Hello, everyone, and thank you for joining us for our Growth Stock Conference and today's session with Celebrite. My name is Jonathan Ho, and I'm the analyst, along with Louis De Palma, co-covering Celebrite for William Blair and Company. Our speaker today is CFO David Barter, who will be providing an overview presentation of the company, and then we'll go into a brief fireside chat. Before we begin, I'm required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at www.williamblair.com. As a quick reminder, the breakout session will be held in the Adler room following the presentation. With that, I'll hand it over to David for today's presentation and Fireside Chat.
Thank you, Jonathan. Is this mic working well? Jonathan, thank you so much, and thank you for having us at the conference. This is a real treat and a highlight for us. I'm going to start off and try and break up the time, about 15 minutes, just give you an overview of Celebrite. what gets us excited? What do we do? Where's our motivation in life? And we'll try and reserve some time just for a little bit of Q&A and just to answer things that are on your mind. And I know Jonathan has a few questions that are all keyed up as well. I'll let you read the safe harbor. So later on, when you think about Celebrite, I guess first and foremost, we are a public safety company. What gets us up and what gets us going every day as a mission around 1,300 people is just our focus on protecting nations and communities every person every business that ultimately represents in that group we we actually are really are very focused right now on delivering to all of our customers a comprehensive platform and this is kind of a newer thing for us in the sense that we started off with a lot of capability around a full file extract then we kind of got in the business of being able to unlock devices but increasingly where we're going through a lot of our organic development also a couple of acquisitions is really being able to serve law enforcement, public in a federal agencies with a full set of platform technologies and that's what I'm excited to share with you today in terms of where we've been going. The genesis of our company really was the around the idea of we help you start to collect evidence. The richest piece of evidence going back over the last 15 years has been the mobile phone and that's where our heritage started around helping investigators quickly extract. What does it mean to extract? It means to be able to not just scrape a mobile phone, but to go through some of the most encrypted applications that somebody may use, maybe going and scraping all of their cloud services. A phone can be anywhere from 60 GB to ultimately a half a terabyte. And so our goal really is driving this phase of collection of evidence. There are some secular tailwinds to our business. If you were to rewind the clock to 2007, 2008, when you first got your hands on an iPhone, there was a forensic examiner sat in the back room of any police office. They would drive the extraction. Today, you're going through a business where every detective, DA's, increasingly offices, even with the FBI. Everybody wants to collect evidence. They're trying to compress the investigative lifecycle. They're trying to get a lot of noise in the world and trying to get to really good signal intelligence. That kind of takes us to where we're really going with the business about three or four years ago we introduced a collections platform it is perfect for law enforcement in the sense that it supports full chain of custody so rather than passing data and some of the very manual processes that ultimately jeopardize chain of custody we come up with a native cloud solution it also includes an AI viewer so if you're trying to automate the entire investigative lifecycle and you have to look at this from the perspective of a detective detectives don't want to look at murder they don't want to look at rape they don't want to look at exploitation with an AI viewer we've been able to dramatically transform the investigative process to be able to attach metadata to the phone calls to the images to the videos all associated with crime where we can dramatically change how crime ultimately gets prosecuted by an examiner a detective and all the way up to the DA and so there's always a human in the loop but we've been able to reduce dramatically both the time but also the investigative toil so it's a big part of what we've been doing up within the management lastly kind of take it down to AI I mean AI has been a persistent element in all of our products but we've recently as we shared on the earnings call started to roll out a new product called Genesis Genesis is purpose-built it's designed for investigators in the sense that it takes the guardrails off any investigation to be able to look at highly sensitive data it puts the in the guardrails back on in terms of making sure that a model doesn't hallucinate and so we're really excited about the ability to start to transform. Now lastly I'll kind of highlight just in terms of virtualize we really think about the acquisition that we made of Carilium we have the only technology in the market that has kernel level access to any arm-based device that has a number of superpowers the co-founders built that business on the back of vulnerability research you can do some pretty fancy tricks in the form of being able to look at a device before and after so if you are a three-letter agency and your folks have been overseas we can actually look at your device before and after to find out what malware is on your device if you want to forensically inspect a device we have the only ability to forensically inspect a device and so having that ability to virtualize any arm-based system ultimately accomplishes a variety of tasks both at a federal level but also at a local level if you are truly in need of having robust investigative capability what's driving our business At a fundamental level, it's certainly data volume and complexity, but I would also say structurally you have a different challenge in the business in the sense that whether you're an operator in the field, whether you're Customs and Borders or you're law enforcement, there's a volume of data and then there's the need to compress the