CS Disco (LAW) Q4 2025: Generative AI Revenue Jumps 600% as Platform Unifies Under New Pricing Model
CS Disco’s Q4 marked a clear inflection in platform adoption and strategic clarity, with generative AI features driving 600% growth and a major shift to a unified pricing model designed to unlock larger, multi-year customer commitments. The company’s focus on AI-native eDiscovery and legal workflow automation is now tightly coupled with operational discipline, positioning LAW for higher-margin growth as it targets larger cases and wallet share expansion in 2026.
Summary
- AI-Native Legal Platform Accelerates: Generative AI adoption surged, anchoring CS Disco’s product differentiation in high-stakes litigation.
- Unified Pricing Model Reduces Friction: New packaging and pricing simplify adoption and aim to boost win rates with large law firms.
- Profitability Path Tightens: Operational discipline and margin improvement set the stage for breakeven by Q4 2026.
Performance Analysis
CS Disco’s Q4 results reflected a third consecutive quarter of accelerating growth in both total and software revenue, with software revenue up double digits year over year. The company’s AI-driven features, led by Cecilia AI and AutoReview, saw over 600% YoY growth in Q4, underscoring strong product-market fit in complex litigation. Large customer concentration remains high, with 330 customers generating more than $100,000 in annual revenue, accounting for 76% of total revenue, and 20 customers contributing over $1 million each.
On the margin front, gross margin improved modestly and adjusted EBITDA losses narrowed significantly, reflecting both operating leverage and reduced sales and marketing expense as a percent of revenue. However, services revenue declined due to the shift away from traditional human review toward AI-enabled workflows, partially offset by strong adoption of AutoReview. The company exited the year with a robust cash position and no debt, despite negative operating cash flow, supported by disciplined cost management and improved sales efficiency.
- Generative AI Expansion: Cecilia AI and AutoReview adoption grew over 600%, driving higher-value, multi-terabyte matters.
- Customer Base Skews Upmarket: Large clients now dominate revenue mix, with multi-product attach rate at 19% and significant wallet share opportunity remaining.
- Operational Leverage Emerges: Adjusted EBITDA margin improved by 700 basis points YoY, with further improvement expected as software mix grows.
Overall, the business is transitioning from a services-heavy model to a recurring, AI-powered software platform, with improving visibility and a clear path to profitability as generative AI displaces legacy workflows.
Executive Commentary
"I have never been more confident of Disco's role as the disruptor in this industry and our ability to help our customers drive better outcomes for their clients and their litigation matters. Disco was built from the ground up on cloud-based AI native technology designed for the rigors of high stakes, complex litigation."
Eric Friedrichson, Chief Executive Officer
"I believe that with the right operational execution and financial discipline, Disco has the potential to accelerate growth, produce robust free cash flow, and generate attractive returns to our shareholders."
Aaron Barfoot, Chief Financial Officer
Strategic Positioning
1. AI-Native Stack Powers Competitive Moat
CS Disco’s proprietary data layer and litigation-specific AI stack—anchored by Cecilia AI and AutoReview—delivers not just automation, but defensible, court-ready outcomes. The company’s focus on privilege controls, audit trails, and integrated workflows differentiates it from general-purpose AI tools, cementing its position in high-stakes litigation.
2. Unified Pricing and Packaging to Drive Larger Deals
The shift to all-in-one pricing—bundling eDiscovery, Cecilia AI, and Case Builder tools at a single per-gigabyte rate—removes friction for law firm adoption and aims to increase win rates and reduce discounting. This move is expected to boost committed revenue and gross margin over time, while making the platform more accessible for larger, multi-year matters.
3. Upmarket Focus and Wallet Share Expansion
With 76% of revenue from large customers but only 15-20% wallet share penetration in many cases, the company’s strategy centers on expanding share of spend with existing clients and winning bigger, more complex cases. The move to outside sales and retooled compensation plans reflects a targeted push into the enterprise segment.
