Earnings call transcript: Cellebrite cuts outlook in Q2 2026 despite EPS beat - Investing.com

Earnings call transcript: Cellebrite cuts outlook in Q2 2026 despite EPS beat Investing.com Published Dec 31, 0000 07:00PM ET Updated Aug 13, 2026 10:11AM ET Cellebrite reported mixed second-quarter 2026 results, beating profit expectations but slightly missing on revenue as large government and cloud deals slipped beyond the quarter. Adjusted earnings came in at $0.11 a share, above the $0.07 forecast, while revenue was $131.14 million, just below the $131.87 million estimate. The stock fell 31.93% to $10.38 in premarket trading, leaving it near the low end of its 52-week range after management cut full-year ARR guidance and pointed to slower-than-expected deal timing. Key Takeaways Adjusted EPS of $0.11 beat Wall Street’s $0.07 estimate, but revenue of $131.14 million came in slightly below forecasts. Annual recurring revenue rose 21% to $508 million, but still missed the low end of management’s guidance. The company cut full-year ARR guidance to $550 million-$560 million and revenue guidance to $555 million-$561 million. Adjusted EBITDA guidance for 2026 was raised to $153 million-$159 million, showing stronger profit discipline. Shares dropped sharply after the report, reflecting concern about execution, deal timing and lower growth expectations. Company Performance Cellebrite said second-quarter performance was mixed, with strong underlying profitability but weaker-than-expected top-line momentum. Revenue rose 16% from a year earlier, helped by subscription sales of $119.5 million, which made up 91% of total revenue. Gross profit increased 16% to $112 million, and adjusted EBITDA reached $31.8 million, equal to a 24% margin. The company said growth remained broad across regions and products, but several large transactions moved out of the quarter. Management also said the business is shifting toward newer products such as Guardian Investigate, Genesis and Advanced Unlocks, which are helping diversify growth beyond legacy extraction and unlock offerings. The results came as Cellebrite is trying to expand in cloud, AI and federal government markets. Those areas offer larger deals, but they also bring longer sales cycles and more complex procurement rules. Management said the quarter was more about execution than demand, and described 2026 as an “execution reset” rather than a reset of long-term growth potential. Financial Highlights Revenue: $131.14 million, up 16% year over year. Adjusted EPS: $0.11, compared with $0.07 in the forecast. Net income: $29.7 million, or $0.11 per diluted share. Gross profit: $112 million, up 16% year over year. Gross margin: 86%. Adjusted EBITDA: $31.8 million, with a 24% margin. Gross profit margin: 83.86% over the last twelve months, reflecting what InvestingPro identifies as "impressive gross profit margins." Balance sheet strength: The company holds more cash than debt, according to InvestingPro Tips. ARR: $508 million, up 21% year over year. Subscription revenue: $119.5 million, up 16% year over year and 91% of total revenue. Cash, equivalents and investments: $546 million. Trailing 12-month free cash flow: $144.2 million, equal to a 28% margin. Earnings vs. Forecast Get The News You Want Read market moving news with a personalized feed of stocks you care about. Get The App Cellebrite beat earnings expectations but missed on revenue. Adjusted EPS of $0.11 was $0.04 above the $0.07 forecast, a 57.14% beat. Revenue of $131.14 million was $0.73 million below the $131.87 million estimate, a miss of 0.55%. The earnings beat was solid, but investors appeared to focus more on the weaker growth picture. ARR, a key measure for subscription software companies, rose 21% but still came in below the bottom end of guidance. Management said the shortfall was concentrated in a small number of large deals that slipped into later periods. That made the quarter look less like a one-time miss and more like a sign that deal timing and conversion are becoming harder to predict. Compared with recent quarters, the revenue miss was modest, but the guidance cut made the result more serious for investors. The market reaction suggests that Wall Street had been expecting stronger acceleration in the second half. Market Reaction The stock fell 31.93% to $10.38 from a previous close of $15.25 in premarket trading, a drop of $4.87 a share. The move pushed the stock close to its 52-week low of $9.58, far below the high of $19.98. The sharp decline points to a negative investor response to the company’s revised outlook. While the EPS beat may have offered some support, the market appeared more concerned about the ARR miss, the lower full-year guidance and the explanation that several large deals slipped because of procurement and administrative issues. The stock’s move was unusually large for a quarter that only slightly missed revenue estimates, suggesting that investors were reacting to the change in growth expectations rather than the headline numbers alone. Outlook & Guidance Cellebrite lowered its full-year 2026 ARR guidance to $550 million-$560 million, down $15 million at the midpoint from the prior view. The revision comes as four analysts have recently revised their earnings estimates downward for the upcoming period, according to InvestingPro data. The company now expects full-year revenue of $555 million-$561 million, compared with the earlier outlook that implied stronger growth. It also said second-half net new ARR is expected to be roughly in line with fiscal 2025 levels. At the same time, the company raised its adjusted EBITDA guidance to $153 million-$159 million, or a 28% margin. Management said the higher profit outlook reflects tighter cost control and disciplined investment. The company also said it still expects about 3% free cash flow margins in 2026. For the third quarter, Cellebrite guided to ARR of $524 million-$528 million, revenue of $145 million-$148 million and adjusted EBITDA of $42 million-$45 million. Management said the outlook assumes