Earnings call transcript: CS Disco Q2 2025 reveals narrower EPS loss

CS Disco reported a narrower-than-expected Q2 2025 loss per share of $0.04, beating the $0.07 forecast, while software revenue grew 12% to $32.7 million and total revenue reached $38.1 million, both exceeding or meeting guidance. The legal technology company's stock saw a modest 0.49% increase post-announcement. Management emphasized strategic focus on AI-driven products like Cecilia and AutoReview, expanding engagement with larger customers, and reiterated its goal for adjusted EBITDA breakeven by 2026, raising full-year 2025 revenue and EBITDA guidance midpoints.

Analysis

CS Disco (LAW) reported a strategically positive second quarter for fiscal 2025, demonstrating progress on its operational turnaround despite a modest market reaction. The company delivered a significant earnings beat with a net loss per share of $0.04, outperforming the forecasted loss of $0.07. More importantly, software revenue growth accelerated to 12% year-over-year, reaching $32.7 million, while total revenue grew 6% to $38.1 million. This top-line performance reflects early success from the strategic pivot towards larger, multi-terabyte legal matters and enterprise clients, evidenced by a 6% increase in customers spending over $100,000 annually. The adoption of new AI products like Cecilia is a key driver, with a 150% growth in large matters leveraging the tool in the first half of the year. Financially, the company showed improved discipline, with adjusted EBITDA loss narrowing to $2.7 million, a $2 million year-over-year improvement. This progress prompted management to raise full-year 2025 guidance for both revenue and adjusted EBITDA, while reiterating its commitment to achieving adjusted EBITDA breakeven by 2026. The announced departure of the CFO at year-end introduces a leadership transition risk, but the company's strong balance sheet, holding more cash than debt, provides a stable foundation for continued execution.

Key Decisions for Investors

• Investors should view the accelerating software revenue growth and raised guidance as validation of the company's strategic shift, warranting a constructive outlook on the stock.
• The upcoming CFO transition is a key risk to monitor, as a successor will be critical for maintaining financial discipline on the path to the 2026 EBITDA breakeven target.
• Monitor the adoption rates of AI products like Cecilia and AutoReview, as well as the growth in multi-terabyte matters, as these are the primary leading indicators for achieving management's 20%+ long-term growth ambitions.
• The muted 0.49% stock price increase post-earnings suggests the market is still weighing execution risk, potentially offering an entry point for investors who are confident in the new strategic direction.