Cellebrite DI Ltd.

Welcome to the Celebrite Third 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. 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 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, Todd, and welcome everybody to Celebrite Third Quarter 2024 Financial Results call. I'm joined in New York City today by Yossi Carmel, Celebrite CEO, Donna Gerner, Celebrite CFO, and Tom Hogan, Celebrite Executive Chairman. 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. The call is being recorded, and a replay of the call will be made available on our website shortly after the call, along with a transcript of this event soon after. Starting with slide number 2, a copy of today's press release and financial statements, including the gap to non-gap reconciliation, the slide presentation, and the quarterly financial tables and supplemental historical information for the first three quarters of 2024 and each quarter of 2023 and 2022 are available on the investor relations website at .celebrite.com. Unless stated otherwise, our discussion of our third quarter 2024 financial metrics, as well as the financial metrics provided in our outlook, will be done on a non-gap basis only, and all historical comparisons are with the third quarter of 2023. In addition, please note that 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 actual results different 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. Company does not undertake to update any forward-looking statements to reflect future events or circumstances. Slide number 3 provides the agenda of topics we'll cover on today's call. And with that being said, I'll turn the call over to Yossi Carmel, Celebrite CEO. Yossi?

Thank you, Enzi, and thank you all for joining us this morning. So we delivered a strong first quarter performance that exceeded expectations thanks to increasing traction with our -to-closure platform, what we call the C2C platform, the impact of our ongoing investment in market-leading innovation and solid execution on all fronts. As illustrated on slide 4, we produced notable ARR growth, surpassed $100 million in quarterly revenue for the first time in company's history, and generated outstanding profitability. We are proud that we have consistently delivered a healthy mix of ARR growth and profitability with recent results, constantly exceeding our baseline for the rule of 45 performance. To put it simply, Celebrite business momentum remains strong in the third quarter, and we anticipate a positive finish to our year. Now Dana will cover this in a few minutes. Beyond the solid quarterly results, we took important strategic actions and accomplishments over the past several months, all of which are architected to drive long-term profitable growth and corresponding enterprise value. Celebrite is uniquely positioned as differentiated -to-end platform provider with software offerings spanning the digital investigative lifecycle. Our AI-driven C2C platform enables customers to close more cases faster by elevating their productivity and efficiency for collecting, reviewing, sharing, and analyzing digital evidence. We have taken deliberate steps to anchor our C2C platform around three increasingly integrated flagship software solutions, and I want to give here a brief overview. So Insight is our family of digital-friendly software that enables law enforcement to collect evidence from mobile phones, cloud applications, computers, and many other digital businesses. Guardian is our set of SAS-based case and evidence management offerings for managing the examination process, securely sharing evidence, and enabling interagency and cross-agency collaboration. Our Pathfinder investigative suite includes AI-powered analytics and open-source intelligence tools for expediting investigations by surfacing leads, pinpointing connections, and identifying valuable evidence buried within mountains of structured and unstructured data across multiple digital businesses. We are mobilizing to capitalize on the extensive opportunities we see to expand our customer spending with us while also winning new logos. To that end, Celebrite Federal Solutions was launched earlier this summer to expand our relationship with the US federal government, and this unit is now fully operational, and I'm pleased to share that we delivered an excellent Q3 in the USA federal sector. In addition, we have continued to augment our quota-carrying sales force in all major geographies to amplify our -to-market motions for upgrades, upsells, and cross-sells. As we look forward towards 2025, this investment position celebrates with the ramp sales capacity which is required for sustaining solid top-line expansion and extending to new buying centers within our installed customer base. Celebrite's relationship with over 5300 public sector customers typically begins by helping examiners and investigators to collect and review digital evidence across mobile phones, computers, cloud, and other digital witnesses. There is a long, broad growth runway ahead for Celebrite Digital Forensics Solutions, and part of this expansion is expected to come from upgrading customers from our legacy digital forensics software to our new Insight Suite. The value proposition for this upgrade is compelling. Insight leverages a modern tech stack, along with both proven and new digital forensic capabilities that enable customers to complete an examination as much as twice as fast, while accessing more devices, extracting more data, and revealing more important information. In addition to the Insight upgrade, we believe our customers will want to expand the scope of their deployment, whether it is in traditional technical lab environments or by extending our technology into the field. Just as important, we see substantial opportunity for customers to leverage our modular approach to Insight by adding high-value capabilities around advanced local access or unlocks, and for automating and accelerating key examination processes. When we launched Insight earlier this year, our goal was to upgrade the vast majority of our install base over the next three years with 10% adoption in 2024. We increased last quarter our 2024 target to 15%, and we are on track to achieve this new target. Another area of strategic progress is the cloud. We continue to increase our product house investment to cloudify existing capabilities, enhance existing cloud offerings, and develop new cloud-native solutions across our Insight, Guardian, and Pathfinder product suites. And I'm happy to report that we are seeing some very positive