more conservative deal timing, lower incremental pricing from Inseyets migrations and a smaller contribution from some large cloud and AI transactions. Looking beyond 2026, management said it is increasingly optimistic about a stronger step-up in profitability and free cash flow in 2027, helped by flat headcount, easing foreign exchange pressure and scaling newer products. Executive Commentary Shiv Ramji, who became CEO effective immediately, said the company fell short of its own expectations and must improve execution. “This was not the quarter we expected, and we have work to do,” he said. He added that the company will “confront issues early, communicate clearly” and set “realistic yet ambitious goals.” Ramji also framed the company’s strategy around digital investigations and AI. “We are building a shared Cellebrite AI layer designed specifically for digital investigations,” he said, describing a platform that combines forensic context, models and agents with controls around provenance, verification and auditability. On the product side, he said Cellebrite remains the only FedRAMP High-certified digital forensics solution and called the certification process “very long and torturous,” a point that underscores the company’s competitive position in U.S. federal markets. Chief Financial Officer David Barter said the company is seeing demand, but cloud adoption is changing how deals close. “Cloud transitions and cloud adoption work well in every other part of the economy. There is no reason why it does not work well here,” he said. Risks and Challenges Longer sales cycles: Management said complex cloud and AI deals are taking about six weeks longer to close, which can delay revenue. Procurement surprises: New requirements in the U.S. federal market and Europe created delays and hurt quarterly results. Weaker Inseyets monetization: Pricing uplift from migrations was lower than expected, which may pressure ARR growth. Guidance pressure: The cut to full-year ARR guidance suggests the company sees more caution ahead. Foreign exchange headwinds: The Israeli shekel continues to weigh on profitability and revenue assumptions. Execution risk: Management acknowledged that forecasting and deal qualification need to improve. Q&A Analysts focused on why growth confidence remains intact after the miss, how much of the weakness came from procurement issues, and whether the company can avoid similar delays in future quarters. Questions centered on the federal business, especially a Foreign Entity Permit requirement that added four to five weeks to some cloud deals. Management said it has now secured a master permit that should speed future orders. In Europe, executives said new freedom-of-information rules created extra compliance work for cloud deals, but four delayed transactions were secured in the quarter. Analysts also asked about the CEO transition. Management said the move from Tom Hogan to Shiv Ramji was planned, though accelerated because of market opportunities. The board said it had long expected to recruit a product-focused successor. Another major topic was Genesis, Cellebrite’s new AI-powered product. Management said it generated about $400,000 in ARR by quarter-end and had grown to roughly $1 million by the end of the third quarter, with early customers including local police departments, metropolitan agencies, district attorneys and correctional organizations. Questions on Inseyets focused on why pricing uplift was lower than expected. Management said the product is maturing and that customers are increasingly choosing other products as part of broader platform deals. Executives said gross revenue retention is still rising, which they see as a positive sign for customer stickiness. For investors seeking deeper analysis, Cellebrite is one of over 1,400 US equities covered by comprehensive Pro Research Reports , which transform complex Wall Street data into clear, actionable intelligence through intuitive visuals and expert analysis. Full transcript - Cellebrite DI (CLBT) Q2 2026: Operator, Conference Call Operator: Welcome to the Cellebrite Second Quarter 2026 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. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to your first speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours. Andrew Kramer, Investor Relations, Cellebrite: Thank you very much, operator, and good morning, everybody. Welcome to Cellebrite’s second quarter 2026 financial results call. I am joined this morning by our primary speakers, Adam Clammer, Cellebrite’s Chairman of the Board, Shiv Ramji, Cellebrite’s new CEO, and David Barter, Cellebrite’s CFO. Shiv, Dave, and Marcus Jewell, our CRO, will participate on our Q&A session. This call is being recorded, and a replay of the recording will be made available on our website shortly after the call, along with a copy of the transcript. Please note that today’s press release and financial statements, including GAAP to non-GAAP reconciliations, are available on the investor relations website at investors.cellebrite.com. In addition to the press release, we posted a separate investor presentation that provides an overview of the business and our recent financial performance. I would like to remind everybody who is listening on the webcast that the slide in your webcast viewer is a placeholder only. There are no actual slides to accompany the prepared remarks. We also published our historical financial information and supplemental data for the first two quarters of 2026, each quarter of 2025, along with the full year 2024 and 2023 on our investor relations website. Additionally, unless stated otherwise, our discussion of our second quarter 2026 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 of 2025. I would like to remind you that today’s discussion will contain forward-looking statements including, but not limited to, the company’s business operations and financial performance. 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. Actual results could also 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 3, 2026. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. With all that being said, I would now like to turn the call over to Adam Clammer. Adam Clammer, Chairman of the Board, Cellebrite: Thank you, Andy, and good morning, everyone. As you saw in this morning’s release, our board has appointed Shiv Ramji as Chief Executive Officer effective today. Before I go further, I want to take a moment on behalf of the entire board to thank Tom Hogan. Tom joined Cellebrite three years ago as Executive Chairman, and we are incredibly appreciative of his impact. Since taking the reins as CEO last year, we further accelerated our platform strategy, expanded into new markets and adjacencies through both organic development and acquisition, and built a stronger foundation that positions this company well for the next chapter. We are very grateful for everything he has contributed and pleased that he will continue to support Shiv and the board as an advisor. I know many of you will ask, "Why Shiv, and why now?" This is something the board has thought about carefully over time. Even after Tom became CEO, the board recognized that his tenure would likely be limited, and Tom candidly acknowledged that himself. A key priority has been to make sure the right talent was in place around him to carry this company forward, and Tom played an integral role in recruiting much of the current leadership team. When we brought Shiv on board, it was with the clear understanding that he was, for all intents and purposes, positioned to be Tom’s successor. Shiv ramped much faster than we initially expected. The pace at which we need to build and compete is accelerating, and we believe that is best driven by a product-centric leader who is rooted in architecting scalable, cloud-native platforms that can maximize the impact of AI, which is continuing to rapidly scale. We are seeing tangible signs that this represents an enormous opportunity for Cellebrite, and the team was emphatic on the last quarter’s call about that. Given this backdrop, we felt it was important to make the change now. Looking ahead, my optimism about Cellebrite’s future has not wavered. We have a large and growing healthy market, trusted relationships with virtually every major public sector agency in the democratized world, a differentiated platform, and a world-class team that is squarely focused on turning our domain expertise in technology into durable, profitable growth. Although this year will be choppier than we would otherwise have anticipated, the platform strategy is working. Growth is increasingly coming from our new products outside of extractions and unlocks. We are well-positioned to build on our progress given these new initiatives and customer adoption. With that said, I will turn it over to Shiv. Shiv Ramji, Chief Executive Officer, Cellebrite: Thank you, Adam, and good morning, everyone. Echoing Adam’s comments, Tom’s partnership over the past several months has meant a great deal to me, and I am grateful for the foundation he has helped build. Cellebrite continues to make a real consequential impact on public safety around the world, and I see a genuine opportunity to build on that. Regardless of customer segment, the fundamental challenge is the same. How do you compress the investigative life cycle and rapidly obtain trusted insights and actionable intelligence? Given our core competencies in digital forensics and our intimacy with customers’ workflows and our accelerating investments in on-premise capabilities, edge, cloud, and AI, Cellebrite is uniquely positioned to turn digital data from any device, any source, or environment into actionable, court-approved, and mission-ready intelligence. All of us here are committed to the hard work and disciplined execution required to enhance our platform and expand our business around the globe. I am excited about the opportunity ahead, but today, I want to start with where we are. We did not deliver the ARR and revenue performance we expected in the second quarter. On our last call, we expected a meaningful acceleration in Q2. That acceleration did not materialize at the level we anticipated, and we own that. The immediate shortfall was concentrated in a limited number of large transactions that we expected to close in the quarter but ultimately moved beyond our anticipated timelines. It is worth noting that for some of these transactions, particularly with U.S. federal and European government customers, we encountered new and additional administrative and procurement requirements related to our current foreign entity status. Additionally, we are also competing for increasingly large and strategic opportunities that now incorporate cloud and AI. These deals involve more stakeholders, and in some cases, longer procurement cycles. I want to be clear, timing is not an excuse. We need to execute these opportunities better, identify risks earlier, and forecast the business with greater precision. Another factor impacting performance involves our Inseyets digital forensic solution. To be clear, we continue to make good progress converting customers to Inseyets, reaching nearly 65% of the installed base by the end of Q2. However, the ARR uplift from pricing and footprint expansion has been lower than we expected, particularly in the U.S. state and local government sector. Taken together and considering the timing of several product introductions in the second half, we believe the responsible action is to lower our full-year ARR and revenue outlook. At the same time, we are raising our full-year adjusted EBITDA target, reflecting continued discipline how we manage the business and prioritize investments. David will walk you through the outlook in more detail shortly. The question I want to address next is straightforward. What do we need to do differently? There are two immediate priorities. First, we are raising the standard for sales execution. We have completed a bottoms-up review of our pipeline and our largest opportunities. We are putting greater rigor