Welcome to the Cellebrite Second Quarter 2025 Financial Results Conference Call. I would now like to hand the call over to your first speaker today, Mr. Andrew Kramer. Mr. Kramer, you have the floor. Thank you very much, Angela. Good morning, everybody. Welcome to Cellebrite's Second Quarter 2025 Financial Results Conference Call. I'm joined here today at our U.S. headquarters outside of Washington, D.C. Our primary speakers on the call will be Tom Hogan, Cellebrite CEO; and David Barter, Cellebrite's CFO. Also with us in the room are Dana Gerner, our former CFO; and Marcus Jewell, our CRO. Joining us remotely will be Adam Clammer, Cellebrite's Chairman of the Board, who will also have some remarks for today. This call is being recorded, and a replay of the recording will be made available on our website shortly after the call. And eventually, we will post a copy of our prepared remarks. Please note that a copy of today's press release and financial statements, including GAAP to non-GAAP reconciliations is available on the Investor Relations website at investors.cellebrite.com. In addition to the press release, we've also posted an investor presentation that provides a detailed overview of our business and recent financial performance, along with publishing the quarterly financial tables and supplemental historical financial information for each quarter for the past 3 years. It's available on our Investor Relations website. Also, unless stated otherwise, our discussion of our second quarter 2025 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 second quarter of 2024. In addition, please note that statements made on 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 actual results to differ materially from historical results and/or from forecast. Some of these forward-looking statements are discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F filed with the SEC on March 18, 2025. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. In terms of today's agenda, Adam Clammer will share his thoughts on our CEO announcement. Tom will then provide a brief review of our quarterly performance, discuss key strategic achievements and milestones and offer his perspective on market conditions and the outlook for 2025. Dana Gerner will offer some brief parting thoughts before she retires and Dave Barter will review the quarterly results and cover our outlook in more detail. And with that said, I'll now turn the call over to Adam Clammer. Adam, to you.

Thank you, Andy. It's a pleasure to be on today's call, to briefly share the Board's perspective on the appointment of Tom Hogan as Cellebrite's CEO. Tom has long been the preferred choice of our Board to serve as CEO, given his vast technology experience, his intense focus on strategy and intimacy with Cellebrite's executive team, workforce and customers gained over the last 2 years. Since joining Cellebrite as Executive Chairman in August of 2023, and continuing through his service as interim CEO over the past 8 months, Tom has played an important, active role in every major initiative that has helped drive substantial value creation. His passion for Cellebrite is tangible and infectious. As Cellebrite's Chair and the managing partner of one of the company's largest shareholders, I could not be happier. Given that backdrop, you're likely wondering why it took so long for this appointment to occur. In the summer of 2024, Tom was diagnosed with Stage 4 non-Hodgkin's lymphoma, that precluded his ability to commit to serving as Cellebrite's CEO when the company announced its succession plans in mid-November of 2024. At the time of Yossi's departure, Tom was on the back end of 6 months of chemotherapy at MD Anderson. He finished up his final treatments in December with his cancer fortunately in complete remission. It was the Board's strong desire and preference to retain Tom as the full-time CEO, given the performance of the company since his arrival. I would remind shareholders that despite the pullback in the stock price this year, Cellebrite's value has more than doubled since Tom joined as Executive Chairman, mentoring Yossi and working closely with the team. Tom was willing and able to step in as interim CEO on January 1, but given the rigorous demands of a global CEO role, he wanted time to fully recover and confirm his ability to run at 120% and provide the leadership this company deserves. Given that backdrop, our Board executed a thorough external search that yielded a number of very qualified candidates. This is a fabulous company and the position attracted substantial interest. We had multiple highly qualified prior public CEO experienced candidates that wanted this position, and we were prepared to go down that path if necessary. Fortunately, Tom's cancer has remained in full remission. As he has steadily regained his energy and stamina, we were thrilled when Tom raised his hand to remove the interim designation, which made our choice very easy. The Board is unanimous in its conviction that Tom is the right individual to lead Cellebrite, providing valuable continuity for the company, its people, shareholders and customers. Cellebrite's future is incredibly bright. Despite the near-term uncertainty with U.S. federal spending, this company is making an impact with customers while delivering durable, profitable growth and outstanding free cash flow. Myself and the board have confidence in the strategic initiatives already underway, some of which Tom and Dave will discuss today and those that will be further developed and executed on over the coming quarters. It will elevate the company's value with customers and lead to a stronger Cellebrite. Tom's appointment as CEO is a great outcome for Cellebrite, shareholders, its people and its customers. That concludes my comments, and I will now hand the call over to Tom.

