Cellebrite DI Ltd. Q4 FY2022 Earnings Call

Good day and thank you for standing by. Welcome to Cellebrite's Fourth Quarter 2022 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sabrina Mathews with Investor Relations. Please go ahead, Sabrina.

Thank you. Welcome to Cellebrite's fourth quarter and full year 2022 financial results earnings call. Joining me today are Yossi Carmil, Cellebrite's CEO; and Dana Gerner, Cellebrite's CFO. This call is being recorded, and a replay of this recording as well as 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 fourth quarter are available on the Investor Relations website at investors.cellebrite.com. Also, unless stated otherwise, our fourth quarter 2022 financial metrics as well as the financial metrics provided in our outlook that will be discussed on today's conference call will be on a non-GAAP basis only, and all historical comparisons are with the fourth quarter of 2021, unless otherwise noted. 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 the actual results to differ materially from historical results and/or from forecasts. Some of these forward-looking statements are discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F filed with the SEC on March 29, 2022, as amended on April 14, 2022. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. Slide number 3 provides the agenda for today's call. With that, I'd like to turn the call over to Yossi Carmil, Cellebrite's CEO.

Thank you, Sabrina, and thank you all for joining us today. I am pleased to report that in 2022, we made significant progress advancing our mission to help our customers modernize investigations by digitizing their workflows. Our results and achievements in the fourth quarter and throughout the past year reflect four important things. First, the market for investigative digital intelligence solutions remains healthy. Second, our leadership position is strong. We have a long, broad runway for profitable growth in a market that remains highly underpenetrated. Third, we executed well on our development road map and go-to-market initiatives. And fourth, thanks to our progress in 2022, we are well positioned to deliver strong results in 2023. Before I cover each of these areas in more detail, I'd like to quickly review our Q4 results and select KPIs that are critical to the health and success of our business. First, our ARR grew 33% year-on-year to reach USD 249 million. Our quarterly net retention rate was 130%. We closed 29 large deals, greater than USD 0.5 million in the quarter. We reported Q4 revenue growth of 9% to USD 74 million, largely attributed to subscription revenue growth of 24%. We delivered Q4 adjusted EBITDA of USD 16.1 million, and we also further strengthened our financial foundation, ending the year with cash and investments totaling USD 206 million and no outstanding debt. A little bit about the healthy market environment. We continue to operate in a healthy market with significant growth opportunities in front of us, thanks in large part to Cellebrite's industry-leading technology. Against this backdrop, we continue to implement our growth strategy of expanding business with existing customers through upgrades, upselling, and cross-selling, and by winning new logos in both public and private sectors. Cellebrite solutions are increasingly attractive today with strong demand and positive feedback from customers and prospects. As importantly, customer budgets for our type of digital intelligence solutions are expected to remain robust in 2023, as they are generally insulated from the broader macroeconomic pressures that are currently impacting a wide range of other technology sectors. In the Americas, which represents 52% of our fiscal year 2022 revenue, law enforcement budgets have historically grown over time, and we anticipate that this trend will continue in 2023. In the U.S., incremental U.S. federal funding for law enforcement agencies of all sizes will support increased staffing and additional resources to help them stay current with the latest evidence-based practices. We expect overall investigative digital intelligence spending by law enforcement and intelligence agencies in other geographies will remain solid in 2023. Cellebrite has built a reputation as a trusted digital intelligence market leader, which is best reflected by our success in increasing our wallet share within existing customers. Over the years, we have leveraged our traditional stronghold in Collect & Review solutions to increase our footprint within digital forensics units by helping them make digital evidence more accessible, intelligent, and actionable. We believe that our newest Collect & Review Premium Enterprise and Premium as a Service solutions are true game changers for customers, and our physical analyzer continues to be the leading review tool in the investigative fields. With ongoing investments in Collect & Review and the addition of new investigative analytics offering like Pathfinder, we are supporting the neutral expansion of our customers' operations and continue unlocking new buying centers to address a growing range of use cases. Our success in upselling and cross-selling into our installed base is best reflected in Q4 in our net retention rate of 130%. This was the 16th consecutive quarter we reported NRR greater than 120%, and we are very proud of our best-in-class retention rates, which demonstrate the power and the value of our go-to-market strategy. We closed 29 large deals in Q4, bringing our 2022 total to 101 large deals, which is 22% higher than in 2021. We expect that winning more business with existing customers will continue to fuel Cellebrite's growth well into the future. A little bit about the product development and go-to-market execution. During 2022, we took important steps to further advance our portfolio of solutions while also investing in the cloud infrastructure necessary to scale our SaaS offering like our Guardian solution. We enhanced our offering by adding new features, capabilities, and functionality that help our customers extract, filter, analyze, and manage data and evidence efficiently