on our qualifying opportunity, customer commitments, procurement milestones, executive sponsorship, and cross-functional ownership. Second, we are tightening our forecasting discipline. Pipeline is not performance. Going forward, we will place greater weight on observable customer actions based on the current environment. Within that construct, we will also more explicitly account for the timing and magnitude of prospective large transactions with major government agencies. None of the disappointment around the quarter or the year changes my conviction in the opportunity in front of Cellebrite. There are a number of positive signs that our strategy to broaden our platform and extend our reach beyond our technical digital forensics user base is, in fact, working. Our U.S. federal business had a solid second quarter, and the defense and intelligence ARR grew 25%. Our platform is compelling for these customers, and we are now pursuing some of the largest opportunities in the company’s history. Our newer offerings are also increasingly contributing to our ARR growth. We saw important adoption of new solutions like Guardian Investigate, Advanced Unlocks, and Drone Forensics in Q2, all of which occurred in their first full quarter of availability. Earlier this week, we secured our first major FedRAMP deal for Guardian with one of our longstanding U.S. federal customers as part of a multi-product, multimillion-dollar deal. This customer placed an initial seven-figure order for Guardian alone that is nearly 35 times higher than the average annual spend of roughly $50,000 by a SLG agency on Guardian. Genesis, which launched on June 10, generated more than half a dozen customer wins before the end of the second quarter, and that progress has continued into the third quarter. We are pleased to see local police departments, major metropolitan agencies, district attorneys, and correctional organizations among the early adopters. Just as important, trials have continued to expand into Q3, and we are extending availability beyond the U.S. into the U.K., Australia, and Europe. These are all encouraging signals, but I also want to put them in the appropriate context. Innovation, customer interest, pipeline, and product adoption only matter if we consistently convert them into ARR, revenue, profitability, and ultimately, cash flow. That is the operating discipline we will prioritize moving forward. At the strategic level, the opportunity in front of us is much larger than any specific individual product. Every customer we serve is trying to solve essentially the same problem, compress the investigative life cycle and move from digital evidence to trusted, actionable intelligence faster. Cellebrite has a unique foundation from which to solve that problem. Deep expertise in digital forensics, extraordinary access to investigative workflows and data, and growing capabilities across cloud and AI. Our ambition is to connect those capabilities into a broader investigative intelligence platform that can securely turn digital data from devices, cloud sources, and other environments into trusted insights customers can act on. AI will be an important part of that. We are building a shared Cellebrite AI layer designed specifically for digital investigations, combining forensic context, models, and agents with evidence-grade controls around provenance, verification, auditability, and human oversight. The outcome we care about is not AI for its own sake. The payoff is measured in time, quicker time to evidence, accelerated time to insight, and ultimately, faster time to action and to justice. In the second half, our priorities include enhancing and expanding Genesis. This includes bringing this capability into high security and on-premise environments, and we have already secured an agreement with an anchor customer for an air-gapped offering. We also plan to extend Corellium into additional law enforcement and enterprise vertical use cases and continue advancing our drone forensics capabilities. We will invest aggressively where we see the potential for durable growth, but we will do so with discipline. I will close with a couple of personal comments and observations. First, I want to thank all of our Cellebrites who take our mission very seriously and are working hard to deliver on another important quarter. Your energy and efforts are truly appreciated by the leadership team, our customers, and our shareholders. In terms of our product and technology organization, Iftach Smit, a seasoned Cellebrite product and engineering executive, will assume leadership on an interim basis until we complete our search for a new leader. Throughout my career, I have been fortunate to build successful technology platforms for businesses that created access, opportunity, and better outcomes for people. What drew me to Cellebrite is that the impact here is unusually tangible. Inside every device and within every piece of digital evidence is a human story. A family waiting for answers, a victim seeking justice, an investigator trying to stop the next crime, and a nation working to protect its citizens. For the better part of 20 years, Cellebrite has earned the trust of its customers when the stakes are the highest and involve some of their most consequential missions. That trust is something I take very seriously. This was not the quarter we expected, and we have work to do. As CEO, I accept that responsibility. My commitment to our shareholders is straightforward. We will confront issues early, communicate clearly, allocate resources with discipline, and continue earning your confidence by setting realistic yet ambitious goals and achieving them through relentless, consistent execution and results. I am confident in the opportunity ahead, and I am energized by the work required to realize it. With that, I will turn it over to David, our CFO. David Barter, Chief Financial Officer, Cellebrite: Thank you, Shiv. Q2 represented a quarter with some puts and takes. ARR increased 21% to $508 million, but we missed the