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CS Disco (LAW)
NYSE:LAW
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CS Disco
(NYSE:LAW)
Rating:56Neutral
Price Target:
$4.00
▲(1.52%Upside)
Positive Factors
AI Product Adoption
Multi-product attach is now up to 17% of customers, from 15% a year ago, some of which is being driven by the adoption of Disco’s AI products, most notably Cecilia Q&A, which is seeing promising early signs of utilization.
Customer Growth
Large customer growth is encouraging, with CS Disco finishing 2024 with 315 customers generating $100k+ in revenue, up 9% year-over-year.
Financial Stability
The firm was FCF profitable for the second consecutive Q4, and with nearly $130M in balance sheet cash, Disco has plenty of runway to fund the business to profitability.
Negative Factors
Market Valuation
The price objective of $6 is based on a discounted multiple compared to small cap peers due to a lower growth and profitability profile.
Profitability Concerns
The business has a revenue growth profile below its small-cap software peers, and adjusted EBITDA margins are yet to inflect positive.
Revenue Growth Challenges
Net revenue retention remains under 100%, which implies total revenue growth will need to be driven more by net new logo growth.
CS Disco (LAW) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$239.58M
Dividend YieldN/A
Average Volume (3M)112.90K
Price to Earnings (P/E)―
Beta (1Y)0.72
Revenue Growth3.84%
EPS Growth-76.01%
CountryUS
Employees561
SectorTechnology
Sector Strength81
IndustrySoftware - Application
Share Statistics
EPS (TTM)-0.08
Shares Outstanding60,807,053
10 Day Avg. Volume144,588
30 Day Avg. Volume112,903
Financial Highlights & Ratios
PEG Ratio0.08
Price to Book (P/B)1.63
Price to Sales (P/S)0.00
P/FCF Ratio-21.04
Enterprise Value/Market Cap0.83
Enterprise Value/Revenue0.35
Enterprise Value/Gross Profit1.85
Enterprise Value/Ebitda-1.41
Forecast
1Y Price Target
$7.33Price Target Upside86.04% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering3
CS Disco Business Overview & Revenue Model
Company DescriptionCS Disco, Inc. (LAW) is a technology company specializing in providing cloud-based eDiscovery, legal document review, and case management solutions. The company serves law firms, corporations, and government agencies by offering innovative software that enhances legal workflows and improves efficiency in handling complex legal matters. Its core products include a suite of software tools designed to assist in the discovery process, enabling legal professionals to manage large volumes of data and documents securely and effectively.
How the Company Makes MoneyCS Disco makes money primarily through a subscription-based revenue model, where clients pay for access to its software solutions on a recurring basis. The company offers various pricing tiers based on the size and needs of the client, which can include additional fees for extra storage, advanced features, or increased user access. Key revenue streams include licensing fees for its software products and services related to data processing, hosting, and project management. Strategic partnerships with legal firms and corporate legal departments also contribute to its earnings by expanding its customer base and enhancing its market reach.
CS Disco Earnings Call Summary
Earnings Call Date:May 07, 2025
(Q1-2025)
| % Change Since: 8.54%|
Next Earnings Date:Aug 07, 2025
Earnings Call Sentiment Neutral
The earnings call presented a mixed picture. While there were positive developments in revenue growth, customer expansion, and adoption of new AI technologies, the company continues to face challenges with negative EBITDA and increasing net losses. The strong cash position and strategic initiatives provide optimism for future improvement.Q1-2025 Updates
Positive Updates
Revenue and Customer Growth
Total revenue for Q1 2025 was $36.7 million, up 3% year over year. Software revenue was $30.9 million, with a notable increase in customers spending more than $100,000, up 8% year over year.
Strong Cash Position
The company ended Q1 with $118.8 million in cash and short-term investments and no debt, providing a solid financial foundation.
Growth in Large Multi-Terabyte Matters
There was continued growth in revenue from large multi-terabyte matters, indicating potential future revenue expansion.
Cecilia Generative AI Suite Expansion
The number of Cecilia Q&A customers grew five times from Q1 2024, showing strong momentum and customer adoption.
Munch Hart Contract Renewal
Renewed a three-year subscription with law firm Munch Hart, doubling their commitment compared to their prior contract.
Negative Updates
Negative Adjusted EBITDA
Adjusted EBITDA for Q1 was negative $5.1 million, representing a negative 14% margin, although slightly better than guidance.
Increase in Operating Loss
Operating loss in Q1 was $6.2 million, representing a negative 17% margin, slightly improving from negative 18% in the previous year.
Net Loss Increase
Net loss in Q1 was $4.9 million, or negative 14% of revenue, slightly higher than the previous year's net loss of $4.7 million.
Increase in R&D Expense
Research and development expense for Q1 was $12.2 million or 33% of revenue, up from 28% in Q1 of the prior year.
