Q1 2022 Cellebrite DI Ltd Earnings Call
Good day and thank you for standing by welcome just celebrate Q1 'twenty two earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
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Okay.
Thank you Sandra welcome to celebrate its first quarter 2022 financial results earnings call. Joining me today are yours to commute celebrate CEO and then a gardener celebrates CFO. This call is being recorded and a replay of the recording as well as the presentation that accompanies this.
This call will be made available on our website shortly after the call.
A copy of today's press release, and financial statements, including GAAP to non-GAAP reconciliations as well as supplemental and financial information for the first quarter are available on the Investor Relations website at investors don't celebrate dot com.
Statements made during this call that are not statements of historical fact.
Constitutes forward looking statements all forward looking statements are subject to risks uncertainties and other factors that could cause matters expressed or implied by those forward looking statements not to occur.
They could also cause the actual results to differ materially from historical results and ore from forecast. Some of these forward looking statements are discussed under the heading risk factors and elsewhere in the Companys annual report on form 20-F filed with the SEC on March 29, 2022 as amended on April 14th 2022.
The company does not undertake to update any forward looking statements to reflect future events or circumstances.
Please note that in the coming weeks management, who has to participate in a number of investor conferences as detailed in today's press release. Please visit the events section of the investors website to access the webcast of our presentations at these conferences where applicable.
With that I'd like to turn the call over to you think oatmeal celebrate deal.
Thank you Anna and thank you all for joining us I would like to focus in the school on three main topics.
First our strong results for the quarter second the healthy market environment and third the substantial growth potential we have within our existing customer base.
And we are I'm excited to report a strong start to the year delivering strong growth on top of an already robust comparable quarter last year.
We are pleased to report that our our increased 33% year on year and.
And reached $201 million and revenue increased 17% and reached $62 $4 million.
This puts us on track to deliver on our targets for the full year and on our long term growth objectives.
Next our successful execution was also reflected in the net retention rate of 128%.
The end of March. This is the 13th consequent this quarter with N are all higher than one out of 20% and we are very pleased with the strength of this metric.
Moreover, during the quarter, we booked 18 deals larger than half a million dollars compared with 17 such deals in Q1, 'twenty one driven.
Driven by wider adoption of our digital intelligence suite of solutions.
The outperformance reflects our position as a leading vendor.
In a growing and healthy markets.
Our growth is a result of two main pillars. The first is providing law enforcement agencies.
Deepest and most innovative digital intelligence suite of solutions on the market.
Our solution provides digital evidence collection review investigative analytics investigative management and relevant services addressing the entire value chain of digital investigations.
The second pillar is our focus on significantly increasing our wallet share within our existing customers.
Now I'll go to market strategy is designed to leverage celebrate leading market position and strong customer base.
It's not about it has been a driving force in the field of digital collection with new market for many years.
And it has always been focused on building a suite of solutions that addresses the needs of hundreds of thousands of investigators prosecutors and decision makers in law enforcement agencies.
These digital intelligence suite, which includes collection review investigative analytics digital evidence management case management and services opened vast opportunities in a very large market and we believe that we have only scratched the surface of our opportunity in this market.
Now given our status as the go to solution with thousands of law enforcement agencies globally. We believe we are strongly positioned to continue to provide faster higher effectiveness and more accurate solutions for a broad customer base.
Moving to the second topic on today's agenda, I would like to share our perspective on the market environment.
Now over the past few quarters, we have seen a healthy budget environment.
This trend continued in the first quarter of 2022, and we expect this to be the case for the for the rest of 2022.
There is a growing pressure on governments to increase police funding to fight crime more effectively and therefore to deal with the massive growth in digital evidence.
A recent example is president's bite in 2023 proposed budget that includes support for law enforcement largely at or above 20% 22 levels.
The willingness to spend in the USA. Our main markets reflects an acknowledgment that the fundamental demand drivers for our solution our continuous.
Clearly the quantity variety and complexity of digital evidence in investigations are all growing in our world and worldwide customer landscape.
Now in addition criminals are increasing their use of technology.
For example, if you're a weeks ago with the F. B I released its internet crime reports that reveals that the number of Internet crime complaint increased by a compounded annual growth rate of 29% over the past four years.
Against this backdrop.