and securely. With Collect & Review, the newest version of our Premium as a Service offering was rolled out earlier in the year, and we were pleased to see success in the U.S. state and local government agencies. It is development efforts like this that have helped us address major pain points for customers and underpin our efforts to fortify our longstanding strengths in Collect & Review and extend our reach into adjacent investigative analytics and case management solutions. This past year also marked meaningful investment to expand our global sales force, with an emphasis on strategic account management to improve our effectiveness in the U.S. and in Europe, and we made solid progress. Our sales organization grew by 10% as we put the right talent in the right roles to best serve our customers. This infusion of resources helped us to deliver on ARR, NRR, and large deal targets. We delivered excellent results in U.S. state and local law enforcement during Q4 and gained greater confidence in our ability to realize the growth potential we see in Europe. Guardian is gaining traction in the market with hundreds of new users now benefiting from the simple, secure, and scalable cloud-based solution for investigative and evidence management. We see continued growth ahead for our SaaS solutions, which appeal to a broader range of customers who need to modernize their digital operation but often lack the budgets, IT staff, and infrastructure associated with on-prem solutions. Let's talk a little bit about customer success. I'd like to briefly highlight some of our Q4 deals, all of which demonstrates how Cellebrite technology is helping these customers modernize their operations while expanding our wallet share. In the Asia Pacific region, we grew our longstanding relationship with a regional law enforcement agency, which is now deploying our premium enterprise solution more broadly into the field to help them accelerate their investigations. As a result, our ARR from this customer will grow by more than 50% to nearly USD 1 million and help set the stage for further expansion. In the U.S., a large federal agency selected premium enterprise to augment the use of our UFED solution at regional labs and leverage their AWS private cloud infrastructure to move more capability into the field and operate the mode of operation. This deal increases our ARR from this account by almost 60% to nearly USD 2 million. Earlier I mentioned that our investigative analytics solution, Pathfinder, is enabling us to unlock new buying centers and support customers as they modernize their digital investigative workflows. For example, we closed two large Pathfinder deals in Q4, one of which was a mid-six-figure deal with one of the largest state and local police agencies in the U.S., and the other, a multi-year low-eight-figure deal that triples our ARR with a national law enforcement agency in Western Europe to over USD 4.5 million per year. Both deals showed Pathfinder's unique value in helping law enforcement professionals accelerate investigations by sifting through mountains of digital data to surface the most relevant evidence, discover connections, and collaborate more efficiently. Finally, in the private sector, we closed four notable deals, two with service provider partners and two with Fortune 500 corporate customers. All of these customers purchased Endpoint Inspector to improve overall operational efficiency by remotely collecting data from mobile devices and computers, thereby substantially upgrading costly, time-consuming legacy approaches. In closing, our solid execution over the past 12 months has enabled us to enter 2023 focused on further capitalizing on the vast market opportunity. Digital transformation has clearly reached all industries, and it is here to stay. Our customers, regardless of whether they are national, regional, or local public sector agencies or private sector businesses, are under increased pressure to modernize their investigative workflows in the face of rising volume of increasingly complex data, operational inefficiencies, and greater scrutiny around the ethics and accountability of how digital evidence is handled throughout its life cycle. Cellebrite is playing an important role in enabling our customers to address those challenges. I am confident that from where we stand today, we have the products, the programs, and the people needed to execute and deliver on our 2023 financial targets. We have established a scalable model that will support improved fundamental performance, even as we invest for the future. As we mobilize to capture demand in a healthy market and further fortify our market leadership, our priorities this year are clear. First, we plan to deliver ongoing innovation through state-of-the-art SaaS solutions paired with on-prem offerings that will help customers modernize their digital investigation workflow. This will require sustained investment in R&D across our entire portfolio and in the technology infrastructure that supports it. Second, we will focus on extending our leadership in Collect & Review by advancing our UFED and premium solutions that are used extensively by digital forensic labs. Third, we are broadening our reach beyond our stronghold in the labs by accelerating our progress with high-value investigative analytics and case management solutions that help investigative units move faster and collaborate securely to resolve complex time-sensitive cases. By executing against these high-level priorities, we expect to accelerate our revenue growth rate, deliver improved profitability, and generate strong cash flow from operations in 2023. I would like to take this opportunity to thank my colleagues at Cellebrite for their hard work in 2022 and our continued commitment to making our world safer. I am excited for what lies ahead. Moreover, we remain committed to helping our customers modernize investigations and close the public safety gap. In short, I am confident in our strategic direction and in our ability to capitalize on the attractive opportunities in front of our team. With that, I will turn the call to Dana.

