Cellebrite DI Ltd. (CLBT) Earnings Call Transcript & Summary

Welcome to the Cellebrite Second Quarter 2026 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. [Operator Instructions] 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, operator, and good morning, everybody. Welcome to Celebrates Second Quarter 2026 Financial Results Call. I'm joined this morning by our primary speakers, Adam Clammer, Cellebrite's Chairman of the Board. Shiven Ramji, Cellebrite's new CEO; and David Barter, Cellebrite's CFO. Shiv, Dave and Marcus Jewell, our CRO, will participate in our Q&A session. This call is being recorded, and a replay of the recording will be made available on our website shortly after the call along with a copy of the transcript. Please note that today's press release and financial statements, including GAAP to non-GAAP reconciliations are available on the Investor Relations website at investors.cellebrite.com. In addition to the press release, we posted a separate investor presentation that provides an overview of the business and our recent financial performance. I'd like to remind everybody who's listening on the webcast that the slide in your webcast viewer is a placeholder only. There are no actual slides to accompany the prepared remarks. We also published our historical financial information and supplemental data for the first 2 quarters of 2026, each quarter of 2025, along with the full year of 2024 and 2023 on our Investor Relations website. Additionally, unless stated otherwise, our discussion of our second quarter 2026 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 over the comparable periods of 2025. I'd like to remind you that today's discussion will contain forward-looking statements, including, but not limited to, the company's business operations and financial performance. 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. Actual results could also differ materially from historical results and/or from forecast. 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 3, 2026. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. And with all that being said, I'd now like to turn the call over to Adam Clammer.

Thank you, Andy, and good morning, everyone. As you saw in this morning's release, our Board has appointed Shiven Ramji as Chief Executive Officer effective today. Before I go further, I want to take a moment on behalf of the entire Board to thank Tom Hogan. Tom joined Cellebrite 3 years ago, as Executive Chairman, and we're incredibly appreciative of his impact. Since taking the reins as CEO last year, we further accelerated our platform strategy, expanded into new markets and adjacencies through both organic development and acquisition and build a stronger foundation that positions this company well for the next chapter. Very grateful for everything he's contributed and pleased that he'll continue to support Shiv and the Board as an adviser. I know many of you will ask why Shiv and why now? And this is something the Board has thought about carefully over time. Even after Tom became CEO, the Board recognized that his tenure would likely be limited and Tom candidly acknowledged that himself. A key priority has been to make sure the right talent was in place around him to carry this company forward and Tom played an integral role in recruiting much of the current leadership team. When we brought Shiv on board, it was with the clear understanding that he was for all intents and purposes positioned to be Tom's successor. Shiv ramped much faster than we initially expected, the pace at which we need to build and compete is accelerating. And we believe that's best driven by a product-centric leader who is rooted in architecting scalable, cloud-native platforms that can maximize the impact of AI which continuing to rapidly scale. We are seeing tangible signs that this represents an enormous opportunity for Cellebrite. And the team was emphatic on the last quarter's call about that. Given this backdrop, we felt it was important to make the change now. Looking ahead, my optimism about Cellebrite's future has not wavered. We have a large and growing healthy market. Trusted relationships with virtually every major public sector agency in the democratized world, a differentiated platform and a world-class team that is squarely focused on turning our domain expertise and technology into durable profitable growth. And although this year will be choppier than we would otherwise have anticipated, the platform strategy is working. Growth is increasingly coming from our new products outside of extractions and unlocks. We are well positioned to build on our progress, given these new initiatives and customer adoption. And with that said, I'll turn it over to Shiv.

