Q3 2023 Cellebrite DI Ltd Earnings Call
Welcome to the celebrate third quarter 2023 financial results Conference call.
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I would now like to turn the call over to your first speaker today, Mr. Andrew Kramer Mr. Kramer the floor is yours.
Thank you very much Todd.
Welcome to celebrate <unk> third quarter 2023 financial results Conference call. Joining me today from just outside of Washington D. C. Our USC Carmel celebrate CEO and Donna Garner celebrate CFO.
Slide presentation that accompanies our prepared remarks, please advance the slides in the webcast viewer to follow our commentary we will call out the slide number we are referring to in our remarks. This call is being recorded and a replay of this recording will be made available on our website shortly after the call.
Let's start on slide number two a copy of today's press release and financial statements, including the GAAP to non-GAAP reconciliations the slide presentation, and our quarterly financial tables, and supplemental financial information for the third quarter of 'twenty, three and each quarter of 2022 and 2021 are available on the Investor Relations website at <unk>.
<unk> start to celebrate Dot com also unless stated otherwise our discussion of our third quarter 2023 financial metrics as well as the financial metrics provided in our outlook on today's conference call will be done on a non-GAAP basis, only and all historical comparisons are with the third quarter of 22022, unless otherwise noted.
In addition, please note that the statements made during this call that are not statements of historical facts constitute forward looking statements. All forward looking statements are subject to risks and uncertainties and other factors that could cause matters expressed or implied by those forward looking statements not to occur that could also cause the actual results to differ materially from historical.
<unk> <unk> from the forecasts 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 April 27, 2023. The company does not undertake to update any forward looking statements to reflect future events or circumstances.
Yes.
Slide number three provides the agenda for today's call as you will hear we delivered excellent quarterly results and made meaningful strategic progress as a result of our accomplishments to date in the near term opportunities. We see we have updated our full year 2023 financial expectations and with that being said I'd like to turn the call over to Yossi Karma.
I'll celebrate CEO.
Thank you Lindsay and thank you all for joining us today.
So first of all I'm very proud of our third quarter, 2023 performance, which demonstrates continued business momentum and meaningful strategic progress.
During the quarter, we strengthened and expanded the scope of our customer relationships deliver powerful innovation and advanced our go to market activities.
The old let's celebrate solution play in protecting our communities and accelerating justice is tangible and growing.
Our technology is trusted by law enforcement around the world to advanced cases in ways that put criminals behind bars prevent future strategies helped exonerate the innocent and protect privacy.
Against the backdrop of healthy market, we move forward into the final quarter of the year with a compelling value proposition that is resonating with customers worldwide.
As detailed in slide four we reported record Q3 results and more specifically.
<unk> was $295 2 million up 27%.
Total revenue of $84 2 million grew 17% driven by a 32% increase in subscription software revenue.
Geographically our revenue performance was led by 23% growth in EMEA, 16% in the Americas and 13% in Asia Pacific.
The dollar based MLR was 125%.
This was our 19th straight quarter above 20%.
We closed 25 large deals each valued at greater than half a million U S dollars.
We delivered adjusted EBITDA of $28 million or 25% on a margin basis and non-GAAP EPS of nine <unk>.
Lastly, we ended Q3 with cash deposits and investments totaling nearly $283 million up $39 million from Q2.
Now with three solid quarters behind us and a robust set of near term opportunities in front of US we have updated our 2020 outlook will cover that in more detail shortly.
Let's move to slide number five.
For additional insight into celebrate growth drivers.
<unk> put our current results into context, while also addressing two topics that are top of mind with investors, namely our growth drivers and the durability of our growth.
First our consistently strong <unk> and revenue growth during 2020 fee reflect a healthy market that is benefiting from a powerful macro tailwind.
GAAP in public safety caused by unacceptable high crime rates.
Increasingly sophisticated criminals.
<unk> digital evidence across a wide range of increasingly complex smartphones and other devices limited and increasingly trained policemen power and heightened interest in police operation and priorities.
In turn these trends are creating three major challenges for our public sector customers in the form of first managing increased data volume and data complexity.
Do you think of operational inefficiency.
And embedding high level of ethics and accountability in police political connections.
Bright digital intelligence solutions help our customers address all of these challenges.
The findings from our recently published 2023 industry trends survey for the public sector validate these issues highlighting notable struggles around device backlog smartphone security and encryption.
Old fashioned approaches to reviewing digital evidence week change of custody and lack of appropriate training.
Our customers' budget continues to grow each year.
Both digital forensic units and investigative unit allocate more resources to disruptive technologies like ours that can help them address these issues.
But to celebrate <unk> and revenue growth is about more than just a healthy market.
We are succeeding with a land and expand go to market model that supports multiple growth vectors.