Adam, thanks for the kind words. And as you know, I look forward to the next chapter together and completely share your optimism for the future of this company. So let me jump in. First, we see 2025 playing out largely as originally planned in the majority of our businesses with the U.S. state and local government and Latin America positioned actually to deliver exceptional full-year results. As we shared in our last call, a variety of changes within the U.S. Fed sector has resulted in atypical spending activity and constrained visibility into the timing of new orders. These dynamics, along with our ongoing focus on the responsible management of our cost structure have informed our revised 2025 financial targets, some up and some down. I'll discuss current market conditions in our full-year 2025 outlook in more detail shortly, but first, I'd like to address several important developments and achievements that are enhancing Cellebrite's clarity and our confidence around our strategic direction, leadership and new vectors of growth. Let's begin with Cellebrite's strategic direction. Despite current spending challenges, several important KPIs illustrate that our value proposition continues to resonate in the market and that we're making important progress against many of our top 2025 priorities. First, in terms of Inseyets, our flagship digital forensic software, we continue to see customers upgrade from our legacy offerings to our digital investigation platform. At the end of the second quarter, Inseyets has been deployed by over 40% of our license base and is tracking comfortably ahead of our full-year objective for conversions. Perhaps more importantly, our NPS scores on Inseyets technical capabilities, including usability and workflows, device support and decoding have continued to trend favorably. Second, we continue to see strong adoption of our cloud and SaaS-based solutions, which are now 20% of total ARR. More specifically, Guardian continues to gain traction with customers. This product has outstanding market fit, enabling more efficient management of the examination process, greater collaboration and strong chain of custody. ARR for Guardian grew by more than 100% year-on-year now for the fourth consecutive quarter. Much of Guardian's growth to date is from U.S. SLG customers, but it's been further bolstered by inroads this quarter in Latin America and the U.K., while also closing the first Guardian deal in Australia. Our pipeline for Guardian also remains strong and is accelerating as we position the strategic offering for other European markets over the coming quarters. Third, we're gaining important momentum in the global defense and intelligence sector, which was approximately 25% of our international ARR last year. We believe shifting budgetary priorities will fuel an acceleration of spending in this segment, which we are already starting to capture in our European region. Finally, in addition to continued growth with Inseyets and Guardian, our contributions from Pathfinder also improved and accelerated due to strength in new bookings, combined with improvements in customer retention. In addition to this progress, we took an important strategic step forward in June when we announced our agreement to acquire Corellium. We believe this is an important transaction that will accelerate innovation, expand our addressable market and help fuel long-term growth across both our private and public sector businesses. Corellium's ARM virtualization technology brings vulnerability and penetration testing to a wide range of ARM-based endpoints, including smartphones, tablets, laptops, drones and IoT devices. We know firsthand just how powerful Corellium's technology is. For the past 5 years, our internal mobile research teams have been using Corellium's mobile vulnerability solution to efficiently evolve and advance our lawful access capabilities. Corellium's mobile vulnerability research solution clearly expands our addressable market and specifically in the defense and intelligence sector. Based on the nearly immediate post-announcement interest in the Corellium Solutions, we quickly executed a reseller agreement, which we closed roughly 3 weeks ago, and within 2 weeks of closing that reseller agreement, we closed our first sale with a European intelligence agency for nearly $500,000. We think this use case has broad applicability across the global intelligence community and gives you some insight into our enthusiasm around the opportunity for significant growth post-close. To that point, we clearly expect that Corellium will be an accelerant to Cellebrite's overall growth, and Dave will share some details on the transaction in just a few minutes. Let me turn to innovation, and I want to highlight 3 areas. First, late last month, we announced that the Department of Justice will serve as the official sponsoring agency for Cellebrite's FedRAMP high authorization to operate for the acronym ATO that you'll hear quite frequently. This ATO designation will cover our solutions delivered on the Cellebrite Government Cloud, namely Inseyets and Guardian. The sponsorship is the critical next step required for the Cellebrite Government Cloud to advance from its current FedRAMP Ready designation to in process. It marks a major milestone that significantly accelerates Cellebrite's journey toward a full ATO, which will enable us to sell the breadth of our cloud assets to our installed base of U.S. federal agency customers. We look forward to working with the DOJ to elevate their productivity, efficiency and efficacy with Guardian and the breadth of our cloud-based product line. The second area is mobile research. We continue to invest significant resources, both people and dollars, to keep pace with the mobile phone OEMs. Last month, we released a powerful new update to our unlocked software that covers more than 100 Android OEMs in thousands of models. This milestone underscores our long-standing technological leadership for Android smartphones, which have more than 70% of global market share. This progress complements our ongoing focus and capabilities on the IOS ecosystem. We remain committed to extending our leadership position in providing lawful mobile access to law enforcement, defense and intelligence agencies across the world's democratized nations. Finally, AI continues to be a critical enabling technology that is powering our entire platform. Our commitment to innovation in this area remains the highest priority as we envision radically improved systems and solutions powered by GenAI. The good news is much of this innovation is already being delivered real-time in our newest releases of Guardian with more to come over the coming months. With respect to leadership, since I joined Cellebrite 2 years ago, we've worked diligently to strengthen our management team by recruiting executives with proven experience and relevant domain expertise at leading technology companies with global scale and impact. We applied that same philosophy to the appointment of Dave Barter as our new CFO. Dave brings proven credentials as a public company CFO at top software and SaaS businesses. Where we're thrilled to have Dave on board, it also means saying goodbye to Dana Gerner, who will be retiring from Cellebrite effectively after today's call. Dana's financial and accounting acumen, her intimate knowledge of our business, her work ethic and her passion enabled her to play a major role in Cellebrite's success over the past 11 years. Dana, on behalf of everybody affiliated with Cellebrite, I want to thank you for everything you've done for us and wish you all the health and happiness you rightfully earned and deserve. And let me invite you to just say a few words to the folks on the line.

