CS Disco Q1 Earnings Call Highlights

Key Points

• CS Disco posted a solid Q1 fiscal 2026 beat, with revenue rising 14% year over year to $41.9 million and adjusted EBITDA improving to negative $3.5 million. Both revenue and adjusted EBITDA came in above the high end of management’s guidance.
• AI adoption is becoming a key growth driver as customers increasingly use DISCO’s litigation-focused tools, including Cecilia Q&A and Case Builder. Management said early demand was better than expected, with larger matters, multi-year deals and growing data volumes supporting platform momentum.
• The company raised full-year guidance and said it still expects to reach adjusted EBITDA profitability in Q4. CS Disco also ended the quarter with $103 million in cash and no debt, giving it a strong balance sheet as it invests in AI and platform development.

CS Disco NYSE: LAW reported stronger first-quarter fiscal 2026 results, with management pointing to growing adoption of its AI products, larger litigation matters and expanded relationships with major customers as key drivers of the quarter.

Chief Executive Officer Eric Friedrichsen said total revenue rose 14% year over year to $41.9 million, while software revenue increased 12% to $34.7 million. Services revenue rose 25% to $7.2 million, according to Chief Financial Officer Aaron Barfoot. The company said total revenue exceeded the high end of its guidance range, while software revenue came in above the midpoint of guidance.

Adjusted EBITDA was negative $3.5 million, improving from a negative 14% adjusted EBITDA margin in the prior-year period to negative 8% in the latest quarter. Barfoot said adjusted EBITDA also exceeded the high end of the company’s guidance.

AI Adoption Drives Platform Momentum

Friedrichsen said CS Disco saw strength in four areas during the quarter: increased wallet share among its largest customers, growth in large multi-terabyte matters, continued adoption of generative AI capabilities and accelerating data growth on its platform.

The company highlighted early demand for the DISCO Platform, which bundles AI tools such as Cecilia Q&A, auto timelines, document summaries, definitions and DISCO Case Builder with e-discovery capabilities. Friedrichsen said adoption was “much better than anticipated” in the first three months, with encouraging trends including larger matters, increased committed revenue, multi-year deals and growing AI adoption.

Richard Crum, chief product, technology and strategy officer, said the company’s AI strategy is focused specifically on litigation rather than broader legal tasks. He said litigators need tools that help them build case intelligence and improve outcomes, not merely automate routine work.

Crum also discussed Cecilia Q&A: Advanced Research, which he described as an agentic AI toolset designed to perform multi-step analysis across large datasets. The company is testing the capability with select customers on live case data before a broader rollout to priority customers.

Large Customers and Multi-Year Deals Expand

CS Disco said the number of customers generating more than $100,000 in total revenue over the last 12 months increased to 347. Revenue from those customers totaled $124 million over that period, representing 77% of total revenue and 13% year-over-year growth.

Friedrichsen cited Mound Cotton and Reynolds Frizzell LLP as examples of firms expanding their use of CS Disco’s technology through multi-year enterprise agreements. Mound Cotton selected DISCO as its provider of choice for e-discovery technology across the firm after reviewing potential partners, while Reynolds Frizzell expanded a relationship that dates back to 2015.

Management also pointed to AutoReview as a growing area of interest. Friedrichsen said the AI-powered review product allows law firms to bring more review work in-house rather than sending it to alternative legal service providers. Barfoot said AutoReview helped generate both software and services activity, noting that some customers initially choose traditional managed review while evaluating broader AI implementation.

Margins, Expenses and Cash Position

On a non-GAAP basis, gross margin was 75%, unchanged from the prior-year quarter. Sales and marketing expense was $14.8 million, or 35% of revenue, compared with 36% of revenue a year earlier. Research and development expense was $12.9 million, or 31% of revenue, compared with 33% a year earlier, as the company continued investing in AI and platform development.

General and administrative expense was $8.6 million, or 21% of revenue, compared with 23% in the prior-year quarter. Non-GAAP net loss was $4.2 million, or 10% of revenue, compared with a net loss of $4.9 million, or 14% of revenue, a year earlier. Net loss per share was $0.07, compared with $0.08 in the year-ago period.

The company ended the quarter with $103 million in cash and short-term investments and no debt. Operating cash flow was negative $11.7 million, compared with negative $10.5 million in the first quarter of the prior year.

Guidance Raised for Fiscal 2026

For the second quarter of fiscal 2026, CS Disco guided for total revenue of $41.5 million to $43.5 million and software revenue of $36.1 million to $37.1 million. The company expects adjusted EBITDA of negative $4.5 million to negative $2.5 million.

For the full fiscal year, the company raised its total revenue outlook to a range of $169.25 million to $178.75 million. Software revenue is expected to be $146 million to $152.5 million, while adjusted EBITDA is forecast between negative $8 million and negative $4 million.

Friedrichsen said the company remains focused on reaching adjusted EBITDA profitability in the fourth quarter of the year. He also reiterated his view that CS Disco could become a “20%+ grower over time,” citing progress in expanding wallet share, acquiring larger matters and accelerating AI adoption.

Management Says AI Tools Have Not Slowed Sales Cycles

During the question-and-answer portion of the call, Needham analyst Scott Berg asked whether new tools from frontier large language model providers had disrupted sales cycles or customer product usage. Crum said generative AI may commoditize some simple legal tasks, but said CS Disco’s litigation-focused intelligence layer remains differentiated.

Friedrichsen added that the company has not seen a slowdown in sales cycles related to those tools. “If anything, it’s helped us drive AI adoption,” he said, because law firms are increasingly interested in how AI can affect their work.

Asked by Canaccord analyst DJ Hynes about the broader industry implications of AI, Friedrichsen said law firms have an opportunity to bring more work in-house, particularly review work previously outsourced to alternative legal service providers. He said that shift could allow firms to generate more revenue while retaining more context for case strategy.

About CS Disco NYSE: LAW

CS Disco, Inc is a provider of cloud-native, artificial intelligence-driven legal applications designed to streamline e-discovery, document review and compliance processes for law firms and corporate legal departments. The Austin, Texas–based company offers a unified platform that automates labor-intensive tasks using machine learning and predictive analytics, enabling legal professionals to process, search and review large volumes of data with greater speed and accuracy.

At the core of CS Disco's product suite is its flagship e-discovery application, which supports early case assessment, data processing, review analytics and production workflows.

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