Upselling and cross selling into our installed base of more than 5000 public sector customers.
Expanding our public sector footprint by winning new logos.
Implementing annual price increases and continuing to expand our business in the private sector and I would like to briefly elaborate further.
Any more wallet share.
With existing customers.
The biggest driver of our growth and we expect this trend to continue well into the future.
Part of this existing customer growth come simply from capacity growth in the digital forensic units as they add more licenses for our traditional collection of <unk> solutions to support operational expansion. However.
Most of our growth is the reason.
Also of Upselling and cross selling.
More specifically more existing customers are turning to celebrate for advanced collection review solutions to help them locally axis and extracts digital data from a broader range of more sophisticated smartphones and digital devices.
And then we are still in the early stage of what we expect that will be a multiyear upgrade and upsell cycle for our collect some of your portfolio.
Not only is the adoption of premium building momentum, but we plan to commence sales of our new you've heard all trial in early 2024.
While also capitalizing on cross selling opportunities as we tap into new buying centers to address emerging areas, such as case management and evidence management within the digital forensic units and investigative unit within.
That space.
Now.
These dynamics are helping us close more deals that involve multiple products for example.
<unk> suites was involved in almost every large deal in Q3, while the test find the World Guardian, where part of nearly one third of our large deals.
We continually refuel our ability to drive existing customers growth in the public sector by winning new logos.
Although these customers are often small in size and contribute modestly to our AOR growth at the start of the relationship our experience is that.
The spending from new customers grows meaningfully over time.
We're also optimistic about our growth potential in the private sector.
We're making a good progress in winning new logos and expanding business with existing customers, both enterprises and service providers and support them.
Sales in the private sector has continued to trend favorably this year with low 20% revenue growth in the third quarter.
Our recent success reflects positively on the way our sales team has in.
Intensified the focus on large accounts as well on investments we've made to broaden our offering.
Over the past two years, we have augmented our traditional on Prem solutions with new SaaS offering that.
Now for the remote collection of data from phones computers and cloud applications.
Turning to slide six.
I would like to share some thoughts on our four strategic priorities going forward.
More specifically these priorities include.
One increasing our leadership in the digital forensic units.
Two accelerating our growth within investigative unit.
Three building our business in the private sector and for harnessing the power of the cloud I'd.
I'd like to expand briefly on each priority and will highlight some important third quarter customer wins in the process.
Addressing the needs of digital forensic units has long been a major strengths will celebrate.
Not only are collectively if you're offering pervasive within the digital forensics units.
Our end to end capabilities further embed celebrating the workflows from the intake or digital device through two sharing to digital evidence with investigators and prosecutors.
Our Q3 revenue reflected strong demand for our premium software suite, which provides local access to the most advanced smartphones in ways that are competitive competition is unable to match for example.
Due to the differentiated capabilities of premium <unk>.
Arduous Federal agency significantly increased its premium footprint to over 100 sites as a result, our R&D.
This account grew by over 80% to $6 5 million U S dollars.
As we move forward, we are excited about our potential help these customers, reducing backlog increased efficiency and accelerate justice.
To that end with <unk>.
Plan to further evolve how we pack.
Collectively these new capabilities to optimize value add more automation and new AI capabilities provide greater deployment flexibility through the cloud and announced the user experience to achieve.
Their objectives.
The second priority is to accelerate our growth within the investigative unit of our law enforcement customers.
We recently expanded our offering for the investigators to deliver an end to end set of offerings with introduction of our SaaS based smart search solution.
<unk> solution leveraged.
Open source intelligence technology, we've gained by acquiring digital clues in late 2021 to securely automate the collection and review of public available online data, including social media platforms.
In addition to smart search we are seeing ongoing traction with our AI powered pathfinder investigative analytics, which is used by investigators to advance case foster by surfacing relevantly and discovering valuable connections within the vast volume of digital data that resides on a wide range of design.
For example.
During the third quarter, we expanded our relationship with a major U S States Police Department, which license best Finder and premium is a service to help these expedited cases involving digital evidence of these deal increased out here are in the account by <unk> five to 900000 U S dollars.
In addition to leveraging AI to support digital forensics units will continue to enhance the AI capabilities for data analysis and visualization in pathfinder to help streamline and accelerate the mitigation involving digital evidence.
Okay.
We are also focused.
On the opportunity, we see to build our business in the private sector, where our solution are currently used by enterprises and service providers in the area of corporate investigations in E discovery.
As noted earlier.
That offering an integrated portfolio with the deployment flexibility to optimize data collection for hybrid work environment is resonating strongly with customers. During the third quarter. We continued to close new endpoints in spectrum mobile deals, which is helping to establish this offering is a leading internal investigation salute.