Thank you, Yossi. As Yossi mentioned earlier, ARR grew 33% year-on-year, reaching USD 249 million for 2022. This growth reflects our success on a number of fronts, with the biggest driver being continued expansion with existing customers through subscription licensing. Over the past several years, we have made tangible incremental progress every quarter to convert customers to a subscription model from traditional perpetual licensing. As a result, this transition is now largely complete as we enter 2023. Total revenue for the fourth quarter was up 9% from the fourth quarter of last year and reached USD 74 million. This was driven primarily by strong subscription services revenue growth of 24%. 84% of total quarterly revenue came from subscription services, up from 67% in the same quarter two years ago and 74% in the same period last year. With software subscription services now generating a substantial majority of our revenue, we believe that 2023 will be a year in which the power of our subscription-based business model will become increasingly apparent. Our gross margins rose to 84% in Q4 as compared to 82% from the fourth quarter of last year, benefiting from the increased portion of subscription sales, which carry a lower cost of goods sold. In terms of operating expenses, I will discuss these on a non-GAAP basis, excluding share-based compensation, amortization of intangible assets, acquisition-related expenses, and one-time expenses. Q4 2022 non-GAAP operating expenses were USD 47.8 million in the quarter. As you may recall, the fourth quarter of 2021 was the first quarter carrying full public company costs and was further impacted by the cost from the acquisition of Digital Clues. Our fourth quarter 2022 operating costs reflect prudent spending aligned with our commitment to delivering sustainable EBITDA improvement as well as lower-than-anticipated annual incentives and quarterly variable compensation costs totaling approximately USD 4 million. We ended the month of December with 1,004 employees, up 12% from the end of December last year and consistent with the level at the end of the third quarter. We believe we now have the appropriate teams in place to address the opportunities and challenges to fly ahead in 2023. Adjusted EBITDA in the quarter was USD 16.1 million or 22% on a margin basis. Our Q4 adjusted EBITDA result reflects the strong performance of subscription revenues in the quarter, which contributed to the higher gross margins supported by cost efficiencies while continuing our investment in maintaining our technological and market strong position. Moving forward, we expect to deliver EBITDA growth in 2023, as an accelerated revenue growth rate coupled with prudent spending levels is expected to produce operating leverage. Non-GAAP net income in Q4 was USD 15.3 million, and non-GAAP fully diluted earnings per share were USD 0.08. I'm pleased to report that we ended the year in a strong cash position. We generated cash from operations in the fourth quarter of USD 36 million, a result of a strong quarterly operating performance. For the full year, we reported USD 20.6 million of cash inflows from operations. We ended the month of December with approximately USD 206 million of cash, cash equivalents, and investments versus USD 182 million at the end of 2021. I will conclude my remarks by providing some additional context around our 2023 outlook. We expect our ARR to grow between 21% and 25% to USD 300 million to USD 310 million by the end of 2023. Consistent with prior years, we anticipate that expansions from existing customers will fuel the majority of our growth, with a higher contribution from new logos than last year. We expect full-year 2023 revenue to range from USD 305 million to USD 315 million, representing 13% to 16% growth over 2022. In other words, our 2022 ending ARR of USD 249 million represents 79% to 81% of our 2023 revenue target. When combined with a healthy pipeline and reasonable assumptions around net dollar retention rate, we believe these top-line targets are achievable. In line with historical trends, we expect full-year revenue to be weighted towards the second half, and quarterly revenue growth rates will be higher in the second half of the year versus the first half. These dynamics primarily reflect the wind-down of perpetual license deals and the typical year-end spending activities associated with our U.S. federal customers in September and most other accounts as the December year-end. From a profitability perspective, we expect non-GAAP gross margins to be between 80% and 82%, with non-GAAP operating costs expected to grow in the range of 7% to 11% to between USD 217 million to USD 223 million. We currently anticipate adjusted EBITDA in the range of USD 35 million to USD 40 million, or 11% to 13% of total revenue. While we anticipate higher profitability in each quarter of 2023, we believe the most significant gains will occur in the second half of the year when higher revenue will drive incremental operating leverage. We believe that the investments we are making to advance our product development road maps and go-to-market initiatives will yield attractive returns that support further margin expansion in 2024, and keep us on track to reach our original long-term EBITDA target of 20% or greater. In closing, I would like to echo Yossi's excitement about Cellebrite and what the new year will bring. We are a market leader with innovative solutions targeting a large growing global addressable market. This translates into opportunities to increase penetration into our expansive customer installed base, complemented by ongoing efforts to win new accounts around the globe. With much of the heavy lifting associated with converting our customers to subscription licenses behind us, we expect our top-line growth rate to accelerate from 2022 levels. Just as notable, thanks to the substantial investments we made last year to build out our organization, we are well positioned to convert storage revenue into improved profitability and stronger free cash flow. We look forward to helping investors gain a better appreciation for everything that Cellebrite is doing to create value over the coming months, as we make tangible progress towards the long-term targets we shared when the company went public a year and a half ago. With that, I would turn the call to the operator to open the Q&A session.

