What CS Disco (LAW) Said on Its Q3 Earnings Call

Key Points

• Q3 revenue rose 15% year over year excluding a contingent matter, to $45.3 million, and adjusted EBITDA reached approximately $79,000—one quarter ahead of the company’s target.
• Growth was supported by larger customer accounts and rising AI adoption: revenue from generative and agentic AI capabilities increased more than 200% year over year, while large matters on the DISCO Platform tripled during the quarter.
• DISCO raised its full-year revenue outlook to $176.1 million–$178.1 million and expects a full-year adjusted EBITDA loss of $5.3 million–$6.8 million; its Q4 forecast is $45.8 million–$47.8 million in revenue and break-even to $1.5 million in adjusted EBITDA.

CS Disco NYSE: LAW reported third-quarter revenue of $45.3 million and reached positive adjusted EBITDA one quarter ahead of its target, as the legal technology company saw growth in large customer accounts and use of its artificial intelligence tools.

Revenue rose 15% from a year earlier excluding a contingent matter recognized in the third quarter of 2025. Including that matter, revenue increased 13%. Software revenue was $38.6 million and services revenue was $6.7 million, up 13% and 21%, respectively, on the adjusted comparison.

Chief Executive Officer Eric Friedrichsen said the company’s core business could eventually grow revenue by more than 20%, citing larger legal matters, expansion within existing customers and increased AI adoption. He did not identify a quarter in which he expects the company to reach that growth rate.

Large Customers and AI Usage Drive Growth

The number of customers generating more than $100,000 in revenue over the preceding 12 months rose to 374, from 354 in the prior quarter and 326 a year earlier. Those customers accounted for $133 million, or 78%, of revenue over the latest 12-month period.

Friedrichsen said most of the growth in that customer group came from existing accounts increasing their spending. The company is focused on winning a larger share of those customers’ business, he said.

The number of large matters on DISCO Platform, the company’s commercial model that includes its Cecilia AI capabilities, tripled during the third quarter. Chief Financial Officer Aaron Barfoot said DISCO Platform revenue had grown more than tenfold compared with the first quarter of 2026 and had already exceeded the company’s internal full-year target. The model became the default for new and renewal contracts on Oct. 1.

Barfoot said the shift could reduce some one-time data ingest fees in the short term, though the impact has remained immaterial so far. The company expects ongoing platform fees and larger, longer-running matters to more than offset that effect over time, he said.

Revenue attributable to generative and agentic AI capabilities grew more than 200% year over year, Friedrichsen said. Total revenue from Auto Review, the company’s AI-based document review product, grew more than fourfold.

DISCO also made its Advanced Research tool generally available during the quarter. Friedrichsen said it accounted for 91% of Cecilia question-and-answer usage in the third quarter. Richard Crum, chief product, technology and strategy officer, said the share rose to 97% in October.

Litigation Product Pilot Expands

DISCO is testing a Unified Litigation Solution that combines a matter’s evidence with access to U.S. case law, court rules, statutes and regulations. Crum said the initial pilot included four Am Law 50 firms and that customers were using the product on live matters.

The company has expanded the pilot with a second customer cohort and expects to onboard a third before year-end. Crum said DISCO would provide more information about broader availability as its plans evolve.

Friedrichsen said the unified product could provide growth beyond the opportunity he sees in DISCO’s existing business. He also announced the appointments of Mich Razon as chief technology officer and Johann Wrede as chief marketing officer.

Profitability and Outlook

Third-quarter adjusted EBITDA was approximately $79,000, compared with an adjusted EBITDA margin of negative 1% a year earlier. Non-GAAP gross margin was 77%, unchanged from the prior year, while the non-GAAP net loss narrowed to $0.3 million from $0.6 million.

Asked by a Needham analyst about increased capitalization of research and development costs, Barfoot said there had been no accounting policy change. He attributed the increase to investment in the new Unified Litigation Solution and said revenue growth and disciplined operating expenses were the main drivers of the quarter’s profitability.

DISCO ended the quarter with $96.8 million in cash and short-term investments and no debt. Operating cash flow through the first nine months was negative $15.8 million, compared with negative $15.7 million in the same period a year earlier.

For the fourth quarter, the company forecast revenue of $45.8 million to $47.8 million and adjusted EBITDA ranging from break-even to $1.5 million. It raised its full-year revenue outlook to $176.1 million to $178.1 million and projected a full-year adjusted EBITDA loss of $5.3 million to $6.8 million.

About CS Disco (NYSE:LAW)

CS Disco, Inc NYSE: LAW is a legal technology company that provides cloud-based software and services for law firms, corporations and government organizations. Its platform is designed to help legal teams manage litigation and investigations, organize large volumes of data and streamline document-intensive legal workflows.

The company's products support electronic discovery, including the collection, processing, hosting, review and analysis of electronically stored information. DISCO's technology uses automation and artificial intelligence to assist with tasks such as document review, information retrieval and case preparation.

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