CS Disco, Inc. (LAW)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 revenue was $38.1M (+6% YoY) and software revenue was $32.7M (+12% YoY); non‑GAAP net loss per share improved to $0.04 loss versus $0.07 loss last year, and adjusted EBITDA improved to $(2.7)M from $(4.7)M .
• Results beat S&P Global consensus: revenue $38.1M vs $37.5M* and primary EPS −$0.04 vs −$0.075*; software revenue exceeded the high end of company guidance, while total revenue was toward the top end .
• FY25 guidance was raised: total revenue to $148–$158M, software revenue to $128–$134M, and adjusted EBITDA to $(17)–$(13)M; Q3 guidance: revenue $37.5–$39.5M, software $32.75–$33.75M, adjusted EBITDA $(5)–$(3)M .
• Catalysts: continued AI adoption (Cecilia, AutoReview EU/UK), expansion of multi‑terabyte matters, and raised FY guidance; overhangs include services softness and CFO transition headlines .

What Went Well and What Went Wrong

What Went Well

• Strong software growth and large matters expansion: “Software revenue in Q2 was $32.7M, up 12% YoY… strong growth stemming from increased usage and expansion of multi‑terabyte matters” .
• AI traction and innovation: Cecilia adoption tied to large, complex matters; AutoReview achieving >90% precision/recall and 32k documents/hour; launched AutoReview in EU/UK and Searchable AV Transcriptions .
• Profitability trajectory: adjusted EBITDA margin improved to −7% (from −13%); management reaffirmed goal of adjusted EBITDA breakeven in 2026 and beat the high end of Q2 adjusted EBITDA guidance .

What Went Wrong

• Services softness: services revenue was $5.4M; softness persists in review business despite AutoReview momentum .
• Continued GAAP losses: GAAP net loss was $10.8M (similar to last year), and GAAP diluted EPS was −$0.18 .
• Higher cash burn: operating cash flow for 1H25 was −$14.7M vs −$8.0M in prior year; cash and equivalents fell to $21.7M though total cash + short‑term investments remained a healthy $114.5M per management (no debt) .

Financial Results

Values marked with * retrieved from S&P Global.

Non-GAAP profitability (company-reported):

Segment breakdown (Q2 2025):

Key KPIs:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy execution: “We are focused on targeting customers with larger eDiscovery wallets and larger Matters… strong growth stemming from increased usage and expansion of multi‑terabyte Matters” .
• AI differentiation: “With AutoReview, clients are now capable of reviewing up to 32,000 documents per hour… precision and recall exceeding 90% in many cases” .
• Growth ambition and investment: “I think this business can be a 20% plus grower… committed to being adjusted EBITDA breakeven in 2026” .
• Operational upgrades: Strategic account management, account-based marketing, and lead-gen orchestration to grow wallet share in large accounts .
• CFO transition: CEO thanked Lafair; external search underway; Lafair to remain through year-end and then advise .

Q&A Highlights

• Services as enabler of software growth: Management emphasized services access (PM/forensics/ingestion) as key to winning largest matters and driving software revenues, not to grow services revenues per se .
• Profitability path: Goal remains adjusted EBITDA breakeven in 2026 with largely flat expense base and reallocation to growth drivers; continued investment in CS, sales enablement, quote-to-cash .
• Revenue visibility: Larger matters last longer, increasing durability/predictability; large customers offer more wallet share expansion opportunities (323 customers >$100k, +6% YoY) .
• Cecilia revenue uplift: Adoption rising, especially in multi‑terabyte matters; company doesn’t break out Cecilia revenue, but notes strong contribution to software growth .
• GTM talent and process: Added enterprise-grade sales reps, strategic account programs, and ABM; lead-gen now orchestrates cross-functional expansion plays .

Estimates Context

Values marked with * retrieved from S&P Global.

• Revenue and EPS both beat consensus: revenue by approximately $0.58M and EPS by ~$0.035, driven by strong usage and expansion of multi‑terabyte matters and growing Cecilia adoption .
• Consensus tracking: Company’s non‑GAAP EPS aligns with S&P “Primary” EPS actual reported (−$0.04), supporting non‑GAAP comparison for investor context .

Key Takeaways for Investors

• Strong software momentum and usage-driven upside: large matters expansion and Cecilia/AutoReview adoption underpin revenue acceleration and improved efficiency .
• Beat-and-raise quarter: revenue and EPS beat consensus; FY25 guide raised across revenue and adjusted EBITDA; Q3 guide signals continued momentum .
• Profitability path credible: adjusted EBITDA improved, high-end guidance beat, and breakeven in 2026 reiterated; continued investment targeted at growth enablers .
• Services soft spot offset by AutoReview: review-services weakness persists, but generative AI automation is gaining traction, potentially reshaping services mix and margins .
• Cash position adequate for execution: $114.5M cash/short-term investments and no debt support continued investments and GTM scaling .
• Watch CFO transition and litigation headlines: CFO change appears orderly; shareholder litigation expenses present in non-GAAP recon; third‑party “investigation” PRs could create noise .
• Near-term trading: upside catalysts from AI narrative and raised FY guide; monitor services trend and Q3 execution against tightened guide ranges .

Notes:  
- Non‑GAAP adjustments materially impact margin and EPS; reconciliation adds back stock‑based comp and shareholder litigation expenses ($1.581M in Q2) **[1625641_0001625641-25-000118_q2fy2025earningsrelease.htm:6]**.  
- Segment disclosure remains limited; software revenue is disclosed, services revenue noted on the call.