Cellebrite DI Ltd.

Please stand by, your program is about to begin. If you need assistance on today's call, please press star zero. Welcome to the Celebrite First Quarter 2024 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. Though 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 0. 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, Leo. Good morning. Good afternoon. Welcome to Celebrite's first quarter 2024 financial results conference call. Joining me today from just outside of Tel Aviv are Yossi Carmel, Celebrite's CEO, and Donna Gerner, Celebrite's CFO. There is 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 the recording will be made available on our website shortly after the call. Starting with slide number two, a copy of today's press release and financial statements, including GAAP and non-GAAP reconciliations, slide presentation, and the quarterly financial tables and supplemental historical financial information for the first quarter of 2024 and each quarter of 2023 and 2022, are available on the Investor Relations website at investors.celebrite.com. Also, unless stated otherwise, our discussion for the first quarter of 2024 financial metrics, as well as the financial metrics provided in our outlook, will be done on a non-GAAP basis only, and all historical comparisons are with the first quarter of 2023, unless otherwise noted. In addition, Please note that the statements made during this call that are not statements of historical fact 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 forecasts. 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 March 21, 2024, and as amended on April 12, 2024. 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. And as you'll hear, we started 2024 off on a positive note with another very solid quarter. We move forward with good momentum and are excited about the opportunities we see ahead to further expand our business this year. With that said, I'd like to turn the call over to Yossi Carmel, Cellebrite's CEO.

Thank you, Andy, and thank you all for joining us today. The financial results highlighted on slide four demonstrate that Cellebrite is off to a very solid start in 2024. We delivered a strong first quarter performance anchored by the further expansion of our business, improved profitability compared with the same quarter one year ago, and meaningful strategic progress. I have to say it is rewarding to see our solutions are making a tangible difference in accelerating justice around the world. While I plan to share more about the market opportunity, our strategy, our achievements, and our outlook, I would like to turn now to slide four to briefly recap our Q1 results and selected KPIs. And more specifically, ARR grew 27% to 331.8 million. We continue to see strong ARR growth globally, and our Q1 ARR expansion is primarily driven by our success in expanding existing customers' relationship, which is consistent with historical trends. The total revenue of 89.6 million increased 26% on the strength of a 29% increase in subscription software revenue. Adjusted EBITDA was 17.6 million, or 20% on a margin basis, and we reported non-gap earning per share of $0.08. We also ended the first quarter with cash deposits and investment totaling approximately $347 million, a 15.5 million increase since the end of 2023. After trailing 12 months, our ARR growth rate and adjusted EBITDA margin trended above a baseline target of rule of 45. Turning to slide five, as most of you know, Celerbite hosted its first ever investor day in late March this year. This was a great opportunity to provide our analysts and shareholders with a deeper dive into our business and our bright future. During this event, we highlighted the underlying trends, celebrate overarching strategy, our compelling case to close the platform and flagship solutions, as well as key technology and go-to-market initiatives that will enable us to convert meaningful ARR and revenue growth into further improvements in adjusted EBITDA. We expect that our ARR and top-line expansion over the coming years will continue to primarily come from further expansion within our installed base of customers. I'd like to explain why we are so bullish on this opportunity. First, there are several powerful trends that we believe will require our customers to invest more in digital investigative solutions like ours. Most notably, the number of cases that have a digital component continues to increase, and the digital component is often the most meaningful part of investigations today. As digital becomes more pervasive in crime, the growth in both data volume and data complexity makes it harder for law enforcement to capture and analyze this information. Those issues are compounded by structural operational inefficiencies arising from siloed, manual, and time-consuming processes as well as greater scrutiny on law enforcement practices. In an environment where overall budgets and head counts grow modestly, we continue to see more spending directed to disruptive technologies like ours that can help our customers address these issues and solve more cases faster and more efficiently. Second, we are well positioned with our existing customers to continue increasing our wallet share through the three flagships offering in our case-to-closure platform, our branded C2C platform. Now, these solutions address the key challenges in the digital investigation lifecycle that involves collecting, reviewing, sharing, and analyzing digital evidence. With spending on our solutions currently representing just a fraction of our customers' annual budgets, there is a substantial room for upside as digital becomes the primary starting point for an investigation. I'd like to take a moment to elaborate on that. Now, within the digital forensic units, the segment where we have established our leadership through relationship with over 5,300 public sector agencies, we are pretty much at the earlier stage of a major product upgrade cycle involving insights, our next generation digital forensic software solution. Insights deliver a more robust, integrated set of capabilities that helps our customers access