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

Okay. Great. Thank you, everybody, for joining us today. For those of you who don't know me, I'm Rudy Kessinger. I cover security and infrastructure software here at D.A. Davidson. And we have pretty much the whole management team from Cellebrite joining us today. We have CEO, Shiv Ramji; CFO, David Barter; CTO, Chris Wade; and VP of IR and Treasury, Andy Kramer. I appreciate all of you for joining. Andy, I'll kick it over to you real quick just for the safe harbor, and then we'll jump into things here.

Yes, absolutely. Thank you very much, and good afternoon, good evening, good morning to those of you who are joining. I'd like to remind everybody that today's discussion will contain some forward-looking statements that include, but are not limited to, the company's business operations, product road maps, 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 forecasts. Some of those 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 so with that said, I'll turn the call and the event back over to you, Rudy.

Okay. Great. Well, Shiv, I want to start with you. I think a lot of investors really appreciate your message of accountability and the need to execute better on the earnings call, and that's kind of where I want to start. As you've been in the CEO seat for a month now, could you share just your learnings about the business as a whole and where the greatest opportunities for improvement and execution lie going forward?

Yes. Good morning, good afternoon, good evening to everybody, and thanks for hosting us. So yes, I spent the past month really a lot of the time was with customers and of course, our teams and leadership. And as you can imagine, I've also spent a lot of time with many shareholders, too. So we've had lots of meetings with that audience. And so some of this is really just a continuation of my first 90 days. And now obviously, I'm spending more time with some of the decisions that are really critical for our growth and making sure that we execute the quarter. So this -- look, stepping back, there's like a substantial opportunity for growth here. I still believe, in fact, my conviction is growing as I learn more and more about our business and our customers. I think we have a really, really big opportunity to have a platform play and becoming a trusted investigative intelligence platform. So I still see the potential of this business growing significantly in the future and also delivering durable growth. So solid top line ARR and continue to deliver on free cash flows. So in terms of like key strengths of the business and some initial observations, I think really impressed by all of our teams. We have a deep technical bench in the company. Our leadership in digital forensics, and this really comes to life when you go talk to customers. So I spent some time in Europe and meeting some customers here in the U.S. and it's pretty clear that they are reliant on our products and services and really want us to innovate more. So strong customer base, strong relationships and that we still have a very strong balance sheet. And I think our evolution is really just going to be moving from -- today, we're a collection of very critical and important products to becoming a trusted investigative intelligence platform. And so we want to continue to deliver our innovation that we started across AI and cloud, and we want to make sure that we deliver on this in the next quarter and then come back to our shareholders later this year to talk about our fiscal year '27 plans.

Got it. That's a great intro there. From here, I kind of want to go in order from your digital forensics business, which has been your core market, where the majority of your business is today and then into your workflow management, analytics and virtualization where you've launched new products. After that, we'll dive into the durability of growth and perhaps some other numbers-oriented questions. So firstly, Cellebrite is the market leader in digital forensics for mobile phones. Is there an update on the competitive landscape you can share there? This has historically been a multi-vendor market, especially when it comes to access and unlocks and Cellebrite, historically, you've been stronger on Android, a bit of a leapfrog on Apple iOS. Just given the improved Android unlock capabilities, is that leading to any share gains with your customers who use both you and your largest competitor?

Yes. So a few things to think about the current digital forensics market, right? So when you -- especially the larger agencies that we have, they are more likely to have a multitude of tools and technology. So typically, they will have other vendors in there. They kind of have to, just given the nature of the work that they're doing. And -- but we've been a primary vendor for mobile phone extraction for well over a decade for lots of our customers. And you can see that, right, in terms of -- this reflects our strength across access, extraction and decoding. And each phase of the examination is really important, and we deliver world-class capabilities in each of these domains. And we do have -- our coverage spans both Android and iPhone iOS, but a little bit about the space is it's a little bit of a cat and mouse game. There are times when maybe we have all capabilities for -- across all of these domains, especially unlocks and extractions and then sometimes our competitors rep. So it's kind of -- it's always shifting and changing. But from a market share perspective, which is what you asked me, we haven't seen anything in our data yet that we have lost any share. And so -- and at least from -- and everything that we track, we are the dominant player in the market. And so that's kind of where we sit and it is still a multi-vendor environment. And then as of today, which we announced earlier, and this is why we have Chris on the call, we have -- we moved our Cellebrite Labs team under his leadership. He's been a domain expert here for a very long time. And so he's spending his time and additional investments to make sure that we continue to have all of the capabilities that we need for our customers across both iOS and Android. And maybe, Chris, you can add a little bit of color around some of these capabilities.