bottom end of our guidance range. We are committed to executing better, and I believe we will. As I look beyond the execution, it is important to keep in mind that business model transitions are nonlinear. We have made great strides converting our customers to Inseyets. Equally, we are making great strides with regard to cloud and AI. Our business will become stronger and more durable as customers adopt more solutions across our platform. We are also encouraged that our growth products contributed 25% of the $15 million of sequential ARR increase, versus 18% last quarter. Drilling down, our investment in new products continues to reinforce the value of our platform strategy. This was the first full quarter of availability of our Advanced Unlocks and Guardian Investigate solutions. Each contributed meaningful levels of net new ARR and opened up higher levels of spending. For example, given the volume of evidence stored on Guardian Investigate, combined with its AI capabilities, it is a product that commands increased price versus Guardian Forensics. Another highlight was Genesis, which we launched late in the quarter. The early signs of product-market fit are strong. We secured about $400,000 in ARR in the final weeks of June. This product was launched as a consumption product, which provides customers with the flexibility to use as many tokens as they need to compress the investigative lifecycle. The initial deals indicate this product will be accretive to our gross profit and P&L. Let’s take a look at ARR by geography. The Americas represented 53% of total ARR, EMEA represented 34%, and APAC represented 13%. In terms of growth rates, the Americas grew 19%, EMEA grew 23%, and APAC was a standout performer with 29% growth. Looking a bit closer into the Americas, growth in U.S. federal accelerated into the mid-teens after being flat at the end of 2025. As Shiv noted, the changing dynamic with Inseyets, where customers continue to adopt, but we are not capturing as much price and expansion at the time of conversion, was most evident in our U.S. state and local government sales group. Last year, this group delivered growth in the mid-20% range. The growth is now just below 20%. Fortunately, we are starting to see the benefits of new product introductions. Without those new offerings, state and local government growth would have been in the mid-teens. Turning to revenue, we reported $131 million, up 16% year-over-year. Subscription revenue was $119.5 million, also up 16%, and represented 91% of our total revenue. Our Q2 gross profit increased 16% to $112 million, which represents a gross margin of 86%. Second quarter adjusted EBITDA was $31.8 million, a 24% margin. Our profitability continues to be impacted by a challenging FX environment. Headcount was 1,287 employees at the end of June, which is basically flat with the end of fiscal 2025. We reported second quarter operating income of $29.8 million and net income of $29.7 million, or $0.11 on a fully diluted basis. Looking at the balance sheet, we ended the second quarter with $546 million in cash equivalents, and investments. For the trailing 12 months, free cash flow was $144.2 million, or a 28% margin. Our free cash flow performance reflects the impact of deal structures as well as collections that came in late during the first week of July. As a reminder, our free cash flow last year benefited from a one-time tax refund of approximately $9 million. Overall, we feel good about the underlying free cash flow dynamics and anticipate a stronger overall trend line in the second half of this calendar year. Let’s turn to our outlook. We’ve lowered our full year 2026 ARR guidance range to $550 million-$560 million, a reduction of $15 million at the midpoint. The change to our second half now assumes net new ARR for the second half of the year that is essentially in line with fiscal 2025. There are several primary factors for this change. The outlook reflects moderation in Insights conversions, specifically the incremental price and expansion at the time of conversion. There is greater prudence in regards to deal timing due to the administrative requirements we discussed earlier that are elongating deal cycles. Finally, we’ve removed potential upside from larger, more complicated deals where sales cycles are longer and less predictable in the current environment. Our recent FedRAMP win was a great example of this. It required multiple waivers, security reviews, and other administrative approvals that in the end made it difficult to forecast when exactly this deal would close. I’d like to take a moment to bridge our updated outlook for 14%-16% ARR growth with the growth framework we’ve previously shared. First, we still expect winning new logos and capturing incremental price will generate several percentage points of growth. Second, we now anticipate that Insights will contribute mid-single digits. The third growth driver, Guardian, Pathfinder, and Genesis, the cornerstones of our digital investigation and analytics offerings, will grow at the lower end of our original expectations in the mid-single digits. We also moderated our expectation for Corellium’s contribution to 1-2 percentage points. Finally, we remain comfortable about finishing this year with at least one point of improvement in our gross revenue retention rate, given our performance in the first half. Given the lower ARR range, we’ve reduced our full year revenue range to $555 million-$561 million, which represents growth of 17%-18%. We’ve raised our adjusted EBITDA targets to $153 million-$159 million, which represents a 28% margin. It’s important to highlight this outlook contemplates the business absorbing nearly three points of FX headwinds from the ILS. We plan to manage our capital allocation thoughtfully while we continue to fund investments critical to durable long-term growth. We remain well-positioned to deliver 3% free cash flow margins in 2026 as we move into the seasonally stronger second half of the year. We are increasingly optimistic about our potential