Well, thank you very much, Tom, for your kind words. And for the partnership and the trust that you gave me over the past 2 years, it was remarkable. And I will keep my comments brief and directly from my heart, I spent the last 11 years journeying in Cellebrite. It was exciting, challenging, rewarding. I've been able to work with amazing people and teams, including many of you in the investment community. I want to give special thanks to my finance and ops teams and leaders who met with a can-do attitude any challenge set up for us. I am very proud of you. And Dave, we spent the last week working together. No doubt, Tom and the Board have selected a great successor to the CFO role. Although it is still so real that I say goodbye today, it is now the time for me to harness my experience, knowledge and skills I gained in more than 35 years as CFO in business and put it to good use giving back to my community. And of course, I look forward to watching Cellebrite's pride from the sidelines. And I'm sorry that I'm a little bit excited, but I will now turn the call back to you, Tom.

Dana, thank you, and we wish you all the best. I believe I can speak for everyone here and on the phone when I say we look forward to seeing what the next chapter holds for you. In terms of leadership, I was appointed as CEO, which Adam mentioned at the start of the call, and I will keep my comments on this brief. First, I am incredibly grateful to be cancer-free today, and I want to extend my thanks to the doctors, nurses, and medical staff at MD Anderson in Houston. If any of you have friends or family who need care, it's a world-class institution that saved my life. I am equally thankful to my family, friends, and everyone at Cellebrite for their unwavering support during my six months of chemotherapy, which was an experience I wouldn't wish on anyone. I want to take a moment to share a public service message. Fourteen months ago, I had no idea I was ill. A friend encouraged me to have a proactive full-body scan, and a week later, I learned I had Stage IV cancer with tumors throughout my body. That scan truly saved my life. If you're over 30 and have the means, I strongly recommend getting one of these scans. If anyone has questions about it, feel free to email me directly. I consider it a mission of mine to share this experience, and I promise to respond promptly. I have been asked many times why I continue to work at my age and as a cancer survivor, or why I didn't take a medical leave. The reason is straightforward. If it were any company other than Cellebrite, I might have done just that. However, I have never felt such privilege and obligation to lead a company that genuinely contributes to making the world a safer place every day. I love this company, our people, and our customers—the brave individuals who risk their lives daily to enhance public safety. I am grateful for my recovery and ready to lead Cellebrite into a new chapter. We have much work ahead to combat bad actors globally, and I, along with the 1,200 dedicated employees at Cellebrite, embrace that challenge every day. Now, let’s discuss the market. The underlying trends that have fueled our business's expansion are still strong and appear to be improving. However, the sophistication and use of technology for criminal endeavors keep rising, making our technology crucial for ensuring public safety. As we enter the second half of the year, we expect healthy growth across most of our regions and segments, with an acceleration in our Annual Recurring Revenue (ARR) over the next two quarters. The only area of uncertainty for the second half is the timing of orders from our U.S. Federal segment, despite a solid pipeline and strong demand signals. We believe Cellebrite is extremely well-positioned with unique solutions that help our federal clients address new administration priorities related to border protection, drug enforcement, human trafficking, child exploitation, and overall operational efficiency. Recent legislation in the U.S. could turn current spending challenges into opportunities. From our ongoing conversations with customers, we anticipate increased demand will spur growth in 2026. Early signs indicate spending in this sector is starting to improve. One of our long-standing U.S. federal law enforcement customers recently boosted its spending on Cellebrite's offerings, which include our digital forensic software and Pathfinder. This agency is also advancing its plans for Inseyets conversion, enhancing its ability to collect and review digital evidence. Additionally, our forthcoming FedRAMP ATO authorization will allow them to utilize our Guardian solution. Moreover, renewals are progressing well, with retention levels in this sector exceeding the corporate average, sitting in the mid-90% range. While demand signals for the mid- to long-term remain strong, we find it necessary to adjust our full-year ARR and revenue expectations until we see purchasing momentum from the U.S. Federal segment return to a more typical pace. Last quarter, I noted that this sector accounted for 17% of last year's ARR, which had a 25% CAGR over the past three years. Reducing our 2025 U.S. federal ARR growth is expected to result in around four percentage points of total ARR growth reduction for the company this year and is the main reason for our revised full-year guidance. As previously emphasized, our income statement and emerging scale provide leverage. If we encounter a short-term dip in our historical growth rates, we will exercise the necessary spending discipline to maintain expanding EBITDA and free cash flow, all while preserving our capacity to pursue significant long-term growth opportunities and market share. We have integrated AI across all departments to safeguard growth and innovation, which has led us to modulate our hiring plans for 2025. Our careful spending strategy has boosted the lower end of our existing EBITDA guidance and will support another strong year for free cash flow. In conclusion, the demand for Cellebrite's specialized solutions for public safety has never been more critical. Every day, we see how our technology makes a difference, from rescuing children from trafficking to dismantling fentanyl supply chains and bringing murderers to justice. We expect to continue growing at healthy rates despite short-term challenges in the federal market. We're capitalizing on our scale to enhance our margins, net income, and free cash flow. We are optimistic that when the federal market rebounds, it will do so robustly. Additionally, we are excited about our plans to increase our value through a potent blend of AI-driven internal innovation, strategic partnerships, and targeted acquisitions. We have ambitious plans for this company, and I look forward to this journey as its leader. Now, I’ll turn it over to Dave.