<unk> for constant based mobile data collection and roaming employees outside of the office.
We also extended our relationship with a leading nationwide Ediscovery company for our on premise offering increasing our already accounted by 20% to approximately $600000.
The fourth strategic priority is to help our customers harnessed the power of the cloud to cost effectively and securely address their pain points and drive operational efficiencies without taxing limited it resources.
Over the past 18 months, we have taken major steps forward to introduce cloud based alternative to our traditional on Prem software offerings as well as launch powerful new SaaS based solution. For example, we have continued to make good progress with Guardians.
SAS based solution for end to end case management and evidence management, we want double digit Guardian deals in Q3 and the number of users in this platform continues to grow.
In terms of SaaS offering as I mentioned, a moment ago, we see promising potential for smart search within investigative unit.
We are excited that one of the smartest early adopters is among the largest police department in the United States.
These customers went live with smart search in third quarter as part of a deal that increased our EBITDA by over 30% to more than 650000 U S dollars.
Going forward, we plan to accelerate the full cloud enablement of our portfolio, including achieving important public sector certification such as federal later next year.
So.
I would like to move to slide seven which covers our outlook.
We moved into the final quarter of 2023 with three strong quarters behind us.
Our pipeline regions continued to expand as both digital forensic and investigative unit allocate more resources to modernize their investigative workflow.
Just on our results to date and the near term opportunities. We see we have updated our 2023 expectations.
As Donna will detail in a few minutes, we have increased the midpoint of our 2023 revenue outlook.
Given the strength in our near term sales pipeline. We have also raised our 2023 <unk> range.
We also increased our 2023 adjusted EBITDA target range above our prior expectations, primarily reflects the combination of solid revenue growth meaningful gross margin expansion and prudent spending.
Now as we work hard to bring 2023 to a successful conclusion. We are also advancing our planning process for 2024.
We expect that our business will continue to benefit from healthy budgets in which more money will be directed towards digital intelligence solution, we see meaningful opportunities across each of our customer segments to drive continued growth in 2024, and you are investing accordingly, including advancing our go to market approach.
In the United States Federal markets.
Okay.
We do believe it is an exciting time to be part of celebrate.
And to help us take our business to the next level, we also announced today the <unk> tool.
Hologic things veteran with an impressive track record will join celebrate in the newly created role of global CLO Marquis brings unique blend of sales and operational excellence is a proven CLO as fast growing successful companies like Juniper networks, Brocade communications and others.
We look forward to his contributions as we build our momentum and accelerate our topline growth.
Over the long term.
And on a final note.
Final, but important.
Before I turn the call to Don.
So I would like to thank our customers.
Partners, our friends in the industry and those of you in the investment community, we reached out to us.
First you are concerned about the situation in Israel.
It means a lot to me and it means a lot to my colleagues and celebrate.
We are fortunate that the ongoing conflict has not meaningfully impacted our business so far nevertheless.
Taken steps to prioritize the safety and the well being of our employees in Israel, while striving to maintain business as usual mentality business as usual DNA to the greatest extent possible.
To that end our offices in Israel remain open with an ongoing collaboration with our teams in the United States Europe, Middle East Africa, and Asia Pacific.
Our focus on addressing the needs of our customers has never been sharper.
And although these are challenging times moral remains at a very high level.
So I'm grateful to my colleagues and celebrate around the world for their support of one another.
As well for their courage hard work resiliency.
Mcmahon to the celebrates mission of protecting and saving lives accelerating justice and preserving privacy around the world and with that said I'll ask Donna to start to review of our financial results. Thank you.
Thank you Yossi.
The financials with you.
Right.
Third quarter revenue of $84 2 million.
17%.
Topline growth was fueled by a 32% increase in subscription revenue.
We offset by 43% decline in other nonrecurring revenue and a 24% decrease in professional services revenue.
The decline in other nonrecurring revenue reflected north of petrol license revenue and decreased.
Thank you.
The decrease in professional services revenue, primarily with snacks, nor advance services revenue and small customers adopt a premium solution and then do you they're outsourcing.
In terms of how Q3 geographic mix the Americas remain our single.
Just Joe Murphy at 57% of those kind of revenue followed by EMEA, 71% and Asia Pacific 12%.
Brian has essentially completed the transition to subscription with 87% of our total wondering any revenue coming from software subscription up from 78% one year ago.
Slide 10 details our alcohol, which we believe helps investors better appreciate our prospects for the future revenue growth over the coming year.
27% year on year to $295 million at the end of Q3.
Going deeper into this metric the majority from existing customer growth continues to be fueled by expanding on what im sure. We seen the digital fluency Q&A soufflot customers driven primarily by ongoing adoption of our premium offering.
