Good day, ladies and gentlemen, and welcome to the Cellebrite Q3, 2021 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I will now like to introduce your host for today's conference, Anat Earon Heilborn, VP, Investor Relations for Cellebrite. You may begin.

Thank you, Justin. Welcome to Cellebrite’s third quarter 2021 financial results webcast. Joining me today are Yossi Carmil, Cellebrite’s Chief Executive Officer and Dana Gerner, Cellebrite’s Chief Financial Officer. This call is being recorded and a replay of this recording as well as a copy of the presentation that accompanies this call will be made available on our website shortly after the call. A copy of today's press release and financial statements including GAAP to non- GAAP reconciliations, as well as supplemental financial information for the third quarter are available on the Investor Relations website at investor.cellebrite.com. Statements made during this call that are not statements of historical facts constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties and other factors that could cause matters expressed or implied by those forward-looking statements not to occur. They could also cause the actual results to differ materially from historical results and/or from forecasts. Some of these forward-looking statements are discussed under the heading Risk Factors and elsewhere in the company's registration statement on Form S1 declared effective by the SEC on October 6, 2021. The company does not undertake to update any forward-looking statement due to future events or circumstances. Please note that in the coming weeks, management will participate in a number of investor conferences as details in today's press release. Please visit the events section of the Investor website to access webcast of our presentations at these conferences where applicable. With that, I'd like to turn the call over to Yossi Carmil, Cellebrite CEO. Yossi, please, please go ahead.

Thank you, Anat. And thank you for joining our call today. This is our first earning call as a public company. But many of you have been following our progress since the beginning of the going public process back in April. And I would -- firstly would like to thank you for your interest and support. We are thrilled to start our journey as a public company by delivering progress on our strategy. And all that together with strong financial results, just to refresh, our strategy is to lead the digital transformation of our customers' investigative units, and becoming a one stop shop digital intelligence leading vendor. In Q3, we continue to see momentum with large and multi solution deals, which we had highlighted earlier in the year. We are pleased to report this quarter 25 deals larger than US $0.5 million, compared with 15 such deals in Q3 last year, including our largest deal ever of approximately US $10 million with the US Federal account. In the first nine months of this year, we had 58 such deals reflecting a growth of 76% compared to the same period last year. That the large deals reflect a successful upsell of additional licenses or new solutions to existing customers, as well as the increase in multiyear term base deals. This momentum is a reflection of the success we have had within the public safety sector as part of the digital transformation process of strategic accounts. And the success in transitioning these customers to the term based model from their prior preference for one time perpetual license, giving their budgetary structure. We are excited to see upsell driven this year by premium. Our high end Collect & Review solutions with new license sales in Q3 to customers such as two federal agencies,…

Thank you, Yossi. Hi, I'm very pleased to present the analysis of our results for the third quarter of 2021. From a corporate perspective, going public may be a milestone quarter for the company. And from a business perspective, we continue to deliver strong financial results that exceeded our expectations in many parameters, demonstrating strong execution on our go-to-market strategy, delivering growth primarily through expansion within our existing customer base. Let's starts with revenue where we enjoy very strong performance in Q3, a clear trend since the beginning of 2021, which we expected to continue in Q4. Total revenue in Q3 was $65.9 million, up 24% from Q3 last year. Revenue for the first nine months of the year was $178 million, up 29% from the first nine months of 2020, well ahead of our expected growth rate for the full year which was 21%. We are also pleased with our ability to deliver these outperform despite the global supply chain challenges, as you know, electronic components are required for the accessories that accompany some of our social distances, and our operations team resourcefully secure their needs for Q3 as well as Q4. Looking at the different revenue streams, we are making our targets to increase the proportion of subscriptions in our overall revenue mix, and subscription revenue was the main force driver in Q3 at 46% year-over-year. We are particularly pleased with the year-over-year growth in terms of licensed revenue, which was 131% for Q3, and 135% for the first nine months of the year. As Yossi mentioned, we are seeing an increase in multiyear deals such deals have an upfront revenue recognition component and the longer deal the higher it is. Therefore, the shift toward the deal contributed to the revenue growth of term licenses revenue and strengthens…

[Operator Instructions] And our first question comes from Shaul Eyal from Cowen.

