Revenue Expansion and AI Adoption Drive Performance CS Disco, Inc. (NYSE:LAW) wrapped up fiscal year 2024 on a high note, reporting a total revenue of $144.8 million, marking a 5% increase year-over-year. Software revenue led the growth at 7%, contributing $120.1 million to the total. CEO Eric Friedrichsen emphasized the company’s continued push towards large enterprise customers, with 315 clients generating over $100,000 in revenue, up 9% from the prior year. Notably, 19 customers contributed over $1 million in revenue, underscoring the success of its enterprise strategy.
The company closed the year with $129.1 million in cash and short-term investments and maintained a debt-free balance sheet. Adjusted EBITDA saw a significant improvement, narrowing to negative $18.7 million from negative $25.9 million in 2023.
Q4 2024 Financial Performance Highlights CFO Michael Lafair reported Q4 revenue of $37.0 million, with software revenue contributing $30.8 million and services revenue totaling $6.2 million. Gross margin remained steady at 75%, while adjusted EBITDA for the quarter improved to negative $4.3 million, reflecting the company’s ongoing operational enhancements.
Lafair also noted a non-cash impairment charge of $15.2 million related to a primary law asset, signaling a shift in focus towards core eDiscovery and Cecilia AI capabilities. Despite this adjustment, the company remains optimistic about its long-term revenue trajectory and profitability milestones.
2025 Outlook: Continued Growth and Path to Profitability CS Disco provided Q1 2025 guidance, forecasting revenue between $35 million and $37 million, with software revenue expected to reach $30.1 million to $31.1 million. Adjusted EBITDA is projected to range between negative $8.0 million and negative $6.0 million.
For full-year 2025, the company anticipates revenue between $145.5 million and $157.5 million, with software revenue projected at $124 million to $131 million. Adjusted EBITDA is expected to improve further, ranging from negative $19 million to negative $15 million. Friedrichsen reiterated confidence in reaching breakeven adjusted EBITDA by Q4 2026, supported by resource allocation and enterprise customer expansion.
Analyst Sentiment and Market Reactions
- Koji Ikeda (Bank of America): Inquired about AI adoption trends in the legal sector. Friedrichsen responded that selling opportunities for AI tools have increased significantly, with strong adoption of the Cecilia AI platform.
- Mark Schappel (Loop Capital): Asked about investment priorities. Friedrichsen highlighted the restructuring of sales and customer success teams to optimize growth and retention.
- Brian Essex (JP Morgan): Questioned the conservatism in revenue guidance. Lafair explained that while the transition towards large enterprise customers may take time, the strategy is already showing positive revenue contributions.
Comparing Q3 vs. Q4: Steady Growth and Improved Confidence Revenue growth held steady at 4% quarter-over-quarter, with software revenue accelerating slightly from 6% in Q3 to 7% in Q4. Services revenue saw a slight decline year-over-year, reflecting strategic shifts in offerings. Adjusted EBITDA improved marginally from negative $4.5 million in Q3 to negative $4.3 million in Q4, reinforcing disciplined cost management.
Management’s tone remained consistent, with a strong emphasis on large customer acquisition and AI integration. Analysts, meanwhile, shifted their focus towards long-term growth potential and breakeven profitability targets.
Key Risks and Challenges While the company is making strides in AI adoption and enterprise expansion, challenges remain:
- AI Adoption Resistance: The legal industry’s traditionally conservative approach may slow adoption, though CS Disco is mitigating this through tailored solutions and demonstrable ROI.
- Revenue Growth Pace: Analysts questioned whether the current strategy could sustain high growth rates, with management reinforcing confidence in enterprise-focused initiatives.
- Asset Performance: The non-cash impairment charge on a primary law asset raises concerns about asset utilization, but management has addressed this by refocusing on core eDiscovery capabilities.
CS Disco’s combination of AI-driven innovation, strategic enterprise focus, and disciplined financial management positions it well for sustained growth in the legal technology sector. With a clear roadmap to profitability by Q4 2026, the company is poised to capitalize on increasing AI adoption and expanding its footprint among large customers.