returns on this investment. For example, during the past 12 months, Guardian grew more than 100% as more customers use this SaaS-based solution to transform how they manage and share digital evidence with investigators and prosecutors. Our investments in cloud infrastructure are also opening new doors for Pathfinder analytics, which leverage AI technology to quickly surface leads and identify connections buried within mountains of structured and unstructured data across multiple digital devices. In September, we announced Pathfinder in the cloud with AWS, allowing customers to access Pathfinder through the secure Amazon virtual private cloud. Just as notable, as we look to expand further into investigative and intelligence units, we are building our SaaS-based capabilities and leveraging our ongoing investment in AI through an expanded suite of tools and capabilities that can help analysts and investigators analyze an even broader range of digital data sources, coordinate and collaborate better, and boost productivity by automating time-consuming, burdensome tasks. I would also like to briefly cover the recent capital market milestones which underscore our success in driving shareholder value. First, in mid-September, we completed our previously announced Warrant Redemption Program, which produced 10.1 million net new ordinary shares. Second, our strong stock price performance from mid-August through early November resulted in multiple triggering events totaling 21 million shares that have further increased our public stock load. At a high level, these milestones enable us to move forward with a significantly clear capital table, healthy trading liquidity, and simplified financial reporting. Now, Dana will provide more color about these developments in a few minutes. So, let's turn to SlideTik now, which highlights our four strategic priorities. I would like to illustrate how our success in each of these areas has enabled us to produce an NRR north of 120% for 23 consecutive quarters. Our first priority is to extend our leadership in the digital forensic units of our customers. Insights helps customers better address their caseload growth and makes it easier and more affordable for them to lawfully access the newest smartphones on the market. Now, since Insights was launched in Q124, we have seen healthy attachment rates for our unlock module when customers with no prior lawful access solutions upgrade to Insights. That trend has helped us nearly double the penetration of our advanced lawful access solutions within the install base to the low 30% range during the past 12 months. The win on this slide is a great example of how an Insights upgrade with an unlock option can generate meaningful ARR growth. Our second priority is to accelerate our growth within the investigative and intelligence units, or what we call the I&I units, of our law enforcement customers. Now, earlier this year, we had a dedicated sales specialist within our quota-carrying sales force targeting the investigative and intelligence units, and we are already seeing these initiatives help building a large pipeline of opportunities. Our third priority is to expand our business in the private sector, where we celebrate data collection, solution health, enterprises and service providers, advance corporate investigation, and e-discovery use cases. Our strategic partnership with Relativity, which we announced a few months ago, is off to a good start, highlighted by our participation into Relativity last quarter. We continue to see Endpoint Inspector maintain good momentum with both enterprises and service providers as the remote data collection solution of choice for mobile devices, computers and cloud workplace applications. Our fourth strategic priority is to help our customers harness the power of cloud. Earlier on the call, I detailed the investments we are making to expand our range of cloud-based solutions and enhance the infrastructure that supports them. Now, while customers in the US have been the primary early adopters of Guardian, we are starting to make inroads in certain international markets, which is highlighted by our first Guardian deal as part of larger deployment of our full C2C portfolio by a regional police force in a key Western European country. I would like to conclude my prepared remarks on slide seven. Celebrate's market remains very healthy, with multiple tailwinds that are producing three major things. First, today's crime involves more data and increasingly complex data. Second, operational inefficiencies makes it harder for law enforcement to advance their investigations. And third, the need to build public confidence and around the ethics and accountability of law enforcement. So, given the constrained lawful enforcement budgets, our customers cannot simply allocate more manpower to solve these challenges. As a result, Celebrate customers are increasingly recognizing the need to invest in the type of disruptive technology that Celebrate delivers. This is a major driver, or one of the major drivers, behind our plan to hold our first ever case to closure, our C2C user summit, at the leading event for digital investigation in late Q1 25 in Washington, DC. Now, as we look ahead, we are well positioned to close 2024 on a very positive note. Given our progress to date and the strength of our near-term pipeline, we have once again raised our 2024 targets for revenue and adjusted the data while also increasing the low end of our ARR guidance. We look forward to 2025 with confidence in our ability to consistently deliver a balanced mix between ARR expansion with healthy profitability that will produce or exceed a baseline for the new law of 45. The mission at Celebrate is both inspirational and aspirational. It is focused on enabling our customers to deliver justice faster, smarter, and more defensively to help close the public safety gap and create a safer world. The team at Celebrate is making good on the company's brand promise of justice accelerated by delivering an -to-end set of digital investigative solutions for law enforcement agencies around the world. Celebrate's workforce has performed admirably so far in 2024. While the conflict in Israel escalated during the third quarter, our business has not experienced any disruption. This is a tribute to the focus and resolve of our team, especially those based in Israel, and we appreciate their ongoing commitment and contributions. So that concludes my comments on our quarterly performance and accomplishments, and I will now turn the call over to Dana. Dana, please.

