Welcome to the Cellebrite Fourth Quarter and Full Year 2024 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. 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, Jim, and welcome, everybody, to Cellebrite's fourth quarter and full year 2024 financial results call. I'm joined today at our headquarters just outside of Tel Aviv by our primary speakers, Tom Hogan, Cellebrite's Interim CEO; and Dana Gerner, Cellebrite's CFO. Ronnen Armon, our Chief Products and Technology Officer; and Marcus Jewell, our Chief Revenue Officer, will be available during the Q&A. There's a slide presentation that accompanies our prepared remarks. Please advance the slides in the webcast viewer to follow our commentary. We will call out the slide number we're referring to in our remarks. The call is being recorded, and a replay of the recording will be made available on our website shortly after the call, along with the transcript of the event. Now let's start with Slide number 2. A copy of today's press release and financial statements, including the GAAP to non-GAAP reconciliations, the slide presentation and the quarterly financial tables and supplemental historical financial information for each quarter of the past three years are available on the Investor Relations website at investors.cellebrite.com. Also, unless stated otherwise, our discussion of our fourth quarter and full year 2024 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 are with the comparable periods in 2023. In addition, please note that statements made during this call that are not statements of historical fact constitute forward-looking statements. All forward-looking statements are subject to risks and uncertainties and other factors that could cause matters expressed or implied by those forward-looking statements not to occur. They could also cause actual results 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 21, 2024, and as amended on April 12, 2024. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. Slide number 3 provides an agenda of the topics that we'll cover on today's call. And with that being said, I'll now turn the call over to Tom Hogan. Tom?