Thank you. Good morning or good afternoon guys. Congrats on results and guidance. You'll see as we think about the overall healthy trends you're seeing and expressing. When we apply that into your product offering your end to end platform. Is it one product which is standing out rather than the entire portfolio or the strength you're seeing is pretty broad based right now?

Shaul, thank you first of all for the congratulations, highly appreciated. And to your question, I would say that we are, let's saying performing very well in all fronts, but particularly in the Collection and Review piece. And over there with Premium and with Premium Enterprise, the new launch Premium and Premium Enterprise. It is -- we are about to launch the management solution so that's basically not yet in action. We've got Commander, the license management suite, and the investigative analytics. We are growing but nothing is compared to the stage to the success that we had with Premium and Premium Enterprise. I would say that has a specific reason. Because we have to remember that in the field out there, we've got approximately 28,000 UFEDs well entrenched as the primary tool for Collection and Review. The Premium contains specific capabilities, which are related to the highest models of Android and iOS. And obviously there is a wish to get those special capabilities. But under as I mentioned before, pretty much strict security environments. The Premium therefore and based on the fact that I think Dana a one year ago, we have changed the model.

Right.

In an unlimited that was basically well embraced and enabled the much larger distribution of the Premium. And this is before we just as mentioned came with a Premium Enterprise, which has a tremendous impact on the ability of every UFED to get a distributed special unlock capabilities to reach you within the field. And that also improves dramatically, not only the ability of the UFED to get to special capabilities, but also enables the forces to improve their mode of operation rather from slow manual work sometimes entities have hundreds of UFED but only few Premiums. So it really it is they sometimes have to move evidence manually between one location to another. The fact that we bring right now a distributed capability and decentralized with a Premium Enterprise basically solved that issue cost, saves expense and improve the mode of operation. So those are the main reasons that the Premium is over achieving. And we anticipate that it will continue this way the sweet spot of this potential opportunity with Premium and Premium Enterprise are enormous.

Understood, thank you for that. And as my follow up, one of the main discussion points within the technology and non-technology sectors over the course of the past few months, have been obviously supply chain constraints. It would appear from your performance and guidance that you're not supposed to be seen. But just Yossi -- I want to hear how you guys are thinking about it internally.

Dana, would you like to take it?

Yes, so thank you, Shaul. Actually, we've seen those trends more than a year ago, and we started injecting our supply chain methodologies to be able to purchase upfront for a much longer lead time components and as such we have heavily succeeded to conclude Q3, and we will be able also to conclude Q4, with full ability to provide all of our sales need. We actually also stepping into 2022, we say very stronger position. And of course, nobody knows what's going on to be there. But we have a good contingency plan. And we hope we'll be able to continue perform accordingly.

And our next question comes from Jonathan Ho from William Blair.

Hi, good morning. And let me echo my congratulations as well. Just wanted to start out with I guess can you give us a sense of the customer spending environment? Maybe how budgets are these days? And help us understand how to think about potential stimulus from the budget administration?

Dana, to start.

Yes, maybe I would, so especially in the US market and as you refer to the stimulus funds, we are seeing actually the opposite of what we were afraid of which were budgetary cuts, we see enough budgets before customers, what we see is mainly the challenge of a customer to be able to obtain those funds for digital intelligence, although in some cases, many of those stimulus funds were appropriated for crime fighting is due to the increased crime that is experienced in the US now. So our salesforce are actually working with those customers only to allocate those funds to their digital intelligence needs. And we don't see any budgetary constraints substantially on our customers. Yossi, if would you --

