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What changed in CS Disco, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CS Disco, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+500 added−482 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-24)

Top changes in CS Disco, Inc.'s 2023 10-K

500 paragraphs added · 482 removed · 410 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

64 edited+7 added−6 removed23 unchanged
Biggest changeThe SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing.
Biggest changeSuch reports and other information filed by us with the SEC are available free of charge 10 Table of Contents on our website at ir.csdisco.com when such reports are available on the SEC’s website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Our single, end-to-end solution replaces the fragmented landscape of solutions and vendors historically used by legal departments. The solutions we replace often include separate, high and unpredictable costs for different parts of the ediscovery and legal document review process, such as processing, the review platform, analytics and infrastructure.
Our single, end-to-end platform replaces the fragmented landscape of solutions and vendors historically used by legal departments. The solutions we replace often include separate, high and unpredictable costs for different parts of the ediscovery and legal document review process, such as processing, the review platform, analytics and infrastructure.
Regardless of who we contract with, the ultimate payer is almost always the corporate legal department, with law firms and service providers passing on our bills to their clients for reimbursement. In 2022, no customer accounted for more than 10% of our revenue and less than 10% of our revenue was generated from customers outside of the United States.
Regardless of who we contract with, the ultimate payer is almost always the corporate legal department, with law firms and service providers passing on our bills to their clients for reimbursement. In 2023, no customer accounted for more than 10% of our revenue and less than 10% of our revenue was generated from customers outside of the United States.
In addition, we expect to expand our solution to address additional areas of the legal function and we will likely face further competition from existing companies in such areas. 9 Table of Contents We believe the principal competitive factors in our market include the following: • level of user satisfaction; • ease of deployment, implementation and use; • scalability, reliability, security and performance; • breadth of offering; • solution features and capabilities; • accuracy, quality and speed of review; • ability to connect multiple stakeholders in a cloud-based solution; • quality and use of AI; • comprehensiveness, quality and availability of support and professional services; • brand awareness and reputation; and • cost and predictability of costs.
In addition, we expect to expand our product offerings to address additional areas of the legal function and we will likely face further competition from existing companies in such areas. 9 Table of Contents We believe the principal competitive factors in our market include the following: • level of user satisfaction; • ease of deployment, implementation and use; • scalability, reliability, security and performance; • breadth of offering; • product offering features and capabilities; • accuracy, quality and speed of review; • ability to connect multiple stakeholders in cloud-based product offerings; • quality and use of AI; • comprehensiveness, quality and availability of support and professional services; • brand awareness and reputation; and • cost and predictability of costs.
Since our incorporation in 2013, and beginning with our founders, DISCO has assembled a team that combines strength in software engineering, cloud computing and AI, with deep legal expertise and a rich understanding of the problems that lawyers and legal professionals face and how they work.
Since our incorporation in 2013, DISCO has assembled a team that combines strength in software engineering, cloud computing and AI, with deep legal expertise and a rich understanding of the problems that lawyers and legal professionals face and how they work.
We provide legal departments with the ability to centralize legal data into a single solution, improving security and privacy for our customers, enabling transparent collaboration with other legal industry participants and allowing customers to reuse data and lawyer work product across legal matters.
We provide legal departments with the ability to centralize legal data into a single platform, improving security and privacy for our customers, enabling transparent collaboration with other legal industry participants and allowing customers to reuse data and lawyer work product across legal matters.
Our aim is to build a company where great people can do the work of their lives and where every Discovian can see the impact that their work has on advancing our mission of using technology to strengthen the rule of law.
Our aim is to build a company where great people can do the work of their lives and where every employee can see the impact that their work has on advancing our mission of using technology to strengthen the rule of law.
Information contained on, or that can be accessed through, our website is not incorporated by reference into 10 Table of Contents this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
Our customers include a diverse set of enterprises across a broad set of industries, as well as law firms, legal services providers of all sizes and governmental organizations. While we serve customers across many different industries, the way in which lawyers and legal professionals use our solution is similar regardless of the specific industry in which each customer operates.
Our customers include a diverse set of enterprises across a broad set of industries, as well as law firms, legal services providers of all sizes and governmental organizations. While we serve customers across many different industries, the way in which lawyers and legal professionals use our product offerings is similar regardless of the specific industry in which each customer operates.
Our marketing activities are focused on building our brand reputation, increasing awareness of our solution among potential customers, converting users into customers and otherwise driving customer demand. We reach potential customers and generate leads for our sales team through a combination of customer prospecting, content marketing, social media, digital marketing, public relations, event marketing and sponsorships.
Our marketing activities are focused on building our brand reputation, increasing awareness of our product offerings among potential customers, converting users into customers and otherwise driving customer demand. We reach potential customers and generate leads for our sales team through a combination of customer prospecting, content marketing, social media, digital marketing, public relations, event marketing and sponsorships.
This combination of expertise means that our team is distinctly well-positioned to execute on our vision of building technology that powers the legal function across companies in every industry. Our focus on delivering a solution that legal professionals value is coupled with a simple and transparent usage-based business model.
This combination of expertise means that our team is distinctly well-positioned to execute on our vision of building technology that powers the legal function across companies in every industry. Our focus on delivering product offerings that legal professionals value is coupled with a simple and transparent usage-based business model.
One particular area of focus of our sales team is the conversion of users into customers. Our typical entry into an organization is through lawyers at corporate legal departments and law firms. These or other customers also use our applications to collaborate with other legal industry participants who may or may not be our customers.
One particular area of focus of our sales team is the conversion of users into customers. Our typical entry into an organization is through lawyers at corporate legal departments and law firms. These or other customers also use our product offerings to collaborate with other legal industry participants who may or may not be our customers.
Our full-stack solution currently includes: • DISCO Hold automates the manual work necessary to comply with preservation requirements, empowering legal teams to preserve data, notify custodians, track holds with a defensible audit trail, and collect data when ready. • DISCO Request automates response compliance for legal requests like service of process requests, subpoenas, and law enforcement requests, giving legal teams control and visibility from intake to resolution. • DISCO Ediscovery automates much of the ediscovery process, saving legal departments from costly and cumbersome manual tasks associated with collecting, processing, enriching, searching, reviewing, analyzing, producing and using enterprise data that is at issue in legal matters. • DISCO Review is an AI-powered document review that consistently delivers legal document reviews that are high quality, on time and on budget. • DISCO Case Builder allows legal professionals to collaborate across teams to effectively build a compelling case by offering a single place to search, organize and review witness testimony and other important legal data.
Our comprehensive product offerings currently include: • DISCO Hold automates the manual work necessary to comply with preservation requirements, empowering legal teams to preserve data, notify custodians, track holds with a defensible audit trail, and collect data when ready. • DISCO Request automates response compliance for legal requests like service of process requests, subpoenas, and law enforcement requests, giving legal teams control and visibility from intake to resolution. • DISCO Ediscovery automates much of the ediscovery process, saving legal departments from costly and cumbersome manual tasks associated with collecting, processing, enriching, searching, reviewing, analyzing, producing and using enterprise data that is at issue in legal matters. • DISCO Review is an AI-powered document review that consistently delivers legal document reviews that are high quality, on time and on budget. • DISCO Case Builder allows legal professionals to collaborate across teams to effectively build a compelling case by offering a single place to search, organize and review witness testimony and other important legal data.
Customers can realize these benefits either by leveraging DISCO Review or using DISCO Ediscovery as the solution on which existing law firms and legal services providers conduct legal document review themselves. • Faster Resolution of Legal Matters with Better Outcomes.
Customers can realize these benefits either by leveraging DISCO Review or using DISCO Ediscovery as the product offerings on which existing law firms and legal services providers conduct legal document review themselves. • Faster Resolution of Legal Matters with Better Outcomes.
This has allowed us to build a powerful product-led growth engine that efficiently expands the usage of our solution for more legal matters and use cases within organizations, spreads our solution across the legal ecosystem through collaboration and word-of-mouth and increases the value of our solution as we collect and process more data and lawyers do more legal work in our solution.
This has allowed us to build a powerful product-led growth engine that expands the usage of our product offerings for more legal matters and use cases within organizations, spreads our product offerings across the legal ecosystem through collaboration and word-of-mouth and increases the value of our product offerings as we collect and process more data and lawyers do more legal work in our platform.
Our AI models continuously learn from legal work conducted on our solution and can be reused across legal matters, which further strengthens our ability to help our customers find evidence and resolve matters faster as they expand usage of our solution.
Our AI models continuously learn from legal work conducted on our product offerings and can be reused across legal matters, which further strengthens our ability to help our customers find evidence and resolve matters faster as they expand usage of our product offerings.
By contrast, our simple, all-in pricing model and flexible terms align with our customers’ needs, are easy to understand and guarantee costs for our customers, allowing legal departments to improve cost predictability and budget planning. Our Customers As of December 31, 2022, we had 1,327 customers, increasing from 1,126 as of December 31, 2021.
By contrast, our simple, all-in pricing model and flexible terms align with our customers’ needs, are easy to understand and guarantee costs for our customers, allowing legal departments to improve cost predictability and budget planning. Our Customers As of December 31, 2023, we had 1,441 customers, increasing from 1,327 as of December 31, 2022.
For example, a legal department may add users who work at law firms that are not yet our customers. We aim to proactively secure referrals to other prospective customers as well as converting users of our solution who are not yet customers.
For example, a legal department may add users who work at law firms that are not yet our customers. We aim to proactively secure referrals to other prospective customers as well as converting users of our product offerings who are not yet customers.
We are also subject to laws and regulations involving taxes, privacy and data security, anti-spam, content protection, electronic contracts and communications, mobile communications, unencumbered internet access to our solution, the design and operation of websites and internet neutrality.
We are also subject to laws and regulations involving taxes, privacy and data security, anti-spam, content protection, electronic contracts and communications, mobile communications, unencumbered internet access to our product offerings, the design and operation of websites and internet neutrality.
The customers of our customers who are legal services providers are generally legal departments and law firms. Some of our law firm customers additionally buy our applications for the purpose of reselling them to their clients, who are legal departments, often in combination with professional services and legal services.
The customers of our customers who are legal services providers are generally legal departments and law firms. Some of our law firm customers additionally buy our product offerings for the purpose of reselling them to their clients, who are legal departments, often in combination with professional services and legal services.
Our applications bring sophisticated technology, such as AI, to bear at the right points in a legal workflow in a way that feels natural and is not intimidating to the end user.
Our product offerings bring sophisticated technology, such as AI, to bear at the right points in a legal workflow in a way that feels natural and is not intimidating to the end user.
Our sales organization includes sales development representatives, field sales, inside sales, solution architects and our customer success team. Our sales development representatives are responsible for finding and initiating contact with prospective customers, booking initial meetings with our sales team and demonstrating our applications.
Our sales organization includes sales development representatives, field sales, inside sales, solution architects and our customer success team. Our sales development representatives are responsible for finding and initiating contact with prospective customers, booking initial meetings with our sales team and demonstrating our product offerings.
Our customer success professionals maintain ongoing relationships with users at our customers and partner with our sales team to secure referrals and capture upsell opportunities. 8 Table of Contents In addition to our direct sales force, we also sell through legal services providers who buy our applications and resell them to their own customers, often in combination with professional services.
Our customer success professionals maintain ongoing relationships with users at our customers and partner with our sales team to secure referrals, capture upsell opportunities and improve customer satisfaction. 8 Table of Contents In addition to our direct sales force, we also sell through legal services providers who buy our product offerings and resell them to their own customers, often in combination with professional services.
Additionally, because we use DISCO Ediscovery internally to deliver DISCO Review, we are able to maintain a tight feedback loop that accelerates improvement of our solution and training of our AI models, increasing the effectiveness of our overall solution for all customers over time.
Additionally, because we use DISCO Ediscovery internally to deliver DISCO Review, we are able to maintain a tight feedback loop that accelerates improvement of our product offerings and training of our AI models, increasing the effectiveness of our overall platform for all customers over time.
We have built our solution to incorporate the latest advances in automation and AI directly into existing lawyer workflows to multiply lawyer productivity across the ediscovery and legal document review lifecycle.
We have built our product offerings to incorporate the latest advances in automation and AI directly into existing lawyer workflows to multiply lawyer productivity across the ediscovery and legal document review lifecycle.
We intend to extend our solution and apply it to other kinds of legal work over time, enabling us to compete for an increasing share of global spend on legal services.
We intend to extend our product offerings and apply it to other kinds of legal work over time, enabling us to compete for an increasing share of global spend on legal services.
Legal departments that use our solution and use many law firms across their legal matters, as well as law firms and service providers that use our solution for multiple clients, are each treated as one customer.
Legal departments that use our product offerings and use many law firms across their legal matters, as well as law firms and service providers that use our product offerings for multiple clients, are each treated as one customer.
We believe that our substantial and continued investment in research and development, including hiring top engineering talent, in conjunction with our focus on having lawyers and legal professionals involved in every aspect of the product development process is critical to expanding our leadership position and developing applications that seem magical to our users.