Andy, thanks, and thanks, everyone, for joining us today. As most of you know, I assumed the role of Interim CEO effective the start of January. I'm pleased to share that Cellebrite delivered a solid fourth quarter to cap a strong 2024 in which we exceeded our original revenue and adjusted EBITDA targets and delivered at the higher end of our ARR expectations. Dana will review our quarterly and annual financial performance in detail, but at a high level, Slide 4 helps illustrate our continued success in expanding share of wallet across our installed base and converting that top line growth into year-over-year improvements in our profitability and free cash flow. On a full year basis, we delivered a Rule of 50 performance in 2024 with 25% ARR growth and 25% adjusted EBITDA margins, which is also at the high end of our committed Rule of X range of 45% to 50%. Strong fundamental performance has once again resulted in another solid year of cash generation with $122 million in free cash flow in 2024. As a cloud-ready AI-powered market leader with a true end-to-end platform for accelerating justice, the opportunity to help our customers make their communities safer while fueling further value creation at Cellebrite remains significant. With multiple macro tailwinds, we believe there are no signs of fading, and we enter 2025 with a commitment to sustain top line growth and to generate attractive profitability and free cash flow. Dana will share greater detail about our 2025 outlook in a few moments. In the meantime, I'd like to focus the balance of my commentary on key developments to start this year as well as Cellebrite's top strategic priorities for 2025. Let's start on Slide 5 with a topic that I'm guessing is top of mind for many of you, the status of our CEO search. As previously shared on our last quarterly call, we're working with a Tier 1 executive search firm that has the global remit to surface exceptional candidates. Our priority remains a proven leader with SaaS, cloud and AI software expertise, a global track record, prior exposure to the public sector and preferably domain-specific expertise. Interest levels have been high given the unique position of Cellebrite as a high-growth market leader with equally strong cash flows and I think perhaps most importantly, a clearly mission-driven organization. We remain highly selective as we seek an executive whose profile is commensurate with the growth impact and quality of this company and pleased with our progress thus far. In the meantime, I jumped in as CEO on Jan 1, and I can promise you we're moving with continued pace and urgency. I've had the opportunity to lead three companies as the CEO and have held senior leadership positions at several other market-leading firms, but I can tell you with complete conviction, there is no other organization I have been prouder or more pleased to lead. Every man and woman at Cellebrite, from the Board down to our newest hires, is committed to accelerating our journey. Cellebrite is executing and is truly making the world a better, safer place. Simply said, while we're all looking forward to the appointment of a new world-class leader, we aren't waiting for that event, and we're operating with the speed that our customers, employees and stakeholders expect. I want to briefly highlight a few other important milestones since our last call. First, we relaunched an expanded customer advisory board. This forum brings together 12 to 14 senior level decision-makers at some of our largest and most innovative customers to discuss topical forensic and investigative challenges, review trends, policies and best practices, and explore emerging technologies. We held our inaugural meeting in December in Washington, D.C., and we'll host similar sessions this year in the EMEA and Asia-Pac regions. Second, in early January, we announced an important change to the structure of our Board. In keeping with the governance best practice of separating the Chairman and CEO duties, Adam Clammer, Managing Partner of True Wind Capital, a former Lead Independent Director has assumed my former role as Board Chairman. We also announced the appointment of Michael Capellas as a new Director, assuming Adam's prior role as our Lead Independent. Most of you will know Michael's distinguished track record as a technology leader, having led organizations like Compaq and MCI as the CEO as well as serving as a director on multiple global leaders, including his current role as the Lead Independent Director at Cisco. Aside from his general management experience, Michael brings two specific skill sets that I think will be invaluable to our next chapter. As a legacy CIO, Michael brings to the Board unique technical depth and perspective. And just as important, his history of driving corporate strategy will complement the strengths and skills of our current Board. To further leverage those skills, our Board this week launched a new technology and strategy committee, which Michael will chair, with Adam Clammer and Troy Richardson as committee members. Third, we hosted our annual sales kickoff event in Orlando in late January. Nearly 400 Cellebrite employees, including many of our most recently hired sales representatives attended this event, which included keynote from one of our many important partners, Amazon Web Services. The energy and excitement, as you would expect, were palpable, and the event was a great start to our 2025. As we look forward to 2025, we'll maintain the majority of our priorities while complementing and augmenting them with new and important events and areas of focus. On the event front, we're very excited about the launch of our inaugural Case-to-Closure Summit. This Cellebrite user conference will convene roughly 500 law enforcement, intelligence and corporate clients from around the world. The event will take place in late March in Washington, D.C. and will deliver hands-on training, educational workshops and insights from industry experts covering best practices and emerging trends. We believe this event will be a seminal moment in Cellebrite's history and a harbinger of the trusted influence we bring to digital investigations. Slide 6 outlines our 2025 priorities. We'll continue the migration of our digital forensics installed base to the Inseyets product suite. 