Company Guidance
During the first quarter of fiscal year 2025, CS Disco, Inc. reported total revenue of $36.7 million, with software revenue contributing $30.9 million. The company recorded an adjusted EBITDA of negative $5.1 million, surpassing the high end of its guidance range. CS Disco ended the quarter with $118.8 million in cash and short-term investments, maintaining a customer base where 318 clients generated over $100,000 in the past twelve months, marking an 8% increase year over year. These customers accounted for 76% of the overall revenue. 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.CS Disco Financial Statement Overview
Summary
CS Disco is experiencing revenue growth and maintains a strong gross margin, yet the company faces significant challenges in achieving profitability and positive cash flow. The debt-free balance sheet provides some financial stability, but ongoing net losses and negative cash flows present risks. The company must focus on enhancing operational efficiency to improve its financial health.Income Statement
CS Disco's revenue has shown growth, increasing from $138.09 million in 2023 to $144.84 million in 2024, indicating a positive trajectory. However, the company continues to face profitability challenges, with net losses widening from $42.15 million in 2023 to $55.77 million in 2024. The company maintains a strong gross profit margin of 74.18% in 2024, but negative EBIT and EBITDA margins highlight ongoing operational inefficiencies.45
Neutral
Balance Sheet
The balance sheet reflects a stable equity position with stockholders' equity declining slightly to $147.51 million in 2024. The company is debt-free, which is a positive indicator of financial stability. However, the equity ratio has decreased, and the return on equity is negative due to persistent net losses, highlighting issues with profitability despite a solid asset base.60
Neutral
Cash Flow
CS Disco's cash flow statement reveals a challenging environment with negative operating and free cash flows, though there has been some improvement from the previous year. Operating cash flow improved to -$8.75 million in 2024 from -$25.53 million in 2023. The cash flow to net income ratios indicate continued struggles in converting earnings into cash flow, limiting the company's financial flexibility.40
Negative
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 144.84M | 138.09M | 135.19M | 114.34M | 68.44M | Gross Profit |
| 107.43M | 103.14M | 101.03M | 83.24M | 47.99M | EBIT |
| -61.72M | -49.84M | -71.81M | -23.83M | -22.50M | EBITDA |
| -51.52M | -37.55M | -65.68M | -20.99M | -20.72M | Net Income Common Stockholders |
| -55.77M | -42.15M | -70.77M | -24.34M | -22.87M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 129.13M | 159.55M | 203.24M | 255.48M | 58.57M | Total Assets |
| 180.32M | 231.55M | 256.32M | 287.40M | 79.11M | Total Debt |
| 9.30M | 9.16M | 10.91M | 989.00K | 2.12M | Net Debt |
| -43.47M | -150.39M | -192.33M | -254.49M | -56.45M | Total Liabilities |
| 32.81M | 31.21M | 32.69M | 18.72M | 174.03M | Stockholders Equity |
| 147.51M | 200.34M | 223.64M | 268.68M | -94.92M |
| Cash Flow | Free Cash Flow | |||
| -11.53M | -44.39M | -50.39M | -24.75M | -24.62M | Operating Cash Flow |
| -8.75M | -25.53M | -46.01M | -21.64M | -22.71M | Investing Cash Flow |
| -78.03M | -20.04M | -9.69M | -3.11M | -1.90M | Financing Cash Flow |
| -20.00M | 1.87M | 3.47M | 221.66M | 59.96M |
CS Disco Technical Analysis
Neutral
3.94
Price Trends
3.86
Positive
4.39
Negative
5.04
Negative
Market Momentum
0.02
Negative
52.31
Neutral
38.83
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For LAW, the sentiment is Neutral. The current price of 3.94 is above the 20-day moving average (MA) of 3.92, above the 50-day MA of 3.86, and below the 200-day MA of 5.04, indicating a neutral trend. The MACD of 0.02 indicates Negative momentum. The RSI at 52.31 is Neutral, neither overbought nor oversold. The STOCH value of 38.83 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for LAW.
CS Disco Risk Analysis
CS Disco disclosed 66 risk factors in its most recent earnings report. CS Disco reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 1 New Risks
1.
We use artificial intelligence in our products and operations, which may result in operational challenges, legal liability, reputational concerns and competitive risks. Q4, 2024
CS Disco Peers Comparison
Overall Rating
UnderperformOutperform
Sector (61)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
66 Neutral | $275.35M | 1.53 | -10.56% | 4.76% | -11.07% | 953.01% | |
65 Neutral | $198.21M | ― | -10.44% | ― | 7.65% | -96.35% | |
61 Neutral | $11.56B | 10.44 | -6.88% | 2.93% | 7.49% | -8.97% | |
58 Neutral | $236.85M | ― | -9.90% | ― | -6.52% | -2.19% | |
56 Neutral | $239.58M | ― | -33.75% | ― | 3.84% | -76.01% | |
56 Neutral | $241.68M | ― | -24.47% | ― | -8.39% | 7.79% | |
48 Neutral | $314.92M | ― | -104.69% | ― | -1.64% | 9.99% |
* Technology Sector Average
Performance Comparison
LAW
CS Disco
3.94
-1.70
-30.14%
SSTI
SoundThinking Inc
15.64
1.29
8.99%
EB
Eventbrite
2.47
-2.40
-49.28%
MKTW
MarketWise
16.32
-7.36
-31.08%
NRDY
Nerdy
1.67
0.12
7.74%
ONTF
ON24
5.57
-0.18
-3.13%
CS Disco Corporate Events
Executive/Board Changes
CS Disco Appoints Thomas Bogan as New Director
Neutral
Mar 17, 2025
On March 13, 2025, CS Disco, Inc. announced that Tyson Baber resigned from his position as a Class I director and member of the Audit Committee, effective immediately. His resignation was not due to any disagreements with the company. To fill the vacancy, the board appointed Thomas Bogan as a new Class I director, effective the same day. Bogan, who has an extensive background in corporate development and strategic sourcing, was deemed independent under NYSE rules and will serve until the 2025 annual meeting of stockholders. His compensation includes equity awards and an annual cash retainer.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.