We believe that our substantial and continued investment in research and development, including hiring top engineering talent, in conjunction with our focus on having lawyers and legal professionals involved in every aspect of the product development process is critical to developing our product offerings and expanding our leadership position.
Our solution is enabled by our deep investment in a modern, scalable cloud architecture that accelerates application development; makes our offerings robust, scalable and secure; and enables us to act as a secure single system of record and engagement for all legal data at enterprise scale.
Our product offerings are enabled by our deep investment in a modern, scalable cloud architecture that accelerates application development. This makes our product offerings robust, scalable and secure and enables us to act as a secure single system of record and engagement for all legal data at enterprise scale.
We enable customers to consume our offerings in a self-service way or as a turnkey, full-stack solution, giving our customers the flexibility to tailor their legal hold, legal request, ediscovery, and legal document review processes to their own legal work strategy and use different combinations of our offerings on different subsets of their legal work.
We enable customers to consume our offerings in a self-service way or as a turnkey, comprehensive platform, giving our customers the flexibility to tailor their legal hold, legal request, ediscovery, and legal document review processes to their own legal work strategy and use different combinations of our offerings on different subsets of their legal work.
Our cloud-native, AI-powered solution is augmented with deep expertise, consultative professional services and flexible customer support, enabling us to be a single-source provider and meet the diverse needs of customers across industries. • High End-User Satisfaction Driven by Applications Built for Lawyers and Other Legal Professionals.
Our cloud-native, AI-powered product offerings are augmented with deep expertise, consultative professional services and flexible customer support, enabling us to be a single-source provider and meet the diverse needs of customers across industries. • High End-User Satisfaction Driven by Product Offerings Built for Lawyers and Other Legal Professionals.
We have focused on building a culture that encourages bold experimentation and innovation and that is rigorous about measuring the results of our innovation so that we can direct investment toward ideas that work and away from ideas that do not. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees.
We are focused on building a culture that encourages bold experimentation and innovation and that is rigorous about measuring the results of our innovation so that we can direct investment toward ideas that work and away from ideas that do not. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, rewarding and integrating our existing and new employees.
We believe that we will be able to continue expanding customer relationships by increasing customers’ usage of applications that they already buy 7 Table of Contents from us, selling more of our existing applications to existing customers, and, in the future, introducing additional applications to sell to existing customers.
We believe that we will be able to continue expanding customer relationships by increasing customers’ usage of product offerings that they 7 Table of Contents already buy from us, selling more of our existing product offerings to existing customers, and, in the future, introducing additional product offerings to sell to existing customers. • Add New Customers.
We believe this enables our customers to easily adopt our solution, realize rapid time-to-value, scale their usage within and across applications to match their changing needs and collaborate with others.
We believe this enables our customers to easily adopt our product offerings, realize rapid time-to-value, scale their usage within and across product offerings to match their changing needs and collaborate with others.
With our full-stack solution, legal departments no longer need to rely on a fragmented network of slow, antiquated processes and law firms and service providers manually collecting, searching and reviewing documents. We believe this reduces legal costs, increases lawyer productivity and improves legal outcomes.
With our comprehensive product offerings, legal departments no longer need to rely on a fragmented network of slow, antiquated processes and law firms and service providers manually collecting, searching and reviewing documents. We believe this reduces legal costs, increases lawyer productivity and improves legal outcomes.
Competitors in this category include Everlaw, Inc., Logik Systems, Inc. (d.b.a. Logikcull), Relativity through its RelativityOne product offering and Reveal Data Corporation as well as many other smaller software companies.
Competitors in this category include Everlaw, Inc., Relativity through its RelativityOne product offering and Reveal Data Corporation (which recently acquired another competitor, Logik Systems, Inc. d/b/a Logikcull) as well as many other smaller software companies.
We strive to create product experiences that feel “magical” to lawyers: intuitive, easy to use, powerful and comprehensive. Our cloud-native architecture delivers a level of performance comparable to the consumer applications that modern lawyers use every day.
We strive to create product offerings that are intuitive, easy to use, powerful and comprehensive. Our cloud-native architecture delivers a level of performance comparable to the consumer applications that modern lawyers use every day.
The principal purposes of our equity and other incentive plans are to attract, retain and motivate selected employees, consultants and directors. As of December 31, 2022, we had 661 full-time employees. Sales and Marketing We sell our solution through a direct sales force which is organized based on the stages of our sales motion.
The principal purposes of our equity and other incentive plans are to attract, retain and motivate selected employees, consultants and directors. As of December 31, 2023, we had 543 full-time employees. Sales and Marketing We sell our product offerings through a direct sales force which is organized based on the stages of our sales motion.
Item 1. Business Overview DISCO provides a cloud-native, artificial intelligence-powered legal solution that simplifies legal hold, legal request, ediscovery, legal document review and case management for enterprises, law firms, legal services providers and governments. Our scalable, integrated solution enables legal departments to easily collect, process and review enterprise data that is relevant or potentially relevant to legal matters.
Item 1. Business Overview DISCO provides cloud-native, artificial intelligence-powered legal product offerings that simplify legal hold, legal request, ediscovery, legal document review and case management for enterprises, law firms, legal services providers and governments. Our scalable, integrated product offerings enable legal departments to easily collect, process and review enterprise data that is relevant or potentially relevant to legal matters.
Additionally, our product development process and roadmap are informed by the continuous feedback we receive from Discovians who use our software as part of our DISCO Review offering and in our support and professional services organization. As of December 31, 2022, we had 176 employees in our research and development organization.
Additionally, our product development process and roadmap are informed by the continuous feedback we receive from customers who use our software as well as our employees who use our software as part of our DISCO Review offering and in our support and professional services organization. As of December 31, 2023, we had 133 employees in our research and development organization.
The availability of our full-stack solution removes the need for our customers to manage workflows and data transfer between multiple services providers and point solutions, freeing up legal professionals to focus on higher value legal work.
The availability of our comprehensive product offerings removes the need for our customers to manage workflows and data transfer between multiple services providers and point solutions, freeing up legal professionals to focus on higher value legal work.
At the same time, we believe rapid growth in use of consumer software and other consumer technology, including the proliferation of mobile devices, the generational shift of lawyers and the increasing career mobility of lawyers, are all contributing to a radical change in expectations for legal technology used in the workplace. 5 Table of Contents Our Solution Since our inception, our principal goal has been to create experiences that feel “magical” to lawyers, by delivering intuitive, intelligent offerings that are well-tailored to lawyers’ workflows and a joy for legal professionals to use.
At the same time, we believe rapid growth in use of consumer software and other consumer technology, including the proliferation of mobile devices, the generational shift of lawyers and the increasing career mobility of lawyers, are all contributing to a radical change in expectations for legal technology used in the workplace. 5 Table of Contents Our Product Offerings Since our inception, our principal goal has been to deliver easy-to-use, intuitive, intelligent product offerings that are well-tailored to lawyers’ workflows.
Our Competition Our market is rapidly evolving and highly competitive. Almost all potential customers have existing solutions for ediscovery and legal document review in place, which typically consists of a mix of on-premise point solutions and human professional services. To win new customers, we must displace these incumbent solutions.
Our Competition Our market is rapidly evolving and highly competitive. Almost all potential customers have existing solutions for ediscovery and legal document review in place, which typically consists of a mix of cloud-based solutions, on-premise point solutions and human professional services.
Key Benefits of Our Solution Our end-to-end solution was designed to improve the everyday experience of lawyers and legal professionals and improve legal outcomes for legal departments. We deliver the following key benefits: • Full Stack and Turnkey .
Key Benefits of Our Product Offerings Our end-to-end platform was designed to improve the everyday experience of lawyers and legal professionals and improve legal outcomes for legal departments. We deliver the following key benefits: • Comprehensive and Turnkey .
Our solution enables lawyers to determine the facts and use those facts to assess legal matters and produce evidence more quickly.
Our product offerings enable lawyers to determine the facts and use those facts to assess legal matters and produce evidence more quickly.
Our cloud-native, AI-powered software is augmented with deep expertise, consultative professional services and flexible customer support that enables us to be a single-source provider and meet the diverse needs of customers in every industry.
Cecilia Timelines allows attorneys to automatically create smart timelines at the start of a matter and produce comprehensive reviews with facts succinctly summarized. Our cloud-native, AI-powered software is augmented with deep expertise, consultative professional services and flexible customer support that enables us to be a single-source provider and meet the diverse needs of customers in every industry.
See the section titled “Risk Factors - Risks related to Litigation, Regulatory Compliance and Governmental Matters - We operate in a highly regulated industry and either are or may be subject to a wide range of federal, state and local, as well as foreign, laws, rules and regulations and our failure to comply with these laws and regulations may force us to change our operations or harm our business.” Facilities Our headquarters are located in Austin, Texas, where we lease approximat ely 46,000 square feet pursuant to a lease that expires in July 2028.
See the section titled “Risk Factors - Risks related to Litigation, Regulatory Compliance and Governmental Matters - We operate in a highly regulated industry, and either are or may be subject to a wide range of federal, state and local, as well as foreign, laws, rules and regulations and our failure to comply with these laws and regulations may force us to change our operations or harm our business.” Corporate Information We were incorporated in Delaware in December 2013.
These principles shape our culture and guide the way we work, support each other and our communities and serve our customers. We believe that our culture and commitment to giving back to our community are critical to advancing our mission of using technology to strengthen the rule of law.
We believe that our culture and commitment to giving back to our community are critical to advancing our mission of using technology to strengthen the rule of law.
We intend to keep combining our deep legal domain expertise and commitment to world-class software engineering to continue delivering features that lawyers love and introducing new applications to address more areas of legal work. • Add New Customers.
We intend to keep combining our deep legal domain expertise and commitment to world-class software engineering to continue delivering features and introducing new product offerings to address more areas of legal work. • Increase Usage and Penetration Within Our Existing Customer Base.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendment to these reports are filed with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.csdisco.com when such reports are available on the SEC’s website.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendment to these reports are filed with the SEC.
These innovations allow lawyers to spend less time finding and fixing human errors and managing the routing 6 Table of Contents of documents through lawyer workflows and more time on higher value tasks that require legal judgment.
Our product offerings allow lawyers to use AI and analytics integrated into a lawyer-friendly and highly automated workflow to increase the accuracy and quality of legal reviews. These innovations allow lawyers to spend less time finding and fixing human errors and managing the routing of documents through lawyer workflows and more time on higher value tasks that require legal judgment.
These characteristics of our solution encourage and accelerate widespread adoption by lawyers and other legal professionals, which in turn accelerates the time to value for our customers. • Increased Accuracy and Quality of Review. Our solution allows lawyers to use AI and analytics integrated into a lawyer-friendly and highly automated workflow to increase the accuracy and quality of legal reviews.
These characteristics of our product offerings encourage and accelerate widespread adoption by lawyers and other legal professionals, which in turn accelerates the time to value for our customers. 6 Table of Contents • Increased Accuracy and Quality of Review.
Law affects everyone, from the largest multinational corporations to local mom-and-pop businesses, from the most powerful national governments to the smallest towns and from major civic organizations to individual citizens.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the definition of dollar-based net retention rate. Law affects everyone, from the largest multinational corporations to local mom-and-pop businesses, from the most powerful national governments to the smallest towns and from major civic organizations to individual citizens.
As of December 31, 2022, we had 276 professionals in our sales and marketing organization. Research and Development Our research and development organization is responsible for the design, development, testing and delivery of our cloud-native solution and platform.
Research and Development Our research and development organization is responsible for the design, development, testing and delivery of our cloud-native product offerings and platform.
Certain law firms also provide ediscovery solutions and legal document review services to their clients that may compete with our solutions for discrete matters. • Legacy on-premise software. Competitors in this category include Nuix Limited, Open Text Corporation, Relativity ODA LLC, or Relativity, RELX PLC and Thomson Reuters Corporation, as well as many other smaller software companies. • Cloud software.
Competitors in this category include Nuix Limited, Open Text Corporation, Relativity ODA LLC, or Relativity, RELX PLC and Thomson Reuters Corporation, as well as many other smaller software companies. • Cloud software.
Our field and inside sales teams are responsible for converting interested prospects into DISCO customers and then expanding our relationship with existing customers by increasing their usage of our applications and cross-selling additional applications. Our solution architects provide deep expertise in our technology and are responsible for providing current and prospective clients with technical and workflow sales consulting.
Our field and inside sales teams are responsible for converting interested prospects into DISCO customers and then expanding our relationship with existing customers by increasing their usage of our product offerings and cross-selling additional offerings. We have organized our field and inside sales teams to target customers based on the nature and type of customer.
Extend our Reach • Enhance Our Sales Coverage and Establish a Digital Sales Channel. We intend to continue to selectively expand our sales force headcount in strategic locations across the United States and globally.
We believe we have a significant opportunity to further grow our customer base and our market leadership. Differentiated product offerings will enable us to efficiently acquire new customers across all channels. Extend our Reach • Enhance Our Sales Coverage. We intend to continue to selectively expand our sales force headcount in strategic locations across the United States and globally.
