law-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40624

CS Disco, Inc.

(Exact name of registrant as specified in its charter)


Delaware	7372	46-4254444
(State or other jurisdiction of incorporation or organization)	(Primary standard industrial classification code number)	(I.R.S. Employer Identification No.)
	111 Congress Ave. Suite 900 Austin, Texas 78701
	(Address of Principal Executive Offices) (Zip Code)

(833) 653-4726

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.005	LAW	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	☒
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of July 31, 2023, the registrant had 60,138,215 shares of common stock, $0.005 par value per share, outstanding.

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		Page
Part I - Financial Information		4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of June 3 0 , 2023 and December 31, 2022	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 3 0 , 2023 and 2022	5
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30 , 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2023 and 2022	7
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II - Other Information		37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
Signatures		71

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions.

These forward-looking statements include, but are not limited to, statements concerning the following:

•our expectations regarding our revenue, expenses and other operating results;

•the impact of fluctuations in customer usage based on the timing of and activity driven by legal matters for which our solution is used;

•our ability to acquire new customers and successfully retain existing customers;

•our ability to increase usage of our solution;

•our ability to effectively manage our growth;

•our ability to achieve or sustain profitability;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

•the costs and success of our sales and marketing efforts and our ability to promote our brand;

•our growth strategies for our solution;

•the estimated addressable market opportunity for our solution;

•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;

•our ability to effectively manage our growth, including any international expansion;

•our ability to maintain, protect and enforce our intellectual property rights and any costs associated therewith;

•the impact of fluctuations in general macroeconomic conditions, including conditions resulting from inflation, rising interest rates and disruptions in access to bank deposits or lending commitments due to bank failures;

•the effects of global events, such as the COVID-19 pandemic, including variants of COVID-19, or other public health crises and the Russia-Ukraine war, on our business and the global economy;

•our ability to compete effectively with existing competitors and new market entrants; and

•the growth rates of the markets in which we compete.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on

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which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

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Part I - Financial Information

Item 1. Financial Statements

CS DISCO, INC.

Condensed Consolidated Balance Sheets

(in thousands, except par value amounts)

(unaudited)


	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	178,919	$	203,244
Accounts receivable, net	24,577		22,720
Other current assets	3,717		5,576
Total current assets	207,213		231,540
Property and equipment, net	8,638		7,507
Operating lease right-of-use assets	9,124		9,824
Intangible assets, net	821		962
Goodwill	5,898		5,898
Other assets	721		591
Total assets	$	232,415	$	256,322
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,122	$	8,485
Accrued expenses	4,386		4,705
Accrued salary and benefits	5,124		3,536
Deferred revenue	3,310		4,100
Operating leases	1,982		1,902
Finance leases	40		39
Total current liabilities	19,964		22,767
Operating leases, non-current	7,969		8,770
Finance leases, non-current	179		199
Other liabilities	424		950
Total liabilities	28,536		32,686
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock $0.005 par value, 100,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022	—		—
Common stock $0.005 par value, 1,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 60,056 and 59,190 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	301		296
Additional paid-in capital	437,087		421,569
Accumulated deficit	(233,509)		(198,229)
Total stockholders’ equity	203,879		223,636
Total liabilities and stockholders’ equity	$	232,415	$	256,322

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CS DISCO, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	34,276	$	33,710	$	67,405	$	68,178
Cost of revenue	9,039		8,489		17,316		17,458
Gross profit	25,237		25,221		50,089		50,720
Operating expenses:
Research and development	13,258		15,181		29,030		27,499
Sales and marketing	18,053		18,931		37,113		35,350
General and administrative	10,917		11,065		23,217		19,584
Total operating expenses	42,228		45,177		89,360		82,433
Loss from operations	(16,991)		(19,956)		(39,271)		(31,713)
Other income (expense)
Interest and other income	2,129		29		4,076		59
Interest and other expense	4		(200)		12		(293)
Loss from operations before income taxes	(14,858)		(20,127)		(35,183)		(31,947)
Income tax provision	(57)		(44)		(97)		(73)
Net loss attributable to common stockholders	$	(14,915)	$	(20,171)	$	(35,280)	$	(32,020)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.25)	$	(0.35)	$	(0.59)	$	(0.55)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted	59,856		58,344		59,648		58,159

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CS DISCO, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(in thousands)

(unaudited)


	Common stock			Additional paid-in capital		Accumulated deficit		Total
	Shares	Amount
Balance at December 31, 2022	59,190	$	296	$	421,569	$	(198,229)	$	223,636
Exercise of stock options	220	1		259		—		260
Repurchase of common stock related to net share settlement	(2)	—		(15)		—		(15)
Vesting of restricted stock units	112	1		(1)		—		—
Issuance of common stock under the Employee Stock Purchase Plan	132	1		931		—		932
RSAs cancelled	(13)	—		—		—		—
Stock compensation expense	—	—		7,350		—		7,350
Net loss	—	—		—		(20,365)		(20,365)
Balance at March 31, 2023	59,639	$	299	$	430,093	$	(218,594)	$	211,798
Exercise of stock options	17	—		23		—		23
Repurchase of common stock related to net share settlement	(3)	—		(23)		—		(23)
Vesting of restricted stock units	403	2		(2)		—		—
Stock compensation expense	—	—		6,996		—		6,996
Net loss	—	—		—		(14,915)		(14,915)
Balance at June 30, 2023	60,056	$	301	$	437,087	$	(233,509)	$	203,879


	Common stock			Additional paid-in capital		Accumulated deficit		Total
	Shares	Amount
Balance at December 31, 2021	58,010	$	291	$	395,850	$	(127,464)	$	268,677
Exercise of stock options	409	2		969		—		971
Repurchase of common stock related to net share settlement	(6)	—		(233)		—		(233)
Vesting of restricted stock units	14	—		—		—		—
Stock compensation expense	—	—		3,265		—		3,265
Net loss	—	—		—		(11,849)		(11,849)
Balance at March 31, 2022	58,427	$	293	$	399,851	$	(139,313)	$	260,831
Exercise of stock options	175	1		1,685		—		1,686
Repurchase of common stock related to net share settlement	(1)	—		(31)		—		(31)
Vesting of restricted stock units	61	—		—		—		—
Stock compensation expense	—	—		5,523		—		5,523
Net loss	—	—		—		(20,171)		(20,171)
Balance at June 30, 2022	58,662	$	294	$	407,028	$	(159,484)	$	247,838

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CS DISCO, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flow from operating activities:
Net loss	$	(35,280)	$	(32,020)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization	1,957		1,155
Stock-based compensation	14,092		8,728
Charge to allowance for credit losses	1,356		367
Loss (Gain) on disposal of long-lived assets	1		(1)
Unoccupied lease charges	—		798
Non-cash operating lease costs	699		513
Changes in operating assets and liabilities:
Accounts receivable	(3,214)		(3,935)
Other current assets	1,819		1,671
Other long-term assets	(124)		(387)
Accounts payable	(3,186)		2,966
Accrued expenses and other	1,616		(1,703)
Deferred revenue	(790)		211
Operating lease liabilities	(722)		(525)
Other liabilities	(30)

SEC Form 10-Q filed by CS Disco Inc.