Thank you, Josie. It was a fantastic quarter for Celebrate. We have delivered a rule of 54 performance for Celebrate. It reflects great fundamental execution alongside the expected seasonality. But, guys, to be clear, while we are excited about the rule of X performance of this quarter, our long-term plans are to deliver a rule of X range between 45 and 50. Now, let's start the review of the third quarter on slide nine. Our ARR grew 26% -on-year to $371 million at the end of September. As noted on the slide, our gross retention was approximately 91%, which is in line with the recent quarters. Consistent with our historical trends, much of ARR growth over the 12-month period came from higher spending by existing customers. From a product perspective, our insights suite drove the majority of our ARR growth, which is complemented by the contributions from our Guardian and Pathfinder offerings. Geographically, the ARR mix for the 12 months ended September 30, 2024, was in line with the prior quarters and consistent with the -to-date revenue mix. The Americas represented 54% of the total ARR, with EMEA at 34% and Asia Pacific at 12%. In terms of growth rates by geography, the Americas grew 26% thanks to the solid demand in our U.S. Federal and SLG customer segments. ARR in EMEA grew 24%, and it grew 31% in the Asia Pacific region. Turning to slide 10, we delivered third quarter revenue of $106.8 million of first quarter in the company history with revenue above $100 million. The 27% growth in the total revenue over the same period last year was primarily fueled by a 27% increase in subscription software. Our top-line performance benefited from some professional services revenue that was generated earlier than expected and the quarterly mix of an on-premise and cloud deployment. Subscription revenue represented approximately 87% of the total revenue, which is in line with recent quarters. Now, let's move to slide 11 for a view of our non-GAAP growth margins and non-GAAP operating expenses, which exclude share-based compensation, amortization of intangible assets, and acquisition-related expenses. Our Q3 growth margins of .1% was at the higher end of our full year target. In terms of our operating expenses, Q3 operating costs were $62.5 million and 19% -over-year increase. This primarily reflects higher personnel costs within our sales and marketing and research and development organizations and higher one-time project expenses within R&D. We ended September with 1,109 employees, a 3% increase from the second quarter and a 12% increase from the same quarter one year ago. Slide 12 covers our profitability and cash position. We delivered Q3 adjusted EBITDA of $31.3 million or 29% on a margin basis versus 25% in last year's Q3. Our profit performance reflects positively on our success in driving strong revenue growth, maintaining excellent growth profit margins, and effectively managing our cost structure. Our Q3 non-GAAP operating income was $29.5 million, with non-GAAP net income of $31.8 million or 14 cents on a fully diluted basis. We ended September with $430.6 million in cash, cash equivalent and investment, an increase of $47.6 million from the second quarter and an increase of $130.4 million from the same quarter last year. The sequential increase for the quarter primarily reflects the strong cash flow from operations. The net cash flow for the third quarter, which we defined as net cash provided by operating activities, less capital expenditure, and the purchase of intangible assets, was $39.8 million, up 42% from the same quarter last year, due primarily to the strong fundamental operating performance. I'd like now to move to slide 13 to briefly cover the capital markets events that occurred during the third quarter. On September 16, we successfully completed our Warrant Redemption with approximately 29.7 million public and private warrants being exercised and converted into 10.1 million net new ordinary shares. In addition, Sederbrite's stock price performance from July through the middle of September hit two separate price triggers, one at $12.5 and one at $15, and combined, they resulted in the commitment to issue a total of 10 million price adjustment shares and rest a total of 6 million restricted sponsor shares. Our Q3 diluted weighted average share outstanding as of September 30, 2024, increased 7% from Q2 levels, due primarily to the timing and magnitude of these events. Two days ago, we disclosed that our recent stock price performance hit the 17.5 price trigger, which results in issuing another 5 million price adjustment shares. Overall, these milestones support our long-standing goals of optimizing our capital structure, sustaining healthy trading liquidity, and simplifying our financial reporting. In terms of our financial reporting, since we fully retired all of the outstanding warrants and triggered 100% of our price adjustment shares and 80% of our restricted sponsor shares, the value of the remaining restricted sponsor shares and the remaining price adjustment shares as of September 30 are now represented on our balance sheet within shares' orders equity rather than its reliability, and we are no longer obligated to revalue them. Let's move to slide 14 for our updated 2024 fourth quarter and full fiscal year financial expectations. Based on our results for the first three quarters of the year and our assessment of the near-term opportunities, we have again raised our outlook for the year. In terms of annual revenue, with a strong Q3, we increased our 2024 revenue range to be between 397 and 401 million dollars, which implies Q4 revenue between 105 and 109 million dollars. We also increased our 2024 adjusted EBITDA target range to be between 96 and 100 million dollars, or 24 to 25% on a margin basis. This implies fourth quarter adjusted EBITDA in the range of 25 to 29 million dollars, or 24 to 27% on a margin basis. This assumes a fourth quarter gross margins in the -80% range and fourth quarter operating costs between 64 to 66 million dollars. And finally, we increased the low end of our 2024 ARR target range to 390 million dollars. In terms of modeling our diluted share count and factoring in all of the previously discussed capital markets events from Q3 and Q4, we expect our fourth quarter weighted average diluted share count to be around 241 million shares and our full year weighted average diluted share count to be approximately 222 million. We expect to begin 2025 with approximately 255 million diluted shares outstanding, which is detailed on the table on slide 25 in the appendix to this presentation. Overall, our third quarter was highlighted by robust financial results and meaningful tactical and strategic execution. As a result, we are well positioned to deliver a 2024 performance in excess of 45 for the second consecutive year thanks to increased profitability that benefited a stronger than planned gross margins and discipline spending, even as we invested meaningfully in our product house and -to-market organizations. As we look ahead, we believe we remain well positioned to deliver solid ARR expansion and profitability that will enable us to deliver or exceed our target baseline of full of 45 by finding initiatives critical to our long-term success, such as enhancing customer success, accelerating our efforts around the cloud, fueling innovation, and incrementally expanding our quality-carrying sales force and marketing team. That concludes my commentary. I'll ask you to go to slide 15 so that I can now turn the call back to your seat.