Thank you. And our first question comes from Jonathan Ho with William Blair. Your line is now open.

Hi, good morning. And congratulations on the strong results. I just wanted to start out with a couple of questions around guidance. Could you maybe unpack for us the 2023 guidance a little bit more and help us quantify how to think about the growth in revenue or ARR for the specific categories? I think it would be helpful to maybe understand how each of those is going to contribute to your current guidance.

Yes, for sure. I'll take it, Yossi. So if you remember, in 2022, we saw a continuous reduction in our perpetual and one-time revenue from licenses, especially towards the second half of the year. We expect to see continuous weakness winding down of this business to a very marginal percentage of revenue in 2023. When we talk about our growth expectation on our top line, if you consider our 2022 financials, approximately 20% or 18% of the business came from one-time activity whether services or licenses. The part associated with the one-time perpetual will be very marginal. So, most of the growth will come from subscription business.

Got it. Yes, I think my question is more along the lines of what is the contribution from either the core premium products, Pathfinder, collect and review? Like how should we think about the growth rates on a product basis as opposed to the revenue mix?

Most of the revenue from subscription in 2022 came from the collection review. So I would say around 90% plus of the revenue from subscriptions came from collection review. We expect collection review to grow and be very similar also from the subscription business in 2023 because we are seeing very good acceptance and a huge potential with our advanced collection capabilities that have been distributed in 2022, not only through the standalone premium but premium enterprise and in the second half is very good traction of the Premium as a Service. We do expect the investigative analytics and management solution to grow marginally as a percentage of this pie in 2023 compared to 2022.

Great. And then just as a follow-up. I guess, what is giving you the most confidence that the growth will accelerate in 2023? And can you maybe help us understand what's changed versus 2022 or what investments you've made in 2022 to make you more optimistic about that opportunity? Thank you.

Yes. I always said that comparing 2022 to 2021 was actually comparing apples to pears because 2021 was so heavily weighted to one-time revenue recognition of perpetuals. As such, it was very difficult to show the true growth through revenue, and the true growth was presented itself through the ARR growth. Moving into 2023, especially from Q2 2023, the business will be more correctly compared regarding the right mix of revenue types, Q2 of 2022 to Q2 of 2023 and onwards, and we will actually be able to see the growth rates also on the revenue side.

There was also a level of acceptance of the solutions that we brought to market in Q2 and Q3 2022 and how they resonate and grow. As you know, we always have a mix of growing existing products within existing logos, but also to additional buying centers that we have clearly identified, adding new logos which will be strong, especially if I look at the U.S. markets and if I look at, what we call, the long tail sector of thousands of customers in state and local government. Adoption rates of the Premium as a Service were pretty strong in Q3 and Q4. The premium enterprise is well accepted, and the number of endpoints equipped and connected to premium enterprise are growing. I’m pretty confident about the investigative analytics with much more focused, I would say, go-to-market and relying on the success of Q4.