investigative cycle. so the environment is incredibly noisy with regard to the volume of data that's hitting any operator in the field today but then there's the ability to be able to get through the volume of data get to signal intelligence and be able to make a decision as fast as possible and so this I'd say this you know kind of challenge that you see is at a federal level you know many customers I'd say wrong or prospective investors would say gosh you sell into the FBI you must be fully penetrated. Even the FBI, with all of the size of their budget, they don't actually have all of our technology in every field office. If you were to look at state-level agencies, same challenge. Digital investigative capability is still not fully penetrated. It is a small fragment of, or a small, you know, a fraction of what you'd expect to see in terms of being able to have signal intelligence. And so, data volume and complexity is a challenge, penetration within the market, and then lastly, you are getting into the element where there are elements around an iPhone or any technology starts to lock after a certain amount of time and so that's hastening the need to start to drive the adoption of technology. The last part I'll highlight is that a big part of our business and I think what separates us is that a key part of our mission is the ability to focus on lawful investigations and ethical AI. We probably have a KYC policy that rivals almost any bank in the world in the sense that we don't sell to just anybody. We don't sell to any country and we certainly don't sell with any given country to any customer our focus is there are there are people who will I know that are sanctioned and and our officers of the court in the sense of they are empowered to be doing lawful investigations we also believe that in our products ethical AI is a very important part of our relationship with any customer we believe that's an enduring part of our business model because you do see people making it to the news in terms of kind of pushing the boundaries of how they use data and our view is there is just again a very lawful and ethical way to ultimately do warrant based work with all of our customers I've hit on this a number of you know in a number of ways but I think the kind of the element I would want you to you know to really walk away with is whether you're protecting the perimeter of a nation and you are in customs and borders or you are in a local PD there is a compression that is going on in the world in terms of being able to really drive home the ability to understand the signal through all of the noise everyone is compressing the investigative life cycle if you're the local PD you're worried about an investigation you know to look at the Guthrie case people were very concerned around how do you use technology to change that process that process became a very elongated investigation I would say it's probably not what investigators aim for they're really trying to nail investigations within the 24 to 48 hours if you're an operator in the field or if you're a customs and borders you have people right in front of you that are trying to enter a country you really want to have that signal intelligence very very quickly and so that's a common denominator that pulls through a lot of our business lastly I guess you know as I want to wrap up and I want to be sensitive on time as I hear look at the countdown here there is a lot in our business where we look at the mobile phone when it gets extracted produces a data element called a UFDR a lot of our customers will take that UFDR and they will complement it they'll complement it it could be with something out of a records management system potentially like a body cam or a CCTV maybe they'll actually take that data and they will marry it up with all of the calls that are coming into and out of a prison they might marry it up with a ballistics report what makes our business I think special is we probably have the thorniest piece of data in terms of all of the data that people attach to their mobile phone again lots of cloud services data and they will ultimately enrich it with other evidentiary artifacts in order to drive this rapid insight. So it's kind of one of the interesting things about what's going on in the business at a very macro level. And this is what's driving the usage, I think, of our AI platform is for every UFDR that somebody might get their hands on, they will ultimately enrich it with nine other data sources in order to get to that actionable intelligence. And so I thought it would be worthwhile to give you a flavor because this is new for us as much as it is even for our customers around how to use AI in an ethical way and also within the bounds of search warrants and what represents a lawful investigation. I think what we're finding here with these case studies is that we are probably changing the world in a way that we didn't even expect, in the sense that when we started rolling out our Genesis product to our customers, we offered it as an early access program. And our hope was maybe we'll get 12 customers that will want to come in and they'll help us harden the solution. We ended up with hundreds of customers, and I think we're well over 500 participants in terms of people that are now using it. And they're not just using it to use it, they're actually using it to solve crime. And so that's kind of when we started thinking about a great early access program, one where we're actually starting to change how communities work, whether it is unpacking. You know, there was a terrorist organization that ultimately turned out that they ended up being a financing arm for Hamas, and this was all happening out of Asia which was really a kind of an eye-popping incident there have been cases of murder cases of exploitation and so you know for our standpoint you know again a big part of our journey has been how do we again protect nations how do we protect communities how do we impact impact and protect citizens and so as we kind of look at our ability to compress the investigative process and to really change how our nations work this is a product that we're pretty excited about that product is still in early access mode we expect to launch it sometime in later this month our real focus though is