Summary
CS Disco reported first quarter fiscal 2026 total revenue of $41.88 million, up 14.3% from $36.65 million in the prior-year quarter. Gross profit rose 14.5% to $31.08 million from $27.15 million. Gross margin was 74.2%, up 0.1 percentage point from 74.1%. The company still posted an operating loss of $10.09 million, but that loss narrowed from $12.61 million a year earlier. Operating margin improved to -24.1% from -34.4%. Net loss narrowed to $9.62 million from $11.39 million. Diluted loss per share was $0.15, an improvement from $0.19. Adjusted EBITDA, a non-GAAP measure, was -$3.5 million, an improvement of 32% from -$5.1 million.
Operating cash flow was -$11.68 million, down from -$10.50 million in the prior-year quarter. Capital expenditures were $0.70 million, up from $0.52 million. Deferred revenue, current portion, rose 11.1% to $4.34 million from $3.90 million. Remaining performance obligations fell 27.6% to $20.20 million from $27.90 million. Non-GAAP gross margin was 75%, flat with the prior-year quarter. The company ended the quarter with 347 customers that spent more than $100,000 over the previous 12-month period, a 9% increase from March 31, 2025. Management said the quarter showed accelerating total revenue and customer growth. Management noted that new customers contributed to growth, offset by lower usage from some existing customers.
The quarter's growth came alongside product momentum. DISCO highlighted customer reception to its new all-inclusive platform and advanced agentic AI capabilities. The company also added Toby Williams, an AI SaaS veteran and current Paylocity Holding Corporation President and CEO, to its Board of Directors in April 2026. Those moves aim to strengthen DISCO's position as an AI leader for litigation.
For the second quarter of 2026, DISCO guided adjusted EBITDA to -$4.5 million to -$2.5 million. For the full fiscal year 2026, it guided adjusted EBITDA to -$8.0 million to -$4.0 million. The outlook assumes conditions that are subject to change, and DISCO noted that a reconciliation of forward-looking adjusted EBITDA to net loss is not available without unreasonable efforts.
Risks remain significant. DISCO has a history of operating losses. Revenue depends heavily on customer usage, which fluctuates with the timing and scope of legal matters. Unfavorable conditions in the legal industry could hurt growth. The company cited executive orders against certain law firm partners, decreased federal enforcement, and potential U.S. government shutdowns as factors that could reduce major legal matters and usage of its platform. Macroeconomic uncertainty, including inflation, interest rates, tariffs, the Russia-Ukraine war, the war in Iran, and Middle East tensions, also poses risks. Competition, the ability to add new customers, expand sales coverage, grow internationally, and maintain partner relationships are additional challenges. Security breaches, data privacy issues, and the ability to compete effectively with existing and new entrants are further concerns. The 27.6% decline in remaining performance obligations may signal lower committed backlog. DISCO's cash burn continued, with operating cash flow negative $11.68 million. Management believes existing cash and short-term investments will fund requirements for the next 12 months, but the company may need additional financing. The company also faces risks related to its dependence on a limited number of large legal matters, the unpredictability of litigation timing, and the potential for customers to reduce spending during economic downturns. International expansion, particularly in the United Kingdom and India, carries execution risk. The company's ability to maintain and advance its innovation and brand is critical. If DISCO fails to effectively add new customers or increase usage among existing ones, its results could suffer.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2026 | Q4 FY2025 | QoQ | Q1 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $41.9M | $41.2M | +1.7% | $36.7M | +14.3% |
| Gross profit | $31.1M | $30.9M | +0.5% | $27.1M | +14.5% |
| Gross margin | 74.2% | 75.2% | -0.9 pp | 74.1% | +0.2 pp |
| Research & development | $14.7M | $15.0M | -1.7% | $14.3M | +3.1% |
| Sales & marketing | $16.1M | $15.2M | +5.5% | $14.5M | +10.7% |
| General & administrative | $10.4M | $10.0M | +4.0% | $11.0M | -5.3% |
| Total operating expenses | $41.2M | $40.2M | +2.5% | $39.8M | +3.6% |
| Operating income (loss) | -$10.1M | -$9.2M | -9.2% | -$12.6M | +20.0% |
| Operating margin | -24.1% | -22.4% | -1.7 pp | -34.4% | +10.3 pp |
| Net income (loss) | -$9.6M | -$8.5M | -13.1% | -$11.4M | +15.6% |
| Net margin | -23.0% | -20.6% | -2.3 pp | -31.1% | +8.1 pp |
| Diluted EPS | -$0.15 | -$0.14 | -$0.01 | -$0.19 | +$0.04 |
Risks
MD&A highlights unfavorable legal industry conditions, including March 2025 executive orders against certain law firm partners, decreased federal agency enforcement under President Trump, and potential U.S. government shutdown delays, which could reduce major legal matters and usage of DISCO offerings. The company has not yet observed adverse revenue impact from these law firm partners, but future impact is uncertain.
Revenue is usage-based and most customers have no long-term contractual commitments, so results fluctuate with the inception and conclusion of legal matters; DISCO Review usage is especially sensitive. MD&A states revenue from existing customers decreased $1.6 million for the three months ended March 31, 2026, driven by lower usage, and RPO was down 27.6% to $20.20 million versus the prior-year quarter.
The company has incorporated generative AI into products and internal operations, exposing it to data leakage, flawed or hallucinated outputs, bias, and evolving AI laws such as the EU AI Act, Colorado AI Act, California Bot Disclosure Law, Utah AI Policy Act, and CCPA automated decision-making rules. These can lead to compliance costs, regulatory fines, retraining requirements, or competitive disadvantage.
Risk factors state that a limited number of customers represent a substantial portion of revenue, and failure to retain these customers could cause revenue to decline significantly. This is amplified by usage-based contracts that customers can reduce or cease at any time.
The company is subject to stringent and evolving privacy and data protection laws, including EU GDPR, UK GDPR, CCPA, and the U.S. DOJ rule on sensitive personal data transfers to countries of concern. Cross-border data transfer restrictions could interrupt operations, require relocating data processing, or lead to substantial fines and penalties.
Operating cash flow was negative $11.68 million for the three months ended March 31, 2026, down 11.3% from negative $10.50 million in the prior-year quarter, and net loss was $9.62 million. The company may need additional equity or debt financing, which could be unavailable on acceptable terms or cause dilution.
The company processes highly sensitive legal documentation and relies on third parties including AWS; risk factors note past unsuccessful phishing attempts and a shared responsibility model where customer misconfiguration can lead to security issues. A security incident could cause loss of customers, regulatory actions, litigation, and reputational harm.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP gross margin
Summary, forecast, risks and KPIs are extracted from CS Disco, Inc.'s SEC filings for Q1 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.