Thank you, Donna. The last 20 years, 19 as CEO, have been an amazing journey for me with many successes along the way. When I began as CEO, there were just 18 of us working out of a small office. At the end of this year, 2024, I will finish my tenure as CEO having established Celebrite as a market and technology leader with 1,100 employees and a global footprint that includes dozens of offices worldwide and 7,000 customers in over 100 countries. We are now, Celebrite is now, a publicly traded company that is taking major strides over the past three decades to provide meaningful value creation. This level of success would not have been possible without the support of our customers, partners, and investors and the commitment and contribution of our talented employees. It has been very rewarding to have led Celebrite over the past three decades, but I believe that it is now the right time for me to step aside as CEO and pass the baton to a new leader who will take Celebrite to the next level. At some point down the road, I will focus on different types of roles that will enable me to contribute my knowledge and experience to the high tech industry. But before that can happen, we plan to close out 2024 on a successful note as reflected in our updated outlook and complete all the work necessary to position the company to sustain its business momentum next year and beyond. Celebrite moves forward with a strong leadership team, an exciting technological roadmap, and compelling strategic plan that is aimed at driving value creation for all key stakeholders. As the search for my success or progress, I would like to personally thank Tom Hogan for his support since he joined as an executive chairman 15 months ago. In a very short time, we developed a strong partnership and he has made a major impact in many areas such as strategic planning, sales, marketing, and investor communication to name a few. His imprint on Celebrite has been and will continue to be critical to our success. I know Tom will help lead a very thoughtful and efficient search for a new CEO and provide our company with great leadership as interim CEO. In closing, I'm confident in Celebrite's strategic direction and in our company's ability to capitalize on the opportunities that lie ahead. As proud as I am about what we have achieved in the past 20 years, I know the best for Celebrite is yet to come and I remain a loyal and supportive shareholder and I look forward to seeing all that Celebrite will accomplish over the coming years. And before we take questions, Tom Hogan would like to close out our preferred remarks. Tom, please.