Thank you, Tom. Before I review the second quarter results, I'd like to briefly describe why I am so excited to serve as Cellebrite's CFO. I think you'll find that many of the same characteristics that appeal to me as a CFO likely resonate with those of you in the investment community. First, like other leading vertical software companies, Cellebrite has compelling secular tailwinds with high barriers to entry on account of our purpose-built software and the relationships we maintain with our customers. Second, we are fortunate to have an experienced team with deep domain expertise that is motivated by the mission and commitment to public safety. The Cellebrite team operates with incredible focus. We deeply care about partnering with our customers to make a real difference in protecting life and our communities. And finally, Cellebrite is regarded as the clear product and technology leader. This allows us to build a business that not only serves our customers well, but it also produces durable top-line growth, attractive profit margins, and very meaningful levels of free cash flow. Let's move on to the review of our second quarter results. ARR grew 21% to $419 million. Our growth was primarily driven by increased spending within our customer base. The Americas represented 54% of total ARR, while EMEA represented 34% and Asia Pacific was at 12%. In terms of growth rates by geography, the Americas grew 24%, led by excellent expansion within U.S. state and local government and Latin America. ARR grew 21% in the Asia Pacific region, followed by 17% growth in EMEA, which improved sequentially from Q1 levels. In terms of product family performance, Inseyets has continued to see healthy ARR growth as customers continue to upgrade from our legacy software to the Inseyets solution. More than 40% of our installed base was using Inseyets at the end of the second quarter. We also continue to see strong growth for our unlock offering, which is now attached to more than 40% of the Inseyets and legacy customer base. On a combined basis, Guardian and Pathfinder continue to grow faster than our overall ARR. These 2 products now represent approximately 10% of our total ARR. One other important milestone worth repeating, our cloud-enabled and SaaS solutions reached 20% of total ARR this quarter, reflecting over 50% growth in these offerings. Turning to revenue, we generated second quarter revenue of $113.3 million, which increased 18% from the prior year due primarily to subscription revenue growth of 21%. Approximately 91% of total revenue was associated with subscription-based software solutions. This growth translated into improving levels of profitability. Our gross profit increased 20% to $96.4 million, which represents a gross margin of 85%. Second quarter adjusted EBITDA of $27.9 million increased 29% over the prior year, and the margin increased 200 basis points to 24.6%. We're pleased with this operating leverage. As a company, we are focused on maintaining a powerful combination of healthy revenue growth and thoughtful capital allocation to key investments that we believe will lead to increased product adoption and long-term durable and profitable growth. We ended the quarter with 1,216 employees. We reported second quarter operating income of $26.2 million with non-GAAP net income of $30.8 million or $0.12 on a fully diluted basis. Overall, our average weighted diluted shares outstanding increased slightly from first quarter levels. It is important to note that our weighted average share count has started to stabilize. We expect relatively minimal dilution going forward. Let's turn to the balance sheet. We ended the second quarter with $558 million in cash, cash equivalents and investments, an increase of $48 million from the first quarter of 2025 and an increase of $191.9 million compared to the prior year. Free cash flow for the second quarter was $29 million, and the free cash flow margin was 25.6%. For the trailing 12 months, free cash flow was $150 million or 34% on a margin basis compared to $91 million or a 25% margin in the previous period. In terms of upcoming uses of capital, our acquisition of Corellium will lead to a net cash outflow of $150 million when this transaction closes. The company reported ARR of approximately $15 million at the end of June. We plan to share additional details around Corellium and its financial performance when we report Q3 results in November. Prior to sharing our outlook, I'd like to share some perspective as to how we developed it. As a reminder, we have historically generated the majority of our ARR, revenue and adjusted EBITDA in the second half of the year. We anticipate this trend will hold true in 2025. Our guidance is informed by several inputs. First, there is a sizable base of remaining performance obligations or RPO. Second, we assess expiring agreements, including renewal timing and the related expansion opportunities across our customer base. Our model contemplates our gross dollar retention, which has been in the lower 90s percent range. Third, we consider the contribution of new business from customers expressing a need to expand in the middle of their agreement terms. Finally, we look at new logos, which tends to be a smaller contributor to ARR and revenue, given our land motion. We anticipate that our third quarter ARR will grow sequentially in the mid-single digits, followed by a similar increase in the fourth quarter. This is stronger than the sequential growth we saw in the first half. We are planning for temporary delays with U.S. federal agencies. While customer interest and engagement in this sector is high, we're planning it will take time before the recent U.S. legislation will help drive higher spending on Cellebrite by U.S. federal agencies. We believe it's prudent to adjust our outlook until we have clarity on the timing of orders. We expect third quarter 2025 ARR in the range of $435 million to $445 million, or growth between 17% and 20%. We now expect full-year ARR of $460 million to $475 million or growth of 16% to 20%. This updated outlook assumes minimal growth from U.S. federal customers. The change to our growth assumptions around U.S. federal customers impacts our total ARR growth by approximately 4 percentage points. Factoring in the update to our anticipated ARR growth for 2025, we now expect third quarter revenue to be in the range of $121 million to $126 million or growth of 13% to 18%. We expect full-year revenue in the range of $465 million to $475 million or growth of 16% to 18%. We expect our Q3 gross margin to be within our full year 2025 gross margin target range of 84% to 85%. We remain focused on thoughtful capital allocation to fund the investments we believe are critical to addressing customer needs and fueling durable growth over the long term. We expect Q3 adjusted EBITDA in the range of $31 million to $34 million or approximately 26% to 27% on a margin basis. For the full year, we now expect adjusted EBITDA in the range of $118 million to $123 million or 25% to 26% on a margin basis. And finally, I'd like to reiterate our view that 2025 will be an excellent year for free cash flow. Given the strong cash flow from operations thus far into 2025 and relatively minimal capital intensity, we expect the company's free cash flow margin will be approximately 30%. In summary, Cellebrite remains well positioned to deliver another year of healthy growth, strong profitability and excellent free cash flow with a minimal amount of dilution to shareholders. This concludes our prepared remarks. Operator, we're now ready for Q&A.