We also incorporate lead generation directly into our product experience, with buttons that enable our customers to easily increase their usage, add new applications and engage our experts for additional support. Additionally, we believe we have an attractive opportunity to develop a more robust digital sales channel that can further facilitate efficient, self-service adoption by our customers.
We also incorporate lead generation directly into our product experience, with buttons that enable our customers to easily increase their usage, add new matters and engage our experts for additional support. As of December 31, 2023, we had 174 professionals in our sales and marketing organization.
We intend to leverage our technology to introduce further offerings that increase lawyer productivity across more and more areas of legal work over time. • Pursue Strategic Acquisitions and Strategic Investments. We intend to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our solution and bring talent to our company.
We intend to cultivate and leverage channel partners to grow our market presence, enhance the virality of our product offerings and drive greater sales efficiency. • Expand Our Offering Portfolio. We intend to leverage our technology to introduce further offerings that increase lawyer productivity across more and more areas of legal work over time. • Expand Internationally.
We are committed to fostering a diverse and inclusive workplace that values input from every corner of our business and creating an environment where all people feel welcome and connected regardless of their background. Our culture is guided by the principles we set forth in our MAGIC core values: Meaningful impact, All-in, Grit and grace, Innovation and Craft.
We strive to attract, retain, develop and promote collaborative, curious and high-performing employees across all areas of our business. We are committed to fostering a workplace that values input from every corner of our business and creating an environment where all people feel welcome and connected.
As of December 31, 2022, we had 1,327 enterprises, law firms, legal services providers and government organizations as DISCO customers and a dollar-based net retention rate of 106%. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the definition of dollar-based net retention rate.
As of December 31, 2023, we had 1,441 enterprises, law firms, legal services providers and government organizations as DISCO customers and a dollar-based net retention rate of 92%. We define a customer as an entity that we have a contract with and from whom we have recognized revenue during the preceding month.
As of December 31, 2022, we held five U.S. granted patents and 12 pending U.S. patent applications. As of December 31, 2022, we held one registered U.S. trademark and held eight domain names in the United States and foreign jurisdictions. T he existence of a pending application is not an assurance that it will issue or lead to a registration.
T he existence of a pending application is not an assurance that it will issue or lead to a registration.
In 2022, less than 10% of our revenue was generated by customers outside of the United States. • Extend and Strengthen Our Channel Partnerships and Integrations. We intend to cultivate and leverage channel partners to grow our market presence, enhance the virality of our solution and drive greater sales efficiency. • Expand Our Offering Portfolio.
Our market is global and we have a significant opportunity to expand internationally. In 2023, less than 10% of our revenue was generated by customers outside of the United States. • Pursue Strategic Acquisitions and Strategic Investments.
Our Employees and Culture We believe that great achievements come from aiming great people at big problems, and that our employees, who we call “Discovians,” are the principal driver of our success. We strive to attract, retain, develop and promote humble, curious and empathetic Discovians across all areas of our business.
We intend to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our platform and product offerings and bring talent to our company. Our Employees and Culture We believe that great achievements come from great people solving big problems, and that our employees are the principal driver of our success.
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We believe we have a significant opportunity to further grow our customer base and our market leadership and differentiated solution will enable us to efficiently acquire new customers across all channels. As of December 31, 2022, we had 1,327 customers, increasing from 1,126 customers as of December 31, 2021. • Increase Usage and Penetration Within Our Existing Customer Base.
Added
For example, our new Cecilia AI platform, which was released publicly in the fourth quarter of 2023 in the United States, is a comprehensive suite of features that includes Cecilia Q&A and Cecilia Timelines. Cecilia Q&A is a chatbot that allows lawyers to learn about facts and information in their private DISCO Ediscovery database more efficiently.
Removed
Additionally, we plan to develop a digital, self-service sales channel that can simplify the sales process and enable customers to easily adopt our solution through our website without the need to speak with a sales representative. • Expand Internationally. Our market is global and we have a significant opportunity to expand internationally.
Added
We have bifurcated our customers into groups that better reflect their nature and through the reorganization of our sales team, we have developed distinct sales motions that better accommodate these groups. • Extend and Strengthen Our Channel Partnerships and Integrations.
Removed
Diversity, equity and inclusion is a cornerstone of our strategy in this regard: we are committed to making DISCO a place where all people feel welcome and connected regardless of their background.
Added
In doing so, we have developed distinct sales motions that better accommodate our different groups of customers. Our solution architects provide deep expertise in our technology and are responsible for providing current and prospective clients with technical and workflow sales consulting.
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We believe our competitors fall into several categories: • Legal services providers.
Added
To win new customers, we must displace these incumbent solutions as customers open up to evaluations of new product offerings or are willing to add to their existing portfolio. We believe our competitors fall into several categories: • Legal services providers.
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We have other offices located in New York , New York and London, United Kingdom. These offices are leased, and we do not own any real property. We may lease or purchase additional space as needed to accommodate our needs. Corporate Information We were incorporated in Delaware in December 2013.
Added
Certain law firms also provide ediscovery solutions and legal document review services to their clients that may compete with our product offerings for discrete matters. • Legacy on-premise software.
Removed
Further, our references to website URLs are intended to be inactive textual references only. 11 Table of Contents
Added
As of December 31, 2023, we held nine U.S. granted patents and had 16 pending U.S. patent applications. As of December 31, 2023, we held one U.S. trademark, had three pending U.S. trademarks and held nine domain names in U.S. and foreign jurisdictions.
Added
The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

246 edited+55 added−28 removed235 unchanged
Biggest changeIn addition, we expect to continue to expend substantial financial and other resources on: • our technology infrastructure, including systems architecture, scalability, availability, performance and security; • sales and marketing, including the future expansion of our sales organization to engage existing and prospective customers, increase brand awareness and drive adoption of our solution; • product development, including investments in our development team and the development of new applications of our solution and new functionality for our existing applications and in the protection of our intellectual property rights related to our product development; 12 Table of Contents • services and support for the benefit and assistance of customers using our solution; • acquisitions or strategic investments; • international expansion; and • general administration, including increased legal and accounting expenses associated with being a public company.
Biggest changeIf the assumptions that we use to plan our business are incorrect or change in reaction to changes in the markets in which we operate, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. 11 Table of Contents In addition, we expect to continue to expend substantial financial and other resources on: • our technology infrastructure, including systems architecture, scalability, availability, performance and security; • sales and marketing, including the future expansion of our sales organization to engage existing and prospective customers, increase brand awareness and drive adoption of our product offerings; • product development, including investments in our development team and the development of new functionality for our product offerings and in the protection of our intellectual property rights related to our product development; • services and support for the benefit and assistance of customers using our product offerings; • acquisitions or strategic investments; • international expansion; and • general administration, including the legal and accounting expenses associated with being a public company.
Some European regulators have prevented companies from transferring personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, and consumer protection laws.
Some European regulators have prevented companies from transferring personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations. In the United States, federal, state, and local governments have enacted numerous privacy, data protection and information security, including data breach notification laws, personal information privacy laws, and consumer protection laws.
For example, California enacted the California Consumer Privacy Act of 2018, or CCPA, which imposes obligations on businesses to which it applies. For example, the CCPA gives California residents rights to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used.
For example, California enacted the California Consumer Privacy Act of 2018, or CCPA, which imposes obligations on businesses to which it applies. The CCPA gives California residents rights to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from a global or domestic recession or the fear thereof, inflation, rising interest rates, changes in gross domestic product growth, inflation, rising interest rates, financial and credit market fluctuations, political turmoil, natural catastrophes, lower corporate earnings, reduction in business confidence and activity, warfare and terrorist attacks on the United States, Europe, the Asia-Pacific region, or elsewhere, could cause a decrease in business investments, including spending on information technology, which would harm our business.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from a global or domestic recession or the fear thereof, inflation, fluctuations in interest rates, changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, lower corporate earnings, reduction in business confidence and activity, warfare and terrorist attacks on the United States, Europe, the Asia-Pacific region, or elsewhere, could cause a decrease in business investments, including spending on information technology, which would harm our business.
Any of these threats may lead to a security incident and significant adverse consequences, including compromise of our system infrastructure or the loss, destruction, alteration, denial of access to, disclosure or dissemination of, or damage or unauthorized access to, our information technology systems, data (including trade secrets or other confidential information, intellectual property, proprietary business information and personal information) or data that is processed or maintained on our behalf, or other assets.
Any of these threats and issues may lead to a security incident and significant adverse consequences, including compromise of our system infrastructure or the loss, destruction, alteration, denial of access to, disclosure or dissemination of, or damage or unauthorized access to, our information technology systems, data (including trade secrets or other confidential information, intellectual property, proprietary business information and personal information) or data that is processed or maintained on our behalf, or other assets.
For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability. Our international operations may subject us to potential adverse tax consequences. We are expanding our international operations and staff to better support our growth into international markets.
For these reasons, we may not be able to utilize a material portion of our NOLs, even if we were to achieve profitability. Our international operations may subject us to potential adverse tax consequences. We are expanding our international operations and staff to better support our growth into international markets.
While some of our competitors provide a platform with applications to support one or more use cases, many others provide point-solutions that address a single use case. Other potential competitors not currently offering competitive applications may expand their product offerings to compete with our solution.
While some of our competitors provide a platform with applications to support one or more use cases, many others provide point-solutions that address a single use case. Other potential competitors not currently offering competitive applications may expand their product offerings to compete with our product offerings.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security and impose strict requirements for processing personal data, including the European Union’s General Data Protection Regulation, or EU GDPR and the United Kingdom’s version of the GDPR or UK GDPR.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to privacy, data protection and information security and impose strict requirements for processing personal information, including the European Union’s General Data Protection Regulation, or EU GDPR and the United Kingdom’s version of the GDPR or UK GDPR.
If certain of our third-party licensors were to change product offerings, cease actively supporting the technologies, fail to update and enhance the technologies to keep pace with changing industry standards, encounter technical difficulties in the continuing development of these technologies, significantly increase prices, terminate our licenses, suffer significant capacity or supply chain constraints or suffer significant disruptions, we would need to seek alternative suppliers and incur additional internal or external development costs to ensure continued performance of our solution.
If certain of our third-party licensors were to change product offerings, cease actively supporting the technologies, fail to update and enhance the technologies to keep pace with changing industry standards, encounter technical difficulties in the continuing development of these technologies, significantly increase prices, terminate our licenses, cease operations, suffer significant capacity or supply chain constraints or suffer significant disruptions, we would need to seek alternative suppliers and incur additional internal or external development costs to ensure continued performance of our product offerings.
These new obligations and constituents require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could harm our business, results of operations and financial condition.
These obligations and constituents require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could harm our business, results of operations and financial condition.
With the introduction of new technologies and market entrants, we expect that the competitive environment in which we compete will remain intense going forward. Almost all potential customers have existing solutions for ediscovery and legal document review in place, which typically consists of a mix of on-premise point solutions and human professional service providers to deliver these solutions.
With the introduction of new technologies and market entrants, we expect that the competitive environment in which we compete will remain intense going forward. Almost all potential customers have existing solutions for ediscovery and legal document review in place, which typically consists of a mix of cloud-based solutions, on-premise point solutions and human professional service providers to deliver these solutions.
Due the fact that we rely on third-party providers of cloud-based infrastructure to host our cloud-based solution, it may become increasingly difficult to maintain and improve their performance, especially during peak usage times and as our cloud capabilities become more complex and our user traffic increases, because we do not control the infrastructure supporting these services.
Due the fact that we rely on third-party providers of cloud-based infrastructure to host our cloud-based platform, it may become increasingly difficult to maintain and improve their performance, especially during peak usage times and as our cloud capabilities become more complex and our user traffic increases, because we do not control the infrastructure supporting these services.
In addition, any incident affecting our third-party hosting services’ infrastructure that may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, outbreaks of contagious diseases, terrorist or other attacks and other similar events beyond our control could negatively affect our cloud-based solution.
In addition, any incident affecting our third-party hosting services’ infrastructure that may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, outbreaks of contagious diseases, terrorist or other attacks and other similar events beyond our control could negatively affect our cloud-based platform.
We have hired, and need to continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. Management has concluded that our internal control over financial reporting was effective as of December 31, 2022.
We have hired, and need to continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. Management has concluded that our internal control over financial reporting was effective as of December 31, 2023.
If the market for our solution grows more slowly than expected or if demand for our solution does not grow as quickly as anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environment, budgetary constraints of our customers or other factors, our business would be harmed.
If the market for our product offerings grows more slowly than expected or if demand for our product offerings does not grow as quickly as anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environment, budgetary constraints of our customers or other factors, our business would be harmed.
For the year ended December 31, 2022, the percentage of revenue generated from customers outside the United States was less than 10% of our total revenue. We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect.
For the year ended December 31, 2023, the percentage of revenue generated from customers outside the United States was less than 10% of our total revenue. We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect.
If our solution fails to perform properly due to defects, interruptions, delays in performance or similar problems and if we fail to resolve any defect, interruption, delay or other problem, we could lose customers, become subject to service performance or warranty claims or incur significant costs. Our operations are dependent upon our ability to prevent system interruption.