2024 exceeded our expectations from both a financial and client satisfaction perspective. We closed 2024 with roughly 20% of the installed base migrated as compared to our initial goal of 10% and enter the new year with the objective of increasing this figure to roughly 50-plus percent. More importantly, the early feedback from migrated clients has been exceptional with most reporting significant improvements in the speed and efficiency of their investigative processes. Our Inseyets migration is also driving important growth with increased attach rates for our unlock capabilities. Our unlock penetration increased to the high 30% range at the end of 2024. Second, as we mature the power of the C2C platform, we're focused on the growth of our Guardian and Pathfinder solutions. Guardian is a key offering within the Cellebrite Cloud platform, which is rapidly gaining traction with investigators, analysts and prosecutors. As part of the Cellebrite Cloud platform, Guardian offers management, review and analysis of digital evidence while protecting the chain of custody and meeting stringent data integrity requirements. Our Guardian ARR generated triple-digit percentage growth year-over-year for the second quarter as the number of customers with both Inseyets and Guardian nearly tripled, and the volume of stored data quintupled. Pathfinder, which is our AI-enabled analytics solution, also delivered strong results in the quarter with year-on-year ARR expansion in line with expectations of growth in the 35% to 50% range. This asset is critical to investigators as they navigate the mountains of digital artifacts needed to identify high-value patterns, connections, and other evidential insights that are next to impossible to glean quickly through manual review. On the technology front, we'll continue to leverage our investments in the cloud and AI, which we view as critical for driving broader adoption of our solutions. ARR from our cloud-based offerings nearly doubled to 17% of total ARR in 2024. Aggressive expansion of cloud-based ARR over the coming years will bring multiple benefits to both our clients and our shareholders. AI is an equally critical technology for investigations, enabling greater speed, efficiency, and efficacy. We've been at the forefront of AI for over a decade, but see an enormous opportunity to advance our mission and our value as we further expand our capabilities. To that end, we announced just last week powerful new GenAI features for our Guardian solution. Next, we continue to invest in accelerating our growth within the US federal sector. This sector delivered strong results in 2024 with ARR growth in the mid-20% range. We expect that with our recently formed Cellebrite Federal Solutions unit and its associated clearances, we'll continue to sustain solid growth through 2025 while expanding pipelines that will position us for acceleration in 2026 and beyond. A great example of the potential pipeline expansion involves our FedRAMP initiative, which enables the Cellebrite cloud platform to meet the US government's demanding security and technical requirements. We've made important progress on this front, having announced just yesterday that we achieved FedRAMP-ready status at a high-level designation, which is reserved for only the most secure and rigorous suppliers. We're focused on achieving the final milestone of full authorization within the next one to two quarters. We'll also maintain our important footprint in the private sector, where Cellebrite's data collection solutions help enterprises and service providers advance corporate investigations and eDiscovery. We're encouraged by early progress in expanding our sales pipeline through our exclusive partnership with Relativity, along with the broader adoption of our Endpoint Inspector offering. In addition to these areas of focus, we've launched a company-wide initiative to elevate the customer experience and to modernize our processes throughout the customer lifecycle. We're advancing a range of programs, including investments in new systems, incentives, dedicated and focused resources and new processes. Over time, we believe this effort will drive improvement in multiple metrics like time to value, agility, contracting ease, post-sale support and more, all things that should ultimately drive continuous improvement in our gross retention rates. To be clear, these metrics are already strong, but we're confident with added focus, we'll have the opportunity to deliver further gains. I would add that all of these investments are fully contemplated in our 2025 outlook. Ultimately, we expect this initiative will enable the scale we aspire to while protecting the service levels and trust we have built over the past two decades. Finally, underpinning these priorities is the ongoing commitment we make to support our most important asset, the passionate and committed men and women at Cellebrite. Our goal is to extend Cellebrite's reputation as the place to be in enterprise software. Let's turn to Slide 7 for the conclusion of my remarks. Cellebrite continues to execute. We remain positioned as the market leader in an important segment with sustained macro tailwinds. Crime persists and the use of digital technologies in the pursuit of crime and violence continues to escalate. Headcounts in justice remain constrained, while attrition rates and law enforcement remain high. There's only one solution to closing this chasm, which is the application of advanced technologies. Our outlook for the coming year reinforces our conviction that linking our technology with the brave professionals dedicated to justice is the clear path forward. I want to thank our analysts and shareholders for their continued trust and support. I also want to thank my colleagues at Cellebrite for their hard work, commitment, and for their warm welcome as I transition from Chair to CEO. We're all inspired every day by the good we do, democratized nations around the world depend on all of us to accelerate justice, and we're energized by that challenge. With that, I'll ask Dana to take you through the details and outline our commitments for 2025. Dana?