Thank you, Adam, and good morning, everyone. Echoing Adam's comments, Tom's partnership over the past several months has meant a great deal to me, and I'm grateful for the foundation he's helped build. Cellebrite continues to make a real consequential impact on public safety around the world, and I see a genuine opportunity to build on that. Because regardless of customer segment, the fundamental challenge is the same. How do you compress the investigative life cycle and rapidly obtain trusted insights and actionable intelligence. Given our core competencies in digital forensics and our intimacy with customers' workflows, and our accelerating investments in on-premise capabilities, edge, cloud and AI, Cellebrite is uniquely positioned to turn digital data from any device, any source or environment into actionable, court approved and mission-ready intelligence. All of us here are committed to the hard work and disciplined execution required to enhance our platform and expand our business around the globe. I am excited about the opportunity ahead, but today I want to start with where we are. We did not deliver the ARR and revenue performance we expected in the second quarter. On our last call, we expected a meaningful acceleration in Q2. That acceleration did not materialize at the level we anticipated and we own that. The media shortfall was concentrated in a limited number of large transactions that we expected to close in the quarter, but ultimately moved beyond our anticipated time lines. It's worth noting that for some of these transactions, particularly with U.S. federal and European government customers, we encountered new and additional administrative and procurement requirements related to our current foreign entity status. Additionally, we are also competing for increasingly large and strategic opportunities that now incorporate cloud and AI. These deals involve more stakeholders and, in some cases, longer procurement cycle. But I want to be clear, timing is not an excuse. We need to execute these opportunities better, identify risks earlier and forecasted business with greater precision. Another factor impacting performance involves our Insights digital forensic solution. To be clear, we continue to make good progress converting customers to insights, reaching nearly 65% of the installed base by the end of Q2. However, the ARR uplift from pricing and footprint expansion has been lower than we expected, particularly in the U.S. state and local government sector. So taken together and considering the timing of several product introductions in the second half, we believe the responsible action is to lower our full year ARR and revenue outlook. At the same time, we are raising our full year adjusted EBITDA target, reflecting continued discipline in how we manage the business and prioritize investments. Dave will walk you through the outlook in more detail shortly -- the question I want to address next is straightforward. What do we need to do differently? And our 2 immediate priorities. First, we are raising the standard for sales execution. We have completed a bottoms-up review of our pipeline and our largest opportunity. We're putting greater rigor around qualifying opportunity, customer commitments, procurement milestones, executive sponsorship and cross-functional ownership. Second, we are tightening our forecasting discipline. Pipeline is not performance. Going forward, we will place greater weight on observable customer actions based on the current environment. And within that construct, we will also more explicitly account for the timing and magnitude of prospective large transactions with major government agencies. None of the disappointment around the quarter or the year changes my conviction in the opportunity in front of Cellebrite. There are a number of positive signs that our strategy to broaden our platform and extend our reach beyond our technical digital forensic user base is, in fact, working. Our U.S. federal business had a solid second quarter, and the Defense and Intelligence ARR grew 25%. Our platform is compelling for these customers, and we are now pursuing some of the largest opportunities in the company's history. Our newer offerings are also increasingly contributing to our ARR growth. We saw important adoption of new solutions like Guardian Investigate, Advanced Unlocks and Drone Forensics in Q2, all of which occurred in their first full quarter of availability. Earlier this week, we secured our first major FedRAMP deal for Guardian with 1 of our long-standing U.S. federal customers as part of a multiproduct multimillion dollar deal. This customer placed an initial 7-figure order for Guardian alone that is nearly 35x higher than the average annual spend of roughly $50,000 by SLG agency on Guardian. Genesis, which launched on June 10, generated more than half a dozen customer wins before the end of the second quarter, and that progress has continued into the third quarter. We are pleased to see local police departments, major metropolitan agencies, district attorneys and correctional organizations among the early adopters. Just as important, trials have continued to expand into Q3, and we are extending availability beyond the U.S. into the U.K., Australia and Europe. These are all encouraging signals. But I also want to put them in the appropriate context. Innovation, customer interest, pipeline and product adoption only matter if we consistently convert them into ARR revenue, profitability and ultimately cash flow. That is the operating discipline we will prioritize moving forward. At the strategic level, the opportunity in front of us is much larger than any specific individual products. Every customer we serve is trying to solve essentially the same problem. Compress the investigative life cycle and move from digital evidence to trusted, actionable intelligence faster. Cellebrite has a unique foundation from which to solve that problem. Deep expertise in digital forensic, extraordinary access to investigative workflows and data and growing capabilities across cloud and AI. Our ambition is to connect those capabilities into a broader investigative intelligence platform that can securely turn digital data from devices, cloud sources and other environments into trusted insights customers can act on. And AI will be an important part of that. We are building a shared Cellebrite AI layer designed specifically for digital investigation. Combining forensic context, models and agents with evidence grade controls around provenance, verification, auditability and human oversight. The outcome we care about is not AI for its own sake. The payoff is measured in time, quicker time to evidence accelerated time to insight and ultimately, faster time to action and justice. In the second half, our priorities include enhancing and expanding Genesis. This includes bringing this capability into high security and on-premise environments, and we have already secured an agreement with an anchor customer for an airgap offering. We also plan to extend Carillium into additional law enforcement and enterprise vertical use cases and continue advancing our drone forensics capability. We will invest aggressively where we see the potential for durable growth, but we will do so with discipline. I'll close with a couple of personal comments and observations. First, I want to thank all of our Cellebriteors who take our mission very seriously and are working hard to deliver on another important quarter. Your energy and efforts are truly appreciated by the leadership team, our customers, and our shareholders. In terms of our product and technology organization, [indiscernible] a seasoned Cellebrite product and engineering executive, will assume leadership on an interim basis until we complete our search for a new leader. Throughout my career, I've been fortunate to build successful technology platforms or businesses that created access opportunity and better outcomes for people. What drew me to Cellebrite is that the impact here is unusually tangible. Inside every device and within every piece of digital evidence is a human story, a family waiting for answers, a victim seeking justice, an investigator trying to stop the next crime and a nation working to protect its citizens. For the better part of 20 years, Cellebrite has earned the trust of its customers when the states are the highest and involve some of their most consequential missions. That trust is something I take very seriously. This was not the quarter we expected and we have work to do. As CEO, I accept that responsibility. My commitment to our shareholders is straightforward. We will confront issues early communicate clearly, allocate resources with discipline and continue earning your confidence by setting realistic yet ambitious goals and achieving them through relentless consistent execution and results. I am confident in the opportunity ahead, and I'm energized by the work required to realize it. With that, I will turn it over to Dave, our CFO.

