand USD) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Revenue (thousand USD) | $74,759 | $71,576 | +$3,183 | | Gross Profit (thousand USD) | $55,573 | $53,436 | +$2,137 | | Operating Loss (thousand USD) | $(24,420) | $(24,716) | +$296 | | Net Loss (thousand USD) | $(22,205) | $(21,416) | $(789) | | Net Loss Per Share (Basic and Diluted) (USD) | $(0.36) | $(0.35) | $(0.01) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities increased to $14.72 million, net cash used in investing activities significantly rose to $16.29 million due to short-term investment purchases and maturities, and net cash used in financing activities substantially decreased to $0.092 million, primarily due to prior-year stock repurchases First Half 2025 vs. First Half 2024 Cash Flow Comparison (thousand USD) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :------------------------- | :-------------------- | :-------------------- | :--------- | | Net Cash Used in Operating Activities (thousand USD) | $(14,719) | $(7,980) | $(6,739) | | Net Cash Used in Investing Activities (thousand USD) | $(16,288) | $(1,344) | $(14,944) | | Net Cash Used in Financing Activities (thousand USD) | $(92) | $(20,222) | +$20,130 | | Net Decrease in Cash and Cash Equivalents (thousand USD) | $(31,099) | $(29,546) | $(1,553) | | Cash and Cash Equivalents at End of Period (thousand USD) | $21,672 | $130,005 | $(108,333) | Reconciliation from GAAP to Non-GAAP Results This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including Adjusted EBITDA, gross profit, operating expenses, and net loss Adjusted EBITDA Reconciliation In Q2 2025, Adjusted EBITDA improved to negative $2.69 million, with a negative 7% margin, up from negative $4.74 million (negative 13% margin) in Q2 2024, reflecting similar improvements for the first half Adjusted EBITDA (thousand USD) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Net Loss (thousand USD) | $(10,812) | $(10,834) | $(22,205) | $(21,416) | | Total Adjustments (thousand USD) | $8,124 | $6,098 | $14,428 | $11,488 | | Adjusted EBITDA (thousand USD) | $(2,688) | $(4,736) | $(7,777) | $(9,928) | | Adjusted EBITDA Margin | (7)% | (13)% | (10)% | (14)% | Non-GAAP Cost of Revenue and Gross Profit Reconciliation In Q2 2025, non-GAAP cost of revenue was $9.12 million, non-GAAP gross profit was $28.99 million, and non-GAAP gross margin was 76%, remaining largely consistent with the prior year Non-GAAP Cost of Revenue and Gross Profit (thousand USD) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :-------------------- | :-------------------- | | GAAP Cost of Revenue (thousand USD) | $9,683 | $9,288 | | Non-GAAP Adjustments (Stock-based compensation) (thousand USD) | $(562) | $(432) | | Non-GAAP Cost of Revenue (thousand USD) | $9,121 | $8,856 | | Non-GAAP Gross Profit (thousand USD) | $28,985 | $27,149 | | Non-GAAP Gross Margin | 76% | 75% | Non-GAAP Operating Expenses Reconciliation In Q2 2025, non-GAAP R&D expenses were 31% of revenue, non-GAAP sales and marketing expenses were 36% (improved from 40% year-over-year), and non-GAAP G&A expenses were 19% (improved from 22% year-over-year), indicating enhanced operational efficiency Non-GAAP Operating Expenses as a Percentage of Revenue | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :-------------------- | :-------------------- | | Non-GAAP R&D Expense as % of Revenue | 31% | 30% | | Non-GAAP Sales and Marketing Expense as % of Revenue | 36% | 40% | | Non-GAAP G&A Expense as % of Revenue | 19% | 22% | Non-GAAP Loss from Operations and Net Loss Reconciliation In Q2 2025, non-GAAP operating loss improved to $3.75 million (negative 10% margin) from $5.94 million (negative 17% margin) in the prior year, with non-GAAP net loss attributable to common stockholders narrowing to $2.75 million, or $0.04 per share Non-GAAP Loss from Operations and Net Loss (thousand USD) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :-------------------- | :-------------------- | | GAAP Operating Loss (thousand USD) | $(11,810) | $(12,384) | | Non-GAAP Operating Loss (thousand USD) | $(3,751) | $(5,942) | | Non-GAAP Operating Margin | (10)% | (17)% | | GAAP Net Loss Attributable to Common Stockholders (thousand USD) | $(10,812) | $(10,834) | | Non-GAAP Net Loss Attributable to Common Stockholders (thousand USD) | $(2,753) | $(4,392) | | Non-GAAP Net Loss Per Share Attributable to Common Stockholders (USD) | $(0.04) | $(0.07) |