Thank you, Tom. Well, I'm excited to walk you through the drivers that supported our Rule of 50 performance in 2024. This is the type of balanced mix between top line growth and profitability that we envisioned when we went public in mid-2021. More importantly, I'm pleased that our outlook for 2025 is aligned with our long-term objective of consistently delivering a Rule of X performance between 45 and 50. Let’s start our review on Slide 9. In addition to reviewing our fourth quarter results, I will highlight our full year performance when appropriate. Our ARR grew 25% year-on-year to $396 million, largely driven by increased spending within our installed customer base. As noted on the slide, our gross retention was approximately 92%, which reflects a notable meaningful improvement over 2023 due to a lessening impact associated with our voluntary exits from certain markets in prior years and strong public sector renewal rates, most notable within our US federal customers. Geographically, the 2024 ARR mix was in line with the prior quarters and mirrored the full year revenue mix. The Americas represented 54% of total ARR with EMEA at 34% and Asia-Pacific at 12%. In terms of growth rate by geography, the Americas grew 29%, thanks to a strong finish with our federal, state, and local and Latin America customer segments. ARR grew 31% in Asia-Pacific region, followed by 18% expansion in EMEA. Let's turn to Slide 10 to dive a little deeper into the ARR growth drivers from a product family perspective. This slide also highlights several specific deals that help contribute to our growth. As reflected in the chart, it's clear that Inseyets continue to be the single largest contributor to Cellebrite's ARR growth in absolute dollars. As Tom noted, within Inseyets, we continue to experience very strong demand for our offering as examiners used to locally access the most advanced smartphones. All three of the deals on this slide involve customers who upgraded to Inseyets while leveraging our advanced unlock technology. We are also pleased to see certain customers expanding their use of Inseyets beyond traditional lab environments out into the field. And just as important, we made good progress with cross-selling and upselling Guardian and Pathfinder into existing and new buying centers within our installed base. Two of those deals reflect the growing interest we see in our broader C2C portfolio. On a combined basis, ARR for Guardian and Pathfinder grew close to 50% in 2024, and the top areas are now approaching 10% of our ARR on a combined basis, up from the mid-single digits only just one year ago. Turning to Slide 11, we delivered fourth quarter revenue of $109 million, enabling us to finish '24 with full year revenue of $401.2 million. The 17% growth in total Q4 revenue over the same period last year was primarily fueled by a 28% increase in subscription services and a 21% increase in total subscription software. Cellebrite's 2024 full year revenue growth of 23% was primarily driven by a 26% increase in total subscription software augmented by modest growth in nonrecurring hardware revenue and partially offset by flat professional services revenue. Consistent with historical trends and our expectations at the start of last year, we generated 54% of our total '24 revenue in the second half of the year, and I will make sure to cover our business seasonality in the context of our '25 guidance. Let's move to Slide 12 for a review of our non-GAAP gross margins and non-GAAP operating expenses, which exclude share-based compensation, amortization of intangible assets and acquisition-related expenses. Our Q4 gross margins of 84.4% reflects slightly higher incremental costs for hosting and the impact of increased hardware sales associated with Pathfinder deals and Inseyets adoption. Our full year '24 gross margins were at 85%, up from 84.2% in the prior year, due primarily to the growth in high-margin software as well as improvements within our professional services. In terms of operating expenses, Q4 operating costs were $65.1 million, a 13% year-over-year increase. This primarily reflects higher personnel costs across research and development as well as sales and marketing and increased IT expenditures associated with scaling our business. For the year, operating costs increased 14%, primarily due to increased personnel costs, higher spending on marketing activities, and a greater investment in mobile research programs. We ended '24 with 1,167 employees, which was in line with our plans entering the year. We are currently planning to expand our workforce by approximately 15% in 2025. Slide 13 reviews our profitability and cash position. We generated meaningful operating leverage for both the quarter and the year. We delivered Q4 adjusted EBITDA of $28.8 million or a 26% margin. The year-over-year improvement of 2 full percentage points primarily reflects solid gross margins and prudent spending across the board. For the full year, our adjusted EBITDA of $99.4 million grew 60% from the prior year, enabling us to produce a 24.8% margin, a significant improvement from the 19.1% in '23. Our Q4 non-GAAP operating income was $26.9 million with non-GAAP net income of $26.1 million or $0.10 on a fully diluted basis. It's worth noting that our average weighted diluted shares outstanding for the Q4 grew 21% due to the combination of the warrant redemption and the vesting and issuance of shares tied to various price triggers. For 2024, we generated non-GAAP operating income of $92.1 million, full year non-GAAP net income of $97.8 million or $0.42 per diluted share. We delivered a 50% increase in diluted EPS despite a 10% increase in our weighted average number of diluted shares outstanding, resulting from various capital markets milestones in the second half of last year. We ended 2024 with $483.8 million in cash, cash equivalents, and investments, an increase of $70.2 million from the third quarter and an increase of $152 million from year-end 2023. Free cash flow for the fourth quarter, which we define as the net cash provided by operating activities less capital expenditure and the purchase of intangible assets, was $61.7 million, a 59% increase from last year's Q4 due primarily to strong fundamental results and effective management of our working capital. For the full year, our free cash flow was $121.5 million, a 29% increase over the prior year. Now let's move to Slide 14 for our outlook, along with some insights on the factors and trends that we believe will shape this year. As a reminder, we have historically generated the majority of our ARR, revenue, and adjusted EBITDA in the second half of any given year, and we anticipate that this seasonality will continue to shape the complexion of Cellebrite's 2025 performance. More specifically, our 2025 ARR expectations range from $480 million to $495 million or a 21% to 25% increase over '24. This reflects our expectations for continued progress in several dimensions such as upgrading customers who use our legacy digital forensic solutions to Inseyets, further growth for our cloud-based solutions, and increased penetration of Guardian and Pathfinder. For the first quarter, we expect solid ARR growth despite a couple of transitory headwinds. First, as you know, we set a high bar for ethics and integrity in terms of where we conduct business. Our decisions to exit certain countries are expected to modestly impact our first quarter results, and this has been factored into the Q1 guidance. Nevertheless, given the broader strength of our customer relationships, we see potential to drive modest continuous improvement in our retention rate in 2025 against the 92% level we reported in '24. Second, although we review certain and ongoing geopolitical changes in the US and elsewhere as a potential net positive for Cellebrite over the next several years, the timing of these real-time regime changes is expected to modestly delay Q1 purchasing activity within certain agencies. Again, this dynamic is fully contemplated within our Q1 outlook. Even with these short-term headwinds and normal seasonality, we still expect ARR to grow between 22% and 24% to $406 million to $411 million in the first quarter. We expect full year 2025 revenue to range from $480 million to $490 million, which represents 20% to 22% growth over '24. We anticipate that growth from subscription software will be complemented by modest expansion of nonrecurring professional services and hardware sales. We expect Q1 '25 revenue in the range of $107 million and $112 million, which is 19% to 25% higher than the first quarter of 2024. In line with historical trends, we expect approximately 53% to 55% of full year revenue to be generated in the second half of the year. These dynamics primarily reflect our expectations for product mix in conjunction with the timing of typical year-end spending activities associated with our US federal customers in September and most other accounts at the December year-end. We expect our 2025 gross margins to be in the 84% to 85% range as we increase the investment required to build out the hosting infrastructure to further scale our SaaS offering and expand our customer success organization. We anticipate 2025 non-GAAP operating costs in the range of $295 million to $310 million with a relatively moderate sequential increase from Q4 '24 to Q1 '25. We are focused on maintaining a very attractive profit profile. We expect 2025 adjusted EBITDA in the range of $113 million to $123 million or 24% to 25% of total revenue. We expect higher adjusted EBITDA and higher adjusted EBITDA margins during the second half of the year, which aligns with historical trends in our 2025 top line outlook. We expect Q1 adjusted EBITDA ranging from $22 million to $24 million, which supports year-over-year margin improvement to approximately 21%. In terms of our weighted average diluted share count, we expect Q1 to be approximately 250 million to 255 million shares with 255 million to 265 million outstanding for the full year. In summary, we closed a very successful 2024 with a solid fourth quarter performance. We made considerable strategic operational and financial progress in 2024, the combination of which leaves us well positioned to sustain our momentum into '25. We move forward focused on capitalizing on the opportunities we see to further expand our business in ways that we expect will drive long-term shareholders' value. That concludes our prepared remarks. Operator, we are now ready for Q&A.

