DISCO Q2 2026 Earnings: Revenue Grows as GAAP Loss Narrows

DISCO (NYSE: LAW) reported fiscal Q2 2026 revenue of $43.1 million, up 13% from $38.1 million a year earlier, while GAAP diluted net loss per share narrowed to $0.13 from $0.18. For the quarter ended June 30, 2026, GAAP operating margin improved by 10 percentage points, but adjusted EBITDA deteriorated to a $3.4 million loss from a $2.7 million loss.

Core Financial Results

Revenue increased by $5.0 million year over year, while gross profit rose by $3.7 million. Operating expenses increased by a more modest $1.1 million, allowing the GAAP operating loss to narrow by approximately 22% and the operating margin to improve to negative 21%.

The expense mix was uneven. Research and development and sales and marketing expenses increased, while general and administrative expense declined by $1.5 million, partly reflecting the absence of the shareholder litigation expense recorded in the prior-year quarter.

Business and Customer Trends

Software revenue increased 13% to $36.8 million and represented approximately 85% of total revenue. Both software and total revenue therefore expanded at the same reported pace during the quarter.

DISCO had 354 customers that generated more than $100,000 in revenue over the trailing 12 months as of June 30, up 10% year over year. Management associated the quarter’s performance with deeper relationships among its largest customers and its ability to secure large, complex legal matters.

The company also launched a unified litigation solution that combines case-specific facts with relevant U.S. case law in an AI-native application. The product is intended to expand DISCO beyond traditional e-discovery, although the earnings release did not quantify its revenue contribution.

GAAP Losses Narrowed While Adjusted Profitability Weakened

The opposing movement in GAAP and adjusted results is the quarter’s most important profitability issue. DISCO recorded no shareholder litigation expense in Q2 2026, compared with $1.6 million a year earlier, and stock-based compensation declined to $5.1 million from $6.5 million. These changes helped reduce reported GAAP expenses and losses.

Because those items are removed from DISCO’s non-GAAP measures, the underlying comparison was less favorable. Non-GAAP general and administrative expense increased to $7.7 million from $7.2 million, while non-GAAP operating loss widened to $4.2 million from $3.8 million. Research and development and sales and marketing spending also increased, leaving adjusted EBITDA below the prior-year result despite 13% revenue growth.

Cash Flow and Balance Sheet

For the six months ended June 30, 2026, operating cash outflow improved to $12.8 million from $14.7 million in the comparable 2025 period. Purchases of property, equipment and capitalized software development costs totaled $1.9 million during the first half of 2026.

Cash and cash equivalents declined to $10.9 million from $19.7 million at the end of 2025, while short-term investments fell to $90.5 million from $94.9 million. Combined cash and short-term investments were approximately $101.4 million at quarter-end, compared with $114.6 million six months earlier. The improved operating cash flow still remained negative, so continued losses are reducing available liquidity.

Financial Outlook

DISCO issued Q3 and full-year 2026 guidance on August 5, 2026. The Q3 adjusted EBITDA range implies a smaller sequential loss than the Q2 result, although the entire range remains below breakeven.

DISCO did not provide a forward-looking reconciliation of adjusted EBITDA to GAAP net loss, citing the variability and limited visibility of items including stock-based compensation and shareholder litigation expenses.

Recent Insider Transactions

Reported insider data shows 19 purchases totaling approximately 2.28 million shares and 12 sales totaling 80,405 shares during the referenced six-month period, resulting in net purchases of approximately 2.20 million shares. The newest reported entries were director stock grants, while the latest disclosed purchases and sales included the following transactions.

These transactions describe reported insider activity but do not, by themselves, establish insiders’ views on DISCO’s prospects.

Risks Investors Should Monitor

• Ongoing losses and cash consumption: DISCO remained unprofitable on both GAAP and adjusted EBITDA bases, while first-half operating cash flow was negative. Continued cash use would further reduce its liquidity position.
• Adjusted cost pressure: Non-GAAP operating loss and adjusted EBITDA worsened despite higher revenue, indicating that underlying expense growth remains an obstacle to profitability.
• Usage and matter timing: Revenue depends partly on customer usage and the timing and activity of legal matters. A shortfall in large matters could affect software usage and total revenue.
• Execution on product expansion: The unified litigation solution extends DISCO beyond its traditional e-discovery offerings, making customer adoption and effective execution important to the company’s growth strategy.
• Volatile GAAP adjustments: Stock-based compensation and potential shareholder litigation expenses can materially affect reported results and complicate comparisons between GAAP and non-GAAP performance.

Summary

DISCO’s Q2 2026 revenue growth and lower GAAP loss reflected expanding software revenue, more large customers and slower growth in total reported operating expenses. However, adjusted EBITDA and non-GAAP losses moved in the opposite direction because underlying operating costs remained elevated after excluding litigation expense and stock-based compensation. The next points to monitor are whether DISCO can deliver the sequential adjusted EBITDA improvement implied by Q3 guidance, convert customer growth into better operating leverage and limit further cash consumption.