8-K: DISCO Reports Q2 Growth, CFO Transition, Boosts Outlook

CS Disco, Inc. announced improved second-quarter financial results, including revenue growth and reduced adjusted EBITDA loss, alongside an increased full-year outlook and the planned departure of its CFO.

Summary

• Total revenue for Q2 2025 increased by 6% year-over-year to $38.1 million.
• Software revenue grew by 12% compared to Q2 2024, reaching $32.7 million.
• GAAP net loss remained consistent at $(10.8) million for Q2 2025, similar to Q2 2024.
• Adjusted EBITDA improved significantly to $(2.7) million in Q2 2025, from $(4.7) million in Q2 2024.
• The company increased its financial outlook for fiscal year 2025.
• Michael Lafair will step down from his role as Executive Vice President, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer, effective by December 31, 2025, or earlier upon successor appointment.
• An external search firm has been retained to identify candidates for the CFO role.
• New product features, including Auto Review expansion to the EU and UK, and Searchable AV Transcriptions, were launched.
• Adoption of the Cecilia AI Platform saw a 150% increase in multi-terabyte matters from December 2024 to June 2025.

Sentiment

Score: 7

Explanation: The sentiment is generally positive due to strong revenue growth, significant improvement in Adjusted EBITDA, and an increased full-year outlook. The strategic advancements in AI products and their adoption also contribute positively. However, the notable decrease in cash and increased cash burn are areas of concern, preventing a higher score.

Positives

• Total revenue increased by 6% year-over-year to $38.1 million in Q2 2025.
• Software revenue showed strong growth, up 12% year-over-year to $32.7 million.
• Adjusted EBITDA improved significantly, reducing the loss from $(4.7) million in Q2 2024 to $(2.7) million in Q2 2025.
• GAAP net loss remained consistent at $(10.8) million, indicating no worsening of losses despite revenue growth.
• Non-GAAP gross margin improved to 76% in Q2 2025 from 75% in Q2 2024.
• Non-GAAP operating margin improved to (10)% in Q2 2025 from (17)% in Q2 2024.
• The company increased its full-year 2025 financial outlook for both software and total revenue, and adjusted EBITDA.
• Successful expansion of Auto Review, a generative AI tool, into the European Union and United Kingdom.
• Launch of Searchable AV Transcriptions, enhancing product capabilities.
• Significant 150% increase in adoption of the Cecilia AI Platform for multi-terabyte matters from December 2024 to June 2025.

Negatives

• Cash and cash equivalents decreased significantly from $52.771 million at December 31, 2024, to $21.672 million at June 30, 2025.
• Net cash used in operating activities for the six months ended June 30, 2025, increased to $(14.719) million from $(7.980) million in the same period of 2024, indicating increased cash burn.
• The company continues to report a GAAP net loss of $(10.8) million for the quarter.

Risks

• History of operating losses.
• Limited operating history.
• Ability to maintain and advance innovation and brand.
• Ability to effectively add new customers.
• Ability to effectively increase usage and penetration with the existing customer base.
• Ability to expand sales coverage and establish a digital sales channel.
• Ability to expand internationally.
• Ability to grow the partner ecosystem and maintain existing strategic relationships with law firms, legal services providers, and other partners.
• Ability to expand the offering portfolio to a wider range of legal processes outside of current core offerings.
• Dependence on revenue from customer usage, which fluctuates based on the timing of and activity driven by legal matters, and any shortfall of large matters on the platform.
• Ability to pursue strategic acquisitions and strategic investments to expand the functionality and value of product offerings.
• Ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to the business in the jurisdictions in which operations occur.
• Potential for computer or electronic systems, applications, or services, or those of any third parties, to fail or suffer security or data privacy breaches or other unauthorized access, use, or destruction of proprietary or confidential data, employee data, or personal data.
• Ability to compete effectively with existing competitors and new market entrants.
• Impact of general macroeconomic conditions, such as fluctuations in inflation and interest rates and the imposition of tariffs in the United States and abroad, on the company's or its customers' businesses.
• Impact that global events, such as the Russia-Ukraine war and conflict in the Middle East, and any related economic downturn could have on the company's or its customers' businesses, financial condition, and results of operations.

