Cellebrite DI Ltd.

Welcome to the Celebrite Third Quarter 2023 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. so others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to your first speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours.

Thank you very much, Todd. Welcome to Celebrate's third quarter 2023 financial results conference call. Joining me today from just outside of Washington, D.C., are Yossi Carmel, Celebrite CEO, and Donna Gerner, Celebrite CFO. There's a slide presentation that accompanies our prepared remarks. Please advance the slides in the webcast viewer to follow our commentary. We will call out the slide number we are referring to in our remarks. This call is being recorded, and a replay of this recording will be made available on our website shortly after the call. Let's start on slide number two. A copy of today's press release and financial statements, including the GAAP to non-GAAP reconciliations, this slide presentation, and the quarterly financial tables and supplemental financial information for the third quarter of 23 and each quarter of 2022 and 2021 are available on the investor relations website at investors.celebrite.com. Also, unless stated otherwise, our discussion of our third quarter 2023 financial metrics as well as the financial metrics provided in our outlook on today's conference call, will be done on a non-GAAP basis only, and all historical comparisons are with the third quarter of 2022, unless otherwise noted. In addition, please note that the statements made during this call that are not statements of historical facts constitute forward-looking statements. All forward-looking statements are subject to risks and 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 the forecast. Some of these forward-looking statements are discussed under the heading risk factors and elsewhere in the company's annual report on Form 20F filed with the SEC on April 27, 2023. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. Slide number three provides the agenda for today's call. As you will hear, we delivered excellent quarterly results and made meaningful strategic progress. As a result of our accomplishments to date and the near-term opportunities we see, we have updated our full-year 2023 financial expectations. And with that being said, I'd like to turn the call over to Yossi Carmel, Celebrite's CEO.

Thank you, Andy, and thank you all for joining us today. So first of all, I'm very proud of our third quarter 2023 performance. which demonstrates continued business momentum and meaningful strategic progress. During the quarter, we strengthened and expanded the scope of our customer relationships, delivered powerful innovation, and advanced our go-to-market activities. The role that Cellebrite Solutions play in protecting our communities and accelerating justice is tangible and growing. Our technology is trusted by law enforcement around the world to advance cases in ways that put criminals behind bars, prevent future tragedies, help exonerate the innocent, and protect privacy. Against the backdrop of healthy market, we move forward into the final quarter of the year with a compelling value proposition that is resonating with customers worldwide. Now as detailed in slide four, we reported record Q3 results, and more specifically, ARR was 295.2 million, up 27%. Total revenue of 84.2 million grew 17%, driven by a 32% increase in subscription software revenue. Geographically, our revenue performance was led by 23% growth in EMEA, 16% in Americas, and 13% in Asia Pacific. The dollar-braced NRR was 125%. This was our 19th straight quarter above 120%. We closed 25 large deals, each valued at greater than half a million U.S. dollars. We delivered adjusted EBITDA of 20.8 million, or 25% on a margin basis, and non-GAP EPS of 9 cents. And lastly, we ended Q3 with cash deposits and investments totaling nearly $283 million, up 39 million from Q2. Now, with three solid quarters behind us and a robust set of near-term opportunities in front of us, we have updated our 2023 outlook. We'll cover that in more detail shortly. Let's move to slide number five for additional insight into Celebrite Growth Drivers, which will put our current results into context while also addressing two topics that are top of mind with investors, namely our growth drivers and the durability of our growth. First, our consistently strong ARR and revenue growth during 2023 reflect a healthy market that is benefiting from a powerful macro tailwind, a wide gap in public safety caused by unacceptable high crime rates, increasingly sophisticated criminals, the proliferation of digital evidence across a wide range of increasingly complex smartphones and other devices, limited and increasingly strained policeman power, and heightened interest in police operation and priorities. In turn, these trends are creating three major challenges for our public sector customers in the form of, first, managing increased data volume and data complexity, reducing operational inefficiency, and embedding higher level of ethics and accountability in police protocols and actions. Cellebrite digital intelligence solutions help our customers address all of these challenges. The findings from our recently published 2023 industry trend survey for the public sector validate these issues, highlighting notable struggles around device backlog, smartphone security and encryption, old-fashioned approaches to reviewing digital evidence, weak chains of custody, and lack of proper training. Our customers' budgets continue to grow each year, as both digital forensic units and investigative units allocate more resources