to deliver the next step-up in our profitability and free cash flow in 2027, as we demonstrate that we can operate the business without material expansion of the headcount, the FX headwinds subside, and new products continue to scale. Our third quarter expectations are as follows. We anticipate ARR in the range of $524 million to $528 million, representing net new ARR of $16 million to $20 million. We expect third quarter revenue in the range of $145 million to $148 million, and adjusted EBITDA in the range of $42 million to $45 million, or a margin of 29%-30%. I’d like to close our prepared remarks by reiterating that reducing our growth expectations is prudent in light of the transitory headwinds we’ve encountered. We don’t take that change to our guides lightly. There is a lot of good happening beneath the headline numbers. Federal is re-accelerating, defense and intelligence is outgrowing the rest of the company, and AI and our Genesis product is off to the strongest start of any product we’ve ever launched. We remain confident in the long-term opportunity in front of us, and we’re focused on executing through the back half of the year to deliver on our updated outlook while setting ourselves up for long-term success. Operator, that concludes our prepared remarks. Operator, Conference Call Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question today comes from Shaul Eyal with TD Cowen. Your line is now open. Shaul Eyal, Analyst, TD Cowen: Thank you. Good morning, everybody. Shiv or David, listening to the call, I wanted to ask what gives you the confidence about the growth potential of the business? And I have a follow-up. Shiv Ramji, Chief Executive Officer, Cellebrite: Yeah, I will start. I think of this year as more of an execution reset, not a reset of our long-term growth potential. Like I said, we are seeing good early signals from the work that we are doing in product and also the deal sizes that we are now entertaining. Over the long term, obviously, we are optimistic about the potential of the business, but being prudent about how we execute over the next two quarters. David? David Barter, Chief Financial Officer, Cellebrite: Let me offer a little bit of perspective. When you put the quarter in context, we signed and took down orders probably well north of 1,000. In the end, it kind of came down to four, and it was four that crossed the line, and it was four that involved cloud. One in particular involved a platform. You might recall one of these deals we alluded to last time where they actually called us before we had FedRAMP approval. Shaul Eyal, Analyst, TD Cowen: Yeah. David Barter, Chief Financial Officer, Cellebrite: Even they were a little bit surprised about the changing procurement requirements when you get into cloud and AI and the approvals that we had to secure. To be in that spot where a platform order came in, we sold five products. Originally, they were just renewing one product, and they bolted on four more to it. To have a solution like that with a leading agency that is on the vanguard of cloud adoption, I think that is what gives us confidence. I think we have seen cloud transitions and cloud adoption work well in every other part of the economy. There is no reason why it does not work well here. The fact that they are adopting cloud, they are adopting AI, and even as Shiv alluded to, we have now customers that are going into on-prem AI, which is a pretty contemporary and quality business model, gives us the encouragement and the confidence. Shaul Eyal, Analyst, TD Cowen: Understood. As my follow-up, I am curious with respect to some of the slip that you have seen in EMEA, maybe like in EU countries, and some of the administrative requirements you have mentioned in your prepared remarks, can you maybe provide us with more color, maybe slightly elaborate on that? Thank you. Marcus Jewell, Chief Revenue Officer, Cellebrite: Sure. Hi, it is Marcus. I will answer that. In EMEA, we faced a slightly different challenge, which was based around freedom of information. The growth that we have in EMEA, that we wanted in Q2 comes from transitioning major European customers, both in Germany and the U.K., to cloud. That required an extra level of vigor that was not made apparent to us at the start, is that as information moves into the cloud for investigations, that a new EU law was applied for freedom of information, which meant there was an audit to make sure that any information that we store and process is kept not only in a sovereign location, but equally as a vendor, that we are anonymized, and we do not get to see that. That was a surprise to both our customers and us, and we had quite a difficult process with legal review to get through that. The good news is we secured four of those slip deals already in the quarter, actually all four, for the cloud, and we now feel confident that we know how to deal with and respond to the CIO’s requirements for freedom of information. That was the explanation for EMEA. Shaul Eyal, Analyst, TD Cowen: Thank you so much. This is very helpful. Thank you. Marcus Jewell, Chief Revenue Officer, Cellebrite: Thank you. Operator, Conference Call Operator: Thank you. Our next question comes from Mike Cikos with Needham. Your line is now open. Mike Cikos, Analyst, Needham: Hey, thanks guys. On the defense and intelligence growth, can you help us by maybe quantifying the magnitude of these elongated sales cycles that you are seeing as well as the conviction you have in the growth from where we sit today over the remainder of the year? And then I just have a quick follow-up. Marcus Jewell, Chief Revenue Officer, Cellebrite: Sure. So it is Marcus again. Hi. Thanks for the question. Great question. In defense and intelligence, actually delays are less. We actually feel confident about our ability and the nature of those deals, particularly in defense intelligence continues. The delay that we will call out was more in the civilian side of the federal business. That was down to two things. The first one was, I