Cs Disco, Inc. ((LAW)) has held its Q1 earnings call. Read on for the main highlights of the call.
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CS Disco’s latest earnings call struck a cautiously upbeat tone as management highlighted accelerating revenue growth, stronger margins, and rapid adoption of its AI-driven platform, even as the company remains unprofitable and continues to burn cash. Executives sounded confident enough to raise full-year guidance and reaffirm a path to adjusted EBITDA profitability later this year, while warning of some short-term revenue and margin volatility.
Revenue growth tops guidance as services outpace software
CS Disco reported first-quarter revenue of $41.9 million, up 14% year over year and above the high end of its target range, underscoring solid demand despite a choppy macro backdrop. Software revenue rose 12% to $34.7 million, while services revenue jumped 25% to $7.2 million, showing that customers are increasingly leaning on the company for higher-value project work.
Profitability metrics improve but remain in the red
Adjusted EBITDA improved 32% to negative $3.5 million, with margin narrowing to -8% from -14% a year ago, marking a 600 basis point improvement that points to better operating discipline. Net loss tightened to $4.2 million, or -10% of revenue, versus $4.9 million last year, with loss per share improving to $0.07 from $0.08.
AI and platform products gain traction with customers
Management spotlighted stronger-than-expected early adoption of the new DISCO platform, positioning it as a central hub for legal data, workflows, and AI tools. New AI offerings like Cecilia Advanced Research, now in testing with select customers, and the Auto Review product are drawing positive feedback and helping differentiate CS Disco in technology-heavy, high-stakes matters.
Large customers deepen engagement and drive majority of revenue
The number of customers generating more than $100,000 in trailing 12‑month revenue climbed to 347, underscoring CS Disco’s success in scaling relationships with sophisticated legal buyers. Revenue from these large accounts grew 13% to $124 million and now represents 77% of total revenue, signaling deeper wallet share and greater reliance on the platform among key clients.
Bigger, longer-lived matters support multiyear growth runway
The company saw an acceleration in net new multi-terabyte matters in the quarter, which are typically large investigations or litigations that unfold over years. These matters tend to expand in scope over time and often convert into multiyear contracts with higher committed revenue, giving CS Disco better visibility into future growth and usage.
Cash-rich balance sheet and upgraded full-year guidance
CS Disco ended the quarter with $103 million in cash and short-term investments and no debt, providing a sizable cushion to fund its growth and AI investments. Management used that strength, plus the Q1 beat, to raise full-year 2026 revenue guidance and reiterate a path toward adjusted EBITDA breakeven in the fourth quarter, signaling confidence in the current momentum.
Operating expenses show improving leverage on revenue
Operating expense ratios moved lower, indicating that CS Disco is extracting more revenue from each dollar spent even as it invests in growth and AI. Sales and marketing fell to 35% of revenue from 36%, R&D to 31% from 33%, and G&A to 21% from 23%, reflecting healthier operating leverage despite higher absolute personnel costs.
Path to profitability still ahead, not behind
Despite progress, CS Disco’s adjusted EBITDA remained negative at -$3.5 million in Q1, and full-year 2026 guidance still calls for a loss of $8 million to $4 million on that metric. Management continues to target adjusted EBITDA profitability in the fourth quarter, but investors will need to see that turning point materialize before re-rating the stock as a self-funding growth story.
Operating cash flow remains negative as investment continues
Operating cash flow came in at negative $11.7 million, slightly worse than the negative $10.5 million a year earlier, highlighting continued cash burn even as margins improve. With a sizeable cash balance, CS Disco has room to keep investing in AI and go-to-market, but prolonged negative cash flow would become a more acute concern if growth moderates.
GAAP losses persist despite narrowing deficits
On a GAAP basis, the company reported a net loss of $4.2 million, equal to 10% of revenue, with an earnings-per-share loss of $0.07, underscoring that CS Disco is still firmly in investment mode. While the direction of travel is positive, equity holders must weigh ongoing dilution risk and the timing of a sustainable move into consistent profitability.
Platform pricing shift may add near-term revenue volatility
Management cautioned that shifting customers from à la carte products and ingest fees to bundled DISCO platform pricing could create lumpiness in quarterly results. While the new pricing model is designed to drive higher lifetime value and simplify buying, the transition may temporarily cloud revenue predictability as customers adjust usage and contract structures.
Auto Review still partly service-heavy in revenue mix
Auto Review, one of CS Disco’s key AI tools, currently produces revenue that is split between software and services because the company often engineers prompts and configurations on behalf of clients. Until the product is fully standardized and less service-intensive, near-term software-margin expansion from Auto Review may be constrained even as demand grows.
Higher dollar spend in S&M and R&D adds risk if growth slows
Sales and marketing and R&D costs rose in absolute terms as CS Disco hired to support its platform and AI roadmap, a necessary investment to secure its competitive position. However, these higher fixed and semi-fixed costs could pressure both margins and cash burn if revenue growth decelerates or large customers delay projects.
Gross margins strong but exposed to usage swings
Non-GAAP gross margin held steady at a robust 75%, signaling a fundamentally attractive business model that benefits from scale and software leverage. Management emphasized, however, that margin can fluctuate quarter to quarter with changes in data ingestion volumes, customer usage patterns, and matter mix, adding another vector of earnings variability.
Guidance points to continued growth and late-year margin inflection
For the second quarter of 2026, CS Disco is guiding to revenue of $41.5 million to $43.5 million and adjusted EBITDA of negative $4.5 million to $2.5 million, implying continued top-line growth with gradual margin progress. Full-year 2026 guidance now calls for $169.25 million to $178.75 million in revenue and an adjusted EBITDA loss of $8 million to $4 million, with management underscoring its expectation of reaching adjusted EBITDA profitability in the fourth quarter.
CS Disco’s earnings call painted a picture of a company leaning into AI-led growth while steadily closing the gap to profitability, backed by a strong balance sheet and deepening relationships with large customers. Investors will welcome the guidance raise and margin progress, but they will also watch closely to see if management can execute through platform and pricing transitions without derailing the march toward positive cash flow and sustainable earnings.