to disruptive technologies like ours that can help them address these issues. But Cellebra ITRR and revenue growth is about more than just a healthy market. We are succeeding with a land and expand go-to-market model that supports multiple growth vectors. upselling and cross-selling into our install base of more than 5,000 public sector customers, expanding our public sector footprint by winning new logos, implementing annual price increases, and continuing to expand our business in the private sector. And I would like to briefly elaborate further. Any more wallets here with existing customers is the single biggest driver of our growth. and we expect this trend to continue well in the future. Part of this existing customer growth comes simply from capacity growth in the digital forensic units as they add more licenses for our traditional collect and review solutions to support operational expansion. However, most of our growth is the result of upselling and cross-selling. More specifically, more existing customers are turning to Cellebrite for advanced collect and review solutions to help them lawfully access and extract digital data from a broader range of more sophisticated smartphones and digital devices. Now we are still in an early stage of what we expect that will be a multi-year upgrade, an upsell cycle for our collection review portfolio. Not only is the adoption of premium building more momentum, but we plan to commence sales of our new UFED Ultra in early 2024. We're also capitalizing on cross-selling opportunities as we tap into new buying centers to address emerging areas such as case management and evidence management within the digital forensic units and investigative units within that space. Now, these dynamics are helping us close more deals that involve multiple products. For example, our premium suite was involved in almost every large deal in Q3, while Pathfinder or Guardian were part of nearly one-third of our large deals. we continually refuel our ability to drive existing customers' growth in the public sector by winning new logos. Now, although these customers are often small in size and contribute modestly to our ARR growth at the start of the relationship, our experience is that the spending for new customers grows meaningfully over time. We are also optimistic about our growth potential in the private sector. We are making good progress in winning new logos, and in expanding business with existing customers, both enterprises and the service providers who support them. Sales in the private sector have continued to trend favorably this year with low 20% revenue growth in the third quarter. Our recent success reflects positively on the way our sales team has intensified their focus on large accounts as well on investments we've made to broaden our offering. Over the past two years, We have augmented our traditional on-prem solutions with new SaaS offering that allow for the remote collection of data from phones, computers, and cloud applications. Turning to slide six, I would like to share some thoughts on our talk for strategic priorities going forward. More specifically, these priorities include, one, increasing our leadership in the digital forensic units, two, Accelerating our growth within investigative units. Three, building our business in the private sector. And four, harnessing the power of the cloud. I'd like to expand briefly on each priority and will highlight some important third quarter customer wins in the process. Addressing the needs of digital forensic units has long been a major strength for Cellebrite. Not only are collector review offering pervasive within the digital forensic units but our end-to-end capabilities further embed Celerbrite in the workflows, from the intake of digital device through to sharing the digital evidence with investigators and prosecutors. Our Q3 revenue reflects strong demand for our premium software suite, which provides local access to the most advanced smartphones in ways that our competition is unable to match. For example, due to the differentiated capabilities of premium, A large U.S. federal agency significantly increased its premium footprint to over 100 sites. As a result, our ARR in this account grew by over 80% to $6.5 million. Now, as we move forward, we are excited about our potential to help these customers reducing backlog, increase efficiency, and accelerate justice. To that end, we plan to further evolve how we pack our collection review capabilities to optimize value add more automation and new AI capabilities, provide greater deployment flexibility through the cloud, and enhance the user experience to achieve their objectives. The second priority is to accelerate our growth within the investigative units of our law enforcement customers. We recently expanded our offering for the investigators to deliver an end-to-end set of offering with the introduction of our SaaS-based smart search solution. The smart search solution leveraged open source intelligence technology we've gained by acquiring digital clues in late 2021 to securely automate the collection and review of public available online data, including social media platforms. In addition to smart search, we are seeing ongoing traction with our AI-powered Pathfinder investigative analytics, which is used by investigators to advance case faster by surfacing relevant leads and discovering valuable connections within the vast volume of digital data that resides on a wide range of devices. For example, during the third quarter, we expanded our relationship with the major U.S. State Police Department, which licensed Pathfinder and Premium as a Service to