4. Operational Discipline and Margin Focus
Disciplined cost management—notably in sales and marketing—combined with R&D investment, is driving improved margins and narrowing losses. The company is leveraging software mix-shift and AI automation to reduce reliance on lower-margin services and move toward profitability.
5. Defensible Position Against General AI Entrants
Management and customers alike see limited risk from generic LLM providers in the litigation segment, citing the complexity, sensitivity, and defensibility requirements unique to eDiscovery. CS Disco’s deep integration and vertical focus create barriers for horizontal AI entrants.
Key Considerations
CS Disco’s Q4 and FY25 performance signals a company in strategic transition, leveraging AI to capture higher-margin, recurring revenue while simplifying its commercial model to accelerate upmarket adoption.
Key Considerations:
- AI Adoption Drives Platform Stickiness: Generative AI features are now core to customer workflows, increasing switching costs and supporting multi-product expansion.
- Pricing Model Reset Targets Lower Friction: Simpler, industry-standard pricing aims to resolve past sales friction and unlock larger, longer-term contracts.
- Software Mix Shift Enhances Margins: As AI-enabled software displaces traditional services, gross margin and EBITDA trajectory improve, supporting the path to breakeven.
- Upmarket Strategy Remains Underpenetrated: Significant opportunity exists to expand wallet share within the current large customer base, with attach rates and multi-million dollar deals still below potential.
Risks
CS Disco’s usage-based revenue model can introduce volatility, particularly in services and AutoReview, where customer adoption cycles are less predictable. Transitioning legacy customers to the new pricing model may create short-term friction or require additional discounting. Competitive pressure from both vertical and horizontal AI entrants remains a watchpoint, especially as legal tech automation accelerates. Ongoing investments in R&D and sales could pressure margins if software adoption lags.
Forward Outlook
For Q1 2026, CS Disco guided to:
- Total revenue of $39.0 million to $41.5 million
- Software revenue of $33.75 million to $35.25 million
- Adjusted EBITDA of negative $6 million to negative $4 million, reflecting one-time costs in Q1
For full-year 2026, management expects:
- Total revenue of $167 million to $177 million
- Software revenue of $145.5 million to $152.5 million
- Adjusted EBITDA of negative $8.5 million to negative $4.5 million, with breakeven targeted by Q4 2026
Management highlighted ongoing momentum in usage growth, further AI adoption, and the expectation that new pricing and packaging will accelerate win rates and drive higher committed revenue over time.
- One-time Q1 expenses will not recur in the second half
- Breakeven remains a central focus as software mix increases
Takeaways
CS Disco’s Q4 results and FY25 progress underscore the company’s transformation into a high-value, AI-native software platform for complex litigation, with strategic moves in pricing and upmarket focus setting the stage for continued acceleration.
- AI Expansion Is Core to Growth: 600%+ generative AI revenue growth validates the company’s technology and drives larger, more defensible customer relationships.
- Commercial Model Overhaul Targets Larger Deals: Unified pricing and contract simplification are designed to unlock bigger, longer-lasting engagements and reduce sales friction.
- Watch for Margin Inflection: As software mix rises and AI adoption deepens, margin expansion and breakeven are credible targets for late 2026; continued execution is key.
Conclusion
CS Disco is executing a deliberate shift from services to AI-native software, with strong customer validation and operational discipline. The new pricing model and platform integration are designed to accelerate upmarket penetration and margin expansion, while the company’s defensible position in litigation tech provides a moat against generic AI entrants.
Industry Read-Through
CS Disco’s results highlight a broader trend in legal technology: vertical, AI-native platforms are rapidly displacing manual and human-powered workflows, especially in data-intensive, high-risk domains like litigation. The shift to unified pricing and platform integration signals that buyers increasingly demand simplicity, predictability, and defensible automation—a dynamic likely to play out across legal tech and other regulated verticals. Competitors relying on point solutions or legacy service models face mounting pressure as enterprise buyers consolidate spend on platforms that deliver both automation and compliance at scale. The legal industry’s willingness to adopt generative AI for core workflows is now proven, with implications for staffing, margin structure, and competitive barriers across professional services automation.