Our first question is from Shaul Eyal with TD Cowen.

Thank you. Good morning, everybody. Congrats to everyone on their new roles and also on solid performance, which appears to be more timing driven. Tom, thanks for the honest and candid comments regarding your personal health, glad the process is behind you. Dana, we can give nothing but the best. It has been a pleasure working with you over the past few years. Two-part question on my end, if I may. Tom, what's your confidence level as we think about this ongoing recovery in federal spending and maybe the second part for David. As we think about your retention rates this quarter, can you outline to us any key drivers anything which has been tied to U.S. federal spending and agencies in that regard?

I appreciate your kind words, and I’ll address the macro situation first, then let Dave and Marcus discuss the renewals, which have an interesting story behind them. On the macro level, I can say our confidence is high. When communicating about these changes, we are careful with our words. I genuinely believe that when the turnaround happens, it will be significant, which reflects our positive outlook for the federal business. We are seeing strong renewal rates in the mid-90s, and we will highlight a specific transaction that ends on a positive note. Unfortunately, the macro issues that define our environment are intensifying rather than diminishing. Crime continues to be a persistent issue, and the increasing sophistication of digital technology impacts everyone, from intelligence agencies to local law enforcement, which struggle to manage the vast amount of data necessary for maintaining safety at various levels. These demand drivers are likely here for at least the next decade. We are confident that our products are leading in the industry. Our federal customers are expressing frustration as they await legislative developments. They’re looking forward to the passage of the BBB and the subsequent allocation of budget funds, which won’t really begin until October 1. We anticipate that with the new fiscal cycle, about $1 trillion will be allocated to the D&I segment, which we are targeting. Combined with the potential for deploying our cloud-based solutions within the federal government, this makes us very optimistic about 2026. Our company is known for transparency and integrity in our reporting and guidance. Instead of speculating about when the benefits will be realized, we’re focused on the here and now. When the significant changes occur, we'll be excited to share that news; we believe it’s coming soon. Now, let’s have Dave and Marcus provide insight into the renewal aspect, which also has a very positive narrative.

Thank you for your question. It's an important one. To provide some context, our federal business has typically generated gross dollars in the mid to upper 90s range. This quarter, there was a specific transaction involving multiple customers, one of whom has several contracts. One of their contracts, as they were preparing for new legislation, ended up slipping out of the quarter. I’ll let Marcus provide more details, but that was a factor affecting the statistic you have in mind.

Sure. Thank you, David. I think I can bundle this up. In Q1, we actually talked about in the Q1 call there was a retention of a large contract, which was looking delayed. This was a program-based contract which through the DOGE confusion did not get renewed. However, the customer need is only increasing. It's a shame that we can't talk about the customer's specifics on the call because you would then understand how important this is for civilian safety. We are now bidding on an agreement, which we expect to be roughly 2x in size, and the customer is still an active customer. What I would say is we have a new bid. We are confident with our technical position, and we are waiting for the flow after 10/1 to be able to get that back on the docket.

Yes. So to summarize that pain point for a delay, but we have high expectations and optimism that I will recommit. The better news is when they do, and we think that will be in the next 1 to 2 quarters, that renewal actually would be 2x the old renewal. If every federal customer renewed at 2x, we'd be in a really happy place. But we think that's a good indication of the stability in demand and just points back to the timing issue.