help it expedite cases involving digital evidence. Now, this deal increased our ARR in the account by a factor of five to 900,000 US dollars. In addition to leveraging AI to support digital forensic units, who continue to enhance the AI capabilities for data analysis and visualization in Pathfinder to help streamline and accelerate investigations involving digital evidence. We are also focused on the opportunity we see to build our business in the private sector, where our solutions are currently used by enterprises and service providers in the area of corporate investigations and e-discovery. Now, as noted earlier, we are seeing that offering an integrated portfolio with the deployment flexibility to optimize data collection for hybrid work environment is resonating strongly with customers. During the third quarter, we continue to close new endpoints in Spectrum Mobile Deals, which is helping to establish this offering as a leading internal investigation solution for content-based mobile data collection involving employees outside of the office. We also expanded our relationship with the leading nationwide e-discovery company for on-premise offering, increasing our ARR at this account by 20% to approximately 600,000 US dollars. The fourth strategic priority is to help our customers harness the power of the cloud to cost effectively and securely address their pain points and drive operational efficiencies without taxing limited IT resources. Over the past 18 months, We have taken major steps forward to introduce cloud-based alternatives to our traditional on-prem software offerings, as well as launch powerful new SaaS-based solutions. For example, we have continued to make good progress with Guardian, our SaaS-based solution for end-to-end case management and evidence management. We won double-digit Guardian deals in Q3, and the number of users in this platform continues to grow. In terms of SaaS offering, as I mentioned a moment ago, we see promising potential for SmartSearch within investigative units. We are excited that one of the SmartSearch early adopters is among the largest police department in the United States. These customers went live with SmartSearch in third quarter as part of a deal that increased our ARR by over 30% to more than 650,000 US dollars. And going forward, we plan to accelerate the full cloud enablement of our portfolio, including achieving important public sector certifications such as FedRAMP later next year. So I would like to move to slide seven, which covers our outlook. We moved into the final quarter of 2023 with three strong quarters behind us. Our pipeline in all regions continue to expand as both digital forensic units and investigative units allocate more resources to modernize their investigative workflow. Based on our results to date, and the near-term opportunities we see, we have updated our 2023 expectations. As Dana will detail in a few minutes, we have increased the midpoint of our 2023 revenue outlook. Given the strength in our near-term sales pipeline, we have also raised our 2023 ARR range. We also increased our 2023 adjusted EBITDA target range above our prior expectations to primarily reflect the combination of a solid revenue growth meaningful growth margin expansion, and prudent spending. Now, as we work hard to bring 2023 to a successful conclusion, we are also advancing our planning process for 2024. We expect that our business will continue to benefit from healthy budgets in which more money will be directed towards digital intelligence solutions. We see meaningful opportunities across each of our customer segments to drive continued growth in 2024 And we are investing accordingly, including advancing our go-to-market approach in the United States federal market. We do believe it is an exciting time to be part of Celebrite. And to help us take our business to the next level, we also announced today that Marcus Jewell, a technology sales veteran with an impressive track record, will join Celebrite in the newly created role of global CRO. Marcus brings unique blend of sales and operational excellence as a proven CRO at fast-growing successful companies like Juniper Networks, Brocade Communications, and others. We look forward to his contributions as we build our momentum and accelerate our top-line growth over the long term. And on a final note, final but important, before I turn the call to Dana, I would like to thank our customers. our partners, our friends in the industry, and those of you in the investment community who reached out to us, expressed your concern about the situation in Israel. It means a lot to me, and it means a lot to my colleagues in Cellebrite. We are fortunate that the ongoing conflict has not meaningfully impacted our business so far. Nevertheless, we have taken steps to prioritize the safety and the well-being of our employees in Israel while striving to maintain business as usual mentality, business as usual DNA to the greatest extent possible. To that end our offices in Israel remain open with an ongoing collaboration with our teams in the United States, Europe, Middle East, Africa and Asia-Pacific. Our focus on addressing the needs of our customers has never been sharper and although these are challenging times, moral remains at a very high level. So I'm grateful that to my colleagues in Celebrite around the world for their support of one another, as well for their courage, hard work, resiliency, commitment to the Celebrite mission of protecting and saving lives, accelerating justice, and preserving privacy around the world. And with that said, I'll ask Dana to start a review of our financial results. Thank you.