If our platform fails to perform properly due to defects, interruptions, delays in performance or similar problems and if we fail to resolve any defect, interruption, delay or other problem, we could lose customers, become subject to service performance or warranty claims or incur significant costs. Our operations are dependent upon our ability to prevent system interruption.
In addition, some internet providers may take measures that affect their customers’ ability to use our solution, such as degrading the quality of the content we transmit over their lines, giving that content lower priority, giving other content higher priority than ours, blocking our content entirely, or attempting to charge their customers more for using our solution.
In addition, some internet providers may take measures that affect their customers’ ability to use our platform, such as degrading the quality of the content we transmit over their lines, giving that content lower priority, giving other content higher priority than ours, blocking our content entirely, or attempting to charge their customers more for using our platform.
These consequences may include, but are not limited to, governmental investigations or enforcement actions (e.g., investigations, fines, penalties, audits, inspections), litigation, claims or public statements against us by consumer advocacy groups or others, which could result in significant liability or cause our customers to lose trust in us, additional reporting requirements and/or oversight, bans on processing personal information, or orders to destroy or not use personal information, any of which could 33 Table of Contents have an adverse effect on our reputation and business.
These consequences may include, but are not limited to, governmental investigations or enforcement actions (e.g., investigations, fines, penalties, audits, inspections), litigation, claims or public statements against us by consumer advocacy groups or others, which could result in significant liability or cause our customers to lose trust in us, additional reporting requirements and/or oversight, bans on processing personal information, or orders to destroy or not use personal information, any of which could have an adverse effect on our reputation and business.
Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, the United Kingdom Bribery Act and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Due to the international scope of our operations, we must comply with these laws in each jurisdiction where we operate.
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. domestic bribery laws, the United Kingdom Bribery Act and other anti-corruption and anti-money laundering laws in the countries in which we conduct activities. Due to the international scope of our operations, we must comply with these laws in each jurisdiction where we operate.
Risks Related to Ownership of Our Common Stock Insiders have substantial control over us and will be able to influence corporate matters. Based on the number of shares outstanding as of December 31, 2022, our officers, directors and their associated investment funds collectively beneficially owned a majority of our outstanding common stock.
Risks Related to Ownership of Our Common Stock Insiders have substantial control over us and will be able to influence corporate matters. Based on the number of shares outstanding as of December 31, 2023, our officers, directors and their associated investment funds collectively beneficially owned a majority of our outstanding common stock.
Our success will depend to a substantial extent on the widespread adoption of our solution as an alternative to existing offerings, including as an alternative to traditional systems relying on manual tasks and processes. Our customers include law firms and other legal services providers, legal departments of corporate enterprises and organizations and governmental entities.
Our success will depend to a substantial extent on the widespread adoption of our product offerings as an alternative to existing offerings, including as an alternative to traditional systems relying on manual tasks and processes. Our customers include law firms and other legal services providers, legal departments of corporate enterprises and organizations and governmental entities.
Any disruption in the operations of these third-party providers, limitations on capacity, or interference with our use could adversely affect our business, financial condition and results of operations. Our continued growth depends in part on the ability of our existing and potential customers to continue to adopt and utilize our cloud-based solution.
Any disruption in the operations of these third-party providers, limitations on capacity, or interference with our use could adversely affect our business, financial condition and results of operations. Our continued growth depends in part on the ability of our existing and potential customers to continue to adopt and utilize our cloud-based platform.
We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers.
We are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy, data protection and information security laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers.
Any significant change to applicable laws, regulations or industry practices regarding the collection, use, retention, security or disclosure of our customers’ data, or regarding the manner in which the express or implied consent of customers for the collection, use, retention or disclosure of such content is obtained, could increase our costs and require us to modify our solution, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process customer data or develop new applications and features.
Any significant change to applicable laws, regulations or industry practices regarding the collection, use, retention, security or disclosure of our customers’ content, or regarding the manner in which the express or implied consent of customers for the collection, use, retention or disclosure of such content is obtained, could increase our costs and require us to modify our product offerings, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process customer data or develop new applications and features.
In the past, securities class action litigation often has been brought against a company following a decline in the market price of its securities.
In the past, securities class action litigation has been brought against a company following a decline in the market price of its securities.
Our cloud-based solution depends on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers, which is transmitted by third-party internet service providers.
Our cloud-based platform depends on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers, which is transmitted by third-party internet service providers.
The technologies underlying our cloud solution are complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We have from time to time found defects in our solution and may discover additional defects in the future that could result in service issues.
The technologies underlying our cloud platform are complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We have from time to time found defects in our platform and may discover additional defects in the future that could result in service issues.
The EU GDPR and UK GDPR are wide-ranging in scope and impose numerous requirements, including requiring that consent of individuals to whom the personal information relates is obtained in certain circumstances, requiring additional 32 Table of Contents disclosures to individuals regarding data processing activities, requiring that appropriate safeguards are implemented to protect the security and confidentiality of personal information, creating mandatory data breach notification requirements in certain circumstances and requiring that certain measures (including contractual requirements) are put in place when engaging third-party data processors.
The EU GDPR and UK GDPR are wide-ranging in scope and impose numerous requirements, including requiring that consent of individuals to whom the personal information relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that appropriate safeguards are implemented to protect the security and confidentiality of personal information, creating mandatory data breach notification requirements in certain circumstances and requiring that certain measures (including contractual requirements) are put in place when engaging third-party data processors.
Overall growth of our revenue depends on a number of factors, including our ability to: • price our solution effectively so that we are able to attract new customers and expand sales to our existing customers; • expand the functionality applications of our solution; • maintain and expand the rates at which customers use our solution; • provide our customers with support that meets their needs; • maintain or increase customer satisfaction with our solution; • continue to introduce and sell our solution to new markets; • continue to develop applications and new functionality on our solution and successfully further optimize our solution, including continued innovation of our artificial intelligence system for legal documents; • successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our solution; • recruit, hire, train and manage additional qualified developers, professionals and sales and marketing personnel; and • increase awareness of our brand on a global basis and successfully compete with other companies.
Overall growth of our revenue depends on a number of factors, including our ability to: • price our product offerings effectively so that we are able to attract new customers and expand sales to our existing customers; • expand the functionality of our product offerings; • maintain and expand the rates at which customers use our product offerings; • provide our customers with support that meets their needs; • maintain or increase customer satisfaction with our product offerings; • continue to introduce and sell our product offerings to new markets; • continue to develop new functionality within our product offerings and successfully further optimize our product offerings, including continued innovation of our artificial intelligence system for legal documents; • successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our product offerings; • recruit, hire, train and manage additional qualified developers, professionals and sales and marketing personnel; and • increase awareness of our brand on a global basis and successfully compete with other companies.
A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes could, among other things, result in substantial tax payments, create significant administrative burdens for us, discourage potential customers from subscribing to our solution due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.
A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes could, among other things, result in substantial tax payments, create significant administrative burdens for us, discourage potential customers from subscribing to our product offerings due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.
If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
If there is no lawful manner for us to transfer personal information from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory 32 Table of Contents actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our solution or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis.
There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our platform or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis.
In particular, usage of DISCO Review, our AI-powered document review offering, decreases and increases more significantly with the completion and inception of litigation, investigations and other legal matters than with our other offerings, and as a result can have a material impact on our quarter-to-quarter revenue fluctuations, even though revenues from such offering currently constitute a small proportion of our overall annual revenues.
In particular, usage of DISCO Review, our AI-powered document review offering, decreases and increases more significantly with the completion and inception of litigation, investigations and other legal matters than with our other 13 Table of Contents offerings, and as a result can have a material impact on our quarter-to-quarter revenue fluctuations, even though revenues from such offering currently constitute a small proportion of our overall annual revenues.
We outsource substantially all of the infrastructure relating to our cloud-based solution to third-party hosting services. In particular, Amazon Web Services, or AWS, provides the cloud computing infrastructure that we use to host our solution and many of the internal tools we use to operate our business.
We outsource substantially all of the infrastructure relating to our cloud-based platform to third-party hosting services. In particular, Amazon Web Services, or AWS, provides the cloud computing infrastructure that we use to host our platform and many of the internal tools we use to operate our business.
We have in the past and may in the future make acquisitions of other companies, products and technologies that we believe could complement, expand or enhance the features and functionality of our solution and technical capabilities, broaden our service offerings or offer growth opportunities.
We have in the past and may in the future make acquisitions of other companies, products and technologies that we believe could complement, expand or enhance the features and functionality of our product offerings and technical capabilities, broaden our service offerings or offer growth opportunities.
If we fail to obtain licenses to use such third-party offerings or otherwise integrate our solution with such offerings, our business may be harmed. If the cost of licensing or maintaining the third-party intellectual property significantly increases, our operating earnings could significantly decrease.
If we fail to obtain licenses to use such third-party offerings or otherwise integrate our product offerings with such offerings, our business may be harmed. If the cost of licensing or maintaining the third-party intellectual property significantly increases, our operating earnings could significantly decrease.
These problems can be caused by a variety of factors, including introductions of new functionality, vulnerabilities and defects in proprietary and open source software, human error or misconduct, capacity 23 Table of Contents constraints, design limitations, as well as from internal and external security breaches, malware and viruses, ransomware, cyber events, denial or degradation of service attacks or other security-related incidents.
These problems can be caused by a variety of factors, including introductions of new functionality, vulnerabilities and defects in proprietary and open source software, human error or misconduct, capacity constraints, design limitations, as well as from internal and external security breaches, malware and viruses, ransomware, cyber events, denial or degradation of service attacks or other security-related incidents.
Any of our significant customers may decide to purchase less than they have in the past, may alter their purchasing patterns at any time with limited notice, may cease usage of our solution following the conclusion of a matter, or may decide not to continue to use our solution at all, any of which could cause our revenue to decline and adversely affect our financial condition and results of operations.
Any of our significant customers may decide to purchase less than they have in the past, may alter their purchasing patterns at any time with limited notice, may cease usage of our product offerings following the conclusion of a matter, or may decide not to continue to use our product offerings at all, any of which could cause our revenue to decline and adversely affect our financial condition and results of operations.
Our agreements with customers and other third parties sometimes include provisions under which we are liable or agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our solution, services, or other contractual obligations.
Our agreements with customers and other third parties sometimes include provisions under which we are liable or agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our product offerings, services, or other contractual obligations.
Further, the cost to respond to a security breach and/or to mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these issues may not be successful, and these issues could result in interruptions, delays, cessation of service, negative publicity, loss of customer trust, diminished use of our solution as well as other harms to our business and our competitive position.
Further, the cost to respond to a security breach and/or to mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these issues may not be successful, and these issues could result in interruptions, delays, cessation of service, negative publicity, loss of customer trust, diminished use of our product offerings as well as other harms to our business and our competitive position.
Risks Related to Tax and Accounting Matters Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. Our net operating loss, or NOL, carryforwards could expire unused and be unavailable to offset future income tax liabilities.
Risks Related to Tax and Accounting Matters Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations. Portions of our net operating loss, or NOL, carryforwards could expire unused and be unavailable to offset future income tax liabilities.
Our ability to provide effective customer support is largely dependent on our ability to attract, train and retain qualified personnel with experience in supporting customers with a cloud solution such as ours and maintaining the same.
Our ability to provide effective customer support is largely dependent on our ability to attract, train and retain qualified personnel with experience in supporting customers with a cloud platform such as ours and maintaining the same.
We also are dependent on the continued service of our existing software engineers because of the complexity of our solution, and our existing salespeople, because of their relationship with our customers. Our senior management and key employees are employed on an at-will basis.
We also are dependent on the continued service of our existing software engineers because of the complexity of our platform, and our existing salespeople, because of their relationship with our customers. Our senior management and key employees are employed on an at-will basis.
This may require significant and costly sales efforts that are targeted at law firms and legal departments of corporate enterprises and organizations and the senior management of these potential customers. In addition, our ability to attract new customers depends in part on our partner ecosystem, consisting of law firms and other legal services providers who resell our solution.
This may require significant and costly sales efforts that are targeted at law firms and legal departments of corporate enterprises and organizations and the senior management of these potential customers. In addition, our ability to attract new customers depends in part on our partner ecosystem, consisting of law firms and other legal services providers who resell our product offerings.
If we are unable to enhance, modify or improve our solution to keep pace with evolving customer requirements, or if new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently, or more securely than our solution, our business, financial condition and results of operations could be adversely affected.
If we are unable to enhance, modify or improve our product offerings to keep pace with evolving customer requirements, or if new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently, or more securely than our product offerings, our business, financial condition and results of operations could be adversely affected.
We must convince potential customers of the value of our cloud software solution and that our technologies can automate and simplify legal services more accurately, efficiently and securely than lawyers and their staff and the products of our competitors.
We must convince potential customers of the value of our cloud software platform and that our technologies can automate and simplify legal services more accurately, efficiently and securely than lawyers and their staff and the products of our competitors.