Future Outlook

The company is issuing an increased financial outlook for fiscal year 2025, projecting software revenue between $128.0 million and $134.0 million, total revenue between $148.0 million and $158.0 million, and Adjusted EBITDA between $(17.0) million and $(13.0) million. For the third quarter of 2025, software revenue is expected to be in the range of $32.75 million to $33.75 million, total revenue between $37.5 million and $39.5 million, and Adjusted EBITDA between $(5.0) million and $(3.0) million. The company is encouraged by accelerating results, double-digit software revenue growth, continued expansion of large matters, and ongoing traction with largest customers, as it moves into the second half of 2025.

Management Comments

• "I'm pleased to announce another quarter of accelerating results including double-digit growth in software revenue, continued expansion of large matters on our platform and ongoing traction with our largest customers." Eric Friedrichsen, CEO.
• "As we move into the second half of 2025, we're encouraged by these trends as we continue to innovate from the front of litigation technology and services." Eric Friedrichsen, CEO.
• "Since joining the Company in 2018, Michael has played a critical role in transforming DISCO from an early-stage startup to a successful public company, leading DISCO through multiple private funding rounds, its IPO, and its secondary offering." Eric Friedrichsen, CEO, on Michael Lafair.
• "I look forward to working with Michael over the coming months to continue to drive the success of the business and in the search for and transition to his successor." Eric Friedrichsen, CEO.
• "My time at DISCO has been an amazing journey, and its a privilege to work alongside such a talented and dedicated team." Michael Lafair.
• "I'm immensely proud of what we have been able to achieve to this point and I'm looking forward to helping the next successful chapter of DISCO unfold." Michael Lafair.

Industry Context

The company operates in the legal technology sector, specifically focusing on e-discovery and litigation technology. Its recent product launches, Auto Review (generative AI) and Searchable AV Transcriptions, align with the broader industry trend of leveraging artificial intelligence and automation to enhance efficiency and capabilities in legal processes. The increased adoption of its Cecilia AI Platform for large matters indicates a positive response to its AI-driven solutions, suggesting the company is effectively addressing the evolving needs for advanced data processing and review in modern litigation.

Management Changes

Legal Proceedings

• Expenses associated with stockholder litigation were incurred, impacting non-GAAP adjustments, indicating ongoing legal matters.

Stakeholder Impact

• Shareholders: Positive financial performance (revenue growth, improved EBITDA) and increased outlook could lead to positive share price movement. The CFO transition introduces an element of change in leadership.
• Customers: Benefit from new AI-powered features like Auto Review expansion and Searchable AV Transcriptions, and increased adoption of the Cecilia AI Platform, enhancing litigation technology capabilities.
• Employees: The CFO transition affects a key executive role, but the filing does not indicate broader employee impact beyond this specific change.

Next Steps

• Michael Lafair will continue to serve as CFO until a successor is appointed or December 31, 2025, whichever is earlier.
• The company will conduct an external search for a new Chief Financial Officer.
• Michael Lafair will provide advisory services to the company from his transition date through February 17, 2026.
• The company will host a conference call and webcast on August 6, 2025, to discuss financial results and business highlights.

Key Dates

Recommendation

While the company demonstrated strong revenue growth and significant improvement in Adjusted EBITDA, coupled with an increased full-year outlook, the substantial decrease in cash reserves and increased cash burn are concerning. The CFO transition, while amicable, adds an element of uncertainty. The positive operational momentum is balanced by the cash flow challenges, suggesting a 'hold' position until there's clearer visibility on cash management and the new CFO's strategic direction.

Keywords

e-discovery, legal technology, AI, litigation software, cloud-native platform, financial results, CFO transition, corporate governance, software revenue, adjusted EBITDA