The investigative you only sell for public sector customers. We continue to enjoy very strong growth with fine there and are optimistic that our newly launched smart search offering we augment our momentum in this area over the coming quarters.
Slide 11 details the historical trends for our non-GAAP gross margins and non-GAAP operating expenses, which exclude share based compensation amortization of intangible assets and acquisition related expenses.
We reported a third quarter gross margins of 85, 2%.
500 basis points from $80 to one year ago, due primarily to the growth in our higher margin subscription software offering and to some extent and decline in Nora margins for professional services.
In terms of operating expenses third quarter operating expenses were $52 5 million.
3% decrease from the prior year, primarily due to the timing and phasing of hiring activity the timing of certain marketing programs and favorable changes in foreign exchange rates tied to the Israeli shekel.
Terms of the sequential change in our operating costs, our third quarter expenses declined by a little more than $2 million from the second quarter due largely to the contribution of certain one time strategic projects in the second quarters.
We ended September with 989 please.
Smartly from the start of the year, but up slightly from 90 966 at the end of Q2, we believe that we are on track to end 2000 suite with our thoughts on head count about 1000 people.
Turning to slide 12.
The nation of higher revenue strong gross margin and disciplined spending produced excellent third quarter, adjusted EBITDA performance of $28 million or 25% on a margin basis.
This type of performance is consistent with the historical trends in our business is now profitability in the second half of the year benefit from the seasonal uplift in revenue and margin expansion against the first half levels.
Q3, non-GAAP operating income was $19 $3 million with non-GAAP net income of $21 3 million.
<unk> nine on a fully diluted basis.
We finished the third quarter is $283 $2 million in cash cash equivalents and investments.
$88 $7 million from the end of the second quarter. The increase primarily reflects another very good quarter of cash generation with $29 $9 million in cash provided by operations.
Let's move to slide 13.
As detailed in our press release and as you'll see highlighted we've updated our financial 2023 targets.
Its prior and updated guidance is displayed on the slide.
In terms of the full year 2023 revenue our comments with Jeremy has increased the low end of our prior revenue range by $5 million to $316 million, which in turn modestly raises the midpoint of our prior guidance range.
This implies Q4 revenue in the range of $83 million to $88 million anchored by strong subscription revenue growth.
We have raised our AOR.
Our targets for 2000 and suite based primarily on our ongoing strategic.
Sorry.
Going strategic progress and increasing our leadership in the digital forensics unique and expanding our business with investigative unit.
We anticipate a strong close for 2023 with a healthy pipeline of opportunities, including those involving our investigative underneath and case and evidence management. However, since many of the deals involve an increasingly broad range of.
To close later in the quarter with limited initial revenue recognition and fairly muted professional services revenue, we have lifted the high end of the financial year 'twenty three revenue range.
<unk>.
We expect Q4 gross margins to remain in the 83% to 84% range. We anticipate Q4 operating costs will increase sequentially to the high $50 million range, primarily as a result of the fourth quarter marketing activities higher incentive compensation and extra.
Dieting hiring to support our 2024 objectives.
Accordingly, we anticipate another quarter of strong profitability and we have raised our full year 2023, and Jack that EBITDA and adjusted EBITDA margin target and above our prior expectations.
What do we are still advancing the planning activities required to complete our 24 budget. We believe that a strong finish to 2023, we'd have more spare parts business forward and achieve the ambition the TLC outlined earlier, even as we fund the investments necessary to advance our strategic priorities.
In summary, instead I'd like to delivered an outstanding performance in the third quarter and our teams around the globe remain focused on finishing 23 on a strong note.
What do we have taken important steps this year to execute our strategy accelerating revenue growth and improve our profitability. We are not content to rest on our Laurel we are focused.
Taking necessary actions that will help fulfill set of rights to mission and realize our full potential as a market and technology leader.
Operator that concludes our prepared remark and we are now ready for Q&A.
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 will come from Mike <unk> with Needham. Please go ahead.
Hey, guys. Thanks, Thanks for getting me on here you might see goes from Needham and obviously good to hear thank you for the update on Israel as well.
I guess my first question would be for Yossi and it's really with respect to this newly created.
Global Chief revenue officer position.
Can you help us think about with markets, whose appointment in him stepping in tomorrow.
What are some of the strategic.
The conversations that you guys have had in the lead up and what is it.
Thats expected of him.
Celebrate either didn't have previously or that he is looking to accelerate.
Can you talk to the new position and what markets is expected to break thank you.
Absolutely Mike first of all thank you very much what you said is highly appreciated.
There is a.
Actually nothing better than May.
Making yourself better in peace times, and good times as I tend to say.
We as you can see we are delivering great results in 2023 actually three consecutive quarters in a row twice beaten raise so really great results.
And.
I would say that actually this is to bring a person like markets and just the timing is a clear sign for a wish.