Yes. I think going back to what you said about the testament to our world-class capabilities, Android is extremely fragmented. There's hundreds of different OEMs making phones, and we lead the way with this. We have a phenomenal Android team. And now that I'm leading labs, we're going to continue the investment and expand adding capabilities on AI side. as well as expanding the team. And we ensure that we have the dominance on the Android side and start to push heavily on the iOS side as well.

Got it. And then, Chris, I was planning to segue to you next, but Shiv and Chris, both of you, I guess, here, like there's been a lot of investor questions around AI and potentially enhancing Apple and Android's ability to find and close off the vulnerabilities that you guys exploit to unlock those locked phones. So firstly, there, any change in behavior from the Android and Apple OEMs? And then secondly, Chris, with you having Cellebrite Labs on the mobile research, just can you guys talk about just how exactly you're doubling down on that research and what exact initiatives you have in place to ensure that Cellebrite is a lock on phone regardless of what the OEMs do for many years to come?

Yes. We've seen something similar to this AI life cycle compression a few years ago when fuzzing became very popular. And you see this initial number of bugs like goes through the roof and eventually plateaus. But we noticed this compression, and we're using AI on our side. We've just made a heavy investment in hardware and software on the AI side to combat Apple and Google's use of AI. The next 6 months are going to be very interesting as we see the models evolve, the frontier models just getting better and better. But what we've seen in the last few months is the rate at which new bugs are introduced hasn't gone down. AI hasn't stopped the fundamental problem of bugs in software. So we're seeing the vulnerabilities be patched faster, but we're not actually seeing a reduction in the number of vulnerabilities.

Got it. Super helpful. And then just coming back to the digital forensics more holistically, how much new logo and expansion opportunity remains in the digital forensics business? Or at this point, is it more about providing new digital forensics tools and technologies outside of the lab is -- and then it is still the majority of your growth today. So I guess just how much runway is there in that core digital forensics business?

I'll start quite a bit, and I'll tell you why. We really -- when I -- the more I learn about this business and go deep, we are really deeply penetrated today in what I call like the digital forensics labs, right? So very heavy lab focus. And a few years ago, we started this journey of starting to address other personas and ICPs. So we now have Guardian for investigators. But today, we do not serve prosecutors at all. So we have a very big opportunity here to expand to prosecutors. Corrections facilities are also another -- there's another group of users there where we can provide workflow capabilities. And so just in public safety alone, we both have the opportunity to provide products that improve the investigative workflow. We have products that will serve entirely net new users. And then we want to add capabilities. I think especially with what we've done with Genesis and with AI, it gives us an opportunity to provide a cloud solution, which we have launched. And we're now also working on on-prem or air gap solutions for certain agencies and in specific geographies, they are not ready to use models in the cloud. And so providing a solution that respects their privacy or data rights or sovereignty, then those are amazing opportunities for us. So I think there is quite a bit of wood to chop just in law enforcement and public safety. And then I look at like the other market segments, those are different. Federal is like a really big important focus area for us. We've been investing in with the FedRAMP High authorization. We have lots of opportunity in defense and intelligence. We're just getting started. We actually launched a product about 2 to 3 weeks ago, which was a tactical kit for field for combat in the field. And then we have some very interesting and unique capabilities today serving the private sector customers. It's a very small business today. But I think, again, we have lots of interesting capabilities, some of which include products from the recent Corellium acquisition we've done. So I think you will see a lot more when we go into next year, a lot more around how we plan to serve some of our private sector customers also. So those are kind of separate from our core public safety or law enforcement opportunity.

Got it. Okay. And then shifting to some of those new products you talked about, particularly Guardian and Genesis, but also Pathfinder maybe Corellium too. Just could you talk about the value your customers are seeing in those products, the technical differentiation, the barriers to replication and when you expect those products to become a more meaningful driver of ARR growth?