The investigation process must modernize and cannot remain as manual siloed and inefficient.
It is.
An example that reinforce this necessity is the UK channels forward news investigation that Brazil in late February 2022, that's a total of over 21000 devices, including mobile phones tablets and computers are waiting to be examined in the U K alone.
Now moving to the third topic.
Let's talk about the substantial growth potential we have within our existing customer base.
And while some customers are more mature than others essentially all of them are still at the early stages of transforming and modernizing the investigative workflow.
Let me now share with you a few examples from the first quarter.
While many agencies continue to focus on adding advanced capabilities at centralized forensic lab sites a rapidly growing number of forward thinking agencies are investigating significantly to empower frontline officers in the field.
Allowing earlier access to investigate these data enables law enforcement to jumpstart investigations the.
The $2 million win that we announced in early April with the National Police Force in E. Mail. He is an example of this type of expansion.
The deal reflects one of the largest collection review enterprise deployments to date connecting over 100 police stations nationwide.
Another critical growth sector is modernizing the agency's motive operation through the adoption of high end investigative analytics and management solutions.
In a deal reaching nearly $3 million and National Police force purchased from us multiple solution, including investigative analytics to assist with the major investigations in a division specializing in organized and drug related crime.
During the proof of concept investigator was achieved quick actionable intelligence further investigation within a matter of hours. They discovered not only what's previously took them approximately six weeks, but also identify the new person involved in a murder case.
And lastly, our domain expertise and scale of operation make our professional services, which we view as an integral part of our digital intelligence suite of solutions, an additional avenue to increase wallet share in Q1, a large municipal police force engaged with us to help students overcome it's digital device.
This backlog through outsourcing advanced collection services out of scope of approximately $700000.
Now, let's talk about what we do to ensure we continue to realize this massive growth potential and our progress on the plan for 2022, we articulated on our last call.
First we continue to invest in our go to market as planned in order to develop close and direct relationship with an even larger number of customers.
To that end, we assign senior account executive to dozens of additional large customers now this facilitates higher level of discussions with senior officers that test the mandates to implement digital transformation within their organizations.
In addition in.
In Q1, we launched customer counsels, which are forum's, comprising senior decision makers that we intend to convene periodically to exchange ideas on digital intelligence matters. Further we believe this type of interaction will cement our thought leadership position in the market.
We continue to invest in our offering in order to expand the suite of solutions and capture an even bigger share of the investigation related spending.
We highlighted on our last call they need to bring advanced access capabilities to the broader customer base not just the large law enforcement agencies.
As we speak are telling me that technical security one of the leading trade shows in our space showcasing our premium as a service our cloud based collection review solution.
This is a flexible licensing option that allows law enforcement agencies of all sizes to access our most cutting edge technology through a cost effective cloud based solution.
We are glad to bring our most advanced capabilities to more customers and help them protect and save lives.
And last we are pleased to announce the collaborations with chain atlas's, which will bring to our customers and integrated blockchain analysis, and reaching investigations with information about transactions or networks related to crypto currency.
No such partnerships helps us ensure.
We offer a truly comprehensive digital intelligence suite and bolster our streamlined end to end investigative solution and we intend to continue to pursue additional integration and cooperation opportunities in the future.
So in summary.
We are very pleased with the performance in our first quarter of 2022, our market position is strong and opportunities in front of us are vast.
IDC recently validates our position as a market leader in its first ever markets Cape for digital forensics.
The report is an acknowledgment that the digital forensic discipline as part of the broader digital intelligence market has reached a new level of maturity.
And it is a testament for our leadership cutting edge technology and domain expertise.
It is also reflects the crucial and expanding role we play in safeguarding public safety around the world and with that I will turn the call to Donna.
Thank you Yossi Yossi.
Yes, He said AOR grew 33% year on year, reaching $201 million by the end.
End of March 2022.
The main driver for AOR growth is once again the expansion we've seen existing customers representing 33% even equals yes. He gave a few examples on how we sell more licenses and upsell and cross sell additional solutions to existing customers.
These examples further into the second.
New logo contributed another 5% growth and in addition price increases and the transition to term license.
As you visit modestly to a O households wherever.
In Q1 was up 17% from the first quarter last year and reached $62 $4 million.
The main growth driver continues to be total subscription revenues increased 19% year on year data subscriptions represented 77% of the revenue.
