Summary
CS Disco reported third-quarter revenue of $40.9 million, up 13% from the prior-year quarter. For the nine months, revenue was $115.7 million, up 7.3% from the prior-year period. Gross profit rose 16.5% to $30.9 million in the quarter. Nine-month gross profit was $86.5 million, up 8.2%. Gross margin was 75.5%, up 2.4 percentage points. The company said large clients and large matters continued to drive traction. Software product offerings drove the increase. Usage-based revenue remained the largest part of total revenue. The top line also benefited from new customers and from a favorable resolution to a legal matter for one customer. Existing customers reduced usage.
Profitability remained under pressure. Operating loss widened to $14.5 million from the prior-year quarter. For the nine months, operating loss widened to $38.9 million. Net loss widened to $13.7 million. Diluted EPS was negative $0.22, down from the prior-year quarter. Nine-month diluted EPS was negative $0.58, down from the prior-year period. Operating margin was negative 35.3%, down 5.4 percentage points. The main driver was legal fees and a legal loss contingency accrual for the securities litigation. Adjusted EBITDA was negative $0.3 million, compared with negative $4.5 million in the prior-year quarter. The company still reported a GAAP net loss, and the stockholder litigation costs are a clear drag.
Operating cash flow was negative $1.0 million in the quarter, up from the prior-year quarter. For the nine months, operating cash flow was negative $15.7 million, down 44.9% from the prior-year period. Capital expenditures were $1.1 million in the quarter, up 20.4%. Deferred revenue was $4.3 million, up 40.4%. Remaining performance obligations were $25.4 million, up 5.4%. The nine-month net loss was $35.9 million, widened from the prior-year period. Management said existing cash and short-term investments should fund anticipated cash requirements for the next 12 months.
Management issued fourth-quarter and full-year 2025 guidance. For the fourth quarter, software revenue is expected in the range of $33.75 million to $34.75 million. Total revenue is expected in the range of $38.75 million to $40.75 million. Adjusted EBITDA is expected in the range of negative $3.5 million to negative $1.5 million. For the full year 2025, software revenue is expected in the range of $132.6 million to $133.6 million. Total revenue is expected in the range of $154.4 million to $156.4 million. Adjusted EBITDA is expected in the range of negative $11.5 million to negative $9.5 million. The outlook assumes no material change in legal industry conditions. The company noted that a reconciliation of forward-looking Adjusted EBITDA to net loss is not available without unreasonable efforts because of the high variability and low visibility of stock-based compensation and stockholder litigation expenses.
Operational highlights included a strategic eDiscovery and technology partnership with Mourant, a law-firm led professional services firm. The number of customer databases using the Cecilia AI Platform grew by over 300% since September 30, 2024. DISCO completed its first auto review project in the United Kingdom. Risks remain significant. The company has a history of operating losses. Revenue depends on customer usage, which fluctuates with the timing and activity of legal matters. Large matters can start and end unpredictably. Macroeconomic uncertainty, tariffs, inflation, interest rates, the Russia-Ukraine war, and conflict in the Middle East could slow spending. Legal industry conditions are also a concern. Executive orders against certain law firms could restrict their federal work. A U.S. government shutdown has limited federal court operations as of October 20, 2025, which could delay litigation and reduce usage. The stockholder litigation has already led to a legal loss contingency accrual. Management expects Adjusted EBITDA to improve over the long term as the business scales.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $40.9M | $38.1M | +7.4% | $36.3M | +12.8% |
| Gross profit | $30.9M | $28.4M | +8.8% | $26.5M | +16.5% |
| Gross margin | 75.5% | 74.6% | +1.0 pp | 73.1% | +2.4 pp |
| Research & development | $13.4M | $14.0M | -3.9% | $12.8M | +5.2% |
| Sales & marketing | $15.0M | $15.2M | -1.4% | $15.0M | +0.3% |
| General & administrative | $16.9M | $11.0M | +53.5% | $9.7M | +75.2% |
| Total operating expenses | $45.4M | $40.2M | +12.8% | $37.4M | +21.3% |
| Operating income (loss) | -$14.5M | -$11.8M | -22.5% | -$10.9M | -33.0% |
| Operating margin | -35.3% | -31.0% | -4.4 pp | -30.0% | -5.4 pp |
| Net income (loss) | -$13.7M | -$10.8M | -26.4% | -$9.2M | -49.2% |
| Net margin | -33.4% | -28.4% | -5.0 pp | -25.3% | -8.1 pp |
| Diluted EPS | -$0.22 | -$0.18 | -$0.04 | -$0.15 | -$0.07 |
Risks
MD&A states that March 2025 executive orders against certain law firm partners, decreased federal enforcement under President Trump, and the U.S. government shutdown that began October 20, 2025 could delay federal litigation and reduce the volume of major legal matters, which would lower usage of DISCO's product offerings. Revenue was up 12.8% in the quarter ended September 30, 2025, but the company says these conditions may not be fully reflected until future periods.
MD&A notes usage-based revenue was 91% of total revenue in the quarter ended September 30, 2025, and customers can cancel or reduce usage at any time. Revenue from existing customers decreased due to lower usage, partially offset by contingent revenue from a favorable legal matter resolution.
The September 2023 purported stockholder class action remains pending, and MD&A attributes an increase in general and administrative expenses primarily to legal fees and a legal loss contingency accrual for the securities litigation. Net loss widened 49.2% in the quarter ended September 30, 2025 compared with the prior-year quarter.
The filing states DISCO has incorporated generative AI into its products and operations, and risks include flawed or inaccurate AI outputs, leakage of sensitive data, additional compliance costs from laws such as the EU AI Act, and potential FTC action. If DISCO is unable to use AI, the filing says its business could be less efficient or at a competitive disadvantage.
DISCO processes highly sensitive legal documentation for law firm and corporate customers, relies on AWS, and uses a shared responsibility model where customers configure security features such as multi-factor authentication. A security incident or customer misconfiguration could lead to regulatory fines, litigation, loss of customers, and reputational harm.
The filing states DISCO relies on AWS to host its platform and licenses third-party software that is central to product delivery. Many licenses have fixed durations, are nonexclusive, and may not be renewed on commercially reasonable terms, which could disrupt product offerings or increase costs.
The filing states DISCO relies on highly skilled personnel, including management and key employees, and its growth depends on recruiting, training, and retaining sufficient sales personnel. Loss of key team members could harm its business and competitive position.
The filing states the legal technology market is competitive and DISCO employs a usage-based pricing model with limited operating history, which may make it difficult to predict optimal pricing to attract new customers and retain existing customers.
The filing states DISCO's revenue growth rate has declined from prior periods and quarterly revenue within individual product offerings has fluctuated. Revenue was up 7.3% year to date in the nine months ended September 30, 2025, and the company says substantial historical growth may not be indicative of future growth.
The filing states DISCO may require additional funds and cannot be certain when operations will generate sufficient cash. Operating cash flow was negative $15.7 million year to date in the nine months ended September 30, 2025, down 44.9% from the prior-year period, and future equity or debt financings may not be available on favorable terms and could dilute stockholders.
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 Q3 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 1, 2026.