If we fail to renew these contracts as they expire, we may be unable to offer certain aspects of our solution to our customers. In addition, all of our third-party software licenses are nonexclusive; and therefore, our competitors may obtain the right to license certain of the technology covered by these agreements to compete directly with us.
If we fail to renew these contracts as they expire, we may be unable to offer certain aspects of our product offerings to our customers. In addition, all of our third-party software licenses are nonexclusive; and therefore, our competitors may obtain the right to license certain of the technology covered by these agreements to compete directly with us.
The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities; changes in tax rates; new or revised tax laws or interpretations of existing tax laws and policies; and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements.
The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities; changes in tax rates; new or revised tax laws or interpretations of existing tax laws and policies; and our ability to operate our business in a manner consistent with our corporate structure and intercompany 36 Table of Contents arrangements.
We collect and remit sales tax in a number of jurisdictions where we, through our employees, have a presence and where we have determined, based on the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. and legal precedents in the jurisdiction, that we have “economic nexus” or sales of our solution are otherwise classified as taxable.
We collect and remit sales tax in a number of jurisdictions where we, through our employees, have a presence and where we have determined, based on the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. and legal precedents in the jurisdiction, that we have “economic nexus” or sales of our product offerings are otherwise classified as taxable.
The variables that go into the calculation of our market opportunity are subject to change over time and there is no guarantee that any particular number or percentage of addressable users or companies covered by our addressable target market opportunity estimates will purchase our solution at all or generate any particular level of revenue for us.
The variables that go into the calculation of our market opportunity are subject to change over time and there is no guarantee that any particular number or percentage of addressable users or companies covered by our addressable target market opportunity estimates will purchase our product offerings at all or generate any particular level of revenue for us.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solution, impair the functionality of our solution, delay introductions of new applications, result in our substituting inferior or more costly technologies into our solution or injure our reputation.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our product offerings, impair the functionality of our product offerings, delay introductions of new applications, result in our substituting inferior or more costly technologies into our product offerings or injure our reputation.
There is uncertainty as to what constitutes sufficient physical presence or nexus for a state or local jurisdiction to levy taxes, fees and surcharges for sales made over the internet and our characterization of our solution as not taxable in certain jurisdictions may not be accepted by state and local taxing authorities.
There is uncertainty as to what constitutes sufficient physical presence or nexus for a state or local jurisdiction to levy taxes, fees and surcharges for sales made over the internet and our characterization of our product offerings as not taxable in certain jurisdictions may not be accepted by state and local taxing authorities.
Our effective tax rate could be adversely impacted by several factors, including: • Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates; • Changes in tax laws, tax treaties and regulations or the interpretation of them, including federal income tax legislation proposed by Congress (which has not yet been enacted); • Changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax-planning strategies and the economic and political environments in which we do business; • The outcome of current and future tax audits, examinations or administrative appeals; and • Limitations or adverse findings regarding our ability to do business in some jurisdictions.
Our effective tax rate could be adversely impacted by several factors, including: • Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates; • Changes in tax laws, tax treaties and regulations or the interpretation of them, including federal income tax legislation proposed by Congress (which has not yet been enacted); • Changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax-planning strategies and the economic and political environments in which we do business; • The outcome of current and future tax audits, examinations or administrative appeals; and • Limitations or adverse findings regarding our ability to do business in some jurisdictions. 37 Table of Contents Should our effective tax rate rise, our business could be harmed.
As usage of our solution grows, we will need to devote additional resources to improving and maintaining our infrastructure and integrating with third-party applications, including open source software. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base.
As usage of our product offerings grows, we will need to devote additional resources to improving and maintaining our infrastructure and integrating with third-party applications, including open source software. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base.
Any of the above circumstances or events may harm our reputation, cause customers to stop using our solution, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition.
Any of the above circumstances or events may harm our reputation, cause customers to stop using our product offerings, impair our ability to increase revenue from existing customers, impair our ability to grow our customer base, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, results of operations and financial condition.
We employ a pricing model that subjects us to various challenges, and given our limited history with our pricing model, we may not be able to accurately predict the optimal pricing necessary to attract new customers and retain existing customers. We generally charge our customers for their usage of our solution across a variety of dimensions of usage.
We employ a pricing model that subjects us to various challenges, and given our limited history with our pricing model, we may not be able to accurately predict the optimal pricing necessary to attract new customers and retain existing customers. We generally charge our customers for their usage of our product offerings across a variety of dimensions of usage.
As the use of our solution can be dependent upon the timing of work in legal matters, our sales cycle can extend to even longer periods of time. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a completed sale.
As the use of our product offerings can be dependent upon the timing of work in legal matters, our sales cycle can extend to even longer periods of time. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a completed sale.
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our solution. In addition to application and technology competition, we face pricing competition.
Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. An existing competitor or new entrant could introduce new technology that reduces demand for our product offerings. In addition to application and technology competition, we face pricing competition.
Material disruptions, outages, defects and other security performance and quality problems with the public cloud and internet infrastructure on which our cloud solution relies, or any material change in our contractual and other business relationships with our public cloud providers, could result in reduced use of our solution, increased expenses, including significant, unplanned capital investments and harm to our brand and reputation, any of which could have a material adverse effect on our business, financial condition and results of operations.
Material disruptions, outages, defects and other security performance and quality problems with the public cloud and internet infrastructure on which our cloud platform relies, or any material change in our contractual and other business relationships with our public cloud providers, could result in reduced use of our product offerings, increased expenses, including significant, unplanned capital investments and harm to our brand and reputation, any of which could have a material adverse effect on our business, financial condition and results of operations.
The sale of equity to finance any such acquisitions could result in dilution to our stockholders. If we incur more debt, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business.
The sale of equity to finance any such acquisitions could result in 24 Table of Contents dilution to our stockholders. If we incur more debt, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, allowance for credit losses, fair value of financial instruments, capitalization and amortization of internal-use software development costs, valuation of stock-based compensation, valuation of acquisitions, and the valuation allowance for deferred income taxes.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, allowance for credit losses, fair value of financial instruments, capitalization and amortization of capitalized software development costs, valuation of stock-based compensation, valuation of acquisitions, and the valuation allowance for deferred income taxes.
The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. 41 Table of Contents Accordingly, both state and federal courts have jurisdiction to entertain such claims.
The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant 20 Table of Contents levels of productivity in a timely manner, or our sales personnel are not successful in acquiring new customers or expanding usage by existing customers, our business will be harmed.
If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in acquiring new customers or expanding usage by existing customers, our business will be harmed.
Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our solution. Customers often undertake a prolonged evaluation process, which frequently involves not only our solution but also those of our competitors. In addition, the size of potential customers may lead to longer sales cycles.
Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our product offerings. Customers often undertake a prolonged evaluation process, which frequently involves not only our product offerings but also those of our competitors. In addition, the size of potential customers may lead to longer sales cycles.
There is a risk that the requirements of these laws and regulations, or of contractual or other obligations relating to data privacy or information security, will be interpreted or applied in a manner that is, or is alleged to be, inconsistent with our management and processing practices, our policies or procedures or the features of our solution.
There is a risk that the requirements of these laws and regulations, or of contractual or other obligations relating to data privacy or information security, will be interpreted or applied in a manner that is, or is alleged to be, inconsistent with our management and processing practices, our policies or procedures or the features of our product offerings.
We have experienced, and may in the future experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure on which our cloud solution relies.
We have experienced, and may in the future experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure on which our cloud platform relies.
Numerous other factors, many of which are out of our control, may now or in the future impact our ability to acquire new customers, including, but not limited to: • competitive offerings; • potential customers’ commitments to other providers; • real or perceived costs of switching to our solution; • our failure to expand, retain and motivate our sales and marketing personnel; • our failure to develop or expand relationships with potential customers and our partner ecosystem; 15 Table of Contents • failure by us to help our customers to successfully deploy our solution; • negative media or industry or financial analyst commentary regarding us or our solution; • negative perceptions about the reliability of cloud-based legal solutions; • litigation activity; and • deteriorating general economic conditions.
Numerous other factors, many of which are out of our control, may now or in the future impact our ability to acquire new customers, including, but not limited to: • competitive offerings; • potential customers’ commitments to other providers; • real or perceived costs of switching to our product offerings; • our failure to expand, retain and motivate our sales and marketing personnel; • our failure to develop or expand relationships with potential customers and our partner ecosystem; • failure by us to help our customers to successfully deploy our product offerings; • negative media or industry or financial analyst commentary regarding us or our product offerings; • changes in personnel; • negative perceptions about the reliability of cloud-based legal solutions; • litigation activity; and • deteriorating general economic conditions.
As the market for our solution matures and technology changes and improves, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically.
As the market for our product offerings matures and technology changes and improves, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically.
In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our solution may also cause us to experience a delay between incurring expenses for such sales efforts and the generation of corresponding revenue. The length of our sales cycle for these customers can vary substantially from customer to customer.
In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our product offerings may also cause us to experience a delay between incurring expenses for such sales efforts and the generation of corresponding revenue. The length of our sales cycle for these customers can vary substantially from customer to customer.
As a result, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. If we cannot maintain our corporate culture as we grow, our success and our business and competitive position may be harmed.
As a result, it is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. If we cannot improve and sustain our corporate culture as we grow, our success and our business and competitive position may be harmed.
If we are unable to provide sufficient high-quality consulting, training, integration and maintenance resources, our customers may not effectively integrate our solution into their business or realize sufficient business value from our solution to justify further usage, which could impact our future financial performance.
If we are unable to provide sufficient high-quality consulting, training, integration and maintenance resources, our customers may not effectively integrate our product offerings into their business or realize sufficient business value from our product offerings to justify further usage, which could impact our future financial performance.
Moreover, to the extent we expand our operations to 24 Table of Contents additional markets, we may face difficulties attracting talented personnel to such locations. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer.
Moreover, to the extent we expand our operations to additional markets, we may face difficulties attracting talented personnel to such locations. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer.
Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our solution by, or in our decreased ability to export or sell our solution to, existing or potential customers with international operations.
Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our product offerings by, or in our decreased ability to export or sell our product offerings to, existing or potential customers with international operations.
We rely on multiple software programmers to design our proprietary technologies and we do not exercise complete control over the development efforts of our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary solution and technologies or that they will not do so in the future.
We rely on multiple software programmers to design our proprietary technologies and we do not exercise complete control over the development efforts of our programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary product offerings and technologies or that they will not do so in the future.
Additionally, we have not historically collected VAT or GST on sales of our solution, generally, because we make all of our sales through our office in the United States, and we believe, based on information provided to us by our customers, that most of our sales are made to business customers.
Additionally, we have not historically collected VAT or GST on sales of our product offerings, generally, because we make all of our sales through our office in the United States, and we believe, based on information provided to us by our customers, that most of our sales are made to business customers.
Because a significant majority of our revenue is directly correlated with our customers’ usage of our solution, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our solution is used, our operating results have fluctuated significantly in the past in connection with the inception and conclusion of large legal matters, and we expect such fluctuations to continue for the foreseeable future.
Because a significant majority of our revenue is directly correlated with our customers’ usage of our product offerings, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our product offerings are used, our operating results have fluctuated significantly in the past in connection with the inception and conclusion of large legal matters, and we expect such fluctuations to continue for the foreseeable future.
Because a significant majority of our revenue is directly correlated with our customers’ usage of our solution, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our solution is used, our operating results have fluctuated significantly in the past in connection with the inception and conclusion of large legal matters, and we expect such fluctuations to continue for the foreseeable future.
Because a significant majority of our revenue is directly correlated with our customers’ usage of our product offerings, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our product offerings are used, our operating results have fluctuated significantly in the past in connection with the inception and conclusion of large legal matters, and we expect such fluctuations to continue for the foreseeable future.
If there is a substantial increase in the volume of usage on our solution, we will be required to further expand and upgrade our technology and infrastructure.
If there is a substantial increase in the volume of usage on our platform, we will be required to further expand and upgrade our technology and infrastructure.
Our response to such slowdowns or interruptions may not be sufficient to address all aspects or any unanticipated consequence or incidents and our insurance may not be sufficient to compensate us for the losses that could occur. Our customers use our solution to manage critical aspects of their businesses and operations.
Our response to such slowdowns or interruptions may not be sufficient to address all aspects or any unanticipated consequence or incidents and our insurance may not be sufficient to compensate us for the losses that could occur. Our customers use our product offerings to manage critical aspects of their businesses and operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our headquarters are located in Austin, Texas, where we lease approximat ely 46,000 square feet pursuant to a lease that expires in July 2028. We have other offices located in New York , New York and London, United Kingdom. These offices are leased, and we do not own any real property.
Biggest changeItem 2. Properties Our headquarters are located in Austin, Texas, where we lease approximat ely 46,000 square feet pursuant to a lease that expires in July 2028. We have other offices located in New York , New York, London, United Kingdom, and Gurugram, India. These offices are leased, and we do not own any real property.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe 42 Table of Contents results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures None. 43 Table of Contents Part II
Biggest changeThe results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 3. Legal Proceedings From time to time, we are involved in various legal proceedings arising from the normal course of business activities.
