Just over a year ago, the e-discovery company CS DISCO became one of just a handful of legal technology companies ever to go public, listing on the New York Stock Exchange.
But on Friday, the company’s stock (LAW) took a tumble, dropping by more than 50% to close at $13.43, after the company announced its second quarter financial results for the year.
Although the company’s total revenue for the quarter was up 14% compared to 2021 (to $33.7 million) and its GAAP net loss was down, it nevertheless cut its guidance for 2022, dropping from a previous forecast of $149-$153 million to a new forecast of $132-136 million.
The company’s chief financial officer, Michael Lafair, said Disco cut its outlook due to “the volatility and our review business” and in anticipation of “incremental headwinds that may materialize in the back half of the year.”
The company also reduced its earnings guidance, saying that adjusted EBITDA will be a loss of $60 million to $56 million, which is worse than the company’s previous estimate of between $51.5 million to $43.5 million.
Still, Kiwi Camara, cofounder and CEO, said the quarter “marked another excellent period of accomplishments at DISCO.”
“We are excited to see a growing number of customers transitioning to our cloud-native solution as we increased our customer count to 1,255, an increase of 27% year over year,” Camara said. “With the launch of topic clustering with automatic indexing — a highly anticipated innovation in our software — we continue to improve our full-stack solution to give our customers the necessary tools to transform the practice of law.”
But in an earnings call, Camara said the “usage-based nature of our business can result in revenue volatility,” especially activity or lack of activity in larger cases.
“This is especially true for our review product,” he said. “While we continued to see strong performance in e-discovery in Q2, we experienced this volatility in our review business.”
At the same time, he said that the company “continued to add new customers at a steady pace,” and that it customer count had increased 27% year-on-year to 1,255.
“Our steady growth in customer count reflects growing adoption of cloud computing and software-based solutions in the market. We believe our future growth will come both from continuing to add new customers and from expanding these customers by growing the percentage of their legal work that happens on our platform across all our products.”