That’s very helpful. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Mike Cikos with Needham & Company. Your line is now open.

Hey guys. Thanks for taking the questions here. The first question I had for you is really more macro in scope, and I believe it was in Yossi's opening remarks around how law enforcement agencies in the Americas have historically demonstrated continued growth of budgets, and that helps give you the confidence that these law enforcement agencies in the Americas can continue to grow their budgets in calendar 2023. Can you, I guess, discuss that a little bit more? And really, what I'm curious is to hear how you've been communicating with your agencies and your various customers and how deep you've gone in your conversations with them to ensure that budgets are continuing to grow? And then the second question, I think, is probably more for Dana, but it's with respect to the sales headcount growth. I know that you guys had said that the sales organization grew 10% year-to-year in calendar 2022. I think that part of the reason why you guys are talking to these EBITDA margin improvement in 2023 is based on a leverage you've spoken about. But can you help us think about what more investment needs to take place in that sales organization, how you guys are thinking about growing headcount in that organization as we look to calendar 2023? Thank you very much.

You are welcome. And thank you for the question. And I hope that you can hear me well. The conversations we currently have in the public sector alone represent more than 5,000 agencies and customers. The number of meetings that we have conducted, post-COVID, ranges between 15,000 to 18,000 meetings with customers, only those accounts worldwide that we manage with a dedicated account executive, with presales and, let's say, visits and engagement with customer success. In those few hundred accounts that we manage directly with a dedicated sales force and presale, there is a very good dialogue on different levels within Digital Forensic Unit management and Investigative and Intelligence level and also among decision-makers at the commissioner level. In all those dialogues, we consistently hear the same thing: more funding. It's not overblown in terms of something we haven't expected, but it correlates with the way we anticipated the allocation of the budget to digital intelligence in the specific section because our customer and industry survey clearly indicates how crucial digital data is within investigations. I'm also glad to say that the go-to tool is mobile, almost double in percentage compared to any other source. Essentially, if the importance of digital data has grown by more than 80% in the past three years regarding investigations, we are confident about this trend, and we also see the increase in the budget ourselves.

As for the sales force, I will hand over to Dana, but before that just to say we are well equipped. We shared with the market the fluctuations we had in Q1 and especially during H1 last year. We already stated in Q3 that we are recovering. We continue with the plan of a mix of sales force, which will manage numerous accounts directly on the SNG side, on the federal side. We also have a sales force ensuring we secure new business and recurring revenue from what we call the Southern long-tail climb. We are very proud of the sales team members who joined in the second half of 2022. When we say that we are well equipped, that means that they are now fully onboarded, and we expect them to monetize their experience by bringing the right deals in place. We do not expect to substantially grow the team in terms of numbers; it was really about getting the right people and the right quality to generate the revenue we expect for this year.

Thank you. And our next question comes from Tal Liani with Bank of America. Your line is now open.

Hi guys. First, I want to congratulate you on the much better tone this quarter compared to the two previous quarters. I'd like to ask you about the change. Last quarter, 2Q was weak. 3Q was mixed on foreign exchange, and you reduced the guidance for Q4 by USD 4 million. Now you're beating the numbers by about USD 3 million. Could you talk about what changed from the previous guidance that you gave, that you're beating the numbers by USD 3 million versus the USD 4 million reduction before? How much of it was foreign exchange? I know it was a tailwind for Israeli companies. Can you discuss the environment and the differences from last quarter?

Sure, Tal. And first, thank you for the kind words. We reduced our guidance during the Q2 earnings call. Indeed, Q3 was very mixed with the devaluation of the dollar against European currencies and the Israeli currency that had some impact on our forecast. When we said that we'd be under target at the end of Q3, we assumed that this trend would continue. Luckily, or unfortunately, or whatever it was, the currency mix remained essentially the same until year-end. Therefore, we managed to meet our targets and even exceed the lower end of the targets as we anticipated in Q3. From a top-line perspective, our ARR was slightly better than expected, directly attributed to the very well acceptance of our Premium as a Service, which contributed mainly to the ARR, lesser to the revenue because of it being a SaaS solution. We took a very hard look into our OpEx and executed a cautious approach towards expenses, including some adjustments and the true-up of variable compensation to align with actual results compared to our beginning of the year targets.