Thanks, Josie. I'll be brief, but I want to start by sharing my heartfelt compliments to you. As many of you know, I've been at this for a long time. I've seen leaders who excel at scale and there are others that excel as entrepreneurs, but it's the rare exception that a leader gracefully navigates a company from early stage revenue up to and through the 100 million mark. The few that successfully cross that chasm even more rarely then succeed in guiding a company from 100 million all the way to 400 million. In a world that's increasingly focused on short-term performance with equally shortened CEO tenure, Josie's stayed the course as he shared for over 19 years as CEO of Celebrite and leaves a legacy he should forever be proud of. So on behalf of all of our employees, our customers, our shareholders and the full Celebrite board, I want to express our gratitude for his service and wish him nothing but continued health and success. Now, as the exec chair, Josie's decision brings mixed emotions. On the one hand, I couldn't be more pleased for him personally. He's earned this break and the time to figure out what comes next while reconnecting with all the personal priorities that are often collateral damage as a CEO. On the flip side, his passion and his history with this company certainly leaves some big shoes to fill. As for the future, our search efforts have already kicked into high gear. It's my belief that this company is a unique, the proverbial one in a million company. I'm not sure where you find a company that's both AI driven and cloud centric. A company that's the undisputed platform leader in a large growing and still highly fragmented market while at the same time delivering high levels of ARR growth with outstanding customer loyalty and retention and strong free cash flow that Donna just talked about. All underscore all while truly making the world a better, safer place. Based on that profile, we fully expect a rich list of qualified candidates to quickly surface and compete for this job. Celebrite deserves nothing short of an exceptional new CEO and this board is completely committed to protecting that standard as we evaluate candidates. It's obviously impossible to predict or to commit to a specific date or timeline, but we do not expect a protracted process. We will move with purpose and pace and to the extent there's any gap between Yossi's departure at the end of 2024 and the arrival of a new world class leader, I will step in as the interim CEO. With that said, we'll now ask the operator to open the floor for comments and questions.

The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our first question will come from Shal Eyal with TD Cowan. Please go ahead.

Thank you. Good afternoon, good morning everybody. Yossi, congrats on the quarter, congrats on the past few decades, and congrats on the road ahead. Tom, Yossi, as you think about the search process, will the new CEO be based in Israel or in the US? And also my follow-up question, Dana, any little site acquisition contribution this quarter? Thank you. Dana, why don't you take the easy one?

Yeah, I'll take the easy one. As we said when we acquired sites, the contribution is very minimal. This quarter was slightly below half a million dollars to the total revenue.

On your first point, the answer is we're casting the widest net possible given the unique asset this company represents and our desire to secure the best CEO on the planet. And so we are not restricting that aperture search to any geography, whether it be Israel or the US. So it will be driven by finding the best leader.

Thank you.

Next question, operator.

We'll go next now to Mike Tsikos of Needham.

Thanks for taking the question, guys. And Yossi, it's been a pleasure working with you over the last couple of years. I'll let go of Shelbo's comments. The first question I have for you was relating to the CEO succession plan here and just wanted to get a better sense of when Celebrite retained the executive firm. I know we're talking about our expectations for surfacing new candidates quickly, but how have the candidates been that you guys have assessed so far? And then the second piece, investors here, CEO succession plan, sometimes their antenna starts to go up. I know that the firm just had its investor day, its first ever investor day in March of this year. With the announcement that Yossi will be departing the firm, is there any reason to think that the longer term models through calendar 28 that we received in March of this year are changing or no? Are you guys willing to reiterate that long term target from where we sit today? Thank you.

