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CS Disco, Inc. (LAW)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $36.65M, up 3% year over year and near the high end of guidance; non-GAAP EPS of $(0.08) beat Wall Street consensus of $(0.114), and revenue modestly exceeded consensus as well .
  • Adjusted EBITDA was $(5.09)M (−14% margin), better than the high end of guidance, reflecting tighter sales and marketing spend and stable gross margins .
  • Management raised full-year 2025 guidance for software revenue, total revenue, and adjusted EBITDA; Q2 2025 guidance implies steady growth with software revenue of $31.25–$32.25M and total revenue of $36.5–$38.5M .
  • Call catalysts: increased FY guide, continued traction in large multi-terabyte matters, AI product momentum (Cecilia Q&A/Auto Review), and growing large customer cohort (318 >$100K customers; 76% of revenue) .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP EPS and revenue were modest beats versus consensus; adjusted EBITDA also better than expectations (high end of guide), driven by lower sales and marketing intensity and stable non-GAAP gross margin (75%) .
  • Large customer cohort grew to 318, with 76% of revenue from customers >$100K; management highlighted increasing revenue from large multi-terabyte matters, a key forward indicator .
  • AI product momentum: “The number of our Cecilia Q&A customers grew 5x from Q1 2024... we continue to make big strides on even faster throughput and higher quality results that are potentially game-changing” (CEO) .

What Went Wrong

  • GAAP net loss widened slightly YoY to $(11.39)M and operating cash flow was $(10.50)M for the quarter; R&D spending rose to $14.26M as DISCO invests for growth .
  • Services revenue growth was modest (management cited 2% YoY), and operating loss remained elevated; adjusted EBITDA at $(5.09)M still reflects negative operating leverage .
  • Macro and regulatory noise: management noted potential volatility from tariffs and legal industry developments, though exposure is believed negligible; still a watch item for demand variability (CEO) .

Financial Results

P&L and Margin Trajectory vs Prior Quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$36.27 $36.999 $36.653
GAAP Net Loss ($USD Millions)$(9.16) $(25.20) $(11.39)
GAAP EPS ($USD)$(0.15) $(0.42) $(0.19)
Adjusted EBITDA ($USD Millions)$(4.50) $(4.29) $(5.09)
Non-GAAP Gross Margin (%)74% 75% 75%
Non-GAAP Operating Margin (%)−15% −14% −17%

Segment Revenue Breakdown

Segment ($USD Millions)Q3 2024Q4 2024Q1 2025
Software Revenue$30.2 $30.8 $30.9
Services Revenue$6.1 $6.2 $5.8

KPIs

KPIQ4 2024Q1 2025
Large Customers (> $100K, count)315 318
% of Revenue from >$100K Customers—76%
Cash + Short-Term Investments ($USD Millions)$129.1 $118.8

Cash Flow

MetricQ1 2025
Operating Cash Flow ($USD Millions)$(10.50)

Guidance Changes

MetricPeriodPrevious Guidance (Feb 20, 2025)Current Guidance (May 7, 2025)Change
Software Revenue ($USD Millions)FY 2025$124.0 – $131.0 $125.5 – $131.5 Raised (lower bound +$1.5; upper bound +$0.5)
Total Revenue ($USD Millions)FY 2025$145.5 – $157.5 $146.0 – $158.0 Raised (range +$0.5 at both ends)
Adjusted EBITDA ($USD Millions)FY 2025$(19.0) – $(15.0) $(18.0) – $(15.0) Raised (less negative lower bound)
Software Revenue ($USD Millions)Q2 2025—$31.25 – $32.25 New
Total Revenue ($USD Millions)Q2 2025—$36.5 – $38.5 New
Adjusted EBITDA ($USD Millions)Q2 2025—$(5.5) – $(3.5) New

Earnings Call Themes & Trends

TopicQ3 2024 (Prior-2)Q4 2024 (Prior-1)Q1 2025 (Current)Trend
AI/Cecilia adoptionPlatform leadership touted; early traction; conservative industry adoption considerations Attach rate 17% incl. Cecilia; strong interest esp. large matters Cecilia Q&A customers up 5x YoY; Auto Review throughput/value highlighted with case outcomes Increasing adoption and customer validation
Go-to-market overhaulAdded CSO; enterprise focus; account-based marketing; restructuring to refocus talent Expanded enterprise sellers; incentives to drive usage; revenue reacceleration narrative Early positive indicators: more >$100K customers and large matters revenue Execution progressing; early traction
Large multi-terabyte mattersEmphasis on winning larger/longer matters Continued focus; examples of big customer expansions “Yet another quarter of growth” in large matter revenue; forward indicator Building momentum
Macro/regulatoryGeneral macro watch; operational efficiency Path to adj. EBITDA breakeven by Q4’26; disciplined investment Tariffs/legal industry events; negligible exposure; litigation can be countercyclical Cautious but confident
Financial disciplineS&M down; GM ~75% OCF improved FY; cash $129.1M S&M down to 36% of revenue; GM 75%; cash+STI $118.8M, no debt Stable margins; investing in R&D

