10-Q: CS Disco Reports Q2 2026 Results: Revenue Up 13%, Net Loss Continues

CS Disco, Inc. announced its second quarter 2026 financial results, showing a 13% year-over-year revenue increase to $43.1 million, but also reporting a net loss of $8.7 million.

Summary

• CS Disco reported revenue of $43.1 million for the three months ended June 30, 2026, a 13% increase compared to $38.1 million in the same period of 2025.
• For the six months ended June 30, 2026, revenue was $85.0 million, up 14% from $74.8 million in the prior year period.
• The company incurred a net loss of $8.7 million for the three months ended June 30, 2026, compared to a net loss of $10.8 million in the same period of 2025.
• For the six months ended June 30, 2026, the net loss was $18.3 million, an improvement from $22.2 million in the prior year period.
• Cash and cash equivalents decreased to $10.9 million as of June 30, 2026, from $19.7 million as of December 31, 2025.
• Short-term investments stood at $90.5 million as of June 30, 2026, down from $94.9 million at the end of 2025.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as slightly negative due to continued net losses and a decrease in cash reserves, despite revenue growth. The company is still investing heavily in growth, which is positive, but the path to profitability remains uncertain.

Positives

• Revenue increased by 13% year-over-year for the three months ended June 30, 2026, reaching $43.1 million.
• Revenue increased by 14% year-over-year for the six months ended June 30, 2026, reaching $85.0 million.
• The net loss for the three months ended June 30, 2026, decreased to $8.7 million from $10.8 million in the prior year period.
• The net loss for the six months ended June 30, 2026, decreased to $18.3 million from $22.2 million in the prior year period.
• Usage-based revenue constituted 92% of total revenue for the three months ended June 30, 2026, indicating strong core product utilization.
• Software revenue increased by 13% for the three months ended June 30, 2026, and 12% for the six months ended June 30, 2026.
• Services revenue increased by 18% for the three months ended June 30, 2026, and 22% for the six months ended June 30, 2026.

Negatives

• The company continues to incur significant net losses, with a loss of $8.7 million in Q2 2026.
• Cash and cash equivalents decreased by approximately 44% from $19.7 million at the end of 2025 to $10.9 million at June 30, 2026.
• Short-term investments also decreased by approximately 4.7% from $94.9 million to $90.5 million.
• Operating expenses increased by $1.1 million to $41.3 million for the three months ended June 30, 2026, compared to the same period in 2025.
• Sales and marketing expenses increased by 11% to $16.9 million for the three months ended June 30, 2026.
• Research and development expenses increased by 7% to $14.9 million for the three months ended June 30, 2026.
• Adjusted EBITDA remained negative at $(3.4) million for the three months ended June 30, 2026.

Risks

• The company is subject to stringent and evolving data privacy and security laws, and a failure to comply could lead to investigations, litigation, fines, and reputational harm.
• Cybersecurity incidents could lead to significant costs, loss of revenue, liabilities, and disruption of operations.
• Substantial growth since inception may not be indicative of future growth, and historical growth makes future prospects difficult to evaluate.
• Dependence on customer usage means that any loss of customers or decline in their use of product offerings could harm the business.
• Reliance on third-party cloud infrastructure providers means disruptions could adversely affect business operations.
• The company expects fluctuations in financial results, making period-to-period comparisons potentially not meaningful.
• Failure to accurately forecast revenue or manage expenditures could adversely affect operating results and stock price.
• The markets in which CS Disco operates are competitive, and failure to compete effectively will harm the business.

Future Outlook

The company expects to continue investing in its infrastructure, sales and marketing, and product development. While Adjusted EBITDA is expected to improve over the long term with greater scale and efficiencies, the company continues to incur net losses and expects these to continue in the near term.

Management Comments

• "We generated revenue of $43.1 million and $38.1 million in the three months ended June 30, 2026 and 2025, respectively, representing period-over-period growth of 13%."
• "Our net loss was $8.7 million and $10.8 million for the three months ended June 30, 2026 and 2025, respectively."
• "We believe our existing cash and cash equivalents and short-term investments will be sufficient to fund anticipated cash requirements for the next 12 months."
• "We expect Adjusted EBITDA to improve over the long term as we achieve greater scale in our business and efficiencies in our operating expenses."

Industry Context

StockSavvy.ai notes that CS Disco operates in the rapidly evolving legal technology sector, characterized by increasing adoption of AI and cloud-native solutions. The company's performance, particularly its revenue growth, aligns with broader industry trends towards digital transformation in legal services. However, the continued net losses and high operating expenses reflect the significant investment required to maintain a competitive edge in this dynamic market.

Comparison to Industry Standards

• CS Disco's revenue growth of 13% for the quarter is solid, but needs to be viewed in the context of the broader legal tech market which is experiencing significant investment and innovation, particularly in AI.
• Competitors like Relativity and Everlaw are also investing heavily in AI and cloud solutions, making direct comparison of growth rates and profitability challenging without specific data from those companies.
• The company's focus on usage-based revenue (92% of Q2 revenue) is a common model in SaaS, but can lead to revenue volatility compared to subscription-heavy models.
• The continued net loss, despite revenue growth, is not uncommon for growth-stage technology companies in competitive markets, but investors will be watching for a clear path to profitability.

Legal Proceedings

• A purported stockholder class action lawsuit filed on September 19, 2023, alleging violations under Sections 10(b) and 20(a) of the Exchange Act, has been settled for $11.5 million, subject to court approval. An insurance recovery asset of $8.0 million (as of Dec 31, 2025) and $8.1 million (as of June 30, 2026) was recorded.
• The company is involved in various other legal proceedings arising from the normal course of business activities.

Stakeholder Impact

• Shareholders: Continued net losses and a decrease in cash reserves may impact investor confidence and stock price. However, revenue growth and a narrowing net loss are positive indicators.
• Employees: The company continues to invest in personnel, with increases in salary and benefits costs, indicating ongoing employment and potential for growth.
• Customers: The company's focus on AI and cloud-native solutions aims to provide value through efficiency and improved legal outcomes. Continued investment in product development should benefit customers.
• Creditors: No significant changes in debt are noted, and the company believes its current liquidity is sufficient for the next 12 months.

Next Steps

• Continue to invest in R&D, particularly in AI-powered features like Cecilia.
• Expand sales coverage and strengthen channel partnerships.
• Pursue strategic acquisitions and investments.
• Focus on increasing customer usage and penetration within the existing customer base.
• Continue to monitor and adapt to evolving legal industry trends and macroeconomic conditions.

Key Dates

Recommendation

CS Disco shows positive revenue growth and a narrowing net loss, indicating progress in its strategy. However, the continued unprofitability, significant cash burn, and reliance on usage-based revenue introduce considerable risk. The company's substantial investments in R&D and sales are necessary for market capture but weigh on short-term financial performance. A 'hold' recommendation reflects a balance between the company's growth potential and the inherent risks associated with its current financial state and competitive market.

Keywords

ediscovery, legal technology, cloud-native, AI, legal hold, legal document review, case management, litigation