more devices, extract more data, and reveal more information relevant to their investigations. With most of our customers relying on Cellebrite for the primary digital forensic software solution to collect and review digital evidence for mobile phones and other digital witnesses, we see substantial opportunity to better support our customers in the digital forensic units as they broaden the scope of the lab's operation and extend our technology also out into the field to support an expanding range of use cases. Just as important, our customers are increasingly recognizing that they must transform their workflows to drive efficiency and productivity, facilitate better collaboration, and strengthen the chain of custody around digital evidence, dynamics which opened the door for Guardian our SaaS-based case and evidence management solution. And there is also the investigative unit. We are augmenting our continued growth in the digital forensic units by accelerating our business in the investigative units of our customers. Maybe more specifically, the digital evidence captured by insights open up cross-sell and up-sell opportunities for evidence management and analytic solutions. Our offering for the investigative units ensure timely, securely access to digital evidence, dramatically reduce the time involved in reviewing digital evidence, and help surface leads and connections buried with mountains of data, all of which is critical to expediting investigations. As we move forward, we are committed to further enhancing the integration between our flagships offering and further evolving our pricing and packaging in ways that will support broader and more pervasive use of our solutions with national, regional, and local law enforcement, as well as with blue-chip enterprises and service providers. To fully realize our growth potential, we're making meaningful, I would say, thoughtful investments in our technology and our go-to-market initiatives that we believe will further strengthen our ability to address our customers' biggest pain points. In terms of our technology investments, we will continue to focus on three key areas. The first area is advanced evidence acquisition, which is about making sure we can help law enforcement obtain all the rich information that resides within today's mobile phones, computers, and cloud applications. With Insights, customers have already upgraded are now extracting substantially more data than they did previously. The second area is about helping our customers leverage the power of the cloud, which will provide them with greater computing elasticity, facilitate broader intra-agency and multi-agency collaboration, and minimize IT and security concerns. The third area involves harnessing AI to enable greater automation and increase operational efficiency. We made tangible progress in each of these areas during the first quarter. From a go-to-market perspective, we are currently broadening our sales coverage in key regions and customer segments in both the US and Europe, while leveraging prior investments to capitalize on opportunities in Asia Pacific. But just to be clear, we are reallocating existing resources as we globalize and optimize certain areas such as sales operations, technical pre-sale, and post-sale customer experience, which enables to add more quota-carrying sales reps and specialists dedicated to nurturing long lead time deals in both digital forensic units and in the investigative units. A great example for our ability to blend our technology, go to market, and other strategic initiatives to further expand our business over the longer term is in the U.S. federal markets. In mid-March, we announced the launch of the process to authorize our SAS offerings with the Federal Risk and Authorization Management Program, known as SEDRMF. We do believe that advancing our work over the coming quarters to ensure that our SAS solution meets the highest standard of security and data compliance will play an important role in our broader efforts to unlock more opportunities in the federal marketplace. As we advance these initiatives to capitalize to our upgrade, upsell, and cross-sell opportunities within our installed public sector customer base, we will see our technology deployed more pervasively as we extend our reach into new units, new departments, and new buying centers, what we consider to be new sub-logos within the logos we've already captured. We also expect that our organic growth will benefit modestly from annual price increases, and from the expansion of our private sector business. And finally, our organic growth will benefit as we continue to win net new customers. Now while new logos typically spend minimally with us in the first year, their spending growth typically keeps pace with growth of the broader business. And also thanks to our strong financial foundation, we have the ability to advance opportunities that can accelerate our time to market. with high-value technology and capabilities, as well as extend our reach into growth-oriented adjacent markets and capture more of our funds. As we move into 2024, our top four strategic priorities remain unchanged. First, increasing our leadership in the digital forensic units. Second, accelerating our growth within investigative units. Third, Building our business in the private sector, where our differentiated value proposition for data collection by enterprises and service providers is built on supporting a wide range of data sources, different work environments, and deployment flexibility. And fourth, harnessing the power of the cloud. Now, I'd like to briefly highlight the Q1 wins, which help illustrate our progress in executing on each of these priorities. Our Q1 ARR growth of 27% reflects positively on our ability to extend our leadership in the digital forensic units of our customers. As we look ahead over the next three years, an important strategic objective and fundamental growth driver will be to upgrade the vast majority of our installed base of approximately 32,000 public and private digital forensic software licenses to Insights. During the first quarter of 2024, which is, by