Summary
CS Disco reported second quarter fiscal 2026 revenue of $43.15 million, up 13.2% from the prior-year quarter. Gross profit rose 13.0% to $32.11 million. Gross margin slipped to 74.4%, down 0.2 percentage points. Year-to-date revenue reached $85.03 million, up 13.7%. Year-to-date gross profit was $63.20 million, up 13.7%, and year-to-date gross margin was 74.3%, flat compared with the prior-year period.
The company still posted a GAAP operating loss of $9.22 million for the quarter, though that loss narrowed. Operating margin improved to negative 21.4%. Net loss narrowed to $8.66 million, and diluted EPS loss narrowed to $0.13. For the six months, operating loss narrowed to $19.31 million, net loss narrowed to $18.28 million, and diluted EPS loss narrowed to $0.29. Operating margin for the six months improved to negative 22.7%. Research and development expenses increased, driven by software costs and personnel costs. Sales and marketing expenses increased, driven by personnel costs including commissions. General and administrative expenses decreased, primarily due to lower legal costs related to securities litigation and lower bad debt expense, partially offset by higher professional services costs.
Cash generation showed improvement. Operating cash flow was negative $1.07 million for the quarter, up 74.6%. Capital expenditures were $1.15 million, up 19.4%. For the six months, operating cash flow was negative $12.76 million, up 13.3%, and capital expenditures were $1.85 million, up 24.3%. Deferred revenue was $4.19 million, up 19.9%. Remaining performance obligations were $24.40 million, down 9.3%.
Operationally, DISCO ended the quarter with 354 customers that generated more than $100,000 in revenue over the previous 12-month period as of June 30, 2026, a 10% increase compared with June 30, 2025. The company launched a unified litigation solution that combines matter facts with relevant U.S. case law in an AI-native application. It also added Andre Mintz, a former Meta senior executive, to its board in July 2026. Usage-based revenue represented 92% of total revenue for both the three and six months ended June 30, 2026, while subscription revenue was 8%. In the prior-year periods, usage-based revenue was 90% and 89% of total revenue, respectively, and subscription revenue was 10% and 11%.
Guidance for the third quarter of 2026 calls for Adjusted EBITDA of negative $1.75 million to negative $0.25 million. For the full fiscal year 2026, DISCO expects Adjusted EBITDA of negative $8.0 million to negative $5.0 million. The company's revenue outlook for both periods is based on assumptions that are subject to change. Risks include a history of operating losses, dependence on usage revenue that fluctuates with the timing and activity of legal matters, the timing of large matters on the platform, competition, macroeconomic conditions such as inflation, interest rates and tariffs, unfavorable legal industry conditions including decreased enforcement and government shutdowns, and security or data privacy breaches.
Liquidity at June 30, 2026 included $10.9 million of cash and cash equivalents and $90.5 million of short-term investments. Adjusted EBITDA was negative $3.4 million for the quarter, compared with negative $2.7 million in the prior-year quarter, and negative $6.9 million for the six months, compared with negative $7.8 million. Non-GAAP gross margin was 76% in both periods. Non-GAAP operating margin was negative 10% in both periods. Non-GAAP net loss per share was $0.06 for the quarter, compared with $0.04 in the prior-year quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $43.1M | $41.9M | +3.0% | $38.1M | +13.2% |
| Gross profit | $32.1M | $31.1M | +3.3% | $28.4M | +13.0% |
| Gross margin | 74.4% | 74.2% | +0.2 pp | 74.6% | -0.2 pp |
| Research & development | $14.9M | $14.7M | +1.6% | $14.0M | +6.9% |
| Sales & marketing | $16.9M | $16.1M | +4.9% | $15.2M | +10.7% |
| General & administrative | $9.5M | $10.4M | -8.4% | $11.0M | -13.6% |
| Total operating expenses | $41.3M | $41.2M | +0.4% | $40.2M | +2.7% |
| Operating income (loss) | -$9.2M | -$10.1M | +8.7% | -$11.8M | +22.0% |
| Operating margin | -21.4% | -24.1% | +2.7 pp | -31.0% | +9.6 pp |
| Net income (loss) | -$8.7M | -$9.6M | +10.0% | -$10.8M | +19.9% |
| Net margin | -20.1% | -23.0% | +2.9 pp | -28.4% | +8.3 pp |
| Diluted EPS | -$0.13 | -$0.15 | +$0.02 | -$0.18 | +$0.05 |
Risks
Unfavorable legal industry conditions, including executive orders against certain law firm partners, decreased federal enforcement under President Trump, and potential U.S. government shutdown delays, could reduce major legal matters and usage of DISCO's product offerings. MD&A states these factors could reduce the volume of major legal matters and therefore usage.
Most customers do not have long-term contractual financial commitments and can reduce or cease usage at any time. For the three months ended June 30, 2026, revenue from customers existing as of June 30, 2025 decreased $0.9 million, and for the six months ended June 30, 2026 it decreased $1.4 million, driven by lower usage by several existing customers.
Usage-based revenue represented 92% of total revenue for the three and six months ended June 30, 2026, and results fluctuate with the inception and conclusion of large legal matters. RPO decreased 9.3% year over year to $24.4 million, and DISCO Review usage can materially impact quarter-to-quarter revenue.
DISCO has incorporated AI, including generative AI, into products and internal operations. Risks include flawed or inaccurate outputs, leakage of sensitive customer data into third-party AI platforms, evolving AI laws such as the EU AI Act and Colorado Artificial Intelligence Act, and potential competitive disadvantage if AI use is restricted.
DISCO processes highly sensitive legal documentation and has experienced unsuccessful phishing attempts in the past. A security incident or customer misconfiguration under its shared responsibility model could lead to regulatory actions, litigation, loss of customers, and material disruption.
Stringent and evolving privacy laws, including EU GDPR, UK GDPR, CCPA, and the DOJ sensitive data rule, impose compliance costs and cross-border transfer restrictions. Failure could lead to fines up to 4% of annual global revenue and limits on processing customer data.
DISCO outsources substantially all platform infrastructure to AWS, and AWS has no obligation to renew on commercially reasonable terms. Disruption, capacity limits, or failure to renew could impede onboarding and harm operations.
The legal technology market is competitive, and DISCO's usage-based pricing model subjects it to challenges in predicting optimal pricing to attract and retain customers. Failure to compete effectively could harm business.
DISCO relies on highly skilled personnel, including management and key employees. Loss of one or more key employees or a significant number of team members could harm the business.
DISCO has agreed to settle the September 2023 purported stockholder class action without admission of liability, subject to court approval, and may face additional securities litigation. This could result in substantial costs and divert management attention.
DISCO will cease to qualify as an emerging growth company as of December 31, 2026, triggering auditor attestation under Section 404 and increased legal and financial compliance costs. It also needs to improve internal systems and controls to manage growth.
DISCO has historically generated negative cash flows, with net cash used in operating activities of $12.8 million for the six months ended June 30, 2026. It may need additional equity or debt financing, which could dilute stockholders or be unavailable on acceptable terms.
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 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.