I would like to add that we see the contrary. And by the way, thank you for congrats. But one year ago or maybe even two or three quarters ago, there were lots of concerns about police de fund. And now we hear more and more about police refund. And especially in the segment of the state and local in the United States, I'm referring in the US language, 50% of our strategic accounts are North American accounts. So in that context, state and local governments are basically showing a positive context of refunding. And indeed, the US Fed gov is basically created this rescue funds to be used at state level. But it's funny I've been in the US last week as part of our QBR and plans for next year. And those the -- it's unclear that the usage of many of those funds are -- it's not necessarily for technologies, it's all over the place and that there is a little bit un-clarity on that respect. One thing and one trend are clear. We are, if we had concerns, three to four quarters ago, as I said right now it's more in the de funding and in pro funding. And we're pretty much optimistic about that. Also for the future, it will relate to the fact that the PDS, local, states will be the major I would say investment segment of Cellebrite into the future.

Got it. And then just as a follow up, can you give us some additional color on some of the large deal activity that you're seeing? I mean, this is picked up pretty significantly. Can you help us understand how much is coming from upsell to Premium versus how much is coming from new product areas? And how sustainable is your ability to kind of capture more wallet share from existing customers? Thank you.

I would say the following. First of all, one needs to understand that the Premium Enterprise is an upsell, it's a new solution. The Premium Enterprise is not just a feature, or a capability, which is just a new version of the Premium; it's a complete new solution with a complete different distribution system, a dedicated hardware which is completely different, the very smart adopter protected and to come also very soon in auto complaint or on also in a SaaS flavor, which by the way, enable not only strategic accounts, but also small longtail and midsize prime account to get that capability. So first of all Premium Enterprise is a classic upsell. As to the wider item, as we said, from the beginning is we did the journey. And already now, we are pretty much confident and stable with our growth plan. And the growth plan is based on the fact that we are sitting out, take the public safety, we are sitting by 5,000 agencies, out of which round about 250, by the way, going to be a higher number in the beginning of 2022 of strategic accounts. And as we analyzed our penetration level within those accounts, in comparison to the potential that we analyzed mid 2020 was around 20%. So our potential growth within, I would say few hundreds of strategic accounts and mid sized prime accounts is tremendous. And this is why we stand with our forecast or our estimation that on every dollar that we have seen so far in the lab and in the field, based mainly on collection and review. And slowly but surely. And obviously, with services like training academy and the start of the investigative analytics, we plan to see additional $4 from those customers in the coming three years. So it's a one to four ratio. And I have to say that in all the places where we really implement. If you remember my example, during the opening, we don't see a ratio of one to four, when they do DI investigative or digitized investigative decision or digital transformation, it's actually more a one to 10, one to 15, one to 18 ratio. So we are very confident about it. We have a great position in the lab and outside of the lab with collection and review. And with the greater ability to expand with more collection and review selling more to new buying centers, new labs, new fusion centers, and also grow within the investigative flow with investigative analytics and the Guardian the management, which is a key element. So I hope that answers but that's in a nutshell.

And our next question comes from Mike Cikos from Needham and Co.

Thanks for getting me on here, guys. And I appreciate the questions. I have two but the first thing that I did want to come back to just so you're aware, but there was a lot of, I guess, scratching of papers. And then at one point, the earnings call actually went quiet for maybe a couple of minutes, just for so you know, it was during Dana's comments, when you were talking to the last thing I had heard really was the fully diluted share count at the end of Q3 was around 198.5 million shares out. And then it kind of tuned back in right before you provided the updated guidance on calendar '21. And I did just want to call that out because I know that you're trying to provide all these new disclosures since this is your first quarter, and I just wanted to bring that to your attention if you wanted to hash it out again, because the call was quiet earlier. That I just wanted to make you aware of.

