Q3 2025 Cellebrite DI Ltd Earnings Call
Speaker #1: Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero. Welcome to the Cellebrite third quarter 2025 financial results conference call.
Speaker #1: 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.
Speaker #1: If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Do others can hear your questions clearly?
Speaker #1: 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.
Speaker #1: Mr. Andrew Kramer. Mr. Kramer, the floor is
Speaker #1: yours. Thank you so much,
Speaker #2: operator. Welcome, everybody, to Cellebrite's third quarter 2025 financial results call. I'm joined today by Tom Hogan, Cellebrite CEO; David Barter, Cellebrite CFO; and Marcus Joule, our CRO.
Speaker #2: 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 our prepared remarks.
Speaker #2: Please note a copy of today's press release and financial statements, including GAAP to non-GAAP reconciliations, is available on the Investor Relations website at investors.cellebrite.com.
Speaker #2: In addition to the press release, we posted a separate investor presentation that provides an overview of our business and our recent financial performance. I'd like to also remind everybody that the slides in your webcast viewer are a placeholder only.
Speaker #2: There are no actual slides to accompany our prepared remarks. We also publish supplemental historical financial information for each quarter of 2025 and for the past two years on our Investor Relations website.
Speaker #2: Additionally, unless stated otherwise, our discussions of the third quarter 2025 financial metrics, as well as the financial metrics provided in our outlook, will be done on a non-GAAP basis only.
Speaker #2: And all historical comparisons are with the third quarter of 2024. In addition, I'd 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.
Speaker #2: 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.
Speaker #2: They could also cause the actual results to 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 20F, filed with the SEC on March 18th, 2025.
Speaker #2: The company does not undertake to update any forward-looking statements to reflect future events or circumstances. And with that being said, I'll now turn the call over to Tom.
Speaker #3: Thanks, Andy. And thanks to all of you for joining us this afternoon. I'll be a bit briefer this quarter than I was last quarter, but I want to start by thanking the many of you who reached out with kindness and support after our last quarter's call.
Speaker #3: I'm pleased to share that not only do I remain cancer-free, I've resumed my mountaineering passion and climbed a significant peak last month. And the doctors tell me that I should plan to dive a heart attack in my late 80s, which I guess is a good thing.
Speaker #3: But it gives me lots of runway to help propel this important company. So let's go. First, I'm proud of the job the team at Cellebrite delivered in the third quarter.
Speaker #3: Our results were both solid and balanced. ARR grew 19% for the 12-month period. Subscription revenue grew 21%, led by strong performance in our U.S.
Speaker #3: state and local segment. And our Latin America region. Adjusted EBITDA exceeded expectations, growing 20% year-on-year with margin expansion of 60 basis points. We continue to tune our business to optimize top-line growth while driving increased scale and operating efficiency to deliver meaningful levels of profitability and a very healthy free cash flow.
Speaker #3: Good companies grow; good companies expand margins; great companies do both, which is exactly what we did. We were also pleased with our third quarter performance in the U.S.
Speaker #3: federal segment. As we foreshadowed in our last call, we do not expect to a full return to normalized growth until calendar deliver year-to-year growth in the quarter which included the expansion clients and confirmation of our of several marquee view that growth in this sector will resume as budgets are fully distributed.
Speaker #3: I think it's fair to say the flywheel in U.S. federal has begun to move. I want to highlight some important metrics and milestones that contributed to the quarter in position Cellebrite for continued growth and leadership.
Speaker #3: First, we finished Q3 with approximately 47% of our installed digital forensics license base converted to our insights offering. As a refresh for everyone, we set a target at the beginning of 2025 of 50% conversions from a 2024 baseline of 20%.
Speaker #3: Our year-to-date progress or exceed that target and, importantly, it's a clearly positions us to meet strong proxy for the value of the industry's most complete suite of digital forensics.
Speaker #3: Second, we continue to see more customers turning to Cellebrite's cloud and SaaS offerings to efficiently and securely manage their digital forensics and workflows. ARR for our investigative SaaS and cloud-based solutions grew three times faster than total ARR.
Speaker #3: Guardian is rapidly emerging as the industry standard for the storage and collaboration of sensitive evidential artifacts. The number of Cellebrite customers using Guardian more than doubled year over year, while ARR grew triple digits at 100% plus for the fifth consecutive quarter.
Speaker #3: And this is all before we launched Guardian Investigate in the first quarter of next year. Third, our strategic focus on the global defense and intelligence sector is starting to pay dividends.
Speaker #3: In the third quarter, we continued to expand our business in the D&I sector as multiple global intelligence and military agencies increased their Cellebrite investment to support high-priority use cases across anti-terrorism, border control, and overall military responsiveness and readiness.
Speaker #3: In particular, I'd highlight our D&I expansion in Europe over the past several quarters as an early proof point validating our intensified go-to-market focus. As we look ahead, we're centered on four core growth factors.
Speaker #3: First, we're focused on asserting our leadership and breadth in providing unlock and access solutions across the wide range of OEM phone providers and operating systems.
Speaker #3: Our unlock offerings are now attached to more than 45% of the insights and legacy forensics install base, reflecting healthy quarterly expansion and sustained demand for this critical capability.
Speaker #3: Last quarter, we highlighted our clear leadership on Android phones. We extended that leadership this quarter with the addition of industry-first capabilities and even broader coverage across the Android universe.
Speaker #3: As we finished 2025, we are equally excited about our leadership opportunity in iOS with pending and added enhancements. We believe the choice will be clear for any customer looking for unlock strength across multiple platforms combined with industry-leading capabilities for extraction, decryption, and decoding.