Yes. So let's start with each separately. So I think when you think of Guardian, Guardian really was our first move into starting to solve for different workflow needs. So moving away from just being a product that is used for extraction to now moving it beyond extraction into kind of the investigative workflow to provide evidence. And so there, when you -- Guardian really is really not displacing any other solution. It's truly -- it's really providing a workflow capability to what is typically a very manual process, like our customers really are moving USB drives and thumb drives around. So Guardian really provides this amazing workflow, both from a storage and collaboration perspective, but then it also allows our customers to use Guardian to kind of digitize their standard operating procedures. So that's Guardian, and there are several modules that we're working on to expand that product set. Then when you think of Pathfinder, this is really a purpose-built on-prem solution. that helps customers analyze mobile phone data for crimes and events at scale. So think when you have to process lots of phones. And this has been really, really powerful. We have some really large public sector customers who have deployed these in different environments. And it's a more technically complex product because it's solving some complex use cases for our customers. And then Genesis, which we launched earlier this year, just a few months ago on June 10, which is -- it's a product that's built from the ground up with Agentic AI at the core. And it can really analyze multiple data sources, including phone data to really help our customers get to actions or resolving specific investigations quickly. And so Genesis has really surprised us in many ways because when we -- when you go to customers and we say, hey, and they start using the product, which we also -- we're also testing something new here, which is we're testing a product-led growth motion. So you can have a 60-day free trial period and then customers upgrade to a paid version. And it's been pretty impressive. I see lots of notes from our customers where they conclude how the product helped them find new leads, how the product helped them get to actions much faster. And then we're starting to see in some cases where customers will start small -- and then as they learn how they're using the credits, they are looking to expand further on our platform. So it's been really interesting to watch that because I think we have a lot to learn there and will certainly be an interesting -- there will be interesting data points there with regards to how they end up allocating budgets for this and also how much AI they start using in their day-to-day workflow. So these are kind of the 3 different products, and each of them are solving different use cases. In the future, you will see all of these products ultimately combine to our Genesis platform. And then you will just get different deployment models with it, right? You can get Genesis in the cloud, you'll get Genesis on-prem. You may even get a version of Genesis on-prem with an FDE or forward deployed engineer because that's also something that we are experimenting with. So that's -- so there will be a convergence here of all of these products into the core Genesis platform.

Got it. Okay. And then I guess in terms of customer segments, defense intelligence, you already noted that earlier in this call. That was a strong grower in Q2. Just what's happening in that segment that is contributing this type of standout performance?

For D&I there -- well, we just have a lot of demand. As you can imagine, globally, the threat vectors are accelerating and devices and digital evidence are at the center of it. So a lot of the demand there has been -- we kind of address this market with our existing product set, which has been great, but we are also getting specific requirements from our customers. They want to see different form factors. They want the ability to have mobile labs in the field, including the ability to create form factors such that maybe everybody, every person who's in the military could potentially carry a Cellebrite device on them for the purpose of extracting intelligence and acting on it quickly. So starting the second half of this year, we acquired SCG Canada for drone forensics. So that hardware product is coming to market at the end of this year in CFID v4. And we launched the tactical kit about 2 weeks ago, which is a purpose-built kit for the military. We have new portable kits in development, which we'll launch next year and including some prototypes of devices that Chris is working on, where they are more portable and anybody can carry those devices with them for the purpose of extracting intelligence. So I think we're being very purposeful in serving this market and are bringing very specific products to address the market needs. I don't know, Chris, if you want to add anything with regards to the new hardware models that we're working on?

Yes. So we're working on, as you mentioned, field portable, battery-powered that don't require any kind of connectivity. They can run in offline or a cloud sync mode and have edge processing capabilities running SLMs on board. It's the first iteration of our next-gen hardware that we're actually designing in-house at Cellebrite. It will be the first piece of hardware that has been end-to-end designed by Cellebrite and manufactured in America. We're pretty excited about it.

Sorry. I want to come back to Genesis. Just double-click on the go-to-market strategy there. It sounds like the free tier is 60 days and then maybe convert customers just -- how is that going? How do you think about evolving that strategy going forward? And then maybe jumping the gun with a question I had for David later just on gross margins. How might that impact the gross margin profile with that free tier and the token-based pricing and things like that?

I'll unmute, sorry. So I think early signals from Genesis are pretty encouraging. I think we had highlighted that we have about more than half a dozen paying customers. And roughly at the last call, we said we're roughly at about $1 million in ARR on that product. And the adoption has been healthy and continued since then. The other good news is we are actually starting to see customers in all major geographies and segments who are excited about this. And so -- and we still have a lot of capabilities to build out. So we have a pretty robust road map. We just did an update about 2 weeks ago where we released a bunch of new capabilities, including a capability called Deep Investigator. So that's been good. And then from a trial perspective, I think we're starting to see -- we continue to see a good kind of progression of trials and into -- and converting them into paid customers. And as we end this quarter, I think we'll have additional trends and insights to build on. But so far, the early signs are pretty encouraging. Dave, do you want to talk about margins?

