CS Disco, Inc. (LAW) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. CS Disco, Inc. provides cloud-native, AI-powered legal technology solutions for e-discovery, legal hold, and document review. The company operates as a single reporting segment and is classified as an emerging growth company and a smaller reporting company.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Revenue | $43.1 million | $38.1 million | $85.0 million | $74.8 million |
| Gross Profit | $32.1 million | $28.4 million | $63.2 million | $55.6 million |
| Gross Margin | 74% | 75% | 74% | 74% |
| Net Loss | $(8.7) million | $(10.8) million | $(18.3) million | $(22.2) million |
| Adjusted EBITDA | $(3.4) million | $(2.7) million | $(6.9) million | $(7.8) million |
| Cash & Equivalents | $10.9 million (as of June 30, 2026) | |||
| Short-term Investments | $90.5 million (as of June 30, 2026) | |||
| Operating Cash Flow (YTD) | $(12.8) million used |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 13% year-over-year in Q2 and 14% year-over-year for the six months ended June 30, 2026. Growth was driven by new customer acquisitions ($5.9M in Q2) and increased usage of software offerings, partially offset by a decrease in usage from some existing customers.
- Expense Management: General and Administrative (G&A) expenses decreased 14% in Q2 and 9% YTD, primarily due to a reduction in legal costs associated with securities litigation and lower bad debt expense.
- Profitability: The net loss narrowed by approximately 20% in Q2 and 18% YTD compared to the prior year periods, reflecting improved operational leverage despite increased investment in R&D and Sales & Marketing.
- Liquidity: Cash and cash equivalents decreased from $19.7 million at year-end 2025 to $10.9 million at June 30, 2026, while short-term investments remained stable at $90.5 million.
Guidance, Outlook, and Risks
- Outlook: Management expects revenue growth to continue but notes inherent unpredictability due to the usage-based nature of the business, which fluctuates with the timing of legal matters. The company plans to continue investing in AI capabilities (e.g., Cecilia AI) and expanding its sales force.
- Legal Contingency: The company agreed to a settlement of $11.5 million regarding a stockholder class action lawsuit filed in September 2023. This amount is recorded as an accrued legal loss, with an estimated insurance recovery of $8.1 million recorded as an asset. The settlement is subject to court approval.
- Macro Risks: Risks include potential impacts from U.S. government shutdowns, executive orders affecting law firm partners, and global geopolitical tensions (e.g., Russia-Ukraine, Middle East conflicts) which could reduce legal spending.
- Regulatory Status: The company will cease to qualify as an "emerging growth company" on December 31, 2026, which will increase compliance costs and reporting requirements.
Key Investor Verification Points
- Settlement Finalization: Verify the status of the $11.5 million securities litigation settlement and the likelihood of the $8.1 million insurance recovery being realized.
- Customer Retention: Monitor the trend of revenue decreases from existing customers, which offset new customer growth in the current period.
- Liquidity Runway: Assess the burn rate given the reduction in cash equivalents to $10.9 million, although total liquid assets (including short-term investments) remain at ~$101 million.
- AI Adoption: Evaluate the commercial traction of new AI features (Cecilia) and their impact on usage-based revenue growth.