How do I think about the difference in trends? Two things. First, can you repeat your long-term targets given 1.5 years ago? Just repeat them so we have it in front of us? Second, how do I think about the difference between the trends in ARR and in revenues? Revenues are accelerating. ARR, you grew in 2022 about 33%. You're guiding to about 1,000 basis points below that, so it's decelerating. What's the difference in trends?

Out of memory, our long-term ARR targets were 22% to 27%, while our revenue targets were 20% plus. What we said is that during this transition from perpetual to subscription, we'll first see the growth coming in the ARR and later in revenue. For the mid-long term, we'll see revenue and ARR trending the same. For that reason, we expect our revenue growth to be above 20% towards the end of this year, 2023. We would see ARR getting closer to revenue growth from a perspective as it reflects the revenue growth, which is mostly subscription.

Great. Thank you.

Welcome.

Thank you. One moment for our next question. And our next question comes from the line of Douglas Bruehl with J.P. Morgan Chase. Your line is now open.

Hey. Good morning and thanks for taking my question. Since you had about 15 points of operating margin expansion quarter-over-quarter, can you talk about the biggest drivers and maybe some commentary on timing for those OpEx cuts?

The biggest OpEx reductions stem from two drivers we managed. In Q4, one was by not growing our headcount between the end of Q3 and Q4. We believe we've reached the right number of people to meet our targets by the end of 2022 and to start 2023. The second was related to our variable compensation costs, which towards the end of the year aligned bonuses and commissions with actual top-line and bottom-line results, leading to a one-time reduction of USD 4 million in costs for the quarter.

Okay. Great. Thank you.

Welcome.

Thank you. One moment for our next question. Our next question comes from Jamie Shelton with Deutsche Bank. Your line is now open.

Good morning and thanks for taking my question. I wanted to get your view on the potential combination of Magnet Forensics and GrayShift by Thoma Bravo. What does this mean for Cellebrite from a competitive landscape perspective? Thank you.

I would say the following. First of all, the potential merger should highlight the opportunity in the sector. It is a clear statement that our market is attractive, first and foremost. We are larger as a company than the combination of these two businesses, and Thoma Bravo basically took two companies, valuing them at around USD 2 billion, signaling the market's attractiveness. In many ways, I would add that we are not surprised; the two companies have collaborated for several years. This competitive landscape remains good for us. We have our own way, our own path, and our own roadmap. Looking at the rationale for the merger, one reason given was about mobile extraction capability, which is critical—something that we have—which shows how strong the mobile category is. We combine in our offering what these two players bring together. We continue to invest in our solutions and expand our positioning in the market. We've built an international footprint to support our business both in the U.S. and outside the U.S. We believe that we can create more efficiencies. All in all, we embrace the move because it is beneficial for our industry, and we are confident in our direction.

Thanks very much.

Thank you. Our last question will come from the line of Louie DiPalma. Your line is now open with William Blair.

Yossi, Dana, and Andy, good morning.

Good morning or good afternoon, Louie.

Indeed. Yossi, you announced 29 large deals in the fourth quarter, including that USD 14 million deal with the agency in Singapore. What does the pipeline look like for large deals in 2023? In general, are your deal sizes increasing as more customers adopt your premium enterprise and other investigative analytics services?

I'll take that. The number of larger deals is growing and will continue to grow, and this is reflected in the size of Cellebrite's go-to-market focus on increasing wallet share within existing accounts. This primarily concentrates on the strategic accounts in state and local government, related to the federal side. We see growth within the account by nurturing relationships and providing our complete digital intelligence suite of solutions, leading to more budgets and larger deals. Importantly, we are also expanding into new logos, particularly in the long tail of state and local government customers. This provides us with a balanced environment as we are not dependent on a few customers or few large opportunities. We maintain a robust foundation while exploring larger deals. Finally, the larger deals - specifically those above USD 500,000 - show increasing average size from a dollar perspective. So certainly, we do.

In principle, yes, we have seen an increase in the average mix for those larger deals in the last few quarters.

Excellent. Thanks everyone.

Thank you.

Thank you all for participating, and I appreciate your interest and questions. Again, I would like to emphasize our commitment to delivering results and creating shareholder value, as well as the industry we serve. I would like to thank again the Cellebrite employees for their efforts in 2022, and thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.