have to be honest with the agencies as they move to cloud and AI, do not necessarily have the correct procurement tools to understand exactly how to do that, and you are going to see that message portrayed, I think, across a number of vendors. We have a particular additional requirement, which is as a foreign filer, we found that we needed to find other permits, which was new. Our sponsor is a very high-level CIO in a departmental level, was not even aware of something called an FEP, which is a foreign entity permit requirement, which is applied to cloud technology. Since learning that and learning that process, which created a 4- to 5-week delay, we’ve managed to secure a master FEP, which means that at a departmental level now we’ll be much more expedited in the processing of our orders. I want to clarify the DNI is not as slowed down as federal agencies which are using this cloud transition. Mike Cikos, Analyst, Needham: Thank you. Thank you, Marcus. Maybe a question here for Adam. I’d just prefer to ask you. If I rewind the clock a year ago, it’s when we were saying that Tom was going to be named the CEO. He was the preferred choice. But we’re now appointing Shiv here effective immediately, which is part of this planned transition you guys are citing. But admittedly, at least from the external side, we didn’t have insight to that. First, can you walk us through that planned transition? Then secondly, how is the team internally handling that level of change management? If I’m thinking about retaining personnel and just the turnover we’re seeing in the CEO seat. Thank you. Andrew Kramer, Investor Relations, Cellebrite: Hey, Mike, it’s Andy. I’ll just preface that the Q&A was pretty explicit that Shiv, David, and Marcus would lead the Q&A. I don’t even know that Adam’s connected at this point in time. We understand the question, and we’ll endeavor to connect you. But I’ll just ask Shiv to provide a little bit of color and perspective there. Shiv Ramji, Chief Executive Officer, Cellebrite: Yeah. So, as Adam had mentioned, this was a planned transition, and both Tom and I have been working on this. We just accelerated the transition given the opportunity we see with the products and the markets we’re operating under. So, it just got pushed up much earlier than initially planned. Marcus Jewell, Chief Revenue Officer, Cellebrite: I would like to add, I think I will Adam Clammer, Chairman of the Board, Cellebrite: Well, Adam is here, and I am happy to just echo what Shiv said. This was something that when Tom went in as CEO, which we were excited about and he was excited about, he and we and the board understood that we would start looking for a product-centric CEO, and it might take some time to find that person, and it might take some time to ramp that person so they could assume this position. It happened sooner than we all expected, and it really happened with the full support of the entire management team. So we are delighted that all of the direct reports are excited and supportive about Shiv going forward. Mike Cikos, Analyst, Needham: Great. Thank you. Operator, Conference Call Operator: Thank you. We will take our next question from Rudy Kessinger with D.A. Davidson. Your line is now open. Rudy Kessinger, Analyst, D.A. Davidson: Hey, guys. Thanks for taking my questions. It sounds like in the quarter there was a number of maybe procurement and permitting and just things of that nature that caught you by surprise. As you look ahead, I guess, have you done a thorough review, I guess, across regions and agencies and governments, et cetera, to ensure that there aren’t more surprises potentially that you’ll uncover in future quarters? Just any color on why in hindsight you guys didn’t have your arms wrapped around all of these procurement requirements going into the quarter? Marcus Jewell, Chief Revenue Officer, Cellebrite: Sure. Great question. This is Marcus again. Look, you don’t want to be a CRO in a public company with a miss. The first thing, we own that, and of course, if I had known these things up front, myself and my team, which I believe is an excellent team, would have dealt with them. I would say we were in an unprecedented situation as we transitioned to cloud and AI, where we were having unforeseen things thrown at us. Why we feel confident going forward is we have taken a different approach to the rubric that was faced to us and made sure we’ve applied that logic to our deals going forward and been incredibly rigorous in making sure that the procurement process and understanding the full entity of the procurement process is now completely understood at not only the U.S. government but also in EMEA and APAC level. We believe with the highest level of working with some of our lobbyists that we now fully understand the mapping of how USG and EMEA is going to apply to us as a foreign filer. We are now confident that we won’t repeat the same issues going forward. We now have precedent, which is the best thing that we can show evidence to other agencies and other buying entities of how we’ve been able to transact and meet all the requirements that are thrown at us. What I’m saying is I think we’ve learned our lesson, but we’re also being prudent in our outlook to take in consideration that there could be delays. Operator, Conference Call Operator: Thank you. We will take our next question from Jeff Banry with Craig-Hallum. Your line is now open. Daniel, Analyst, Craig-Hallum: This is Daniel on for Jeff. Maybe we could just open, Shiv. I would love to hear a little bit more in terms of your background, and just if you could speak to what attracted you to Cellebrite, the opportunities you see, what has brought you here. Shiv Ramji, Chief Executive Officer, Cellebrite: Yeah. Thanks, Daniel. Sure. For me, this starts with the mission that Cellebrite is focused on. I think what the company has built, the assets that we have, is truly impressive. The mission is really important. We play a very important consequential role for our customers and their investigation. I