Our first question today comes from Shaul Eyal at TD Cowen. Please go ahead.

Thank you. Good afternoon, Tom, Dana, Andy. Good morning. Congratulations on the consistent execution and strong outlook for 2024 as well as the initial guidance for 2025. Tom, I appreciate the update on the CEO search. Can you provide more details on how that process is progressing? Given the interim nature of your current role, have you already met with potential candidates, or what is the current status? Additionally, many US-based companies focused on cybersecurity have expressed concerns over growing uncertainty related to federal and government spending due to the incoming administration. However, it seems that this concern has had little to no effect based on the commentary and the results we’ve seen. Can you share what your customers are telling you about this topic? Thank you.

Let me address these questions in order. As I mentioned 90 days ago, since I joined 18 months ago in the Executive Chair role with a commitment to a 50% workload, I've been closely working with Yossi and the executive team, which has allowed us to be very thoughtful and selective in this transition. We are committed to this process until we find a world-class leader for Cellebrite. Regarding your question, the search firm likely identified over 150 potential candidates, which were narrowed down to 30 to 50. We have interviewed at least a dozen, and most of them are qualified for the role. We are optimistic about finding a candidate that fits all our criteria. However, I cannot provide a specific timeline for this process, as it depends on both parties involved. As for your second question, there are modest headwinds affecting us, not just in the U.S. We have seen some changes and disruptions in other countries in Europe contributing to these headwinds. I understand you might be wondering why we face challenges when other companies like Palantir have reported strong numbers. I want to emphasize that we believe these changes will create opportunities and advantages for us once the situation in Washington stabilizes, especially concerning issues like fentanyl trafficking and border control where Cellebrite can make a significant impact. While there has been disruption in leadership at key agencies, the opportunities we see are strong and we are confident in closing these transactions.

Thank you so much. Good luck. Appreciate it.

Our next question comes from Bhavin Shah at Deutsche Bank.

Great. Thanks for taking my question. Tom, earlier in your remarks, you spoke about kind of launching the Executive Advisory Board. Kind of exiting that event, like what were some of the biggest pain points your customers are kind of talking about dealing with? And how is Cellebrite helping solve some of them? How are these conversations kind of impacting your thoughts on product roadmap?

I think Marcus, our Chief Revenue Officer, is on the line. I wasn't at the first meeting because I was still in my Board role, but I believe Marcus participated and can provide you with firsthand information.

Yeah. Thank you, and thanks for the question. So look, there are three main drivers which our customers are seeing. One is 90% or so of cases now require digital assets for proof in public safety. And so there is an explosion in the capacity of the phone. As you all know, phones are getting more powerful, apps are getting more powerful. And the funding of the DFUs in terms of people can increase dramatically. So what we're looking at is efficiency tools. That's really the driver of what we do. Time of prosecution is key. And therefore, the main drivers are not only the extraction of the phone but then our analytical platform, which allows us to then make insights to lead to faster Case-to-Closure. That's really the overriding driver that we're seeing. The second thing then is more lightweight product requirements for investigators in the field to be able to make insights a lot quicker without necessarily having to do full extractions of the cell phone. So both platforms for Inseyets and Pathfinder for our terminology are taking us to those areas.

Super helpful. Just as a follow-up for Dana. Just any way to quantify the decision to exit specific countries and what that impact is for 1Q? And as we think about that 30% unlock attach that you're seeing to Inseyets, what can you do that's maybe a little bit in your guys' control to drive that adoption higher?

We are still closely evaluating the possibility of exiting certain countries. It accounted for less than 2% in 2024. While we have some additional countries being considered this year, the significant markets from a business standpoint are decreasing. Therefore, we anticipate that this will enhance our gross retention rate, with an improvement expected to be between 0.5% and just under 1% in 2025 and 2026. Could you repeat your second question? I didn't catch it well.

Sorry, just the 30% unlock attach that you talked about to your Inseyets customers. What can you do to drive that attach rate higher?

