Cs Disco, Inc. ((LAW)) has held its Q3 earnings call. Read on for the main highlights of the call.
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CS Disco, Inc. recently held its earnings call, revealing a mixed sentiment among investors and analysts. The company showcased impressive revenue growth and operational improvements, driven by successful AI adoption. However, concerns linger due to its dependency on contingent revenue and ongoing negative cash flow. While the positive highlights are noteworthy, the uncertainties introduced by the lowlights warrant cautious optimism.
Accelerated Revenue Growth
CS Disco reported a significant increase in revenue for the third quarter. Software revenue reached $35.2 million, marking a 17% year-over-year growth, while total revenue rose to $40.9 million, a 13% increase from the previous year. This growth was achieved even without a one-time revenue event, surpassing the high end of the company’s guidance range.
Customer Success and Strategic Focus
The company ended the third quarter with 326 customers, each contributing over $100,000 in revenue over the last 12 months, which accounted for 76% of the total revenue. A notable highlight was a large multinational company selecting DISCO for a significant legal matter, underscoring the effectiveness of the company’s strategic focus and execution.
Adoption of AI Capabilities
CS Disco saw a substantial increase in the adoption of its AI capabilities, with the number of customers using Cecilia AI more than tripling year-over-year. The consistent growth in Auto Review adoption throughout 2025 highlights successful AI integration and customer satisfaction.
Improved Operational Metrics
The company’s operational metrics showed improvement, with the adjusted EBITDA margin improving to negative 1% from negative 12% in the prior year. This represents a $4.2 million year-over-year improvement, indicating better operational efficiency.
Positive Industry Recognition
CS Disco received positive industry recognition, being named a leader in the 2025 IDC MarketScape for worldwide end-to-end eDiscovery software. This acknowledgment highlights the company’s capability to handle large data volumes and support core workflows effectively.
Negative Cash Flow
Despite the positive developments, CS Disco reported a negative operating cash flow of $15.7 million for the first three quarters of 2025, compared to negative $10.8 million in the same period the previous year. This ongoing negative cash flow remains a concern for the company’s financial health.
Contingent Revenue Dependency
A significant portion of CS Disco’s revenue growth was attributed to a $1.3 million revenue recognition from a contingent case. This raises questions about the sustainability of similar revenue contributions in the future, highlighting a potential risk in the company’s revenue model.
Forward-Looking Guidance
Looking ahead, CS Disco projects total revenue for Q4 2025 to be between $38.75 million and $40.75 million, with software revenue expected to range from $33.75 million to $34.75 million. For the entire fiscal year, the company forecasts total revenue between $154.4 million and $156.4 million and software revenue between $132.6 million and $133.6 million. The company aims for adjusted EBITDA breakeven by Q4 2026, signaling a focus on achieving financial stability.
In conclusion, CS Disco’s earnings call presented a blend of positive growth indicators and areas of concern. While the company demonstrated strong revenue growth and operational improvements, the dependency on contingent revenue and negative cash flow pose challenges. Investors and analysts will be keenly watching how the company navigates these issues in the coming quarters.