Thank you, Shiv. Q2 represented a quarter with some puts and takes. ARR increased 21% to $508 million, but we missed the bottom end of our guidance range. We are committed to executing better, and I believe we will. As I look beyond the execution, it's important to keep in mind that business model transitions are nonlinear. We have made great strides converting our customers to insights. Equally, we are making great strides with regard to cloud and AI. Our business will become stronger and more durable as customers adopt more solutions across our platform. We are also encouraged that our growth products contributed 25% of the $15 million of sequential ARR increase versus 18% last quarter. . Drilling down, our investment in new products continues to reinforce the value of our platform strategy. This was the first full quarter of availability of our advanced unlocks and Guardian investigate solutions, each contributed meaningful levels of net new ARR and opened up higher levels of spending. For example, given the volume of evidence stored on Guardian Investigate combined with its AI capabilities, it's a product that commands increased price versus Guardian forensics. Another highlight was Genesis, which we launched late in the quarter. The early signs of product market fit are strong. We secured about $400,000 in ARR in the final weeks of June. This product was launched as a consumption product, which provides customers with the flexibility to use as many tokens as they need to compress the investigative life cycle. The initial deals indicate this product will be accretive to our gross profit and P&L. Let's take a look at ARR by geography. The Americas represented 53% of total ARR EMEA represented 34% and APAC represented 13%. In terms of growth rates, the Americas grew 19%, EMEA grew 23% and APAC was a standout performer with 29% growth. Looking a bit closer into the Americas, growth in U.S. Federal accelerated into the mid-teens after being flat at the end of 2025. As Shiv noted, the changing dynamic with insights where customers continue to adopt but we are not capturing as much price and expansion at the time of conversion was most evident in our U.S. state and local government sales group. Last year, this group delivered growth in the mid-20% range. The growth is now just below 20%. Fortunately, we are starting to see the benefits of new product introductions. Without those new offerings, state and local government growth would have been in the mid-teens. Turning to revenue. We reported $131 million, up 16% year-over-year. Subscription revenue was $119.5 million, also up 16% and represented 91% of our total revenue. Our Q2 gross profit increased 16% to $112 million, which represents a gross margin of 86%. Second quarter adjusted EBITDA was $31.8 million, a 24% margin. Our profitability continues to be impacted by a challenging FX environment. Headcount was 1,287 employees at the end of June, which is basically flat with the end of fiscal 2025. We reported second quarter operating income of $29.8 million and net income of $29.7 million or $0.11 on a fully diluted basis. Looking at the balance sheet, we ended the second quarter with $546 million in cash, cash equivalents and investments. For the trailing 12 months, free cash flow was $144.2 million or a 28% margin. Our free cash flow performance reflects the impact of deal structures as well as collections that came in late during the first week of July. As a reminder, our free cash flow last year benefited from a onetime tax refund of approximately $9 million. Overall, we feel good about the underlying free cash flow dynamics and anticipate a stronger overall trend line in the second half of this calendar year. Let's turn to our outlook. We've lowered our full year 2026 ARR guidance range to $550 million to $560 million, a reduction of $15 million at the midpoint. The change to our second half now assumes net new ARR for the second half of the year that is essentially in line with fiscal 2025. There are several primary factors for this change. The outlook reflects moderation in insights conversions, specifically the incremental price and expansion at the time of conversion. There is greater prudence in regards to deal timing due to the administrative requirements we discussed earlier that are elongating deal cycles. And finally, we've removed potential upside from larger, more complicated deals where sales cycles are longer and less predictable in the current environment. Our recent FedRAMP win was a great example of this. It required multiple waivers, security reviews and other administrative approval that in the end, made it difficult to forecast when exactly this deal would close. I'd like to take a moment to bridge our updated outlook for 14% to 16% ARR growth with the growth framework we've previously shared. First, we still expect winning new logos and capturing incremental price will generate several percentage points of growth. Second, we now anticipate that insights will contribute mid-single digits. The third growth driver, Guardian, Pathfinder and Genesis, the cornerstones of our digital investigation and analytics offerings will grow at the lower end of our original expectations in the mid-single digits. We also moderated our expectation for Corillium's contribution to 1 to 2 percentage points. And finally, we remain comfortable about finishing this year with at least 1 point of improvement in our gross revenue retention rate given our performance in the first half. Given the lower ARR range, we've reduced our full year revenue range to $555 million to $561 million, which represents growth of 17% to 18%. We've raised our adjusted EBITDA targets to $153 million to $159 million, which represents a 28% margin. It's important to highlight this outlook contemplates the business absorbing nearly 3 points of FX headwinds from the ILS. We plan to manage our capital allocation thoughtfully while we continue to fund investments critical to durable long-term growth. We remain well positioned to deliver 30% free cash flow margins in 2026 as we move into the seasonally stronger second half of the year. We are increasingly optimistic about our potential to deliver the next step-up in our profitability and free cash flow in 2027 as we demonstrate that we can operate the business without material expansion of the headcount, the FX headwind subside, and new products continue to scale. Our third quarter expectations are as follows: We anticipate ARR in the range of $524 million to $528 million representing net new ARR of $16 million to $20 million. We expect third quarter revenue in the range of $145 million to $148 million, and adjusted EBITDA in the range of $42 million to $45 million or a margin of 29% to 30%. I'd like to close our prepared remarks by reiterating that reducing our growth expectations is prudent in light of the transitory headwinds we've encountered. We don't take that change to our guide lately. There is a lot of good happening beneath the headline numbers. Federal is reaccelerating. Defense and Intelligence is outgrowing the rest of the company. and AI and our Genesis product is off to the strongest start of any product we've ever launched. We remain confident in the long-term opportunity in front of us. and we're focused on executing through the back half of the year to deliver on our updated outlook while setting ourselves up for long-term success. Operator, that concludes our prepared remarks.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question today comes from Shaul Eyal with TD Cowen.