Item 3. Legal Proceedings From time to time, we are involved in various legal proceedings arising from the normal course of business activities. Defending such proceedings is costly and can impose a significant burden on management and employees.
Removed
We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees.
Added
On September 19, 2023, a purported stockholder class action lawsuit was filed against us and certain of our current and former officers in the United States District Court in the Southern District of New York, alleging violations under Sections 10(b) and 20(a) of the Exchange Act.
Added
The complaint alleges that we made materially false or misleading statements about the factors that were driving our revenue growth between July 21, 2021 and August 11, 2022. The complaint seeks an unspecified amount of damages, interest, attorneys’ fees, expert fees, costs, and other relief as the court may deem just and proper.
Added
On December 12, 2023, the Court appointed a lead plaintiff and lead counsel.
Added
On January 8, 2024, the Court transferred the case to the United States District Court in the Western District of Texas. 44 Table of Contents On November 3, 2023, a purported stockholder class action lawsuit was filed against us and certain of our current and former officers in New York Supreme Court, County of New York, alleging violations under Sections 11 and 12(a)(2) of the Securities Act of 1933.
Added
The complaint alleged that we made false or misleading statements about the factors that were driving revenue growth between July 21, 2021 and August 11, 2022. The complaint sought an unspecified amount of damages, interest, attorneys’ fees, expert fees, costs, rescission, equitable and injunctive relief, and other relief as the court may deem just and proper.
Added
On January 18, 2024, this purported stockholder class action lawsuit was dismissed without prejudice. Item 4. Mine Safety Disclosures None. 45 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn February 15, 2023, the last reported sale price of our common stock on the New York Stock Exchange was $9.08. As of February 15, 2023, we had 42 holders of record of our common stock.
Biggest changeOn February 15, 2024, the last reported sale price of our common stock on the New York Stock Exchange was $8.24. As of February 15, 2024, we had 36 holders of record of our common stock.
The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owner s, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.
The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owner s, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, (in thousands) 2022 2021 Revenue $ 135,190 $ 114,342 Cost of revenue (1) 34,163 31,098 Gross profit 101,027 83,244 Operating expenses: Research and development (1) 59,258 34,414 Sales and marketing (1) 72,839 47,045 General and administrative (1) 40,738 25,614 Total operating expenses 172,835 107,073 Loss from operations (71,808) (23,829) Other income (expense): Interest and other income 1,702 106 Interest and other expense (473) (540) Total other income (expense) 1,229 (434) Loss from operations before income taxes (70,579) (24,263) Income tax provision (186) (81) Net loss $ (70,765) $ (24,344) Less accretion of redeemable convertible preferred stock — (56) Net loss attributable to common stockholders $ (70,765) $ (24,400) ______________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, (in thousands) 2022 2021 Cost of revenue $ 938 $ 57 Research and development 8,068 2,081 Sales and marketing 4,186 1,258 General and administrative 8,545 2,207 Total $ 21,737 $ 5,603 49 Table of Contents Year Ended December 31, 2022 2021 Consolidated Statement of Operations and Comprehensive Loss as a percentage of revenue:** Revenue 100 % 100 % Cost of revenue 25 27 Gross profit 75 73 Operating expenses: Research and development 44 30 Sales and marketing 54 41 General and administrative 30 22 Total operating expenses 128 94 Loss from operations (53) (21) Other income (expense): Interest and other income 1 * Interest and other expense * * Total other income (expense) 1 * Loss from operations before income taxes (52) (21) Income tax provision * * Net loss (52) % (21) % Less accretion of redeemable convertible preferred stock — * Net loss attributable to common stockholders (52) % (21) % ______________ * Less than 0.5% of revenue. ** Columns may not add up to 100% due to rounding.
Biggest changeYear Ended December 31, (in thousands) 2023 2022 Revenue $ 138,090 $ 135,190 Cost of revenue (1) 34,948 34,163 Gross profit 103,142 101,027 Operating expenses: Research and development (1)(2) 51,623 59,258 Sales and marketing (1)(2) 68,132 72,839 General and administrative (1)(2) 33,232 40,738 Total operating expenses 152,987 172,835 Loss from operations (49,845) (71,808) Other income (expense): Interest and other income 8,306 1,702 Interest and other expense (168) (473) Total other income (expense) 8,138 1,229 Loss from operations before income taxes (41,707) (70,579) Income tax provision (443) (186) Net loss attributable to common stockholders $ (42,150) $ (70,765) ______________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, (in thousands) 2023 2022 Cost of revenue $ 1,036 $ 938 Research and development 7,767 8,068 Sales and marketing 5,366 4,186 General and administrative 1,989 8,545 Total $ 16,158 $ 21,737 (2) Includes restructuring charges as follows: Year Ended December 31, (in thousands) 2023 2022 Research and development $ 1,510 $ — Sales and marketing 648 — General and administrative 432 — Total $ 2,590 $ — 51 Table of Contents Year Ended December 31, 2023 2022 Consolidated Statement of Operations and Comprehensive Loss as a percentage of revenue:** Revenue 100 % 100 % Cost of revenue 25 25 Gross profit 75 75 Operating expenses: Research and development 37 44 Sales and marketing 49 54 General and administrative 24 30 Total operating expenses 111 128 Loss from operations (36) (53) Other income (expense): Interest and other income 6 1 Interest and other expense * * Total other income (expense) 6 1 Loss from operations before income taxes (30) (52) Income tax provision * * Net loss attributable to common stockholders (31) % (52) % ______________ * Less than 0.5% of revenue. ** Columns may not add up to 100% due to rounding.
JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
The CEO Performance Award is a 10-year nonstatutory stock option, the vesting of which is tied solely to achieving stock price milestones. The milestone price requirement is considered a market condition under FASB ASC Topic 718 Compensation - Stock Compensation.
The CEO Performance Award is a 10-year nonstatutory stock option, the vesting of which is tied solely to achieving stock price milestones. The milestone price requirement is considered a market condition under ASC Topic 718 Compensation - Stock Compensation.
These expenses are incurred as services are performed and are in the normal course of business. d. Other purchase commitments primarily encompass non-cancellable software agreements to support our internal functions. These expenses are incurred as services are performed and are in the normal course of business.
Other purchase commitments primarily encompass non-cancellable software agreements to support our internal functions. These expenses are incurred as services are performed and are in the normal course of business.
We also offer our customers the option to enter into subscriptions based on committed minimum usage on an annual or multi-year basis, which represented 11% of our revenue for each of the years ended December 31, 2022 and 2021. In addition, we generate revenue from a range of professional services aimed at accelerating the time-to-value for our customers.
We also offer our customers the option to enter into subscriptions based on committed minimum usage on an annual or multi-year basis, which represented 11% of our revenue in each of the years ended December 31, 2023 and 2022. In addition, we generate revenue from a range of professional services aimed at accelerating the time-to-value for our customers.
As enterprises continue their digital transformation journeys and the demand for differentiation in the competitive market for legal services continues to grow, we expect more and more companies will struggle with existing legal solutions and ultimately will adopt integrated, easy-to-use solutions like DISCO to improve productivity and legal outcomes.
As enterprises continue their digital transformation journeys and the demand for differentiation in the competitive market for legal services continues to grow, we expect more and more companies will struggle with existing legal solutions and ultimately will adopt an integrated, easy-to-use platform like DISCO to improve productivity and legal outcomes.
While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies”, in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.
While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.
The capitalization of internal-use software development contains uncertainties because it requires management to exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.
The capitalization of software development contains uncertainties because it requires management to exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized.
We provide legal departments with the ability to centralize legal data into a single solution, improving security and privacy for our customers, enabling transparent collaboration with other legal industry participants and allowing customers to reuse data and lawyer work product across legal matters.
We provide legal departments with the ability to centralize legal data into a single platform, improving security and privacy for our customers, enabling transparent collaboration with other legal industry participants and allowing customers to reuse data and lawyer work product across legal matters.
Pursue Strategic Acquisitions and Strategic Investments In February 2022, we acquired legal workflow solutions from Congruity360, LLC, or Congruity, in a purchase that expanded our offerings to provide a modern digital solution for legal hold obligations and legal request compliance.
Pursue Strategic Acquisitions and Strategic Investments In February 2022, we acquired legal workflow products from Congruity360, LLC, or Congruity, in a purchase that expanded our offerings to provide a modern digital solution for legal hold obligations and legal request compliance.
Our long-term offerings strategy is aimed at building features and offerings that address more and more types of legal work so that customers can continue to centralize on our solution as the system of record and engagement for the legal function.
Our long-term offerings strategy is aimed at building features and offerings that address more and more types of legal work so that customers can continue to centralize on our platform as the system of record and engagement for the legal function.
Additionally, cost of revenue in future periods could be impacted by changes in outsourced staffing costs and amortization associated with capitalized internal-use software costs. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
Additionally, cost of revenue in future periods could be impacted by changes in outsourced staffing costs and amortization associated with capitalized software development costs. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
Our customers include a diverse set of enterprises across a broad set of industries, as well as law firms, legal services providers of all sizes and government organizations. While we serve customers across many different industries, the way in which lawyers and legal professionals use our solution is similar regardless of the specific industry in which each customer operates.
Our customers include a diverse set of enterprises across a broad set of industries, as well as law firms, legal services providers of all sizes and government organizations. While we serve customers across many different industries, the way in which lawyers and legal professionals use our product offerings is similar regardless of the specific industry in which each customer operates.
The expected volatility is derived from a weighted average of DISCO’s volatility and the historical volatilities of the common stock of several entities with characteristics similar to ours, such as the size and operational and economic similarities to our principle business operations. • Risk-free interest rate . The risk-free interest rate is based on the U.S.
The expected volatility is derived from a weighted average of DISCO’s volatility and the historical volatilities of the common stock of several entities with characteristics similar to ours, such as the size and operational and economic similarities to our principle business operations. 57 Table of Contents • Risk-free interest rate . The risk-free interest rate is based on the U.S.
We calculate our dollar-based net retention rate as of the end of a period by using (a) the revenue from all customers during the twelve months ending one year prior to such period as the denominator and (b) the revenue from all customers during the twelve months ending as of the end of such period minus the revenue from all customers who are new customers during those 46 Table of Contents twelve months as the numerator.
We calculate our dollar-based net retention rate as of the end of a period by using (a) the revenue from all customers during the twelve months ending one year prior to such period as the denominator and (b) the revenue from all customers during the twelve months ending as of the end of such period minus the revenue from all customers who are new customers during those twelve months as the numerator.
Our primary uses of cash from operating activities are for personnel-related expenses, marketing expenses, hosting expenses and overhead expenses. We have 53 Table of Contents historically generated negative cash flows and have supplemented working capital requirements primarily through net proceeds from the sale of equity securities.
Our primary uses of cash from operating activities are for personnel-related expenses, marketing expenses, hosting expenses and overhead expenses. We have historically generated negative cash flows and have supplemented working capital requirements primarily through net proceeds from the sale of equity securities.
We may be required to expend significant resources in connection with the pursuit of acquisitions and investments. Key Components of Statement of Operations Revenue All of our revenue-generating activities directly relate to the sale and support of our legal solution within a single operating segment. We have two primary types of contractual arrangements: usage-based and subscription solutions.
We may be required to expend significant resources in connection with the pursuit of acquisitions and investments. Key Components of Statement of Operations Revenue All of our revenue-generating activities directly relate to the sale and support of our legal product offerings within a single operating segment. We have two primary types of contractual arrangements: usage-based and subscription.
We believe our existing cash and cash equivalents will be sufficient to fund anticipated cash requirements for the next 12 months. We believe we will meet our longer-term expected future cash 52 Table of Contents requirements primarily from a combination of cash flow from operating activities and available cash and cash equivalents.
We believe our existing cash and cash equivalents will be sufficient to fund anticipated cash requirements for the next 12 months. We believe we will meet our longer-term expected future cash requirements primarily from a combination of cash flow from operating activities and available cash and cash equivalents.
Our future capital requirements will depend on many factors, including our revenue growth rate, usage of our solution, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, and the continuing market acceptance of our solution.
Our future capital requirements will depend on many factors, including our revenue growth rate, usage of our product offerings, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, and the continuing market acceptance of our product offerings.
Fluctuations in net loss are further explained in the Comparison of Years Ended December 31, 2022 and 2021 section included elsewhere in Management’s Discussion and Analysis.
Fluctuations in net loss are further explained in the Comparison of Years Ended December 31, 2023 and 2022 section included elsewhere in Management’s Discussion and Analysis.
Our AI models continuously learn from legal work conducted on our solution and can be reused across legal matters, which further strengthens our ability to help our customers find evidence and resolve matters faster as they expand usage of our solution.
Our AI models continuously learn from legal work conducted on our product offerings and can be reused across legal matters, which further strengthens our ability to help our customers find evidence and resolve matters faster as they expand usage of our product offerings.
Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. We will need to spend significant resources to expand, retain and motivate our sales and marketing personnel.
Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining 48 Table of Contents sufficient numbers of sales personnel to support our growth. We will need to spend significant resources to expand, retain and motivate our sales and marketing personnel.
Customers generally do not commit to purchase a specific amount of usage on our solution and their usage can fluctuate based on the number and nature of legal matters they have at any particular time.
Customers generally do not commit to purchase a specific amount of usage on our product offerings and their usage can fluctuate based on the number and nature of legal matters they have at any particular time.
This commonality has created efficiencies in our sales and marketing and research and development activities because we do not need to tailor our sales and marketing activities to a wide range of different customer use cases. As of December 31, 2022, we had 1,327 customers, increasing from 1,126 customers as of December 31, 2021.
This commonality has created efficiencies in our sales and marketing and research and development activities because we do not need to tailor our sales and marketing activities to a wide range of different customer use cases. As of December 31, 2023, we had 1,441 customers, increasing from 1,327 customers as of December 31, 2022.
We intend to continue to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our solution and bring talent to our company. We believe that the combination of our market leadership, deep legal expertise and powerful end-to-end solution provides an advantage in pursuing select acquisitions.
We intend to continue to selectively pursue acquisitions and strategic investments that we believe can expand the functionality and value of our product offerings and bring talent to our company. We believe that the combination of our market leadership, deep legal expertise and powerful end-to-end platform provides an advantage in pursuing select acquisitions.
Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, 56 Table of Contents useful lives and discount rates.
Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, useful lives and discount rates.
Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solution, competition, pricing and overall changes in our customers’ spending levels.
Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our product offerings, competition, pricing and overall changes in our customers’ spending levels.
Even if our customers expand their usage of our solution, we cannot guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments.
Even if our customers expand their usage of our product offerings, we cannot guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments.
To the extent that we change the manner in which we develop and test new features and functionalities related to our solution, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs we capitalize and amortize could change in future periods.
To the extent that we change the manner in which we develop and test new features and functionalities related to our product offerings, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of software development costs we capitalize and amortize could change in future periods.
By automating the manual, time-consuming and error-prone parts of legal hold, legal 44 Table of Contents request, ediscovery, legal document review and case management, we empower legal departments to focus on delivering better legal outcomes. We generate substantially all of our revenue from our customers’ actual usage of our solution.
By automating the manual, 46 Table of Contents time-consuming and error-prone parts of legal hold, legal request, ediscovery, legal document review and case management, we empower legal departments to focus on delivering better legal outcomes. We generate substantially all of our revenue from our customers’ actual usage of our product offerings .
This access facilitates widespread adoption of our solution, as these law firms and other legal service providers often become customers on their own or recommend our solution to other legal industry participants after realizing the benefits of working on our solution.
This access facilitates widespread adoption of our product offerings , as these law firms and other legal service providers often become customers on their own or recommend our product offerings to other legal industry participants after realizing the benefits of our product offerings .
Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, over the requisite service period, which is generally the vesting period of the respective award. Determining the fair value of stock-based awards at the grant date requires judgment.
Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, over the requisite service period, which is generally the vesting period of the respective award.
A significant majority of our revenue is directly correlated with our customers’ usage of our solution, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our solution is used.
A significant majority of our revenue is directly correlated with our customers’ usage of our product offerings, which in turn is dependent on the timing of and activity driven by litigation, investigations and other legal matters for which our product offerings are used.
We generated Adjusted EBITDA of $(44.5) million and $(16.3) million for the years ended December 31, 2022 and 2021, respectively. See the section titled “—Non-GAAP Financial Measure” for the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP.
We generated Adjusted EBITDA of $(25.9) million and $(44.5) million for the years ended December 31, 2023 and 2022, respectively. See the section titled “—Non-GAAP Financial Measure” for the definition of Adjusted EBITDA, as well as a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP.
As of December 31, 2022 and 2021, our principal sources of liquidity were cash and cash equivalents, totaling $203.2 million and $255.5 million, respectively. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.
As of December 31, 2023 and 2022, our principal sources of liquidity were cash and cash equivalents, totaling $159.6 million and $203.2 million, respectively. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.
We define Adjusted EBITDA as net loss, adjusted to exclude: depreciation and amortization expense; income tax provision; interest and other, net; stock-based compensation expense; payroll tax expense on employee stock transactions; CEO Performance Award issuance expense; unoccupied lease expense; acquisition revaluation expense; and other one-time, non-recurring items, when applicable.
We define Adjusted EBITDA as net loss, adjusted to exclude: depreciation and amortization expense; income tax provision; interest and other, net; stock-based compensation expense; payroll tax expense on employee stock transactions; CEO Performance Award issuance expense; unoccupied lease expense; restructuring charges; acquisition revaluation expense; expenses associated with stockholder litigation; and other one-time, non-recurring items, when applicable.
Likewise, if a law firm is our customer, the law firm may add users from its clients’ legal departments to our solution in order to collaborate with them. These users may then become champions and encourage the companies they work for to become customers. As of December 31, 2022, we had $203.2 million of cash and cash equivalents.
Likewise, if a law firm is our customer, the law firm may add users from its clients’ legal departments to our platform in order to collaborate with them. These users may then become champions and encourage the companies they work for to become customers. As of December 31, 2023, we had $159.6 million of cash and cash equivalents.
We intend to continue to invest additional resources in our infrastructure to expand the capability of solutions and ensure that our customers are realizing the full benefit of our solutions. The level, timing and relative investment in our cloud infrastructure could affect our cost of revenue in the future.
We intend to continue to invest additional resources in our infrastructure to expand the capability of our product offerings and ensure that our customers are realizing the full benefit of our product offerings. The level, timing and relative investment in our cloud infrastructure could 49 Table of Contents affect our cost of revenue in the future.
Overview DISCO provides a cloud-native, artificial intelligence-powered legal solution that simplifies legal hold, legal request, ediscovery, legal document review and case management for enterprises, law firms, legal services providers and governments. Our scalable, integrated solution enables legal departments to easily collect, process and review enterprise data that is relevant or potentially relevant to legal matters.
Overview DISCO provides cloud-native, artificial intelligence-powered legal product offerings that simplify legal hold, legal request, ediscovery, legal document review and case management for enterprises, law firms, legal services providers and governments. Our scalable, integrated product offerings enable legal departments to easily collect, process and review enterprise data that is relevant or potentially relevant to legal matters.
We have a strong history of innovation, demonstrated by our DISCO Ediscovery, DISCO Review, DISCO Case Builder, DISCO Hold and DISCO Request offerings, and have built a research and development process that reliably produces applications and features that lawyers love.
We have a strong history of innovation, demonstrated by our DISCO Hold, DISCO Request, DISCO Ediscovery, DISCO Review and DISCO Case Builder offerings, and have built a research and development process that reliably produces features for these product offerings.
We e xpect that our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we grow our business. Our sales and marketing expenses may fluctuate as a percentage of our revenue over time.
In the near term, w e e xpect that our sales and marketing expenses will remain relatively consistent in absolute dollars but will continue to be our largest operating expense for the foreseeable future as we grow our business. Our sales and marketing expenses may fluctuate as a percentage of our revenue over time.
Cost of revenue also includes outsourced staffing costs, amortization of internal-use software and personnel costs from employees involved in the delivery of our solution. Personnel costs include salaries, benefits, bonuses, stock-based compensation expenses and allocated overhead costs.
Cost of revenue also includes outsourced staffing costs, amortization of capitalized software development and personnel costs from employees involved in the delivery of our product offerings. Personnel costs include salaries, benefits, bonuses, stock-based compensation expenses and allocated overhead costs.
We believe our market leadership and differentiated solution will enable us to efficiently acquire new customers across all channels . As of December 31, 2022 , we had 1,327 customers, increasing from 1,126 customers as of December 31, 2021 .
We believe our market leadership and differentiated product offerings will enable us to efficiently acquire new customers across all channels . As of December 31, 2023 , we had 1,441 customers, increasing from 1,327 customers as of December 31, 2022 .
As of December 31, 2022 and 2021 , our dollar-based net retention rate was 106% and 146%, respectively.
As of December 31, 2023 and 2022 , our dollar-based net retention rate was 92% and 106%, respectively.
Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $9.7 million, an increase of $6.6 million from net cash used in investing activities of $3.1 million for the year ended December 31, 2021.
Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $20.0 million, an increase of $10.3 million from net cash used in investing activities of $9.7 million for the year ended December 31, 2022.
We generated revenue of $135.2 million and $114.3 million in the years ended December 31, 2022 and 2021, respectively, representing a period-over-period growth of 18%. Our net loss was $70.8 million and $24.3 million for the years ended December 31, 2022 and 2021, respectively.
We generated revenue of $138.1 million and $135.2 million in the years ended December 31, 2023 and 2022, respectively, representing a period-over-period growth of 2%. Our net loss was $42.2 million and $70.8 million for the years ended December 31, 2023 and 2022, respectively.
After using and realizing the benefits of our solution, our customers often increase usage of our solution to cover additional legal matters and adopt more of our offerings. As our customers use our solution over time, the amount of enterprise data in our solution increases, enhancing the strategic value and stickiness of our solution within an organization.
After using and realizing the benefits of our product offerings , our customers can increase usage of our product offerings to cover additional legal matters and adopt more of our offerings. As the amount of enterprise data in our product offerings increases, the strategic value and stickiness of our product offerings within an organization is enhanced.
Key Factors Affecting Our Performance We believe that the growth and future success of our business depends on many factors. While each of these factors present significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth, improve our results of operations and establish and maintain profitability.
While each of these factors present significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth, improve our results of operations and establish and maintain profitability. Maintain and Advance Our Innovation and Brand Our success depends in part on our ability to maintain and advance our innovation and brand.
We may expend significant resources in the development of additional offerings. Our ability to successfully develop, market and sell new offerings will depend on a number of factors, including the availability of capital to invest in innovation, our customers’ satisfaction with such offerings, competition, pricing and overall changes in our customers’ spending levels.
Our ability to successfully develop, market and sell new offerings will depend on a number of factors, including the availability of capital to invest in innovation, our customers’ satisfaction with such offerings, competition, pricing and overall changes in our customers’ spending levels. Expand Internationally Our market is global and we believe there is a significant opportunity to expand internationally.
We occupy certain facilities under non-cancelable lease arrangements. Our New York lease agreement is set to expire in November 2023 and our Austin lease agreement is set to expire in July 2028. We also have a short-term lease in London. We may lease or purchase additional space as needed to accommodate our needs. b.
We occupy certain facilities under non-cancelable lease arrangements. Our New York lease agreement is set to expire in May 2024 and our Austin lease agreement is set to expire in July 2028. We may lease or purchase additional space as needed to accommodate our needs. b. We lease certain furniture and fixtures classified as a finance lease.
In each of the years ended December 31, 2022 and 2021, subscription revenue fees represented 11% of total revenue. 47 Table of Contents Cost of Revenue Cost of revenue consists primarily of third-party cloud infrastructure expenses incurred in connection with our customers’ use of our solution.
In each of the years ended December 31, 2023 and 2022, usage-based revenue represented 89% of total revenue and subscription revenue fees represented 11% of total revenue. Cost of Revenue Cost of revenue consists primarily of third-party cloud infrastructure expenses incurred in connection with our customers’ use of our product offerings.
Although fluctuations in general macroeconomic conditions, such as the current inflationary environment and rising interest rates, the COVID-19 pandemic and Russian military operations in Ukraine, have not materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments throughout 2023.
Although fluctuations in general macroeconomic conditions, such as the current inflationary environment and rising interest rates, the Russia-Ukraine and Israel- 55 Table of Contents Hamas wars, have not materially impacted our liquidity to date, we plan to continue to evaluate aspects of our spending, including capital expenditures, discretionary spending, and strategic investments throughout 2024.
Our research and development expenses may fluctuate as a percentage of our revenue over time. In addition, research and development expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period to period.
In the near term, w e expect that our research and development expenses will increase in absolute dollars but may fluctuate as a percentage of our revenue over time. In addition, research and development expenses that qualify as capitalized software development costs are capitalized, the amount of which may fluctuate significantly from period to period.
Financing Activities Net cash provided by financing activities for the year ended December 31, 2022 was $3.5 million, a decrease of $218.2 million from net cash provided by financing activities of $221.7 million for the year ended December 31, 2021.
Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was $1.9 million, a decrease of $1.6 million from net cash provided by financing activities of $3.5 million for the year ended December 31, 2022.
Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expenses and sales commissions. Operating expenses also include overhead costs for facilities and shared IT related expenses, including depreciation expense. During the year ended December 31, 2021 , certain operating expenses decreased as a result of the COVID-19 pandemic.
Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expenses and sales commissions. Operating expenses also include overhead costs for facilities and shared IT related expenses, including depreciation expense.
The increase in cash used in operating activities was also due to a $5.4 million increase in accounts receivable due to revenue growth, a decrease in accounts payable and accrued expenses of $6.7 million related to the growth of our operations, and an increase in other current assets of $2.2 million related to various prepaid expenses.
