Summary
CS Disco reported second quarter fiscal 2025 revenue of $38.1 million, up 6% from $36.0 million in the prior-year quarter. Software revenue grew at a double-digit rate, while services revenue declined on lower managed review activity. New customer additions since June 30, 2024 were partly offset by reduced usage from customers that already existed at that date. Usage-based revenue represented 90% of the total, so the top line still moves with the timing and scope of legal matters rather than with contracted commitments.
Gross profit was $28.4 million, up 6.4%, and gross margin edged up to 74.6% from 74.2%. The operating loss narrowed to $11.8 million from $12.4 million, and operating margin improved to negative 31.0% from negative 34.4%. Net loss was $10.8 million, essentially flat against the prior-year quarter, and diluted loss per share was $0.18, also flat. The six-month view is less tidy. Revenue for the six months ended June 30, 2025 was $74.8 million, up 4.4%, but net loss widened to $22.2 million from $21.4 million and diluted loss per share widened to $0.36 from $0.35. Gross margin for the six months was 74.3%, down 0.3 percentage points from 74.7%, while operating margin for the six months improved to negative 32.7% from negative 34.5%.
Cash remains the soft spot. Operating cash flow was negative $4.2 million in the quarter, down from negative $0.65 million a year earlier, and negative $14.7 million for the first six months, down from negative $8.0 million. Capital expenditures were $0.96 million in the quarter, up 46.7%, and $1.49 million year to date, up 10.7%. The company ended June 30, 2025 with $21.7 million of cash and cash equivalents and $92.8 million of short-term investments. Deferred revenue, current portion only, was $3.49 million, down 0.7% from a year earlier. Remaining performance obligations offered a brighter signal at $26.9 million, up 39.4%.
Adjusted EBITDA improved to negative $2.7 million from negative $4.7 million in the prior-year quarter, and to negative $7.8 million from negative $9.9 million for the six months. Management raised its full-year fiscal 2025 outlook for total revenue and software revenue, and now guides adjusted EBITDA to negative $17.0 million to negative $13.0 million for the full year. For the third quarter of 2025, the company guides total revenue and software revenue ranges, with adjusted EBITDA of negative $5.0 million to negative $3.0 million.
Leadership is changing. Michael Lafair will step down as chief financial officer, staying in the role until the end of the year unless a successor is appointed sooner, then serving as an advisor while an external search runs. On the product side, DISCO launched Auto Review in the European Union and the United Kingdom and released Searchable AV Transcriptions, which turns audio and video files into searchable text. The company also reported a 150% increase in multi-terabyte matters using its Cecilia AI Platform between December 2024 and June 2025.
The risk list is familiar. DISCO carries a history of operating losses, revenue depends on usage that swings with legal matter activity, and management flagged executive orders issued in March 2025 against certain law firm partners, reduced federal enforcement activity, tariffs, inflation and interest rate moves, and the Russia-Ukraine war and Middle East conflict as factors that could pressure results.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $38.1M | $36.7M | +4.0% | $36.0M | +5.8% |
| Gross profit | $28.4M | $27.1M | +4.7% | $26.7M | +6.4% |
| Gross margin | 74.6% | 74.1% | +0.5 pp | 74.2% | +0.4 pp |
| Research & development | $14.0M | $14.3M | -2.0% | $12.9M | +8.4% |
| Sales & marketing | $15.2M | $14.5M | +4.9% | $15.5M | -1.7% |
| General & administrative | $11.0M | $11.0M | +0.4% | $10.7M | +2.9% |
| Total operating expenses | $40.2M | $39.8M | +1.2% | $39.1M | +2.9% |
| Operating income (loss) | -$11.8M | -$12.6M | +6.3% | -$12.4M | +4.6% |
| Operating margin | -31.0% | -34.4% | +3.4 pp | -34.4% | +3.4 pp |
| Net income (loss) | -$10.8M | -$11.4M | +5.1% | -$10.8M | +0.2% |
| Net margin | -28.4% | -31.1% | +2.7 pp | -30.1% | +1.7 pp |
| Diluted EPS | -$0.18 | -$0.19 | +$0.01 | -$0.18 | ±$0.00 |
Risks
MD&A highlights that March 2025 executive orders against certain law firm partners could restrict their ability to practice in federal matters, and decreased federal enforcement under President Trump could reduce the volume of major legal matters and therefore usage of DISCO offerings. The company has not observed adverse revenue impact to date but cannot be certain of future impact.
Usage-based revenue represented 90% of total revenue in the three and six months ended June 30, 2025, and customers can cancel or reduce usage at any time. In the quarter, revenue from existing customers decreased $2.3 million and services product revenue decreased 20%, driven by lower managed review activity, even as total revenue increased 6%.
The filing expands on use of generative AI in products and internal operations, warning that sensitive customer data could be leaked through third-party AI/ML platforms, models may produce flawed or biased outputs, and new laws such as the EU AI Act could impose compliance costs or restrict use. It also notes public statements about AI features could lead to government or legal action if perceived as deceptive.
The company processes highly sensitive legal documentation and operates a shared responsibility security model where customers configure features such as multi-factor authentication. It has been the target of unsuccessful phishing attempts in the past and expects such attempts to continue, with potential consequences including government enforcement, litigation, loss of customers, and remediation costs.
The filing details evolving U.S. and foreign privacy laws, including EU GDPR and CCPA, with potential fines up to 4% of annual global revenue and restrictions on cross-border personal information transfers. Compliance may require operational changes and increased costs, and contractual obligations may impose further restrictions.
The company relies on AWS to host its platform and on third-party software licenses, many with fixed durations and renewal by mutual consent. Any disruption, non-renewal, or price increase could require costly alternatives or re-architecting, and open source software may impose unanticipated licensing conditions.
Operating cash flow was negative $14.7 million for the six months ended June 30, 2025, down 84.4% from the prior-year period, and net loss widened to $22.2 million from $21.4 million. The company may need additional equity or debt financing, which could be unavailable on acceptable terms or dilute stockholders.
A purported stockholder class action filed in September 2023 remains pending, and general and administrative expenses increased $0.7 million in the quarter primarily due to legal fees for the securities litigation. The company may face additional securities litigation or stockholder activism, which could divert management attention and increase costs.
MD&A notes that unfavorable economic conditions, including inflation, interest rates, tariffs, the Russia-Ukraine war, and Middle East conflict, could cause businesses to slow IT spending and reduce legal spending. The company states these factors have not materially impacted liquidity to date but may affect future results.
The filing states that although revenues increased year over year, the rate of revenue growth has declined from prior periods and may continue to decline due to maturation, competition, and changes in legal matter volume. Total revenue increased 6% in the quarter and 4% year to date, but existing customer revenue decreased.
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 Q2 FY2025 (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 2, 2026.