We'll go next to Mike Cikos with Needham.

I want to support what Shaul said. It's great to hear about your progress in personal health, Tom. Dana, it's unfortunate to see you leave. It has truly been a pleasure collaborating with you over the years. Dave, I am eager to work with you again, considering our time together at New Relic. For my first question, I know you all provided different introductions and perspectives. David, having recently gone through the transition with Dana, I'm curious about the initial findings you've come across. How do you perceive your role at Cellebrite? Are there any changes we should anticipate regarding the strategies you plan to implement? Will the company reaffirm the targets previously shared during Investor Day? Any insights on the long-term vision would be appreciated.

Okay. I'm really looking forward to working with you, Mike. It was a pleasure collaborating at New Relic, and I think this will be enjoyable too. First, I want to thank Dana for being such a fantastic partner over the past month. Her generosity and commitment have been incredible. From a value perspective, I believe you’ll find us very aligned, particularly in how we've developed our financial model for the second half. We share a similar approach, building our forecasts for ARR and revenue from the ground up, and we have a comparable philosophy regarding zero-based budgeting. This method allows us to ensure that our investments in headcount and capital are focused on growth areas. Sometimes, this revolves around product development, while other times, it’s about integrating AI into our products or processes. I don't want to overemphasize this point, but Dana and I think and work in ways that are very similar. As for our plan for Analyst Day, similar to Dana, I usually create an operating plan that will guide us into the later part of autumn and November, and we'll revisit the long-range plan in the spring. I'm more than happy to share additional details on that, but I believe you’ll notice that my working style is quite similar to Dana’s. Does that help, Mike?

I really appreciate it. For Marcus or Tom, considering the earlier comments and the positive news about 2x sizing despite the short-term challenges you mentioned, is there anything else you can highlight, Tom? I found your remarks about early signs of improved spending intriguing. Is there anything beyond this one agency that we can focus on as we think about the current spending environment and its evolution?

Yes. I'll let Marcus comment, but there are two data points to consider. One is that the funding being released despite the push for efficiency aligns well with our interests, which makes things challenging right now. However, we remain optimistic about the mid- to long-term outlook. We are well positioned within the areas the administration is looking to improve and where funds are being allocated. The second point, which we didn't cover in the script or call, is that our coverage and pipeline in the federal sector are very strong. Additionally, we recently signed a significant deal early in the quarter, comparable in size to another major deal that we believe will take at least two quarters to realize, with expectations of it being at least twice as impactful. Those are several data points, and Marcus, feel free to provide more detail or insights.

Yes. I think there's 3 points I want to orient to. So first of all, the federal government that we refer to is the U.S. federal government. When we look outside of the U.S. federal, central government spending is increasing at a clip in both the defense and intelligence. What that points to is that the use case is correct. Our return on investment is correct, but we are caught in a spending issue as many, many operators are currently in the U.S. federal. The second thing is the indications as we look at our renewals in this quarter from a bookings perspective are increasing in terms of value. So we see a value increase in renewals, which, again points to an extension of what we do. The 2 other points to think about is the interest in Corellium is exceptionally high, as you can imagine. We talked about our initial deal in Europe for an intelligence bureau. We are also seeing that interest grow into the federal government into the decision-makers. We already know an expansion of use case. And then let's not forget that we're now preparing for being first in the market with a Fed-level high secure cloud forensic solution, which will give another big tailwind to our business when we are ready to execute on that program.

We'll take our next question from Eric Martinuzzi with Lake Street.

I wanted to follow up on the issue from Q1 regarding U.S. federal and some European pipeline challenges. Based on the results of Q2, it seems we are no longer facing those issues in Europe. Is that correct? Are we back on track with the Defense and Intel pipeline in Europe?

Yes, I'll provide a brief overview, and then Marcus can elaborate. Our European leader has effectively implemented a well-thought-out strategy. He was likely a pioneer in focusing on diversity and inclusion, which is now yielding positive results, as we are observing improvements in both growth rates and our pipeline. We remain optimistic about Europe. There is still work to be done, but I believe your observation is accurate, Marcus.

Yes. I mean, I think it's just great execution. We talked about a pivot in our strategy. We felt that we didn't have enough share in the D&I market outside of the U.S. Ed Dolman, the leader there, has done a great job in repivoting and covering, and we've had significant orders in D&I and we continue to see an acceleration there. We're playing into a nice area because of the NATO spend increases. We see continued strength in Corellium has only shown that as well. Obviously, our first resale order of Corellium into Europe is showing the way, and we feel very confident about our growth rates in EMEA going forward.

And by the way, if you step back geopolitically, the logic is pretty obvious with the U.S. pressuring the EU to step up on their defense spending when you look at the conflict with Ukraine and Russia and the issues that that presents from a border protection issue around the EU. Those are all initiatives that benefit from the Cellebrite portfolio. The spend on Cellebrite relative to the increased focus in spend by the EU countries to address both of those issues is the perfect storm for us. And the reason that we're focused on it and the reason we're starting to see traction.