Based on our belief that we can accelerate and grow as a company so making data acceleration possible means that we need to bring experienced people with a track record with our ability to accelerate.
And Mark is bringing exactly among other things that's exactly to the table is it global CLO as a global CRO Mark because he is going to oversee.
The entire topline business of the public sector private sector of the customer experience and they bring all the right elements to the table all the right experience that will help us to scale.
And that's it.
Got it got it.
If I could just ask.
Maybe to Ghana.
I think the first question. This is really just trying to get my arms around the updated guidance that we have and I know, we don't have I think we have three or four years of historical information, but historically.
Net UA or that is generated in Q3 versus the net new we are generated in Q4.
<unk> tends to be either the same as Q3, if not more.
I'm looking at today's guidance that we have and it looks like Q4 is actually expected to be down from what we generated in Q3.
And I just wanted to see where there is this related to the timing of fuels.
Or is there anything else there again, just because we only have I think three or four years of information here wanted to see if I can get more familiar with may be seasonal trends that you would call out.
Thanks, Mike for the question in principle in the last two years. It was almost the same any 'twenty one is even with even reduced one or two points between Q3 and Q4. This is part of the seasonality of these two quarters.
We are basing it based on our current opportunity analysis, which we still believe this will create great NOI for the year end.
Okay. Okay. Thank you for that.
I guess the last question here for you, but I know that you had called out.
The expected Opex in Q4, I think you had cited maybe the high $50 million range and.
There is some marketing there are some incentives as hiring there.
Can you help us think about maybe.
Each of those components or if any are more onetime in nature and I know, it's probably too early to start talking about calendar 'twenty four for guidance, but just.
Wanted to get a better sense of.
How the Opex base kind of flows through when we think about turning to 24th if any of those expenses in Q4 seemed to be more one time, especially maybe those marketing events.
Yes, so for sure you're right on the point the marketing.
Activities in Q4 is heavily launching is there any.
I'm focused on the launching of the new U for those trials that we expect to do in Q1. So it has some one time aspects of it same goes with the incentive based compensation, having such a great year and we do expect it to be higher than the ongoing expense on a regular basis.
Got it got it. Thank you very much for those two items and then I'll turn it over to my colleagues. Thank you.
Thank you.
Our next question comes from Jonathan Ho with William Blair. Please go ahead.
Hi, Good morning, I also wanted to echo, our support and thoughts and prayers for everyone impacted by the recent conflict.
Just with regard to your margin outperformance. This quarter can you help us understand where you saw more opportunity to realize cost savings and do you need to drive more head count increases in order to sustain growth for future periods.
So.
It's not really about.
Saving the coin.
Opex.
Sequentially in a very controlled manner.
And as I mentioned, we are heading into the 1000 people start towards the end of last year, because we will need to get more head count to secure our performance for 2024.
Okay.
Got it got it.
The release of Ultra in 2024, how should we think about the uplift in pricing relative to premium and your basic solution as well as the potential benefit to <unk>.
Well first of all.
And the mix because festival.
First of all the mobile ones.
This trial, which is going to be launched.
He's.
Bringing more value to customers.
We are talking something which is as we stated in the Boston all in one.
Solution.
End to end.
For the digital forensics unit environment.
And.
Each about.
Basically.
Using cloud capabilities and other capabilities, which were in the premium like sulfides system I'm, emphasizing that because that brings tremendous value to the customers and as a result, it will bring an opportunity for price increase in order to sell more value and offer more value.
Yes, Jeff.
<unk> ultra.
Additional benefit.
Beyond price increase each year.
We repackaging rebranding our capabilities with the right and attractive pricing.
Structure to our customer.
That makes a ton of sense just one last one in terms of the fed ramp opportunity. Once you become fed ramp certified can you talk a little bit about how much opportunity that opens up in the U S Federal government and maybe other agencies when you.
We see a better approval. Thank you.
Absolutely.
First of all in maybe in one centers and amazing huge opportunity.
We are very strong position on the federal space already.
We have all the right customers and we have all the entries.
With bringing federal.
And with I would say, even an upgraded structure that we will build within the theme later on it will bring us basically possibilities to expand the already existing business everything basically in each one of our product portfolio parts. Both in collection review, especially in investigative analytics and.
When it comes to the cloud solutions, So guardian investigative analytics and all the SaaS offering which is related to collective review so a huge opportunity.
Great. Thank you.
Thank you. Our next question will come from Jeff Van <unk> with Craig Hallum. Please go ahead.
Great. Thanks for taking the questions and congrats to the team there really impressive execution in light of the Hamas attacks you guys really.
Just outstanding quarter, particularly on the IRR sequentially here, so congrats to you and the team.