driving adoption and our focus is really again you know changing changing lives for citizens but changing lives for our customers as well one of the things that that I figured I'd wrap up on it and is and we'll just hop into some questions here in a second it's just a little bit of our journey as a company a lot of us know a lot of people know celebrate you know because you know when when there was a the attempted assassination of President Trump the FBI called us to help there are other high-profile situations where people say gosh celebrate is the group that can either unlock a device or unlock an extraction the piece that I think you know is increasingly interesting to investors is not only the natural expansion that comes from those things that we do well but also all of the growth products and so what we really wanted to capture on this view is where we see all of our customers that are on the vanguard who have said gosh now that you have fed ramp how do I actually start to manage all of my all of my data in the cloud or how do I start using AI in a very very progressive way and one of the I guess the element that we're excited about is our customers as we shared in the last earnings call are starting to ask us for platform arrangements where they can democratize the usage of all of the extraction capability and then tie it together with all of our other products. And so our focus on changing the investigative life cycle is something that we're super excited about in terms of how it's helping our customers. While we stop here, maybe get on to some of your questions, because I think financial highlights will naturally take us into the things that are top of mind for you.
Perfect. Perfect. Thank you, David, so much for the overview. And I certainly have to say Celebrite is one of the most impactful companies when it comes to solving law enforcement challenges and just impacting our society as a whole. We sat in at some of the sessions at your user conference where district attorneys talked about the criticality of Celebrite to solving multiple murder cases and a lot of exploitation and just really, really crazy things that are happening in society. So thank you for the good work. One thing I wanted to dive into is that you've talked a little bit in your slide deck about the transitions that have happened over the past year with the company, whether it's with management product or strategy can you help us understand the changes within the strategy and organization and where we're going along that journey like
where was our end point here yeah I well they it's a great question since I'm not sure that there's an endpoint but there is an opportunity and for the last three years the company has been focused both I'd say organically and then lately with a little bit of a strategic acquisition around the idea that maybe I'll kind of observed that when I when I got into the job about a year ago one of the first things I received was a police report and it was an assessment of one of our major states in the state of the IT infrastructure that was supporting the investigative process and the challenge and what I realized it through that report was they had a series of silos in terms of the technology solutions around both operational data and the judicial data and so it was a variety of point solutions all on-prem of how they actually run a major police force across an entire state and for me that was probably my first aha of saying gosh I now understand the problem this is a digital transformation problem in the sense these are on-prem largely again technology from 20 years ago it doesn't support the nature of crime today and so I think what we've done is actually use probably arguably one the most important data to them but then start connecting all of that data as it goes from an operational process into a judicial process of how do I hasten the process of investigating and so that that really is I think what's it unfolded over the last three years is both a product roadmap a cloud journey a transformation where just six years ago the company actually sold perpetual licenses today we actually are selling consumption contracts and so we really if you ask ask any major law enforcement organization they know how many cases they prosecute so having a consumption business model actually works really well for them being able to actually put that technology in the hands of a detective all the way through a DA is really transformative for their journey and so again I think almost all our investments have really focused on that compressing of the investigative life cycle where we can actually get insight into the hands of the operators who need
it most. John maybe one other point related to transitions you know if you think about what we've gone through in terms of leadership and you know we're continuing to bring on you know new executives have a new president of product and technology who started a couple of weeks ago but if I think about where we were at this time last year with our product portfolio the breadth and range of our capability is so much more extensive than where we were at this time last year and that reflects I think you know in increased level of both investment in development but also you'd see that correlated with with an increased in emphasis on strategy and so whether it's organic development and products like Guardian investigate in Genesis being at the forefront there or acquisitions Corellium and SCG in terms of drone forensics so I think that the the what's on the truck today is substantially more impactful or broader in scope and we'll continue to bring new capability to market over the the coming quarters excellent excellent I mean I don't think
we can have these these meetings without some discussion of AI and those and some of the evolving things that are happening there there's been a lot of concern in software and particularly with cyber security cyber security regarding mythos itself you know how do you think about mythos as either a potential threat or opportunity when it comes to celebrate right and I mean specifically you have to leverage vulnerabilities to be able to break into these devices. So does it create potential competitors or does it make your job easier? How do you sort of think about it?
