Cs Disco, Inc. ((LAW)) has held its Q4 earnings call. Read on for the main highlights of the call.
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In a recent earnings call, CS Disco, Inc. presented a mixed financial outlook, balancing positive growth indicators with ongoing financial challenges. The company reported growth in software revenue and an increase in high-value customers, along with improvements in dollar-based net retention. While these developments were encouraging, there were notable challenges, including negative adjusted EBITDA, a decline in services revenue, a significant impairment charge, and a wider guidance range for 2025, suggesting some uncertainty. Overall, while there are growth areas, the financial difficulties present a tempered outlook.
Improvement in Software Revenue
The earnings call highlighted that CS Disco, Inc. achieved software revenue of $120.1 million for fiscal year 2024, marking a 7% increase over the previous year. This growth indicates a positive trend in the company’s core software business, contributing significantly to the overall revenue.
Increase in High-Value Customers
The company experienced a 9% year-over-year growth in the number of customers contributing more than $100,000, with revenue from these customers growing at more than double the rate of those contributing less. This shift towards high-value customers is a strategic move to enhance revenue stability and growth.
Positive Growth in Dollar-Based Net Retention (DNR)
CS Disco, Inc. reported an improvement in their dollar-based net retention, with total revenue DNR moving from 92% to 96%, and software DNR from 97% to 100%. This indicates stronger customer loyalty and increased revenue from existing customers.
Strategic Focus on Larger Customers
The company’s strategic focus on larger customers is beginning to show results. By shifting their go-to-market strategy towards this segment, CS Disco, Inc. is positioning itself for long-term growth, leveraging larger contracts and deeper customer relationships.
Introduction of New Product Features
In an effort to boost product efficiency and international support, CS Disco, Inc. introduced new capabilities such as advanced reproductions and document-level Bates numbering. These enhancements are expected to improve the user experience and broaden the product’s appeal.
Negative Adjusted EBITDA
Despite improvements, CS Disco, Inc. reported a negative adjusted EBITDA of $18.7 million for fiscal year 2024. However, this is an improvement from the previous year’s negative $25.9 million, reflecting a gradual path towards profitability.
Decline in Services Revenue
The company saw a 4% year-over-year decline in services revenue, totaling $24.7 million. This drop was primarily attributed to a decrease in review revenue, highlighting a challenge in the services segment.
Impairment Charge
CS Disco, Inc. recorded a full non-cash impairment charge of $15.2 million on the primary law asset and related capitalized development. This significant accounting adjustment reflects challenges in asset valuation and development costs.
Wider Guidance Range for 2025
The revenue guidance for fiscal year 2025 was presented with a wider range, indicating potential uncertainty in achieving higher growth rates. This suggests that while the company is optimistic about future growth, there are external factors contributing to a cautious forecast.
Forward-Looking Guidance
Looking ahead, CS Disco, Inc. provided a comprehensive outlook for fiscal year 2025, projecting total revenue between $145.5 million and $257.5 million, with adjusted EBITDA expected to range from negative $19 million to negative $15 million. The company aims to reach breakeven-adjusted EBITDA by Q4 2026, signaling a strategic focus on financial stability and growth.
In conclusion, CS Disco, Inc.’s earnings call reflects a nuanced picture of growth and challenges. While there are positive developments in software revenue and customer retention, financial challenges such as negative adjusted EBITDA and a wider guidance range for 2025 present a more tempered outlook. Investors and stakeholders will be keenly watching the company’s strategic efforts to overcome these hurdles and capitalize on growth opportunities.
