LAW — CS Disco, Inc.

Summary of CS Disco Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Total Revenue: $41.9 million, up 14% year-over-year.
• Software Revenue: $34.7 million, up 12% year-over-year.
• Services Revenue: $7.2 million, up 25% year-over-year.
• Adjusted EBITDA: Negative $3.5 million, improving from negative $5.1 million in Q1 2025.
• Net Loss: $4.2 million, or negative 10% of revenue, compared to a net loss of $4.9 million (14% of revenue) in Q1 2025.
• Gross Margin: 75%, consistent with the prior year.
• Cash Position: $103 million in cash and short-term investments, with no debt.

2. Strategic Updates and Business Highlights

• DISCO reported strong momentum in product adoption, particularly with its new DISCO platform and AI capabilities, including Cecilia AI and Auto Review.
• The company increased its customer base with 347 customers generating over $100,000 in revenue over the past 12 months, contributing to 77% of total revenue.
• The launch of the DISCO platform exceeded expectations, leading to larger matters and increased revenue commitments from customers.
• The company is focused on building long-term relationships with clients, as demonstrated by new multi-year agreements with firms like Mound Cotton and Reynolds Frizzell.

3. Forward Guidance and Outlook

• Q2 2026 Revenue Guidance: $41.5 million to $43.5 million.
• Software Revenue Guidance for Q2: $36.1 million to $37.1 million.
• Fiscal Year 2026 Total Revenue Guidance: Increased to $169.25 million to $178.75 million.
• Adjusted EBITDA Guidance for FY 2026: Expected to be negative $8 million to negative $4 million.
• Management expressed confidence in achieving 20%+ growth over time, driven by increased wallet share, larger matters, and AI adoption.

4. Bad News, Challenges, or Points of Concern

• Despite strong revenue growth, the company reported a negative adjusted EBITDA, indicating ongoing challenges in achieving profitability.
• Operating cash flow was negative $11.7 million, slightly worse than the previous year, suggesting potential cash management concerns.
• The transition to the DISCO platform may lead to variability in revenue as customers shift from individual products to the all-in-one solution.

5. Notable Q&A Insights

• Management indicated that the emergence of generative AI tools has not negatively impacted sales cycles; rather, it has driven interest in DISCO's AI capabilities.
• There was a discussion on the competitive landscape, with management asserting that DISCO’s specialized AI for litigation provides a strategic advantage over general-purpose AI tools.
• The increase in customers generating over $100,000 in revenue was characterized as a leading indicator of future revenue growth, although the dynamics of customer turnover were acknowledged.
• Management emphasized the importance of their new pricing model in improving customer consideration and win rates, which is expected to enhance long-term revenue growth.

Overall, DISCO's Q1 2026 results reflect strong revenue growth and product adoption, although challenges remain in achieving profitability and managing cash flow. The company is optimistic about its future growth trajectory, driven by its strategic focus on AI solutions for litigation.