Well, it's a great question and it's actually, we will have a tech talk in about a little bit, a little bit over a week from now. Well, between a week to two weeks from now because we actually wanted to be able to speak very factually about that point. We wanted to bring our CTO who founded Carillium who's a vulnerability researcher by trade but we also want to bring our head of product and also the the head of our our AI because we actually think as we talked to a number of investors there's a fair amount of confusion around what is mythos what it is not and so we've actually thought rather than hearing from some finance folks we thought it actually you would great you know investors would greatly appreciate from hearing about from vulnerability researchers around how they approach it I guess in advance of that I think when mythos came out let me maybe offer a couple of thoughts we certainly looked at it from a research perspective and then our CTO reached out to Apple I reached out to somebody else who one of the mega caps that it actually had in Mythos and we actually tested out one what were they seeing and then we also back traced it to how we thought about vulnerability research where we've been using AI for a number of years I think to net it out for you just in advance of that presentation in about a week or so is the framework that we have actually I think continues to hold true we approach vulnerability research in a very specific way. Every OEM has to make trade-offs. They're making a trade-off between cybersecurity and the security of their platform versus the user experience, the application performance, and what they term usability. This was actually played back to us because this was our thesis around how we build exploits. So recognizing that there are a series of engineering trade-offs that have to occur that make your platform either work or make your platform work with a carrier. It doesn't make it work between Apple and Windows or a Google app on an iOS app. All of these trade-offs create opportunities and they really sit at the intersection of the software and the hardware layer with any device. We string as our vocation and what a researcher does is, they will take 10 or 12 different vulnerabilities, and they will start to turn that into 10 or 12 different exploits. That's ultimately how we go about the process of both unlocking a device, but equally unlocking the applications that you think are encrypted and secure or unlocking and taking out the crowded cloud services that you think are secure and so that process the investment we make in research it's a global investment it's actually not in one location it's not one patina team in Israel we employ researchers around the world who have a very unique skill set they use AI but they're using tools like Corillium which we acquired in December and other advanced tools because vulnerability research and it's hard for what we do I'd say ultimately kind of attacks very very specific engineering intersections
between hardware and software and so you know we would look at something like mythos says it's an incremental advance it's certainly not an existential threat to what we do you know we will get value from developments like that as the OEMs will as well treadmill runs a little bit faster our level of investment as Dave mentioned is global in its nature not only in people tools and partners and so you know again where you believe we're delivering a solution that you know has extensibility as we in value as we move forward barriers to entry into our business go up the value that we deliver to our customers goes up as well
that makes a ton of sense um Celebrate has announced a number of new product an absence from Guardian investigate to Genesis help unpack for us what does the product evolution look like and help us understand you know sort of that journey for the customer as they you know say walk through from a traditional extraction customer all the way up until using the full suite of solutions like what is that what is that customer journey look like well and it's probably
more journey around how the company has moved from a forensic examiner almost all the way through to the district attorney and it wasn't maybe it was halfway through my journey I guess in the last six months when I learned that actually there is more diversity in practice in terms of what's happening in the ecosystem than I even gave it credit for I'd say many investors will say gosh the idea of running an extraction always sits with the police chief that's actually not true and in the state of New York and specifically in New York City it's actually not the chief of police that drives the extractions it's actually the DA and the district attorney and so we've had a general push towards expanding the audience of in the personas that we serve from forensics examiners to detectives to DA's and kind of that push through the entire judicial process and so our product roadmap really reflects that in many respects where we've gone to make sure that we provide a full set of connected tools from how you run an extraction to how you collaborate on evidence and having a case management solution but you had a great call out around investigate investigate is actually purpose-built for detectives and investigators where they have work item tracking they can build a criminal timeline they have the ability of anything that you might have seen on law and order but to do that now digitally and they can do that digitally and they can bring in the UFDR they can bring in all of their other data elements and as we're innovating they'll be able to tap into Genesis in the same console and in the same pane of glass so they'll actually be able to accelerate their investigations and so rather than again you know almost going back to that old investigative report that I saw on all the siloed apps you now get to having a pane of glass that actually is really geared around the detective the investigator and the DA of how do they pick up all of the operational data and move it into the investigative process and so that's you know that's where we kind of see it and I think you saw the customer conference where one of our customers out of Texas was one of our early design partners they said gosh you really now I have an application for myself it's an application that really works for an ecosystem that's about a half a million detectives investigators DA's in the US and that's about 10 times the size of the examiner population and so being able to hasten the journey that they're on is important absolutely
absolutely so moving on to more sort of financial questions when we think about sort of the broader transformation within product contribution for celebrate Right, you know, as it's just more and more to AI, how do we think about the margin structure? How do we think about the costs? How do you leverage AI yourself internally?