Yes, I think yes, I think this is very, thank you very much for that. I think I would just you know, because we know that the account share is very important to analyses. So we'll just say a few words about this. So, we are all clear. So in principle, if you could also see in the presentation, our current count of shares is on a fully diluted basis is 198.5 million shares, which is comprised from 100 million shares and 18.5 million shares underlying will be granted employees options. What I discussed further was the fact that on top of that we have 7.5 million earnout shares owned by Tooling Capital, the sponsor, and 15 million set earnout shares, which are both conditions, reaching certain thresholds of share price and as such are not included in the count. On top of that, there are 20 million public warrants and 9.7 million private warrants that can be added to that. We do believe that maybe for calculation basis, those one should be looked at on a cash basis, which is bring them down to approximately 10 million shares. So that what I had to say, with regard to the shared counts, and I hope it's a little bit more clear now.

It is. Thank you. Yes, go ahead.

The explanation about the guidance. Did you hear that? Were we back by then?

We were. Yes, we had gotten back, right around the time that Dana started to talk about the reach to revenue, with the new midpoint being plus 24% year-on-year and then the adjusted EBITDA the updated range with the 19% margin at the midpoint.

So I think the main issue that was missed there is fair bit. I mentioned that our cash balance is around $172 million, that we are about to spend in the coming few days upon closing the Digital Clues acquisition. $20 million and that we do not expect Digital Clues taking the fact that the close of the deal will be late in Q4 would contribute significantly to the financial results of this year. Nevertheless, I did mention that we in 2022, we expect Digital Clues to have a small positive impact on our ARR and subscription revenue, and incur higher R&D expenses while we are integrating the open source intelligence into our DI platform. As Yossi mentioned in his discussion on the maker, but and I believe then I went to the guidance. So we are now close that one the entire way too far. Thank you.

Yes. Thank you. And thank you very much for the clarification. I was hoping to get just a couple of questions. Since I know we were just clarifying some of the prepared remarks. And the first question I had was actually about this Digital Clues acquisition. I was curious to hear, can you walk us through the criteria that Cellebrite went through when going about its process on a build versus buy in this acquisition? And then the other thing that I wanted to ask you is I know that the acquisition hasn't closed just yet. But what has initial feedback been like from some of your customers? As an example, I'm curious if customers had been pulling you into OSINT or this is somewhere where you had been planning on evolving the DI platform even before the acquisition was announced.

So first of all, to the process, regarding I call it, make or buy. We basically the OSINT, the Open Source Intelligence is a discipline which is emerging on, we anticipate that it will emerge within law enforcement. As part of I would say standard investigations was always on our radar, not always but in the last one and one and half year on our radar. And it was always an element of make, of buy, sorry, an element of buy never an element of make, it's a dedicated discipline. So, in terms of when I look at our non organic growth major criteria, which are mainly basically increasing the span of the digital intelligence, or even the term by enlarging the ability of Cellebrite to be in a wider spectrum of investigation, one criteria, second technical capabilities that we either can do by ourselves that will take long time or cannot and third, customers, it definitely tick the box in the first two. The open source intelligence was for us a clear expansion of the digital intelligence offering I would say the relevance of Cellebrite earlier in the investigation, because every investigation starts with this open source searches before one goes into seizing of any digital device or any digital source. And second, obviously bringing a technology that we do not have so that's tick the box about these two. I started basically already answering the second question, but I will emphasize, first and foremost OSINT is the natural expansion of the AI enabling quick information gathering in early stage of an investigation. And it's basically adding another source of investigative and intelligence data to the DI offering, now the FIT is obviously clear, because when we think about the three main value creation objectives, as I mentioned, then we are ticking these boxes. And I would say that, in terms of the digital intelligence offering, it's definitely something that, I would say, as a standalone, it has a value. But when we integrate that and that's what we are planning basically over time, there will be a roadmap to integration, which will include, among other things, the ability to ingest open source intelligence data into other Cellebrite solution, such as the investigative analytics, the Pathfinder, and enriching data for other Cellebrite collection tools with OSINT data. So I'll stop here. I hope that was clear.