I do. Thank you, Shiv. Rudy, in terms of our margin structure, you started to bring together the free tier together with paid. And so let me break them back out for you. The way we actually structure is that the free tier does run through sales and marketing in line with all of our peers. And so that free tier is, in part, a commitment to our customers to ultimately adopt AI and also being a very mission-driven company, certainly, all of law enforcement want to make sure that they have access to it. And so part of our mission is just having a robust free tier certainly allows us to be true to our values in terms of making sure that we're doing everything possible to help our customers solve crime. So that element will continue to sit in sales and marketing, and that will be a de minimis element of cost because when you have your hyperscaler contract, you can negotiate specific rates on sales and marketing versus R&D versus cost of revenue. Getting to the cost of revenue component, an AI workload is not as profitable. As you know, you're a great student of our company. We tend to run at about 85% or 86% gross margins. I don't think AI in its first rev will be at that level, no different than probably how cloud started off at a little bit of a lower gross margin. But I think overall, it will be very accretive to the company. And over time, I suspect that gross margin will continue to climb back up.

Got it. Okay. And then just maybe just one more going back to all these new products. Is there anything you can share about just like penetration rates with Guardian? Obviously, Genesis is super new. You said over half a dozen, we know it's very little penetration rate there. But Guardian, Pathfinder, Corellium, how early are you in kind of the cross-sell and expansion playbook with these products today with your customers?

Still early. So -- and I'll tell you what are some block -- what are some of the blockers there. So still very -- I'll start with Guardian. With Guardian, we obviously -- like we are not in all of the regions today, for example. So we want to expand in the regions that we're available in. So you will see increase in adoption with Guardian. We also ran into -- as we had mentioned on the call, with Guardian, we had run into for some markets, Freedom of Information Act. So adoption kind of stalled and was delayed, but we expect that to also ramp up. Guardian is also relevant for the federal market. We didn't have the FedRAMP high authorization. Now we do. So that's going to open up the federal customers for us. And then when you think of like these different users in the case of prosecutors or corrections facilities, we are still building out those modules. So once we have those, we will see greater adoption in the customer base. Genesis is early, but we have launched some new regions. We announced those a few weeks ago, and we'll probably launch additional regions there, too, to continue to capture the market. So we expect that those numbers will continue to grow. But I would say still very low in terms of penetration. It's because we have some work to do on product and on geographies that we're serving.

Got it. Okay. David, I want to pivot to you. I got a number of questions here and really Shiv you as well on some of these. But software stocks, for most on the call know, largely driven durability of ARR growth and confidence in numbers. So I want to hit on both of those. Firstly, durability of ARR growth. How confident are you that the 15% at the midpoint ARR growth guidance for this year is the floor for growth?

Well, I'll say it differently. But Rudy, we gave an outlook, and I think one of the key parts of our outlook was ultimately recognizing that we were seeing deal elongation. And so you saw the announcement this morning in terms of starting to get after deal elongation. One of the things that we communicated today was redomiciling the company. We think that ultimately has a lot of benefits commercially. That is certainly part of the road map almost as we go into next year of ultimately being able to capture that end market. And so I think we ultimately exercised a lot of prudence when we saw that deal cycles were elongating. I think as we kind of communicated and again, as you've kind of tracked, we continue to sign deals and take down the opportunity because cloud and AI represent tremendous opportunities within public safety given the threats that are impacting our communities. And so I'd say we remain bullish on that opportunity. But I think there's certainly a lot of prudence and a lot of humility that went in. And again, I think as you started the call, we took a lot of accountability for Q2 and then ultimately our outlook.

Yes. And then maybe let me just throw a follow-up in there on the re-domiciling. Just can you talk about twofold there. One, process-wise, what is this going to look like, time line, just more details on the process there? And then secondly, you did call out some of those elongated deals, some of those extra loopholes you had to jump through because you were a foreign filer. How much will this redomiciling in the U.S. alleviate or ease those kind of sales cycles with large federal accounts?

We think that over time, it actually has a substantial impact as we go into the '27, and that's why we communicated on our time line that a lot of these activities that we need to perform along the lines of effecting and ultimately perfecting a redomiciliation take a healthy 4 months minimum just to get through the first wave, and then it will take several months thereafter. And so I think that's why we felt confident it would happen in the first half of '27.

Got it. Okay. Okay. First half. Got it. Okay. And then just going back to just where I was kicking off things on the durability of growth. Just what will be the drivers of stability or reacceleration of ARR growth going forward if you had to rank order across your product portfolios or other go-to-market initiatives?

Shiv, would you like to start? Or do you want to weigh in?