Yes, Tom, I'll take that. So first, there's no fundamental change with respect to the business plan or strategy. That's something that Yossi and I worked closely on, you know, starting last summer, establishing the framework, the narrative, the platform for an -to-end solution in the industry, using that to guide us from an asset and IP perspective that will fuel growth. You know, our focus is still, we believe this is very much a growth company with a huge amount of headroom, but we continue to do it with balance and an eye on cash flow and profitability. So that positioning and framing we did in our inaugural investor day still holds. On your question on the search, we started to have the conversation with Yossi actually just a few weeks ago. And so we then reached out to some of the tier one search firms. They're now fast at work building that slate. And as I shared with you, they are very bullish about, if you just think about this company, we continue to scale and in spite of that, we continue to deliver strong rule of X performance, which any potential smart CEO loves to see a growth company that's not trying to figure out how to generate cash or vice versa, and a company that you go to bed at night and not only are you driving value creation, you literally can go to sleep at night knowing that you're playing a key role in making the world a better, safer place. So they are very bullish about that candidate pool. And as I said earlier, we're going to move with pace, but also maintain the highest standard to get the best person on the planet.

And Mike, first of all, thank you for the kind words, just adding that especially at that point, after reflecting with the management, the strategy for the coming three to five years, which we have done recently, and also reviewing the market trends and ingredients and all the market factors, I'm also glad to say that everything plays in celebrate's favor in terms of strategic growth, budgets and market conditions. So on top of that, also the marketplace in our favor, and I'm obviously concurring what Tom said about no reason to change anything, and on the contrary, clear growth path.

Great. I appreciate the thorough answer there, Tom and Yossi. Thank you.

Yep. Next question, operator.

Our next question will come from Jess Van Rie with Craig Hallam. Please go ahead.

Great. Thanks for taking my questions, guys, and I'll add my congrats, Yossi. Just what an exceptional run and exceptional performance. It's been great working with you. A couple questions for me on the quarter and kind of the outlook. You know, the C2C platform and the vision obviously seems to be playing out. I'm just curious, specific to insights, any updates on adoption expectations for 2025, just an early look on what might be a target in terms of conversions? And then secondarily, just curious in terms of the unlocks, you gave an example or two in the prepared remarks of people upgrading and driving significant ARPU uplift, but just change your seeing in the unlocks, the pace of unlocks, the magnitude of usage, any color there would be great.

So maybe I will start with the C2C and the adoption. The good news, the case to closure platform resonates very well when it comes to the way law enforcement decision makers are looking at it. And the better news is that we are still in a very early stage and very early days, meaning when one thinks about the 5300 public sector customers, the percentage of customers who have deployed insights and or Guardian and Pathfinder and is still quite small. So the growth potential is tremendous. And 300 customers, by the way, which is even good news if we think about part of it, had adopted so far two out of the three flagship products, so insights and Pathfinder and or Guardian. So there is a significant growth potential and you and we should be very optimistic about the broader adoption. And obviously, what I would like to add here before handing over either to Tomo to Dana, that we believe that the cloud enablement of the solutions and I reiterated the investment that we are doing in the cloud. Basically, that should accelerate the adoption of the C2C think cloud, think AI. And you can anticipate further progress in terms of adoption based on a very successful and slow growth. Dana, would you like to add?

Yeah, I think we said from the very early beginning that this is a journey of three years. So while we are expecting to finish the years from 15 percent, we still have a very healthy growth in the future for the coming two or three years ahead of us. I would mention what you said about the ANOX. You know, we said in the script that around 30 percent of our customer base is adopted. That means that we have a potential first to penetrate the rest of the 70 percent and continue upsetting additional ANOX packages to the existing customer base. So it's not only the insight-based packaging, but it's also the add-ons that generate great potential for the future.

One add-on in terms of the insights is the fact that we are extremely satisfied with the comments and the perception and the reaction of customers about the insights in the market. Again, we brought here a revolutionary solution for the digital forensic unit for examiners and investigators that completes the examination twice faster, access more devices, and bring more abilities which were basically broken down in several separated modules. So based on that positive feedback, I can also say that there is high acceptance, higher acceptance for higher price, appreciating the value, and definitely a strong belief and confidence in our ability to meet the 25 and 26 conversion rates.

Got it. Very helpful. One last question for me then. With respect to Pathfinder, maybe just talk for a few minutes about Pathfinder. Obviously, the AWS deployment, kind of curious what you expect that to do to Pathfinder adoption. Also, current adoption of Pathfinder, what's the make and model, so to speak, of those that are choosing to buy and use it? Is this standing to fall within large agencies? Just kind of the distribution of adoption and what we can learn from it so far.