Yes. There's also one thing to add, Tom, and thanks for pointing my direction there is that the migrant crisis in Europe is the worst it's been, and there is significant additional funding being added. We are right in the midst of securing those funding opportunities for incremental business in new task forces which are being formed across Europe to deal with the migrant crisis.

We'll move next to Bhavin Shah with Deutsche Bank.

I echo the statements both Shaul and Mike mentioned at the beginning of the statements. I guess, just a clarifying question on the guidance. Tom, you mentioned the 4-point kind of impact to ARR just from kind of the changes in assumptions you made around the timing of U.S. federal. Just what else is going to the remainder of the reduction? Where are you kind of being a little bit more conservative? Or are you seeing anything else in the macro that's gotten you more cautious on the ex-federal side for the remainder of the year?

I’ll let Dave comment on that. One thing we didn't get into is that we had a relatively modest quarter in the private sector, but there’s a reason to be more optimistic about growth in 2026. The Corellium asset is significant for D&I, as Marcus mentioned, but what’s not as obvious is that we believe Corellium has great potential in our private sector business. It currently represents a small portion of our P&L, around 7% or 8%, so it’s not a major contributor. Looking at the overall business, in terms of products, geography, and cohorts, we remain optimistic about growth. Our SLG business has experienced strong growth this year, which hasn’t been affected by budgets or DOGE. The adoption rate has been outstanding.

I guess the only complement is I think we have a very detailed process of going through and assessing our deals and looking at gross ARR, looking at deal timing. I think we've just been very thoughtful in the build, and the primary driver here is Fed. Then we've really, I think, tightened up the forecast across all of our sales patches. So I think we feel good about our plan for the next 6 months.

Yes, I recognize that it's easy to simplify things, but the reality is that if the federal business had performed this year as it has in the past three years, we would be on track to meet or exceed our revenue targets and likely our profit targets as well. We are achieving profitability despite facing challenges from the federal sector. It's important to clarify that we are not losing ground to competitors, and demand remains steady. This is primarily a timing issue that we need to navigate.

Our next question comes from Brian Essex with JPMorgan.

First of all, Tom, congratulations on overcoming your health battle. That's fantastic news. Also, Dana and David, congratulations to you both. David, I look forward to collaborating with you. To follow up on some federal questions for Tom, could you provide some insight into the sales cycle and where you're seeing delays? Is this just a financial issue? I've heard from some colleagues in that sector that there's been some turnover in staff, which may be affecting the ability to find the right person to approve a deal. How does the sales cycle work? Do you identify a supporter who commits to the platform, and then that supporter seeks approval before someone issues the payment? Is the challenge related to the procurement process, or is it more about gaining sufficient support? It would be helpful to have a bit more context on this.

Sure. As the Chief Revenue Officer, I appreciate the question. In the federal government sector, our focus is on mission rather than general IT. Our work primarily revolves around programs, grants, and core budget allocations. First, we identify the need, then we offer a solution, and subsequently, we secure the technical approval for our solution, demonstrating its return on investment, which in our case translates to saving lives. Following this, we determine which program and budget will be utilized for implementation. Currently, a significant portion of the decision-making process is tied up in this final stage. There has been considerable turnover among decision-makers, including CIOs and mission personnel. We are navigating through the financial flow and awaiting the signing of new resolutions. The situation is characterized by frozen budgets that have recently been reissued, and now we need to work through procurement systems effectively, ensuring the right programs are applied so that we can begin to see progress.

Our next question comes from Jeff Van Rhee with Craig-Hallum.

Tom, so glad to hear the conviction around the health to take the permanent role. David, welcome. And Dana, it's been a phenomenal run. You've been just a pleasure to work with, so wish you the best. A couple for me, if I could. Tom, in terms of the AI progression and how your vision for its impact on the Cellebrite business has evolved, talk to me about your thinking both internally and externally, the optimal way to employ AI and the benefits you think you can see from it?

Yes. It's a great question. I'm going to answer it, Jeff, at a higher level because we actually have really aggressive ambitious plans for how we're going to leverage GenAI to differentiate this company, and I think we believe it will be an enabler for the next chapter of growth and TAM for us. That's how important we view AI in general. I'll just say that upfront. Your question is spot on because it is a hybrid of internal efficiency. We are using AI across the company already to drive efficiency. I alluded to it in how we've managed to meet or beat our bottom line while we've had some softness from U.S. Federal. Some of the steps we've taken there have enabled us to maintain our delivery commitments with the same or similar amounts of people, which is different from what we planned at the beginning of the year. The obvious thing people point to is, hey, are you using AI for code development in R&D, yes. That's still early innings. But it's not just research and development. If I ask Marcus, he can talk about some really amazing things that our CIO is driving right now with Agentic bots and assistants to help drive productivity and efficiency in our sales forecasting and sales operations area. If I ask Dave and Dana, they're doing work, and they're finding areas to apply AI in the financial operations space. This is across the board, and it's just getting started. Externally, I just, if this was a code of silence, I'd give you more details, but we know that these calls include our competitors. I would just tell you that we are only just getting started in the art of the possible of applying AI to the challenge of public safety. When you think about the breadth of and diversity of evidential artifacts, you think about the data from a cell phone, which is the most valuable and the hardest to get. But then you add on top of that data like CCTV, fixed cameras, drones, ballistics, license plate, tower dumps. I mean, the list goes on and on. It becomes daunting, and the ability to navigate and interrogate the breadth of those data sources with a machine and an LLM that's been trained to deliver value and insights to investigators, detectives, corporate compliance people. I mean, it's the old saying, you ain't seen nothing yet. That's probably more than I want to share right now, but it's going to play a big role both internally and externally.