Yes, it was thank you for that. And definitely sounds like a checkbox, especially when you're talking about the TAM expansion provided by that acquisition as well. The other question that I had for you, and I know that we touched on it earlier, but the upsell opportunity really comes into focus, given the number of different agencies that you're touching into already and the fact that we're talking about these very low penetration rates. And I'm curious from go-to-market perspective. Can you remind us how you're talking to these customers? And continuing to help get that cross-sell or upsell across the finish line? Is it just a matter of having subject matter experts that are constantly working with these customers, or what's the process there?

And maybe to refresh, and as you said, we mind we are, I'm talking public sector now. And within the public sector, we have two targeted groups of accounts or customers, and what we call the strategic accounts, those, let's say 250 to 300 accounts. And they are strategic, because we identified first of all a potential growth. And there is a threshold of 750,000 average customer lifetime values in revenue in three years. That's marked them above the rest are below. And there are some hundreds, a few hundreds of mid size prime accounts, which are about to become strategic the way we anticipate that. And then the longtail of the prime accounts, the few 1000 prime accounts of Cellebrite, which are less relevant for the entire digital intelligence platform. The strategic accounts are those accounts were either already decided or about to decide that we anticipate that they decide to do a digital or digitization of the investigative flow and to end that the decision maker will implement that parts. And those accounts will be managed by us with a direct or dedicated account executives, and dedicated in most of the cases technical account manager which is there so the basically, that's so to say four eyes principle in the account management. And on top of that a group of customer success which is nurturing the implementation of solutions within these accounts. And we intend basically to invest the majority in those strategic accounts, make over their all possibilities or make the available budget and the relevant processes in order to create upsell and cross-sell and nurturing more of digital intelligence solutions, and more of each digital intelligence solution within these accounts in existing and within few buying centers within those accounts. So it's a dedicated salesforce account management, technical account management, dedicated account based marketing budgeted for those accounts, unlike the longtail of prime accounts, which are being managed by a group of inside sales in techniques of one to few or one to many. I'll stop here.

And our next question comes from Louie DiPalma from William Blair.

Great. And Yossi, Dana and Anat, good afternoon and congrats on closing the true end merger. Upselling to you said Premium appears to be one of your main near term revenue growth drivers. It seems we are very early in the cycle. Can you provide an estimate for what percent of your UFED base is on, UFED Premium; is it less than 20%? And how many years do you estimate that it will take for most of your UFED base to be on UFED Premium.

Okay. So, in principle, we have signed around 20 Premium Enterprise deals immediately before the end of the quarter. We installed, I believe only two. So that still comprise of a very small number of UFED to be connected to the Premium, we see customers that start not with their full install base, but gradually. So I would say that out of my memory, till now we have around 7% to 10% of the UFED being contracted under UFED Premium to be connected to the UFED premium, some of them are even in the installments phase. But this is a very early stage of introducing UFED Premium. Sorry, Premium Enterprise.

We have to make an order in the house in that respect, first of all positioning, there is no UFED Premium, the UFED, and the 20,000 entrenched. And there is a Premium solution that we are selling to vetted agencies for several years by now, but only few hundreds, in not more than 40 countries, the Premium Enterprise is a new solution. And within that solution, best opportunity to connect the UFED into the Premium and that one as Dana said in an early stage. As you can understand, I spoke about the mode of operation. So far, agencies do few Premiums, and sometimes dozens and hundreds of UFED without the ability to connect them. So the Premium Enterprise which is just at the start right now, I agree with Dana very early stage. That's the upgrade. But there are few Premiums, hundreds of Premiums out there and are not connected to any UFED because that's the nature of the Premium. They are the 1,000, the 28,000 UFED. And the Premium Enterprise, which is coming now, is new solution is the one with the ability to connect all the UFED into the special capabilities.

And what I tried to say this with those deals that we have now in the pipeline, we're talking about 5% to 8% of the UFED when all those deals will be implemented will be already connected to the Premium, to the Premium Enterprise.

Very strong potential of growth.

Very, yes, very strong growth.

First of all, no further remarks for my end besides and before we conclude today call, I would like to thank you all for joining us. And thank you for listening and for your support and wishing you all a nice day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.