So we believe that each and every customer of us in the public sector must have an unlock capability. And what we've done through the introduction of Inseyets, we have actually introduced a wider variety of packages of Inseyets to address the smallest of agencies to the largest. And we actually see that one of the drivers of growth in '24 was the fact that also the smallest agency started onboarding themselves to these capabilities. We believe that this trend will continue with the continuous transition to Inseyets.

Great. Thanks for taking my questions.

Our next question will come from Eric Martinuzzi at Lake Street.

Yeah. You talked about the C2C penetration, the goal for 2025, taking that 15% up to 50%. And I was just curious if you've got any new initiatives, lessons learned from 2024 that you're rolling through to meet or exceed that goal in 2025.

So, maybe I'll start, and then Marcus will speak about a few things that he's doing in his go-to-market organization. I think what we've learned in '24 is the importance of the C2C platform, the connectivity between our offering, which Inseyets actually brings very naturally connection between the Inseyets for collection and first analysis to Guardian to the management of digital evidence and the collaboration between digital forensics unit and investigators and from there to the Pathfinder. Marcus, would you like to speak about your go-to-market adjustments or changes?

Yes. Of course, yeah. So we're continuing to evolve from a very well-established point solution into the platform. We are investing in specialist sales into the investigator persona. We are now changing our go-to-market approach as well. We used to be very heavily involved in industry events. We now run our own events. And I can only tell you that I've been shocked in my career to see the attendance. We are literally sold out at every event, and we believe that we will be heading to be sold out for our major customer event that we're holding in April in D.C. There is a lot of pent-up demand. And so we're addressing those people with vertical experts in order that can walk the walk and talk the talk of how an investigation works and take them through how the tools and demonstrate some of the AI personas that we have, which can speed those processes up. So in short, it's a combination of making our message a lot clearer by pushing it out directly ourselves and then using a very specialist sales force, which are very focused on the investigative flow and extending our presence outside of the lab where we're well known. They are the two factors.

Got it. Thank you.

Our next question will come from the line of Brian Essex at JPMorgan.

Hi, this is Charlotte Bedick on for Brian Essex. Congratulations on a fantastic quarter. It was impressive to see approximately 20% of the installed base transition to Inseyets, compared to your previous estimate of 10%. Are you perceiving the pace of the installed base's conversion to be faster than anticipated? How should we anticipate this evolving over the next few years? I know you briefly mentioned next year, but will the overall timeline be quicker than expected?

Well, we still believe that the transition or most of the transition is a three-year journey. So we believe that we will transition most of our customers by the end of '26, early '27. We always have, I would say, around 10% of the tail of multiyear deals and late laggers to adopt the new solutions. So we are still looking at intensifying the conversion in 2025. I believe Tom mentioned reaching 50% of the installed base already on Inseyets by the end of '25.

Great. Thank you. And I know your GenAI, like you just announced it a couple of days ago, if anything, but has there been initial feedback overall? Like what have you heard from your customers? Any detail would be great. Thank you.

I'm going to ask Ronnen to jump in on that one.

Hey, great to take it. So look, our customers definitely excited about the leverage of AI, especially in the realm of boosting efficiency, efficacy and really helping across the full value chain. Cellebrite has been in delivering AI capabilities for a decade now. Obviously, there is a renewed interest with the advance of Gen AI, and we are sharing with our customers an exciting vision for that, and they are fully receptive of that. Maybe I'll say the most important thing that they look for that is not just that we're delivering great AI capabilities, but we can always ground our conclusions and influence back to the original evidence, that's the most important thing that we keep utmost defensibility of what we have, and there is always an officer in the middle, as we call it, to make sure that what AI delivers is actually something that can hold in court in the utmost standards.

I would like to add that we recently published the results of our annual industry surveys. We specifically asked the respondents about their views on AI. Approximately one-third of them expressed concern that AI could contribute to crime in negative ways. However, over 60% believed that AI could significantly assist in fighting crime, enhancing effectiveness, speed, and efficiency. This indicates that a large portion of the community is acknowledging the need for advanced AI to help manage case volumes and the growing impact of technology and digital assets in combating crime. Overall, this data-driven insight is quite positive.

Thanks, and congrats on the good result.

Thank you.

Our next question will come from Jeff Rhee at Craig-Hallum.

Great. Thank you. So a couple for me. First, maybe, Tom, on the FedRAMP. Thanks for the update and the timeline. Talk for a minute, if you would, about the opportunity in federal. I get a lot of questions on it. Where you are now as a percent of revenues? You've clearly got some pretty impressive federal customers already. So what does FedRAMP gain you from where you are? Maybe fill in a few gaps there, if you would.