Subscription licenses are an important growth driver for <unk> as it helps create a long term incentive to increase customer spending away from for example, one of our largest deals in the quarter was with a customer that was an early adopter of premium subscription when it was introduced in late 2019 in Q1 the customer.
Renewed each subscription for the third time and extended the length of commitment.
We also so strong growth in professional services revenue, which was up 64% compared to Q1 last year, reflecting the resumption of in person training activity in most countries. We are back to pre COVID-19 level of activity.
Our GAAP gross margins was 82, 4% in Q1 slightly above our expected range of the full year of 80% to 82%.
Moving to operating expenses I will discuss these on a non-GAAP basis. So the share based compensation amortization of intangible assets acquisition related expenses and one time expenses are excluded.
non-GAAP operating expenses of $49 million in the quarter increased significantly compared to Q1 last year, but only marginally on a sequential basis. It reflects our cost structure as a public company and increased in person interaction and related travel and our continued investment in our growth we ended.
In March with 920 employees up 17% from the end of March last year, we continued to invest in our cutting edge solutions and go to market there for us and expect to end the year with over 1000 and centrally.
Adjusted EBITDA in the quarter was $4 1 million daughters, and reflecting a margin of 7%.
This is in line with the typical seasonality of our business historically, our revenue in the first half of the year accounted for approximately 45% of the full year revenue.
Most of our cost increase moderate nor do I see how the year. This create a sharper seasonality in profitability then in revenue.
There are therefore on track to meet our full year margin target of 13% to 15%.
non-GAAP net income in Q1, it was $1 4 million and non-GAAP fully diluted EPS was one cent.
Cash outflow in the first quarter was $10 $5 million and in the last 12 months, we generated $25 million on cash inflow.
We ended March with approximately $172 million of cash cash equivalents and investments.
We are reiterating our financial year 2022 guidance, we maintain our expectation that December 'twenty, two Ara will range between 250 and $265 million.
Between 34, and 42% from December 21.
We also maintain our expectation for full year 'twenty two revenue to range between 285 and $300 million. We expect Q2 revenue to be higher than Q1 revenue and half two revenue to be higher than half. One we continue to expect gross margins to be between 80% to 82%.
As stated we are on track to meet our adjusted EBITDA outlook.
<unk> to 15%, which means 39% to $44 million margin is expected to be significantly higher in the second half of the year compared to the first.
With that I will turn the call to the operator to open the Q&A session.
Thank you we will now begin the question and answer session.
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Once again, please press star one if you wish to ask a question.
We have.
First question comes coming from the line of Tal <unk> from Bank of America. Please go ahead.
Hey, this is tumors doberman on fatality on a just a quick one for me.
And our or of 128 was a bit lower than the past couple of quarters Jeff.
Wanted to get any takeaways there.
So as we Hum.
Describe when we are transitioning to subscription we expect AOR and analog to aligned throughout the years towards the revenue growth. So this was quite expected considering the fact that the first step of moving to sufficient for find hiring them rather than when you are aligning to a long term subscription business model.
Okay.
Thank you.
<unk>.
Okay.
Next question comes from the line of Jay Michelle Jones from Deutsche Bank. Please go ahead.
Hi, guys. Thanks for taking my question can you hear me okay.
Well Jamie continuity.
Hi can you hear me, Okay just checking.
Yes, yes, we can hear you quality has no debt.
I'm curious to see how momentum has been getting.
You'll use that they connect to the premium enterprise.
He gave us some helpful color, maybe last quarter when it was.
Initially announced those yeah curious to see if there's any momentum there.
Yeah.
Yeah.
So I'd say Youll see mentioned in the call we have a launch the premium into enterprise.
Last year, and just a showcase between limited service.
We started introducing customer we've premium enterprise and we are seeing increased number of <unk> connected to the premium they are having more and more customer adopting the premium enterprise Ah is their main advance to access solution.
We do not provide currently exact numbers, but we are on track with our annual expectation and.
A 2022 plants.
Just to add that as we said last time premium enterprises.
In vehicle.
To bring advanced capabilities through the fields to all you folks obviously combined with the continuous investment on the <unk> such that the access the recording in the revenue. So we are basically very pleased with the.
The way enterprises.