Thank you. Good morning, everybody. Shiv or David, listening to the call, I wanted to ask what gives you the confidence about the growth potential of the business? And I have a follow-up. .

Yes, I'll start. So I think of this year as more of execution reset, not a reset of our long-term growth potential. Like I said, we are seeing good early signals from the work that we're doing in product and also the deal sizes that we are now entertaining. So over the long term, obviously, we are optimistic about the potential of the business, but being prudent about what -- how we execute and over the next 2 quarters. David?

Let me offer a little bit of perspective. I mean when you put the quarter in context, we signed and took down orders probably well north of 1,000. In the end, it kind of came down to 4, and it was 4 that across the line, and it was 4 that involve cloud. It was 1 in particular in Volta platform. You might recall, 1 of these deals, we alluded to last time where they actually called us before we had FedRAMP approval. And even they were a little bit surprised about the changing procurement requirements when you get into cloud and AI and the approvals that we had to secure. And so to be in that spot where a platform order came in, we sold 5 products. Originally, they were just renewing 1 product, and they bolted on 4 more to it, and sort to have a solution like that with a leading agency that's on the vanguard of cloud adoption. I think that's what gives us confidence. I think we've seen cloud transitions and cloud adoption work well in every other part of the economy. There's no reason why it doesn't work well here. The fact that they're adopting cloud, they're adopting AI. And even as Shiv alluded to, we have now customers that are kind of going into on-prem which is a pretty quality -- contemporary and quality business model gives us the encouragement and the confidence.

Understood. As my follow-up, I'm curious with respect to some of the slippage you've seen in EMEA, maybe like in EU countries, and some of the administrative requirements you've mentioned in your prepared remarks. Can you maybe provide us with more color maybe slightly elaborate on that? .

Sure. It's Marcus. Yes, I'll answer that. So in EMEA, we faced a slightly different challenge, which was based around freedom of information. The growth that we have in EMEA that we wanted in Q2 comes from transitioning major European customers, both in Germany and the U.K. to cloud. That required an extra level of vigor that was not made apparent to us at the start is that as information moves into the cloud from investigations that a new EU law is applied for Freedom of information, which meant there was an audit to make sure that any information that we store and process is kept out not only in a sovereign location, but equally as a vendor that we are normalized, we do not get to see that. That was a surprise to both our customers and us, and we had quite a difficult process with legal review to get through that. The good news is we secured 4 of those slip deals already in the quarter, actually all 4 for the cloud. And we now feel confident that we know how to deal with and respond to the CIO's requirements for freedom of information. So that was the explanation for EMEA.