the way, the first full quarter that Insights has been available to all customers, we made good initial progress in converting our installed license base to Insights. The upgrade to Insights delivers substantially higher value in terms of enhanced capabilities and optimized workflows, while creating upsell opportunities for customers of all sizes through high-value add-on modules that address their needs for lawful access, workflow automation, extraction of other digital sources, and enhanced evidence management functionality. Now, we expect to see upgrade activity accelerate during the second half of this year and into 2025 as customers incorporate these investments into their annual budgets. One notable Q1 Insights upgrade involves a larger national police force in South America. We choose that upgrade as an opportunity. to broaden its lawful access capabilities to all of its major offices, as well as broaden its use of Pathfinder. As a result, we nearly tripled its customers ARR. In Europe, we are pleased to see a large military agency upgrade to Insights to enhance its counter-terrorism capabilities for faster trials outside of the traditional lab environment, along with using our Smart Search, our open source intelligence tool, to generate rapid intelligence on persons and organizations of interest. As a result, the recounts ARR more than doubled itself. Our second priority is to accelerate our growth within the investigative units of our law enforcement customers. Now, a key offering for investigators is Pathfinder, our AI-powered analytic solution that enables law enforcement agencies to expedite their investigations. Pathfinder substantially reduces the amount of time it can take a detective to view or review text messages, photos, and videos by up to 80% while uncovering and linking data, surfacing new leads, identifying connections and anomalies to capture the most meaningful evidence. We are pleased with the trajectory for Pathfinder and believe that the investment to add a specialist will help us accelerate our progress. Our Q1 Pathfinder wins were highlighted by a neat-sized city police department in the U.S. Southeast region that plans to use our analytics to support their organized crime unit's ability to conduct cross-case analysis and accelerate investigation involving multiple forms. Now, this win extended the scope of our relationship with this customer, increasing our ARR by 30%. Our third priority is to expand our business in the private sector primarily in support of corporate investigations and e-discovery use cases. We recently appointed a new head of enterprise solutions to lead the strategic direction and drive product development as we support our customers through both SaaS and on-prem solutions to collect data from a wide range of devices regardless of whether the user is working from home or in the office. During the first quarter, We extended our relationship with a Fortune 250 company in the waste management industry. This customer consolidated its data collection activities with Cellebrite by replacing its in combat solution for support remote computer collection with our endpoint inspector SaaS. The win more than tripled our ARR at this account. And the fourth strategic priority is to help our customers harness the power of the cloud to make it easier, faster, and more secure to accelerate the time to actionable evidence. Now, although law enforcement agencies are generally early into the adoption of cloud technologies, approximately two-thirds of our customers expect to adopt cloud-based solutions over the next three years, and we are focusing our development roadmaps and infrastructure investments accordingly. We are pleased with the interest that is building in Guardian, our SaaS-based solution, for case and evidence management. During Q1, a large city police department in the US with over 1,000 sworn officers selected Guardian to optimize their evidence management workflows. And more specifically, Guardian will help investigators solve more cases by freeing up hours that detectives previously spent on any given case, driving to and from their primary digital forensic labs to drop off devices and pick up evidence reports as well as eliminate the need for detectives to purchase their own flash drives and other external storage devices to view digital evidence, reports, and information. Let's move to slide seven. Now we head into the second quarter of 2024 with good momentum, especially with respect to our near-term sales pipeline. We continue to see customer budgets trend favorably. in support of their plans to enhance and expand their digital investigative capabilities with our solutions over the coming quarters. To capitalize, we have continued to add talented professionals to our team, which included the appointment of David Gee as our new Chief Marketing Officer. Looking ahead, we believe we are on track to achieve our 2024 financial targets and have reaffirmed our outlook for this year. And with that said, we know that there is a lot of hardware that lies ahead and in order for us to achieve our objectives this year. So in summary, Celebrate is well positioned with a differentiated and compelling software platform that is making a tangible difference in accelerating justice through more accessible, intelligent, actionable, and defensible digital evidence. And we are pleased to have continued to onboard talented individuals who share our commitment to advancing Cellebrite's mission. We expect that our strong financial foundation will be further fortified by our anticipated fundamental performance over the coming quarters. And as a result, we have sufficient fiscal flexibility to consider a wide range of strategic moves that can help us accelerate time to market with high value capabilities, extend our reach into growth-oriented adjacencies, and enhance shareholder value. And overall, we move forward with confidence that we have the people, the partners, the products, and the programs that will help us capitalize on the exciting opportunities we see. So that concludes my prepared remarks, and at this point, I'll turn the call over to Dana.