Well, let me kind of pop up because you're right, there is a lot of transformation and I think as a company, I think we feel really good about running as a rule of 50 company, but let me maybe talk about how we get there and we'll talk about the AI usage. The top line of our company has been shifting and not only has it been shifting from where it was six or seven years ago where it had perpetual and now today it's all term based subscriptions for some of our federal customers or consumption contracts but once upon a time it was 90 or 95% really geared around extractions well in this year and it'll only it'll be almost 80% the extractions about 20% of it will be all the growth products that represent that platform that we talked about earlier and so that transformation that's going on where we have some products that are still growing at healthy double digits which is the extraction piece but all of our newer products are growing plus 50 percent or in some cases a hundred percent year-over-year and so kind of continuing to build out the platform I think strategically is an important part of what we're doing to really own much more real estate within our customers and you know within the investigative process how AI is playing a role is we started off actually early on by bringing AI into the extraction process then we brought it into the case management process and now we have standalone AI applications and so can continuing to meet customers where they are in terms of their readiness around having AI at their fingertips to hasten the investigative process has been an important part of the product strategy. I'd say operationally we've also been bringing it into how we work as a company. So the first place we used AI was on vulnerability research. So that was the kind of the initial superpower. Now it's around software development and increasingly quite frankly it's how we run sales operations and even finance and investor relations and so I think almost everyone looks at 2026 internally as a very pivotal year for us as a company where a software engineer will become and this is actually data from one of our engineering leaders where we ran we started off with open AI as the first tool that we used in software development recently we ran a pilot with code and same same thing that many people have seen an average engineer suddenly becomes a 5x engineer and so I think the way we're going to get continued leverage on our P&L we've talked about driving up to from plus 30 percent free cash flow margins to 40 AI will be one of those ingredients excellent and that's R&D go to market and certainly the G&A functions it makes
a ton of sense um you know celebrate recently received fed ramp high authorization i just want to understand you know this is something that uh none of your other competitors have you know based on our understanding you know what kind of opportunities does that open up for you and is there a way to sort of understand the timing for you to you know sort of take advantage of having this certification is it typically you know hunting license where you're starting the process or you know are a lot of customers just ready to go and to start contracting yeah let me answer the
second part of that question first I'll come back to the first the hunting license I'd say it was already there in the sense that the great news about the federal agencies is they were very well aware of the toll gates of working through FedRAMP and so from that standpoint the agencies have been tracking where we're going and so it was about two days before we actually got our letter that we actually received a strong inbound inquiry from somebody saying well we know your letter is about to come so it's now is a good time to start talking about an ordering contracting and so our view is whether it's q2 hard to say but probably q3 first order probably starts to come in from that standpoint simply because of the physics associated with contracting officers and government procurement so we believe that being the the lead product makes tons of sense now let me get to the first part which is why you're the federal government as a taxpayer I don't know if I if I have to be the one to kind of break your hearts is way far away from digital transformation us having FedRAMP you know this opens up that opportunity for digital transformation within the federal government particularly this is why the Department of Justice sponsored it but to be able to prosecute crimes at a national level be able to connect the federal level to the states this is that opportunity and the opportunities come from even in Congress where there was a Congresswoman who wants to sponsor legislation says gosh for internet crime specifically going getting into internet crimes against children there must be a better way to be able to protect this because it's all CCM data it's protected data for a fed ramp high environment it's actually the perfect place to have highly sensitive content around the exploitation of children and what's happening and we agree I mean this is not this is why even our AI is very specific because it deals with crime types and very sensitive data and so we think we're early on we also think we're early on in terms of being able to help the government at a federal level and at a state level be able to work much much more efficiently.
Unfortunately, that's all the time we have today and so we'll continue the discussion in the breakout session.
Jonathan, thank you so much. And thank you everyone.
Thank you.