The decrease in cash used in operating activities was also due to a $1.2 million increase in depreciation and amortization expense due to additional fixed assets and capitalized software development, an increase in accounts payable and accrued expenses of $1.1 million related to the growth of our operations, and an increase in other current assets of $0.7 million related to various prepaid expenses.
If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.
The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.
Cost of Revenue Year Ended December 31, 2022 2021 Change % Change (dollars in thousands) Cost of revenue $ 34,163 $ 31,098 $ 3,065 10 % Percentage of revenue 25 % 27 % Total cost of revenue increased by $3.1 million, or 10%, for the year ended December 31, 2022 compared to the same period in 2021.
Cost of Revenue Year Ended December 31, 2023 2022 Change % Change (dollars in thousands) Cost of revenue $ 34,948 $ 34,163 $ 785 2 % Percentage of revenue 25 % 25 % Total cost of revenue increased by $0.8 million, or 2%, for the year ended December 31, 2023 compared to the same period in 2022.
Net cash used in operating activities for the year ended December 31, 2022 was $46.0 million, an increase of $24.4 million from net cash used in operating activities of $21.6 million for the year ended December 31, 2021. The change in cash flow used in operations was primarily due to an increase in net loss of $46.4 million.
Net cash used in operating activities for the year ended December 31, 2023 was $25.5 million, a decrease of $20.5 million from net cash used in operating activities of $46.0 million for the year ended December 31, 2022. The change in cash flow used in operations was primarily due to a decrease in net loss of $28.6 million.
In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.
In accordance with authoritative guidance, we begin to capitalize our costs to develop software during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary development efforts are successfully completed, and (ii) it is probable that the project will be completed and the software will be used as intended.
The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented: Year Ended December 31, 2022 2021 (in thousands) Net loss $(70,765) $(24,344) Depreciation and amortization expense 2,974 1,674 Provision for income taxes 186 81 Interest and other, net (1,229) 434 Stock-based compensation expense 21,737 5,603 Payroll tax expense on employee stock transactions 520 264 CEO Performance Award issuance expense 386 — Unoccupied lease expense 1,127 — Acquisition revaluation expense 540 — Adjusted EBITDA $(44,524) $(16,288) Liquidity and Capital Resources We have financed operations since our inception primarily through customer payments and net proceeds from sales of equity securities, including our IPO in July 2021, as well as borrowings under our former revolving credit facility.
We expect Adjusted EBITDA to improve over the long term as we achieve greater scale in our business and efficiencies in our operating expenses. 54 Table of Contents The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP, for the periods presented: Year Ended December 31, 2023 2022 (in thousands) Net loss $ (42,150) $ (70,765) Depreciation and amortization expense 4,159 2,974 Income tax provision 443 186 Interest and other, net (8,138) (1,229) Stock-based compensation expense 16,158 21,737 Payroll tax expense on employee stock transactions 470 520 CEO Performance Award issuance expense — 386 Unoccupied lease expense — 1,127 Restructuring charges 2,590 — Acquisition revaluation expense 500 540 Expenses associated with stockholder litigation 74 — Adjusted EBITDA $ (25,894) $ (44,524) Liquidity and Capital Resources We have financed operations primarily through customer payments and net proceeds from sales of equity securities, including our IPO in July 2021.
We lease certain furniture and fixtures classified as a finance lease. The leased furniture is depreciated on a straight-line basis over the life of the lease and is included in depreciation expense. c. Cloud platform purchase commitments encompass non-cancellable agreements to support our software.
The leased furniture is depreciated on a straight-line basis over the shorter of the life of the lease or 5 years and is included in depreciation expense. c. Cloud platform purchase commitments encompass non-cancellable agreements to support our software. These expenses are incurred as services are performed and are in the normal course of business. d.
Our ability to attract new customers will depend on a number of factors, including the effectiveness and pricing of our products, the offerings of our competitors and the effectiveness of our sales and marketing efforts. We will need to dedicate significant resources to further develop the market for our solution and expand, retain and motivate our sales and marketing personnel.
Our ability to attract new customers will depend on a number of factors, including the effectiveness and pricing of our products, the offerings of our competitors and the effectiveness of our sales and marketing efforts.
Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net loss and other results stated in accordance with GAAP. We expect Adjusted EBITDA to improve over the long term as we achieve greater scale in our business and efficiencies in our operating expenses.
Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net loss and other results stated in accordance with GAAP.
Accordingly, these are the accounting policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Accordingly, these are the accounting policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. Capitalized Software Development We capitalize certain costs related to the development of our product offerings and other software applications for internal use.
Operating Expenses Research and Development Year Ended December 31, 2022 2021 Change % Change (dollars in thousands) Research and development $ 59,258 $ 34,414 $ 24,844 72 % Percentage of revenue 44 % 30 % Research and development expenses increased by $24.8 million, or 72%, for the year ended December 31, 2022 compared to the same period in 2021.
Operating Expenses Research and Development Year Ended December 31, 2023 2022 Change % Change (dollars in thousands) Research and development $ 51,623 $ 59,258 $ (7,635) (13 %) Percentage of revenue 37 % 44 % Research and development expenses decreased by $7.6 million, or 13%, for the year ended December 31, 2023 compared to the same period in 2022.
Our sales organization is segmented into sales development representatives, field sales, inside sales, solution architects and our customer success team. In addition, our solution is designed such that customers can grant access to third parties, including law firms and other legal service providers, to use our applications on the customers’ behalf.
In addition, our platform is designed such that customers can grant access to third parties, including law firms and other legal service providers, to use our product offerings on the customers’ behalf.
Sales and Marketing Year Ended December 31, 2022 2021 Change % Change (dollars in thousands) Sales and marketing $ 72,839 $ 47,045 $ 25,794 55 % Percentage of revenue 54 % 41 % Sales and marketing expenses increased by $25.8 million, or 55%, for the year ended December 31, 2022 compared to the same period in 2021.
Sales and Marketing Year Ended December 31, 2023 2022 Change % Change (dollars in thousands) Sales and marketing $ 68,132 $ 72,839 $ (4,707) (6 %) Percentage of revenue 49 % 54 % Sales and marketing expenses decreased by $4.7 million, or 6%, for the year ended December 31, 2023 compared to the same period in 2022.
The following table presents our material cash requirements for future periods as of December 31, 2022: Payments Due by Period Less than 1 Year 2-3 Years 4-5 Years Thereafter Total (in thousands) Operating lease commitments (a) $ 2,391 $ 4,134 $ 4,391 $ 1,333 $ 12,249 Finance lease commitments (b) 47 94 94 28 263 Cloud platform purchase commitments (c) 18,000 36,000 — — 54,000 Other purchase commitments (d) 966 569 — — 1,535 Total $ 21,404 $ 40,797 $ 4,485 $ 1,361 $ 68,047 a.
The following table presents our material cash requirements for future periods as of December 31, 2023: Payments Due by Period Less than 1 Year 2-3 Years 4-5 Years Thereafter Total (in thousands) Operating lease commitments (a) $ 2,231 $ 4,260 $ 3,562 $ — $ 10,053 Finance lease commitments (b) 47 94 75 — 216 Cloud platform purchase commitments (c) 18,000 18,000 — — 36,000 Other purchase commitments (d) 868 385 — — 1,253 Total $ 21,146 $ 22,739 $ 3,637 $ — $ 47,522 a.
Maintain and Increase Usage and Penetration Within Our Existing Customer Base Our large base of customers represents a significant opportunity for further sales expansion.
Our future success is dependent on our ability to successfully develop, market and sell our product offerings to both new and existing customers. Maintain and Increase Usage and Penetration Within Our Existing Customer Base Our large base of customers represents a significant opportunity for further sales expansion.
The increase was primarily driven by an increase of $4.2 million personnel costs, including stock-based 50 Table of Contents compensation, as a result of increased headcount, a $0.5 million increase in costs for cloud hosting as a result of increased usage of our solution, and a $0.7 million increase in amortization of internally developed software and acquired developed technology.
This change was primarily driven by a $0.5 million increase in amortization of internally developed software and a $0.2 million increase in costs for cloud hosting as a result of increased usage of our product offerings.
Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2022 2021 Change % Change (dollars in thousands) Cash used in operating activities $ (46,014) $ (21,642) $ (24,372) 113 % Cash used in investing activities (9,688) (3,107) (6,581) 212 % Cash provided by financing activities 3,469 221,657 (218,188) (98) % Net increase (decrease) in cash and cash equivalents $ (52,233) $ 196,908 $ (249,141) (127) % Operating Activities Our largest source of operating cash is payments received from our customers.
Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2023 2022 Change % Change (dollars in thousands) Cash used in operating activities $ (25,531) $ (46,014) $ 20,483 (45) % Cash used in investing activities (20,035) (9,688) (10,347) 107 % Cash provided by financing activities 1,873 3,469 (1,596) (46) % Net decrease in cash and cash equivalents $ (43,693) $ (52,233) $ 8,540 (16) % Operating Activities Our largest source of operating cash is payments received from our customers.
The increase was primarily related to an additional $19.3 million in personnel costs, including stock-based compensation, as a result of increased headcount and variable compensation for our sales personnel. Software expense also increased $0.9 million to support the additional headcount. Additionally, marketing expenses increased $3.7 million and professional services expense increased $0.5 million to support our growth.
The change was primarily related to a decrease of $5.0 million in personnel costs, including stock-based compensation and variable compensation, for our sales personnel. Additionally, professional services and travel and entertainment expenses decreased $1.3 million and $0.5 million, respectively.
Our dollar-based net retention rate could decrease over time as our customer base matures and the amount of revenue used in the denominator to calculate net retention grows. Expand Our Sales Coverage and Establish a Digital Sales Channel We intend to continue to enhance our sales force headcount in strategic locations across the United States and globally.
Our dollar-based net retention rate could decrease over time as our customer base matures and the amount of revenue used in the denominator to calculate net retention grows. Add New Customers We believe we have a significant opportunity to continue to grow our customer base.
Travel and entertainment expenses also increased $0.4 million as travel related to in-person conferences, meetings and events resumed. 51 Table of Contents Non-GAAP Financial Measure We report our financial results in accordance with generally accepted accounting principles, or GAAP. However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance.
These decreases were partially offset by $0.2 million in restructuring costs related to our reductions in force in January and May 2023. Non-GAAP Financial Measure We report our financial results in accordance with generally accepted accounting principles, or GAAP. However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance.
As of December 31, 2022 we had 265 large customers, defined as customers with revenue in excess of $100,000 over the previous 12-month period, increasing from 214 large customers as of December 31, 2021 . Large customers accounted for approximately 78%, and 81% of our revenue for the years ended December 31, 2022 and 2021, respectively.
We define a customer as an entity that we have a contract with and from whom we have recognized revenue during the preceding month. As of December 31, 2023 we had 289 large customers, defined as customers with revenue in excess of $100,000 over the previous 12-month period, increasing from 265 large customers as of December 31, 2022 .
We expect that our general and administrative expenses will increase in absolute dollars as our business grows but may fluctuate as a percentage of total revenue from period to period. 48 Table of Contents Other Income (Expense), Net Other income (expense), net consists primarily of interest income, income related to non-operating activities, interest expense and gains and losses from foreign currency transactions and remeasurements of foreign currency-denominated monetary assets and liabilities to the U.S.
Other Income (Expense), Net Other income (expense), net consists primarily of interest income, income related to non-operating activities, interest expense and gains and losses from foreign currency transactions and remeasurements of foreign currency-denominated monetary assets and liabilities to the U.S. dollar.
International expansion, including our global sales efforts, will add increased complexity and cost to our business Extend and Strengthen Our Channel Partnerships and Integrations Our partnerships, including with legal services providers and cloud infrastructure providers, assist us in driving awareness and adoption of DISCO and extending our reach.
Extend and Strengthen Our Channel Partnerships and Integrations Our partnerships, including with legal services providers and cloud infrastructure providers, assist us in driving awareness and adoption of DISCO and extending our reach. We intend to cultivate and leverage channel partners to grow our market presence, enhance the virality of our product offerings and drive greater sales efficiency.
Expand Our Offering Portfolio We believe that our technology, and especially our approach to automation and AI, is applicable to a wider range of legal processes outside of our current core offerings. We intend to leverage our technology to introduce further offerings that increase lawyer productivity across more and more areas of legal work over time.
Our future success is dependent in part on our ability to develop and maintain relations with these partners. Expand Our Offering Portfolio We believe that our technology, and especially our approach to automation and AI, is applicable to a wider range of legal processes outside of our current core offerings.
In addition, sales and marketing expenses are comprised of travel-related expenses, software services dedicated for use by our sales and marketing organizations and outside services contracted for sales and marketing purposes. Travel-related expenses decreased in the first half of 2021 due to the COVID-19 pandemic and resumed in second half of 2021 and the year ended December 31, 2022.
In addition, sales and marketing expenses consist of travel-related expenses, software services dedicated for use by our sales and marketing organizations and outside services contracted for sales and marketing purposes.

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