You'll see on the on the cloud enablement of the product suite, maybe just a little longer term thinking how do you think about the product evolution and the point at which we might be.
All cloud or or very close to all cloud how do you think about that from a product evolution standpoint.
Look first of all we are.
I think we stated several times so I'll repeat.
<unk>.
Uh huh.
We are in a continuous effort on the on Prem on the one hand, we choose something which within our customers either to stay, especially due to sensitivities which are related to.
Investigative evidenced on the cloud. Nevertheless, we spoke several times about the stronger trend of our customers moving to the cloud and more acceptance over there we are fully committed side by side with the on Prem.
To bring value to the customers by delivering the cloud offering.
Full scale improving their.
Our ability to I.
I would say collaborate.
Their ability to create more efficiencies there is a tremendous opportunity, but we see the cloud not only as a business opportunity, it's really a way to improve the efficiencies and the productivity and the way investigations can be modernized. So as a result, we are aiming to I would say start.
On the collection review level in our trial the FERC, but as we look further along the road, it's relevant for our entire offering.
Cloud.
I would say infrastructure that will be also to the customers.
Okay, and then on the global CRM markets Jewel I'm sure you look at a lot of candidates what in particular did you go looking for and funded markets.
I think I said, it but I'll repeat it again.
First of all.
Acceleration the ability to accelerate.
A good mix of the person that basically been there done that.
In the move from on Prem.
Plus cloud environment ability to scale and allow me to say so.
Our killer application in terms of sales DNA, okay on top of that.
We are and I think I said that in several calls.
Our efforts in the business, we are very strong in the United States and we are going to scale and grow here along the road, but the reason element of double down our efforts in Europe.
Our ability to scale in Asia Pacific and what <unk> brings to the table is a very strong mix between American experience and the international part of what we need and we'll upgrade so that sums up the most important thing that we searched and we've seen in market shares as a selected candidate.
Mhm, you've talked over time about strategic M&A, just curious what youre seeing in the market and the probabilities.
Something land here in the next several quarters and then one last question.
<unk> was with respect specifically to magnet great shift what you've observed over last year.
So first of all regarding M&A.
We said several times in M&A.
<unk> part or the inorganic element as part of our strategy by.
By the way if you look at our balance sheet and if you look at our cash you can see that we have enough firepower in order to make I would say smart moves in that area and we continue to see.
Search actively search we do that all the time regarding possibilities, which are around I would say some extension.
Achieving more customer customer base, and accelerate time to market and elements, which are part of our organic growth, but we might do them quicker.
When it comes to <unk>.
The acquisition, so so far to M&A.
Regarding competitors, and especially regarding pricing I am glad to say that our markets and our customers appreciate.
And they are ready to pay for that.
That context, we have seen price increases in our market. This year and we will continue to see them both from our competitors and also from our side.
Great. Thank you.
Thank you. Our next question comes from Tal Leone with Bank of America. Please go ahead.
Hey, guys I know you don't provide 24 guidance, but I have a question about.
Margins EBITDA margins.
The average for the year is 16, 5% and Thats because <unk> was so strong.
The fourth quarter guidance is 15 and a half so that means there is about 100 basis points of headwind. If you look at the ongoing rate.
And the question is for next year.
What can you tell us about the puts and takes I'm not looking for specific guidance, but what can you tell us about the puts and takes for EBITDA margin for next year. If you start from <unk> 16 in the half because of a strong <unk> does it give you kind of a tough comp for the year.
Or do you think you can still work it out throughout the year. Thanks.
So I think.
Also Q4, if you look at the numbers.
Very nice.
Halloween.
Very very strong Q3.
We saw as I mentioned.
We do.
Stepping into 2024, and we are still working on our plans there so I'm, putting a very large disclaimer here.
Continuous improvement in our overall EBITDA margin into our long term targets that we have provided.
When we went public.
20% growth in revenue and 20% EBITDA margins.
I will.
Emphasize what I also said during the call that we do need to take into consideration the seasonality.
Also the Rev.
Revenue impact also the seasonality of EBITDA between half one and half two.
And we do.
Oh station Opex spending will provide modest improvement.
Yeah.
Got it.
Thank you.
Thank you. Our next question will come from Jamie Shelton with Deutsche Bank. Please go ahead.
Hey, guys can you hear me okay.
Got it.
Great. Thank you for taking my question.
Great execution, and it's glad to hear you're doing okay.
Just.
Quick question from me to start with can you provide us what percent of the east.
Base.
It is now connected to premium enterprise.
Follow ups.
So.
I would say that.
Related to the premium penetration.
First of all.
I would say that the premium is.
All the premium suite of solutions is picking up there is a permanent consistent progress here.
And currently at this stage that.
I would say from in.
