CS Disco, Inc. Earnings Call: Mixed Signals

Cs Disco, Inc. ((LAW)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call for CS Disco, Inc. painted a mixed picture for investors and stakeholders. While there were positive developments in revenue growth, customer expansion, and the adoption of new AI technologies, the company continues to grapple with challenges such as negative EBITDA and increasing net losses. However, the strong cash position and strategic initiatives provide optimism for future improvement.

Revenue and Customer Growth

The company reported total revenue of $36.7 million for Q1 2025, marking a 3% increase year over year. Software revenue contributed $30.9 million to this total. Notably, there was an 8% year-over-year increase in customers spending more than $100,000, highlighting a positive trend in customer growth and engagement.

Strong Cash Position

CS Disco ended the first quarter with $118.8 million in cash and short-term investments, and no debt, providing a robust financial foundation. This strong cash position is a critical asset for the company as it navigates its current challenges and invests in future growth opportunities.

Growth in Large Multi-Terabyte Matters

The company experienced continued growth in revenue from large multi-terabyte matters, indicating potential future revenue expansion. This growth reflects the increasing demand for CS Disco’s solutions in handling complex, large-scale data challenges.

Cecilia Generative AI Suite Expansion

The Cecilia Q&A suite saw a significant expansion, with the number of customers growing fivefold from Q1 2024. This demonstrates strong momentum and customer adoption of CS Disco’s AI technologies, positioning the company well in the competitive AI market.

Munch Hart Contract Renewal

CS Disco renewed a three-year subscription with the law firm Munch Hart, doubling their commitment compared to their prior contract. This renewal underscores the company’s ability to maintain and expand its relationships with key clients.

Negative Adjusted EBITDA

The company reported an adjusted EBITDA of negative $5.1 million for Q1, representing a negative 14% margin. While this is slightly better than guidance, it remains a significant challenge for the company to address.

Increase in Operating Loss

Operating loss for Q1 was $6.2 million, representing a negative 17% margin. This is a slight improvement from the previous year’s negative 18%, indicating some progress in managing operational expenses.

Net Loss Increase

CS Disco’s net loss for Q1 was $4.9 million, or negative 14% of revenue, slightly higher than the previous year’s net loss of $4.7 million. This increase in net loss highlights the ongoing financial challenges the company faces.

Increase in R&D Expense

Research and development expenses for Q1 were $12.2 million, accounting for 33% of revenue, up from 28% in the prior year. This increase reflects the company’s commitment to innovation and developing cutting-edge technologies.

Forward-Looking Guidance

Looking ahead, CS Disco provided guidance for Q2 2025, projecting total revenue between $36.5 million and $38.5 million and software revenue between $31.25 million and $32.25 million. For the full fiscal year 2025, the company anticipates total revenue in the range of $146 million to $158 million and software revenue between $125.5 million and $131.5 million, with an adjusted EBITDA expectation of negative $18 million to negative $15 million. This positive outlook reflects an increase in their previous estimates, indicating confidence in their strategic direction.

In summary, CS Disco, Inc.’s earnings call highlighted both the challenges and opportunities facing the company. While financial hurdles like negative EBITDA and increased net losses persist, the company’s strong cash position and strategic initiatives in AI and customer growth provide a foundation for optimism. Investors will be keenly watching how the company navigates these dynamics in the coming quarters.