Performing at the moment, then because I said remained the main major.
Growth engine as part of collection review.
TVT.
Thank you very much guys.
Thank you.
Thank you next question comes from the line of really deep small from William Blair. Please go ahead.
Thanks, and good morning, ROTC, Dana and in that.
Good morning, good morning Neely.
Hi.
Even all.
The global geopolitical tension, there's been a lot of industry news related to open source intelligence and with that context I was wondering what has been the early adoption or your digital clues.
Acquisition has it met your.
Early expectations and do you have.
Plans for further investing.
In the digital clues asset and open source intelligence in general Thanks.
Thank.
Thank you for the question Louise I'm first of all I have to say that we are very pleased with the investments and very pleased with the fact that open source intelligence as part of our offering.
One we.
We can see that we have an increasing pipeline I would say, mainly in Europe Asia Pacific and Latin America.
And on top of that there is a clear strong needs in the USA.
On the state and local and on the federal side, which is obviously the case a good traction on adopting ease in the investigation space again, there are many OCD tools, but having them.
<unk> is a.
Standard tools for investigation for policing.
Combined with the digital intelligence or connected to our Pathfinder. This is a key relative adventures of celebrate.
And that resonates very well in police and there is also expected interest in the intelligence departments within the police and in some intelligence organizations. So.
We are very pleased with the start of the on the progress so far.
We can also say that what we are seeing an increased pipeline.
Yeah.
Great and.
On the last earnings call and thanks, Dana for that I believe you mentioned your target to increase your quota bearing head count by 35%. This year in order to take advantage of.
The healthy.
And your your pipeline so I was wondering.
Okay.
Do you have a status update on that target.
Do you still plan to increase head count by by that amount.
So we to my memory, we were speaking about 1000 plus employees. We are we said 920 by the end of this quarter and we do expect to cross the 1000 by the end of the year. He was according to our budgets and plans are to meet our go to market and investment in technology and we are on track.
Jack.
Okay.
Great and one last one last year.
You announced a partnership with Exxon and you recently.
Disclose your partnership with chain analysis can you discuss your decision.
Yeah.
Build that technology yourself versus partnering with a third party and how you expect your partnerships with chain analysis and axon to evolve over time.
I would say a generic statement to our to the partnerships.
I think that when a company like us come with a clear aim to build an end to end investigative flow from the context of multiple operation of customers.
We do not necessarily need to offer everything ourselves, it's a multi vendor environment and at the end of the day, we want to bring value to the customer.
Key in such a strategy where customer approach is to know how to have an open system and collaborate.
With other vendors food vendors quality vendors, but together with us bring value to the customer because that's basically the end of the game. So the go to market will celebrate its not necessarily doing everything by itself, but also do partnerships work with channels and obviously, the nonorganic part which is a lesser.
Relevant to what you were asking the partnership with the tree analysis is of great value to customers. Because your analysis is a leading blockchain, whereas a leading blockchain data platform.
And obviously the user usage of crypto currency increase so leveraging on this technology for a criminal activity is a key element for us for our customers.
Their expertise will.
It will be I would say is seamlessly integrated into celebrate suite of solutions P E and Pathfinder and through this partnership celebrate <unk> analysis of offering customers a window I would say too sophisticated criminal activity.
But again I would say funded through crypto currency and masked by the anonymity of blockchain.
The customers basically are able to identify crypto currency related activities tractor flow create secure trail of evidence in a single place and part of or I would say as part of the digital investigation.
As for Exxon.
This is really.
Valuable for the customers with the ability to connect between well collected investigative data from our tools and analyzed by the Pathfinder and the connectivity the integration with evidence dot com. So that's in a nutshell regarding the philosophy that's about to suture analysis is just starting.
Axon, we finished the integration and we are expecting a mutual approach.
Two customers again to bring the value.
Sounds good thanks Raffi.
Thank you.
A reminder, if you wish to ask a question. Please press star one on your telephone.
Once again, please press star one if you wish to ask a question.
Yeah.
We have no more questions at this time I would like to hand back over to the speakers for final remarks.
Yes.
Right Okay.
Before we conclude today's call we'd like to thank you all for joining us.
Michelle and a nice day.
Thank you very much.
Yeah.
That does conclude our conference for today. Thank you for participating you may all disconnect.
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