Your observation is correct. We currently have a significant presence in the federal sector. The important change this brings is that some programs require FedRAMP certification. For those who may not know, there are different levels of FedRAMP certification based on complexity, sophistication, and security needs. Naturally, obtaining a low certification is easier than acquiring medium or high certification. We decided that if we were going to pursue this, we would aim for the highest level. We wanted to ensure we could be involved in any area where we could provide value to the federal government. As a result, we invested time and resources to achieve high certification, and now that we are FedRAMP-ready, most of the challenging work is completed. We can start engaging with end customers or major GSIs managing these programs, who are now aware that it is just a matter of time before we receive authorization to operate. If you’re asking about the impact on our total addressable market, we estimate that it approximately doubles our TAM. While we can’t confirm this, it’s our belief that based on our connections and relationships in the federal arena, once we are fully authorized, we significantly expand our opportunities. Considering that federal currently accounts for about 20% of our business, this opens up considerable growth potential for us in that sector.

Yeah. Okay, great. That's very helpful. And then one last question. As it relates to the investigative unit and the migration there, obviously, a massive new TAM there. You've got a dominant installed base. And if you can break that open and directly connect into the investigative unit, obviously, a lot of opportunity. Maybe for Marcus, just you commented, we've got some data points. I mean it's shown some good growth rates, albeit from a relatively small basis as a percent of mix. But I just want to dial in a little closer, like give us a sense of your satisfaction with how dialed in you have the methodologies that it takes to penetrate the IU. I think you said you're putting in some specialists. But just kind of where are we in the innings-wise in terms of sort of, hey, we've got it figured out now we can really stomp on the gas versus we're still in the early innings of figuring it out. Just some color there would be great. Thanks.

Yeah, sure. So thanks for the question. It's a good catch. So I would say we're mid-innings. Like, if you want to use a baseball analogy for a Brit, we'll give it a go. We basically have a thesis, which is proven out now. We have enough of a sample size. The end number is big enough to know what the transaction type looks like, what the route to market is. What I will say that we still need to discover is the investigative unit is interesting because each company has it set up slightly differently. So we're taking a multifaceted approach to that to make sure that we understand the learnings. It's clear that we now have the momentum on our side. And I think this year will be the final tuning. And as we enter into '26, we will have a very, very easily repeatable stream, a much easier repeatable stream that we can get more wood behind. So I would say we've got a good thesis. We're proving that thesis, but it's still early in that market. As you know, the TAM is immense. And the final thing, I'm never satisfied with the growth rate because it's my job to grow as fast as possible. So we're always trying to find ways to grow that faster.

Got it. Much appreciated.

Thank you, Mr. Rhee. Our next question will come from Mike Cikos at Needham.

Great. Thanks for taking the questions here, guys. And just to continue on the theme on the go-to-market and the opportunity there with that investigative persona. Just wanted to soundboard this. Where are we in building out that investigative persona sales motion? Like is that supposed to be a specialist sales overlay or is this a separate speedboat that's going alongside your existing team that's historically pursued those DFUs?

It's a great question. When you look at the investigative unit, they can purchase all of our technology. Our specialists focus on high-level and larger deals. Specifically, the expansion of Guardian and Pathfinder, if you're familiar with those products, is what those individuals will drive. Inseyets is also available for acquisition, and we are observing interest from investigative units. There are functions like Quick View and Triage that enable investigators to utilize that technology as well. Currently, we have a combined approach rather than an overlay team; it's a specialist team that engages directly with the heads of those units and provides demonstrations. The interest has been tremendous. Every event we hold is sold out. We are quickly securing budgets for our initiatives. In the US, we are effectively working on the grant side, connecting with major crimes to ensure investigators know that federal funding is available for state and local projects, thanks to our grant writing team. We are focusing on creating demand, generating budgets, and raising awareness, and we are pleased with our progress.

Awesome. And then if I could just cycle back to the US federal, great to see that mid-20s ARR growth, putting you, call it, about in line with overall company growth. I know the company just set up Cellebrite Federal Solutions this past summer and the beltway can take time, right? So is it fair to think that CFS and US Federal are still largely in pipeline building mode this year or does guidance in any way contemplate early green shoots following the launch when we think about calendar '25?

Yeah. I think you've nailed it. So do we think we might benefit from these changes to some extent this year? Yes. But we really think the bulk of the benefit and the acceleration in the business starts to flow in '26. And again, this is all part of the modeling for our guidance for '25. And it's exactly for the reasons you described the federal government and their budget cycles. We might be able to sneak in on some existing programs now that we have this proxy company and FedRAMP certification. But the real measure that we're driving this year is to sustain the growth we've enjoyed, but we want to see a big uptick in pipeline and deal size and opportunity for '26.

Perfect. Thank you very much guys. Appreciate the time.

And our next question will come from the line of Tomer Zilberman at Bank of America.