In Q2, we have been in the mid teens now we go end of <unk>.
Q3 to the high teens.
Basically there is a permanent increase.
And let's not forget that when it comes to the premium we are bringing our capabilities and in our mix of offering that competition basically cannot match with.
It goes a little bit to what we are emphasizing all the time regarding the end to end offering within the <unk>, which is a very critical part of our value proposition.
<unk> strengths and to and within the digital forensic units, what we do with Guardian strength back our ability to influence on collection activities connected to draw review capabilities. So we anticipate that we are one and at which pace second far away from fulfilling a great position.
<unk>, which is still ahead of us.
Hope I answered your question.
Okay, very clear and I guess similar question what percent of your business from annualize and investigate Paul.
I'm glad you're saying basically got over the next few years, but one final question. Please.
Okay.
So our business, which is the connection review business is around 10% and software business at around 10%.
Most of it is actually the investigative underneath.
We see great potential with this offering.
Yes, I would like to say first of all nothing towards regarding what Dennis said regarding the these components but.
Pathfinder is a key element of the investigative activity for the investigative unit and Guardian.
The key element of case and evidence management are pretty much strategic solutions and clear.
Say element in the growth and in improving efficiency.
Of both digital forensic unit and investigative unit, we've got at this stage.
Very good positioning regarding both of them and as I stated I think yes, I did in my in my.
Previous.
Speech.
Pipeline was growing nicely in terms of Guardian in Pathfinder, we are penetrating very well.
<unk>.
I would say that we should expect a very meaningful growth from this solution along the road both in digital for indicates an investigative unit and they used to come.
I would like also emphasize I would like also to emphasize that.
The investigative unit part of the company side by side with the digital forensic unit is a very meaningful growth engine.
As part of our long term strategy.
Great. Thank you and then last one for me I mean price is being touched in a couple of times.
Growth drivers in the deck obesity, but outside of not to ASP uplifts from premium products, how much leverage do you have.
Just any kind of core price increases and what is the methodology adopt intelligently.
I think.
As we said, we see the beta stage driver of growth in the coming two years into as an entrepreneur for dual trial, it's really new.
Talk about price increase it's about new packaging of capabilities with the right value attached.
This new offering.
We believe that each and every customer across each and every.
<unk> installed base holder is entitled to these benefits that we're bringing to the product in this rule.
The premium and the new offering a free Guardian and <unk> together will drive the growth in the coming I would like really to reiterate and maybe join here and emphasize because again, we're talking you permanently about the price increase.
This increase related to what we deliver in terms of Pathfinder and in terms of Guardian and the model, which is related on more usage more data that's basically that's going to happen.
The <unk> trial, which is about to be launched is not a matter of price increase each of new price tag for a revolutionizing solution that basically will changing many aspects of the way collection review is done today in the digital forensic units.
But what I can say that with lots of confidence because as you know.
Not only that there is a healthy market that we are talking about all the time and available budget.
We are.
We get that from customers, we did the journey of bringing that solution by knowing very well our customers. We are perceived as a strong advisor we've got strong relationship and.
I am convinced that there will be.
Well perceived.
Well accepting environment for that value added.
With our new price deck.
Great and thank you.
Thank you. Our next question comes from Hugh Cunningham with TD Cowen.
Hi, guys. Thanks for taking my questions.
We go with our colleagues in offering our thoughts and prayers for for all of you and your families and friends.
A couple of questions. One. The question you asked me just answered about Pathfinder and Guardian and I'm trying to think through what both of those solutions would be displacing.
My first my initial thoughts.
<unk> will be displacing some sort of process on the Guardian side and maybe there is nothing on the Pathfinder cited a lot of your customers can you just talk about the.
The ease of penetration.
The difficulty to displace what your customers already have in place.
Performing the functions of Guardian, and performing functions of Pathfinder mhm.
So we're talking a lot about.
The drivers for the growth and I was talking about it earlier and one of them is about.
Inefficiencies.
And the need to bring more digital intelligence solutions into our customer face because as much as people are sometimes surprised.
There is not much to displace its more about creation and about the improvement of processes with disruptive technologies like ours Thats come in basically make things more smarter faster efficient and thus enable productivity.
Petfinder According to very thorough market studies and as I said, we know our customer's investigative analytics, so analytics be iPhone investigation is in the.
I would say single digit penetration at this stage for strategic and meat.
Prime account that gives us a place to grow it's not about replacing the onboarding of the solution such as pipeline. There is indeed longer there is a need to educate the customers. There is a need basically to invest in customer success in order to make it operational but we are not displacing we are.
Coming in solving ethane.
We have solutions, which doesn't exist same goes to guardian in terms of evidence and case management I would say that if I need to display something is actually.
Help our customers too.