think first was just the mission is very attractive and very impactful. I think of Cellebrite has really amazing assets. This company is, we have a hardware component to our business. We have a cloud component now that we have just talked about. AI is now helping us deliver outcomes and capabilities to our initial early adopters, and you can see the customer feedback that we are getting from them. What we can do in DNI is really unique and special with obviously our hardware offerings and offerings at the edge. For me, it was just really exciting to see that we have this amazing technology and assets, and if we can weave all of those together to essentially build an autonomous investigative platform that we can continue to grow this company at a pretty significant pace. I firmly believe in the long-term growth and opportunity, and we are making steady progress towards those. As we continue to deliver those outcomes and continue to deliver those results, continue to deliver performance from the vision that we have, I think all of you will also come to appreciate what attracted me to this company. Operator, Conference Call Operator: Thank you. Our next question will come from Brian Essex with J.P. Morgan. Your line is now open. Brian Essex, Analyst, J.P. Morgan: Great. Thank you. Good morning, and thank you for taking the question. I have two. One is, I would love to know a little bit more about the challenges that you saw with Inseyets conversions and the pricing coming in lower. What percentage of the business does that account for? If you could just help me understand how those transactions materialize during the quarter. The second would be, it seems like things are falling nicely in place for the federal business. You guys acquired Cellebrite Federal a while ago. You got FedRAMP certification. It seems as though the people and the processes are in place for what should be, I think, a pretty good federal quarter. David, I would just love to know what are your assumptions for business and contribution in 3Q, and what can we expect near term for the federal business? That is it for me. Thanks. David Barter, Chief Financial Officer, Cellebrite: Thanks, Brian. Great questions. You are a pro, and you are an expert on the business. We are driving right now, and I think we have kind of indicated that overall between extractions and Advanced Unlocks by the end of the year, that would be about 80%-81% of total ARR. I think as you probably recall, in any given quarter when we run the Inseyets, we get a price uplift that can be $1 million-$2 million of incremental ARR, maybe even in some courses, a splash more or a splash less. What we are really seeing, Brian, as people progress through is ultimately we got less of that price increase. Ultimately we were just buying, in terms of quantity, at the time of migration, which the migration or conversion were about from a magnitude perspective, almost exactly where we were last year. We were just capturing ultimately a little bit less. That really just started to weigh on our view, and I guess I looked at it through the lens of almost every business model transition or migration where at a certain point in time, just the expansion rates start to shift, and we certainly started to see that shift. That is kind of really what unfolded there, if that is helpful. Brian, do you want me to double-click a little bit more? Is that helpful context? If not, I will kind of- Brian Essex, Analyst, J.P. Morgan: No, super helpful. I appreciate it. David Barter, Chief Financial Officer, Cellebrite: One of the other dimensions maybe that’s worthwhile is just overall, we did see gross revenue retention continue to climb in the first half. Actually, on Inseyets, it was up several points. I’d say I feel really good about those who have converted and the stickiness of those relationships. I’d say on the federal side, as Marcus and I have looked at the business, I think one of the areas that we did was actually spend more time handicapping, and I’ll use that recent FedRAMP win as an example where it ended up being a nice step up in terms of net new ARR, but I think we’ve really handicapped, I’d say, some of the larger transactions knowing the timeframe. I’d say we kind of looked at, this is why I expanded the range as we thought about the outlook to be able to say, fundamentally, we’re going to start to contemplate a smaller contribution from any given deal, knowing that these have the ability to be larger cloud and AI deals. We just wanted to be a little bit more humble. I think when you look at it, and this is why we kind of looked at things through the lens of last year with net new ARR being roughly flat year-over-year, is that we’re kind of counting on the contributions being roughly about the same, a little bit more probably in the DNI world than we saw in the SLG world, given some of the dynamics that we described. In aggregate, about flat with what we saw last year. We think that’s a prudent way to look at the business, particularly when we handicap transactions. Marcus, is there anything else you’d like to- Shiv Ramji, Chief Executive Officer, Cellebrite: Yeah. Again, we have to take a prudent view of where we are, but we believe that our federal business, as noted, is set up incredibly well. Three things I want to remind. We remain with the only FedRAMP high solution for digital forensics available. Marcus Jewell, Chief Revenue Officer, Cellebrite: The process to get that is a very long and torturous process. Even though people are announcing they are going for that, it will take an extended amount of time. The second thing is, as you probably know, if you follow the public record markets, the grants are starting to flow. There is the BBB, also known as the Biden money, which affects both state and local and federal. We are confident that we will see some wash in that business. We also have submitted and actually been shortly for our first-ever nine-figure program, and that is in the public market as well. The leadership team there under Phil and