Management Commentary

  • CEO on value proposition: “We launched our new customer value proposition, With You In Every Case... we want customers to view DISCO not just as a vendor but as a true partner” .
  • CEO on AI momentum: “The number of our Cecilia Q&A customers grew 5x from Q1 2024... big strides on... faster throughput and higher quality results” .
  • CFO on discipline: “Sales and marketing expense for Q1 was $13.2M or 36% of revenue compared to 41%... the decline is predominantly due to headcount changes” .
  • CEO on macro: “We believe DISCO is well positioned to weather a potential economic downturn… economic slowdowns have led to increases in litigation” .

Q&A Highlights

  • Strategy execution: Management reaffirmed focus on large strategic matters and wallet-share expansion; year 2 under new CEO expected to be more execution-heavy .
  • “With You In Every Case”: Positioning clarifies integrated software+services for large/complex matters; intent to promote services more actively alongside self-serve strengths .
  • Profitability path: Target reiterated for adj. EBITDA breakeven by Q4 2026; management prioritizes revenue growth with disciplined cost adds .
  • Go-to-market maturity: Shifted account management tasks to customer success to free sales for growth; enterprise seller hiring ongoing .

Estimates Context

  • Q1 2025 vs Wall Street consensus (S&P Global):
    • Revenue: Actual $36.65M vs consensus $36.12M* → modest beat .
    • Primary EPS: Actual $(0.08) vs consensus $(0.114)* → beat*.
    • Adjusted EBITDA: Company reported $(5.09)M; consensus tracked EBITDA not adjusted; compare cautiously .
MetricQ1 2025 Consensus*Q1 2025 Actual
Revenue ($USD)$36.12M*$36.65M
Primary EPS ($USD)$(0.114)*$(0.08)
  • Forward view (Q2 2025): Consensus revenue ~$37.53M*, EPS $(0.075), while company guides total revenue $36.5–$38.5M and software $31.25–$32.25M, suggesting estimates are broadly aligned; management raised FY ranges, implying potential upward estimate revisions .
MetricQ2 2025 Consensus*Company Guidance
Revenue ($USD)$37.53M*$36.5–$38.5M
Primary EPS ($USD)$(0.075)*N/A
Software Revenue ($USD)N/A$31.25–$32.25M
Adjusted EBITDA ($USD)N/A$(5.5)–$(3.5)

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • DISCO delivered a clean quarter with modest beats on revenue and non-GAAP EPS vs consensus, and better-than-expected adjusted EBITDA, supported by lower sales and marketing intensity and stable gross margins .
  • The FY 2025 guide was raised across revenue and adjusted EBITDA, signaling management confidence in pipeline and go-to-market execution .
  • Strategic focus on larger, multi-terabyte matters and integrated software+services (“With You In Every Case”) should lengthen matter life cycles and drive wallet share, a positive driver for growth durability .
  • AI differentiation (Cecilia Q&A/Auto Review) is gaining traction, with concrete case studies and throughput advantages that can be monetized as adoption scales, particularly among Am Law firms and complex corporate matters .
  • Watch items: continued GAAP losses and negative operating cash flow, modest services growth, and macro/regulatory developments; management asserts low direct exposure and countercyclical litigation tailwinds .
  • Liquidity remains solid ($118.8M cash+ST investments, no debt), enabling continued investment in R&D and go-to-market while targeting adj. EBITDA breakeven by Q4 2026 .
  • Near-term: expect estimates to drift higher given raised FY guidance; medium-term thesis hinges on sustained large-matter momentum, AI adoption, and execution on enterprise go-to-market .

Additional Relevant Q1 2025 Press Releases

  • Earnings date announcement (April 22): call logistics .
  • Value proposition launch (March 25): “With You In Every Case” positioning of integrated software+services .
  • G2 Best Legal Software Award (Feb 27): category recognition bolstering product credibility .

Appendix: Financial Statements (from 8-K Exhibit 99.1)

  • Q1 2025 condensed balance sheet, income statement, cash flows, and GAAP-to-Non-GAAP reconciliations as furnished in the 8-K .