Hey, guys. If I take a look at the numbers, the magnitude of your EBITDA beat is a little bit lower than it was in previous quarters. And when I look at guidance next quarter, it's more or less in line with the Street. Just wanted to get your puts and takes there.

Sure. I’ll take that. Hi Tomer, thank you. Well, Q4 can be a quite busy quarter. We've experienced some increased expenses compared to previous quarters as we wrap up the year, particularly related to marketing and IT infrastructure and security, which will carry over into 2025 and will influence upcoming quarters. I would mention that Q1 typically shows lower revenue due to seasonality. While operating expenses continue to grow from the prior quarter, we generally see lower Q1 EBITDA compared to the rest of the year. That’s why I made the note about seasonality, to emphasize that when evaluating the entire year and considering past seasonal patterns of EBITDA, it’s important that you view it more evenly across the year.

Got it Dana. And you also mentioned earlier that you expect modest improvement against the 92% gross retention rate this year. And I think earlier in the Q&A, you mentioned that you expect 0.5 percentage benefit from lesser citable countries. Can you give us directionally how much, I guess, upside or whatever you want to call it to that 92% number? Is it only going to be this 0.5% to 1% from this intentional churn or do you see other levers to grow that?

In our Investor Day, we spoke the long-term target of 92%. We've reached it in 2024 through a very hard work of our sales organization and customer experience. We believe that most of the improvement will come from those abandoned customers, we call them, and I would like to leave it for this time being.

I just want to emphasize that we have guidance and internal operating plans that dictate our spending, and we aim to manage our cash flow and profitability effectively. Looking ahead to the next one to three years, we definitely see an opportunity to increase that number. One of our key priorities is a series of initiatives that I believe will support this growth. Depending on the timing, we might see results sooner than expected, but we believe it's wise to adhere to the numbers that Dana mentioned.

Got it. Thank you very much.

Our next question will come from Louie DiPalma at William Blair.

Dana, Marcus, Ronnen, and Andy, good morning.

Good morning.

Good afternoon. Tom, it seems that the transition from Chairman to CEO has gone smoothly. My question is, what is the main alternative for customers currently using Guardian? The growth in this area appears significant. Are many of your existing customers still relying on USB thumb drives, local storage, and online cloud storage? Is this an opportunity for you to expand your market presence?

I'm going to let Ronnen speak first, and then I'll share some additional thoughts and context because I have a few ideas to contribute. From our perspective, particularly regarding packaged enterprise-class software, we believe strongly that we are the best option, arguably the only repository that provides effective collaboration and a strong chain of custody aligned with true evidence requirements. This is different from other repositories that seem more focused on lower-level storage and handling high volumes of rich media. While this raises different questions about current alternatives and potential challenges, we see a significant opportunity here due to the unique strengths of our intellectual property and how our purpose-built product aligns perfectly with market needs.

Thank you, Tom. Louie, I appreciate the question. We are engaging with many customers, and consistently, they view us as a leader in digital investigation. They are not simply seeking a storage solution or a place to stash data. Instead, they want to process a large amount of data, understand it, and share it with the appropriate people. To achieve this, they require much more than just another option for data storage, as there are numerous alternatives for that purpose. When they search for a solution that effectively meets their needs—specifically a digital investigation solution—that’s where Cellebrite steps in. While they may consider other solutions for different issues, what we offer goes beyond merely extracting, manipulating, storing, disseminating, and analyzing data. This comprehensive solution is exactly what they seek, and that's our goal.

Great. And can I just have one follow-up as the stock price appears to be down 7% on the comments of federal disruption. And so I was wondering what percentage of revenue generally comes from the US federal vertical? And generally speaking, is the revenue on a recurring nature subscription economic model such that like most of the revenue impact would be new bookings rather than existing revenue being disrupted?

I believe it's clear that the federal government in the US accounts for about 20% of our revenue. This is mainly from services and our subscription business. Typically, most of the new business, not including renewals, comes in Q3 of the year. Currently, we are noticing some delays in new business due to the situation in the US, but our renewal business remains unaffected, indicating that the federal government continues to work with us consistently. We are confident that once things begin to stabilize, we will see strong growth this year, similar to what we've experienced in the past.

Great. Thanks, Dana, and thanks everyone.

That concludes the Q&A portion of today's call. Mr. Kramer, I'm happy to turn the floor back to you and to the management team for any additional or closing remarks.

Thank you very much, Jim, and thank you very much to all of our analysts, shareholders, prospective shareholders and others who tuned in this morning. We look forward to continued discussions, dialogue and meetings with you over the coming weeks and months. Look forward to speaking with you then. Thank you.

Ladies and gentlemen, this does conclude today's Cellebrite fourth quarter and full year 2024 financial results conference call. Please disconnect your line at this time, and have a wonderful day.