CS Disco (LAW) Q3 2024 earnings summary

Executive summary

• Q3 2024 revenue reached $36.3 million, up 4% year-over-year, with software revenue at $30.2 million, up 6% year-over-year.

• Adjusted EBITDA was $(4.5) million for Q3 2024, unchanged from Q3 2023, with a margin of (12%).

• Net loss widened to $9.2 million in Q3 2024 from $1.0 million in Q3 2023.

• Strategic focus shifted to larger, high-value customers, with multi-year deals signed with Fortune 500, large tech companies, a large bank, and a leading online food delivery platform.

• Leadership changes included hiring a new Chief Sales Officer, General Counsel/Chief Compliance Officer, and SVP of Operations.

Financial highlights

• Gross margin for Q3 was 74%, with gross profit at $26.5 million.

• Services revenue declined 7% year-over-year to $6.1 million, mainly due to lower review usage.

• Sales and marketing expense was $13.8 million (38% of revenue), down from 44% a year ago.

• R&D expense rose to $12.8 million in Q3 2024, driven by increased headcount.

• Operating loss was $5.6 million (-15% margin), improved from -17% last year.

• Cash and equivalents at quarter-end were $76.5 million, with short-term investments of $50.2 million, totaling $126.7 million.

• Operating cash flow for the first three quarters was -$10.8 million, a significant improvement from -$28.7 million a year ago.

Outlook and guidance

• Q4 2024 revenue guidance: $35.2–$37.2 million; software revenue: $30–$31 million.

• Q4 Adjusted EBITDA expected between $(7.6) million and $(5.6) million.

• FY 2024 revenue guidance: $143–$145 million; software revenue: $119.4–$120.4 million.

• FY 2024 Adjusted EBITDA expected between $(22.0) million and $(20.0) million.

• Plans to launch new AI-powered features and integrate primary law content in 2025.