I think there's one thing we won't do. We won't just place an LLM in front of our product and claim we're an AI company. That would be a poor use of AI, and I believe people need to recognize that. It's about utilizing AI to achieve better outcomes, which involves various aspects, as Tom mentioned.

So we're getting close to time. I know that there's a couple of people who've signaled in, so we want to be sensitive to try to get their questions and we'll extend the call for another few minutes, and operator if you want to open the line for the next question.

We'll go next to Tomer Zilberman with Bank of America.

I'll echo similar sentiments from before, Tom. First of all, congrats on recovery. Dana, thank you for your partnership for the last few years, and David, looking forward to working with you. We're now in the third quarter of this weaker Fed discussion. I just want to ask, are you seeing any more degradation in the Fed environment as it pertains to what you mentioned earlier about regime changes pausing on the budget? Are you seeing weakness or further weakness there? Or is it just this constrained visibility that's given you this incremental caution?

No. I mean there's basically 0 indication of weakness. As I said, our 2 drivers are the use of mobile technology and bad people doing bad things; both tend to increase. So we don't see any detriment. In fact, we're more confident than our competitive position than we have been as we extend our technology advantage. So no, it is purely on the financial side and the budget releasing.

And by the way, I will just reiterate, the renewal rates in this segment remain extremely solid and strong. That would be the first place. If that were happening, that would be the first place you'd see it as people would start to scale back or downsize their commitments, and we've seen none of that.

We'll go next to Louie DiPalma with William Blair.

Tom, Adam, Dana, David, Marcus and Andy. Tom's health and life is paramount. So congrats on the favorable diagnosis and your appointment as CEO. Dana, it was thoroughly enjoyable to work with you, and congrats on the tremendous success that you've experienced at Cellebrite over the years. David, congrats on joining Cellebrite. Lots of congratulations. But for my question, I just wanted some more commentary on investors are focused on the long-term, and Tom, you discussed how you expect a resurgence in 2026? I was just wondering if you could provide more elaboration on that?

Yes. If we examine the growth drivers, there are several key points. We've noted that Guardian has doubled year-over-year for the fourth consecutive quarter, which is impressive. Achieving the entire portfolio doubling is fantastic, but the penetration of Guardian is still only a small part of the overall potential. There is significant growth opportunity ahead, and while we don't reveal specifics, our pipeline is growing rapidly alongside year-over-year expansion. From a capability standpoint and the value we provide, as well as comparative data between Guardian and other repository options, all signs are very promising and give us confidence that Guardian will continue to contribute to growth. We have set a target of 50% for Inseyets. Looking towards 2026, that indicates we still have half of our installed base to convert, and the feedback from those making the switch has been very encouraging. The value proposition of Inseyets is resonating well, presenting a built-in growth opportunity for 2026. In the federal space, although we've faced challenges, the outlook for next year appears much better. We anticipate a significant turnaround when it happens, buoyed by our capabilities, the emphasis on diversity and inclusion, the global focus on allocating funds to D&I, and our expected ATO certification in early 2026, all of which will provide support for our federal business. Regarding the analytics component, specifically Corellium, we believe we can significantly enhance that business based on recent customer interactions, which have shown substantial interest. While there's a lot of execution ahead of us, we have many reasons to be optimistic as we approach January and 2026.

Yes, I'd like to add that we are now leading in our ability to analyze and virtualize any ARM-based system. Given the number of ARM-based systems and centers worldwide, this presents a significant opportunity for us to enhance our growth.

Yes. One last thing I will add is we've been working hard as a team since I stepped into the interim role in January on strategy. The strategy is all about serving our mission globally and what can we do that's a logical significant expansion in our TAM, and we're pretty fired up about the vision we have. Obviously, I'm not here to disclose any of that, but in addition to everything you know and everything we just shared, there's a bunch of new internally driven innovation from R&D. We've got interesting partnership conversations in flight in the market, and we continue to scope the market for strategic and thoughtful M&A. Those are all additive to the organic things I outlined.

This concludes the Q&A portion of today's call. I would now like to turn the floor over to Andrew Kramer for additional or closing remarks.

Thank you very much, Angela, and thanks again to everybody for joining us today. I appreciate your patience with the long call that we ran today. We look forward to engaging with you over the coming days, weeks and throughout the quarter. So if you do have questions, feel free to reach out directly to me. Thank you.

Thank you. This concludes today's Cellebrite Second Quarter 2025 Financial Results Conference Call. Please disconnect your line at this time, and have a wonderful day.