So maybe I will start and then I will hand over to you. We can do it together. Basically, just a reminder, we are aiming to target major subsegments within the public sector. The digital forensic unit, what we call the DSU, and I use the investigative unit and also the intelligence unit. And over there, Pathfinder is basically a suite of, I would say, powered by AI, analytical capabilities, and also open source intelligence tools that basically can help customers to surface the golden evidence very quickly out of a huge amount of either structured or unstructured data, which has been ingested from many, many sources, our sources and other sources. So basically, the Pathfinder is, and we said it several times, while the insights or what we call the collect and review area is planned to grow 15 to 20% every year. The Pathfinder as investigative analytics is something that we expect that will continue to grow in a pace of, say, 35 to 50% year over year. And everything that we do right now in terms of cloudifying that part while maintaining the on-prem, announcing the VPC implementation with AWS, building on existing SaaS-based capabilities with expand AI-driven tools and all that, that should promise to celebrate a very solid growth. And I'm glad also to report that we are growing exactly in the pace that we originally planned with Pathfinder. Dana?

Yeah, and maybe double-click on one note in your question. Yes, indeed, currently, because the Pathfinder, whether it's on-prem or VPC deployment, actually serves a larger customer base, the 1,200 large strategic customers. The journey to the cloud with the C2C platform, as we discussed before, is actually democratizing our solutions. And we believe that the future would allow us also to bring a lot of the goodies that the Pathfinder brings currently on-prem into the -to-closure platform and be available to a broad and customer base with SaaS capabilities. So again, we see great future to this offering in the coming years.

Last but not least, and we've got no time here for an educational session, but at the end of the day, one in a C2C context cannot separate and should not separate the Pathfinder from the Guardian, which is a cloud SaaS-based solution which basically creates the best connection between what is produced with the examiners, with the insights, and then analyzed, ingested and analyzed. So the Guardian as a bridge is a critical component, and I'm glad to report that actually we have seen since the beginning of the year an amazing traction and also doubling the size and the achievements in terms of ARR related to Guardian. And that means that it works. It works. It takes basically in the C2C concept, in a C2C perception, the combination of insights, investigative analytics, Pathfinder, and the Guardian means that the company delivers on the promise to the customers and customers are adopting.

Thank you. Our next question will come from Brian Essex with JP Morgan. Please go ahead.

Good morning. Thank you for taking my question. And Yosdi, congratulations. It's an amazing accomplishment that you've made with Celebrite. So hats off to you. Maybe the first question I have is around the federal sector. I would love to get an understanding of what percentage of your business does federal within, specifically within the public sector, what percentage does federal account for, and how are you managing the evolution of Celebrite Federal Solutions, particularly with respect to how it impacts your existing federal relationships?

I'll take it for a start. First of all, just to remind us all, we have a very strong position in the federal space as part of our public sector activity for years by now. At the end of 2023, the federal space was around 20% of the entire, of the total Celebrite activity, meaning was, is, and obviously should remain meaningful. And forming the Celebrite Federal Solutions business unit or company that we have declared last quarter basically enabled us to expand, and that's the logic of it. The main logic of it is basically expanding the term in the federal space. That structure will help us to accelerate the growth that in a very strong segment for us, as I said, and basically deploy, I would say, a broader range of solutions and be exposed to programs and opportunities in a context of growing sales opportunities that we will not be able to be exposed in the former operation mode that we delivered so far. I'm glad to report that now the CFS is running and ready, and we are pretty much very positive about that. As for the impact for the future, we, I would say, still anticipate the initial financial benefits of the CFS. I would say that you will see, the company will see an impact in 2025, but a very meaningful impact when it comes to 26 and 27.

That's helpful. And maybe for Tom, on the CEO transition, I think you noted that you're focused on bringing the best leader possible. Is there a set of criteria that you have? I think Michelle mentioned location is one point of question, but in terms of technological expertise, sales expertise, customer focus, what is your shopping list or wish list as you go to the search firms and look for the most suitable candidate possible?

Well, as the search people shared with us when we talked about this, they just grandly said so. It's basically the Godspeck. And I said, yep, that's right. That's what this company deserves. I know this maybe sounds like I'm dodging the question, but we didn't want to get laser focused. The question you raised in a lot of cases is a really good fair question, which is, hey, given where the company's at, given the strength of the executive team, is the company in bigger need today of a -to-market CEO or a product CEO? And you can apply multiple vectors to that. Public sector experience would be an example.