Our next question comes from Mike Cikos with Needham .

On the Defense and Intelligence growth, can you help us by maybe quantifying the magnitude of these elongated sales cycles that you're seeing as well as the conviction you have in the growth from where we sit today over the remainder of the year? And then I just have a quick follow-up. .

Sure. So it's Marcus again. Thanks for the question. Great question. So in defense and intelligence actually delays are less. We actually feel confident about our ability and the nature of those deals, particularly in defense [indiscernible] continues. The delay that we'll call out was more in the civilian side of the federal business, and that was down to 2 things. The first 1 was I have to be honest, that the agencies as they move to cloud and AI do not necessarily have the correct procurement tools to understand exactly how to do that, and you're going to see that message for trade, I think, across a number of vendors. We have a particular additional requirement, which is as a foreign filer, we found that we needed to find other permits, which was new. Our sponsor is a very high-level CIO in the departmental level, was not even aware of something called an FEP, which is a foreign entity permit requirement, which is applied to cloud technology. Since learning that and learning that process, which created a 4- to 5-week delay we managed to secure a master FEP, which means that at a departmental level now, we'll be much more expedited in the processing of our orders. So I want to clarify the DNI is not a slowdown as federal agencies, which are using this cloud transition.

And maybe a question here for Adam. I just prefer to ask you -- if I rewind the clock a year ago, it's when we were saying that Tom was going to be named the CEO, he was the preferred choice. But we're now appointing Shiv here effective immediately, which is part of this planned transition you guys are citing. But admittedly, at least from the external side, we didn't have insight to that. So first, can you can you walk us through like that planned transition? And then secondly, how is the team internally handling that level of change management if I'm thinking about retaining personnel and just the turnover we're seeing in the CEO seat.

Mike, it's Andy. I'll just preface that the Q&A, it was pretty explicit that Shiv, Dave and Marcus would leave the Q&A. I don't even know that, that I was connected at this point in time. So I understand -- we understand the question and we'll endeavor to connect to. But I'll just ask Shiv to provide a little bit of color and perspective there.

Yes. So as Adam had mentioned, this was a planned transition, and both Tom and I have been working on this. And we just accelerated the transition given the opportunity we see with the products in the markets we're operating under. So it just got pushed up much earlier than initially.

Well, Adam is here, and I'm happy to just echo what Shiv said. This was something that when Tom when in his CEO, which we were excited about, and he was excited about he and we and the Board understood that we would start looking for a product-centric CEO and it might take some time to find that person and it might take some time to ramp that person so they could assume disposition. It happened sooner than we all expected. And it really happened with the full support of the entire management team. So we're delighted that all of the direct reports are excited and supportive about Shiv going forward.

We'll take our next question from Rudy Kessinger with D.A. Davidson.

It sounds like in the quarter, there was a number of maybe procurement and permitting and just things of that nature that caught us by surprise. As you look ahead, I guess. Have you done a thorough review, I guess, across regions and agencies, the governments, et cetera, to ensure that there aren't more surprises potentially that you'll uncover in future quarters? And just any color on why in hindsight you guys didn't have your arms wrapped around all of these procurement requirements going into the quarter?

Sure. Great question. This is Markus again. Look, you don't want to be a CRO in a public company with a miss. The first thing, we own that. And of course, if I had known these things upfront, myself and my team, which I believe is an excellent team, would have doubled them. I would say we were in an unprecedented situation as we transition to cloud and AI, where we're having unforeseen things thrown at us. why we feel confident going forward is we have taken a different approach to the rubric that was faced to us and make sure we've applied that logic to our deals going forward, and being incredibly rigorous in making sure that the procurement process and understanding the full entity of the procurement process is now completely understood not only the U.S. government, but also in EMEA and APAC level. . We believe with the highest level of working with some of our lobbyists that we now fully understand the mapping of how USG and EMEA is going to apply to us as a foreign filer and we are now confident that we won't repeat the same issues going forward. And we now have precedent, which is the best thing that we can show evidence to other agencies and other buying entities of how we've been able to transact and met all the requirements of a thrown at us. So what I'm saying is, I think we've learned our lesson, but we're also being prudent in our own to take in consideration that there could be delays.

And we'll take our next question from Jeff Van Rhee with Craig Hallum.