Stop Manuel and saving of evidence on USB drives and stuff like that.
It's more about creating a better or bringing technology that will create more efficient more efficiency save Manuel work and by that increase.
The chain of custody.
That's in a nutshell. So we are in the upgrade.
<unk> displacing manual work and inefficiencies with lots of efficiency smart fast and more productive.
Great. Thank you for that very helpful. On the federal side. Thus further in addition to move.
Moving forward on the federal side does it does it help you with local and state and maybe even private.
Customers, who are using maybe fed ramp as a sort of.
Cut due diligence so a validation will that help you with them also.
Related to that do you expect any impact from the.
Potential shutdown of the U S Federal government.
So first of all to the first question, yes, absolutely can benefit from that as for the shutdown.
<unk>.
There is.
No concerns on our end related to Q4 2023.
And we analyze that pretty deep and when it comes if there will be a shutdown it depends and I'm thinking right now about 2024 on the shutdowns and we've done this in that we have seen that in the past.
The short of it is.
The less impactful it is the longer. It is then we need to consider we are assessing but for Q4 2023.
We see no impact or no.
Our results.
Thank you and then for the endpoint mobile now it's great to see that announcement.
Can you talk about.
The differences in your approach as you target the public sector versus private sector I know endpoint global now targets. The private sector can you talk about the differences there and then just to wrap up on FX.
Could you remind us about your hedging policy I know I think Don mentioned part of the Opex improvement was related to FX and Lewis can you talk about your hedging policy.
So I'll take the mobile now and I'll take the public the private sector sorry.
For as a company.
We see lots of potential and when it comes to the private sector work and especially from the broke round off a very strong public sector business.
In general good progress that we have done in Q3 and indeed.
As part of our innovative.
Steps in the Buda portfolio, we brought basically the mobile now.
Into the market the mobile always first.
Soft offering by the way, which is targeted as the first step for I would say our small to mid sized customer in the private sector.
As we said in our press release, it's a one step before bringing it in.
Endpoint complete on the SaaS, which is which will come in Q4 and.
That would be focus tomorrow, we'd say large paying accounts that we have as part of our customer base.
Would you like to yeah for sure. So our hedging policy is mainly aimed to protect the expense Israeli shekel, which is mostly payroll paid in Israel, we have a.
Fourth quarter wanting policy, whereby usually the coming quarter is covered 80% to 100% then next quarter. It will go to 70% and so on and so forth and we are on a monthly basis based on the currencies updating the hedging that we are executing.
Great. Thank you so much for the time I appreciate it thank.
Thank you.
Thank you. Our next question comes from Douglas <unk> with J P. Morgan. Please go ahead.
Hey, good morning. Thank you for taking my question and we'd also like to extend my thoughts and support to you guys at all celebrate employees.
Maybe we could continue a bit with U S. Federal did you see any budget flush coinciding with the end of their fiscal year and then how did federal spending trends in Q3 compared to prior years.
In general we are.
We didn't see any challenge whatsoever. During this year and in comparison to I would say Q3 versus Q2.
Regarding federal budgets.
We see pretty much healthy environment.
There are some discussions obviously regarding $24 25, they are in the public about.
<unk>.
Limiting the caps.
Related to <unk>.
Related to the fed budget.
But as I look at the hour.
I would say performance, which is related to the budget. We also saw a good growth.
If we compare our Q3 2023 in previous or in previous in comparison to previous year.
Great. Thanks, and then maybe one more.
Given that the new SaaS offering for enterprises that you released in the quarter any any commentary on private sector traction or trends that youre seeing lately.
First of all as I said private sector is becoming more and more important for us.
On our so to say on our radar.
The trends in the.
Private sector when it comes to us the areas of I would say E discovery.
And incident response.
One.
There are more budgets second there is an ongoing trend we started but we already in 2019 2024, the need for remote collection, especially when it comes to large and mid size of organization and there is a clear need for a unified platform.
As we look ahead I would say towards 2025 2026, those are the major trends and we intend to.
Operate accordingly.
Great. Thank you so much.
Thank you. This does conclude the Q&A portion of today's call I would now like to turn the floor over to celebrate CEO Yossi Carmel for any additional or closing remarks.
First of all again, thank you all for joining.
And I would like to end by.
Thank you for the interest. Thank you for the support and again I would like to give a big thank you for.
The celebrate employees and emphasizing the fact that especially during such times.
Microeconomic conditions, plus what we are experiencing the conflict in the middle East.
Succeeds to continue with our strategic plans and deliver above and beyond and beat our targets. So a big well done and a big Thank you from my team.
And thank you for joining us today.
This does conclude today's celebrate third quarter 2023 financial results conference call.
These disconnect your line at this time and have a wonderful day.
Okay.
Okay.
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Hum.
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