Cellebrite DI Ltd.

Good day and thank you for standing by. Welcome to the Celebrite Q2 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press TAR 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Danette Aaron-Halborn. Please go ahead.

Thank you. Welcome to Celebrite Second Quarter 2022 Financial Results Earnings Call. Joining me today are Yossi Carmel, Celebrite CEO, and Dana Gerner, Celebrite CFO. This call is being recorded and a replay of this recording, as well as the presentation that accompanies this call, will be made available on our website shortly after the call. A copy of today's press release and financial statements, including gap to non-cap reconciliations, as well as supplemental financial information for the second quarter, are available on the Investor Relations website at investors.celebrite.com. Statements made during this call that are not statements of historical fact constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other factors that could cause matters expressed or implied by those forward-looking statements. not to occur. They could also cause the actual results to differ materially from historical results and or from forecasts. Some of these forward-looking statements are discussed under the heading risk factors and elsewhere in the company's annual report on Form 20-F filed with the SEC on March 29, 2022, as amended on April 14, 2022. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. With that, I'd like to turn the call over to Yossi Cormil, Celebrite CEO.

Thank you, Anat, and thank you all for joining us today. I would like to start the call today by sharing that we continue to see healthy business environments for digital intelligence solutions across our core markets. I'm pleased to share with you that in Q2, our ARR grew 35% year-on-year, to reach $214 million. Total revenue in the second quarter was up 6% to reach $62.6 million. Our net retention rate for the quarter came in at 128%. This represents the 14th consecutive quarter that we've delivered NRR of greater than 120% as we continue to expand wallet share within our target accounts, mainly in the public sector. Additionally, we closed 29 large divs in a quarter compared to 18 in the first quarter of this year. I would like to spend some time today first going through what we are seeing in our market and the go-to market, then update some dynamics we saw in the second quarter, and lastly, outlining our expectations for the second half of the year. So we'll start with perspective on the market environment and impact to Q2 results. Now, while we are operating in a healthy environment, there are several factors that impacted our result in Q2. First, in Q2, we saw some longer sales cycles for some of our strategic customers that impacted our ability to close some larger deals in the timeframe anticipated. The positive aspect of it is that we've built a robust pipeline that is increasingly focused on large deals. This is part of our growth strategy. and it provides an exposure to large budgets within our accounts. An important distinction here is that the vast majority of the delays we are seeing are no deals going away or lost pipeline. In fact, some deals have already closed with the majority expected to close in the third quarter. In addition, we are moving successfully and faster than planned from perpetual to subscription new deals. However, as a result, our revenue for the quarter was lower than we planned. This had a short-term impact on the top and bottom line, but supports a healthy longer-term business. And third, we also faced some hiring issues in our go-to-market organization, which have been properly addressed. So short update on macro business environment and on go-to-market strategy. In the U.S., that's our main largest market. We continue to see federal funds going to law enforcement as well as state and local governments to support safety. Additionally, we generally see similar budget environments in Europe and in Asia-Pacific, where spend on safety remains a top priority. Our primary market, the USA, is a prime example of not only the willingness to spend, but increasing pressure on governments to more effectively address and fight crime. These initiatives cannot be successful without addressing the massive growth in digital evidence by leveraging a solution like ours to modernize the investigative process. Our technology enables law enforcement to solve more crimes ranging from child trafficking to homicide by dramatically decreasing the time to evidence for investigators and analysts. And in addition, our domain expertise and scale of operation are critical to the effectiveness of our solutions. As far as technology, We are pleased with our ability to innovate and expand our offering both within and outside collection review. Premium as a Service is an important recent offering as it enables a much larger customer base to benefit from our advanced capabilities by lowering the total cost of ownership for the agencies and we are seeing strong tractions since it was released to the market earlier this year. We also recently released Physical Analyzer Ultra the next generation of our review solution, which today represents the de facto industry standards for the digital data examination. Aside from its ability to process higher volume of data, the new release also advanced physical analyzer toward an enterprise architecture, a crucial milestone as investigative centers around the globe continue to accelerate their digital transformation journeys. Shortly about our go-to-market strategy, Our focus remains on significantly increasing our wallet share within our existing customers. We continue to deliver strong growth and best-in-class in our hours by selling more solutions and expanding into more buying centers or user groups within our existing customers. I would like to take you through a few examples. The first is an investigative analytics deal. We closed a sale of over 800K within an existing customer, a European state police force. This is the first expansion of this customer outside of our collect and review offering. Key success factors for this win were our ability to address their customers' specific requirements with a tailored solution for their needs, including better results from extracting and analyzing mobile-derived data, better performance in text and image analytics, and fastest enablement to find the critical evidence quicker. Another exciting wallet share increase through our broader offering is our largest Guardian contract to date. This win was part of a larger seven-figure deal. The investigative management portion included 500 Guardian licenses to be used across this major U.S. Metropolitan Police Department. This was a competitive situation in which Guardian stood out with its superior cloud functionality and its compatibility with our collection review solutions. our solution fulfilled the need for an evidence management solution that would meet reporting and chain of custody requirements as a cloud-based system that could scale for the organization needs. The third and last example is our very early access with premium as a service, which only became available in late Q2 and immediately saw a seven-figure multi-year win with the U.S. State Police Force. Now, this win will bring our advanced collect and review capabilities to approximately 20 field units and is a significant upsell from this customer's previous spending with us. I would like to add that during the first half, we'll continue to transition our go-to-market organization to take the dual role of supporting larger strategic opportunities in combination with our classical velocity business. We believe that this transition will be completed by the end of the year. As for our 2022 plan and outlook, as you saw in the press release we issued today, we've made the strategic decision to recalibrate our expectation for the second half of the year to a level that reflects the internal initiatives we are undertaking to position Celebrite for durable growth and continued innovation in the digital intelligence market. We believe that the trends that we have seen in the first half will continue in the second half. We therefore expect a healthy growth of ARR exceeding 30% in the foreseeable future, while revenue and bottom line may be impacted for the short term. So before I turn the call over to Dana, our CFO, I would like to emphasize the excitement I have for the opportunity that remains in front of Cellebrite. As we look at our broad product portfolio of industry-leading technology across our core markets, I think Cellebrite represents one of the best pure play opportunities to invest in public safety and digital intelligence. This, in turn, supports public safety and saves lives in communities worldwide. At the end of the day, we could not be more excited about our positioning due to our technology, customers, and market penetration, and look forward to updating you on our growth to come. And with that, I will turn the call to Dana.