Speaker #3: Second, we are accelerating innovation in AI and digital investigations with the upcoming launch of Guardian Investigate. This new SaaS AI-powered solution is designed to transform the entire investigation lifecycle, enabling investigative teams to build stronger case narratives, collaborate seamlessly in a secure, unified workspace, and drive AI-enabled insights and analytics and workflow across a diverse set of data sources including smartphones, computers, call detail records, open-source intelligence, and case files.
Speaker #3: Guardian Investigate will launch in early 2026, and we couldn't be more excited. Guardian Investigate is the logical extension of our 20-year history of leadership and forensics.
Speaker #3: We are well-positioned to power hundreds of thousands of investigators, detectives, analysts, and prosecutors in their mission of prevention, exoneration, and prosecution. Third, we expect a resurgence of growth in calendar 2026 across the U.S.
Speaker #3: federal sector. After navigating spending headwinds and leadership changes throughout the first half, this segment returned to growth in the third quarter. We remain cautious on the federal fourth quarter given normal government seasonality combined with the shutdown the past six weeks, but we view both as transitory and believe the strategic spending we enjoyed in our third quarter are harbingers of a strong rebound in 2026.
Speaker #3: Our conviction in this segment is grounded in three areas. First, the release of targeted funding combined with pent-up 2025 demand should elevate investments in our unlock and insights solutions.
Speaker #3: Second, achieving FedRAMP authorization to operate with DOJ sponsorship in early 2026 should unlock a large opportunity for us to leverage our Guardian offerings across U.S.
Speaker #3: federal agencies. And third, assuming carilion is closed by year-end, this asset has tremendous product fit across the U.S. federal space. Our final growth vector is the pending close of carilion, which we believe will expand both our TAM and our value proposition, particularly across global defense and intelligence agencies and the private sector.
Speaker #3: Carilion's arm-based virtualization software is already enabling some of the world's most sophisticated D&I agencies to harden their cyber defenses by more efficiently and effectively identifying vulnerabilities across a broad range of digital devices.
Speaker #3: What has us super excited is the consistent surfacing of new and powerful use cases across both the private and the public sector. We're addressing CFIUS requirements in real-time and expect to complete our purchase of Carilion later this quarter.
Speaker #3: And as a reminder, our current results and guidance do not contemplate carilion results or performance. As we step back and consider the big picture, the macros remain strong.
Speaker #3: Crime and geopolitical risk are not going away, unfortunately. The application and sophistication of technology and the pursuit of crime grows weakly, and budgets for labor to protect public safety remain constrained at best.
Speaker #3: The deployment of advanced technologies like Cellebrite remains the best path to make our nation's our communities and our businesses safer. We're focused on sprinting through the tape, over the next six weeks, but we couldn't be more enthusiastic about 2026 with the confluence of the release of several new value-generating assets between the fourth quarter of this year and the first quarter of 2026.
Speaker #3: We'll reserve 2026 guidance for our February call and plan to remain prudent when it comes to setting expectations nevertheless. Our confidence in the re-acceleration of our top-line growth in 2026 builds every week along with our commitment to continue stewardship with respect to spending, margins, and free cash flow.
Speaker #3: That ongoing discipline not only delivered a third quarter beat on the bottom line, but also triggered a raise on our full year 2025 adjusted EBITDA target.
Speaker #3: And Dave will talk more about this in just a minute. Finally, I want to sincerely thank the roughly 1,250 strong Cellebrite operatives, which are our people.
Speaker #3: And our customers who place huge trust in us every day. It's an honor and a privilege to serve all of you. I was excited about the prospects and the mission of this company when I joined as executive chairman in 2023.
Speaker #3: I can tell you with absolute conviction, I am more enthused about our future today than when I joined two and a half years ago.
Speaker #3: I believe the best is yet to come, as we continue to innovate internally and tap much further and deeper into the enormous power and potential of AI, complemented by disciplined and targeted acquisitions and strategic partnerships.
Speaker #3: We're confident the combination of strong execution, with a growing and mission-critical TAM, will drive material, value creation for our customers, our employees, and our shareholders.
Speaker #3: With that, I'll turn it over to Dave.
Speaker #2: Thank you, Tom. I'd like to briefly share highlights from the third quarter. ARR grew 19% to $440 million. Sequentially, ARR increased 5%, which is a healthy improvement from our sequential ARR growth rates in Q1 and Q2.
Speaker #2: The year-over-year increase reflects increased spending by our existing customers. The Americas represented 55% of total ARR, while EMEA represented 33%, and Asia Pacific represented 12%.
Speaker #2: In terms of growth rates by geography, the Americas grew 21%, with our U.S. state and local government and Latin America teams leading the way.
Speaker #2: Turning to revenue, we generated third quarter revenue of $126 million, which increased 18% from the prior year due to primarily subscription revenue growth of 21%.
Speaker #2: Approximately 89% of total revenue was associated with our subscription-based software solutions. Our growth profit increased to $106.5 million, which represents a gross margin of 84.5%.
Speaker #2: This reflects ongoing investment in our cloud infrastructure, as we continue to roll out Guardian and invest in the federal ATO process. Third quarter adjusted EBITDA of $37.7 million increased 20% over the prior year, and the margin expanded to 29.9%.
Speaker #2: Our third quarter operating leverage reflects thoughtful capital allocation across our organization, including disciplined hiring activity in the quarter. We ended the third quarter with $1,236 employees.
Speaker #2: We reported third quarter net income of $36.9 million or 14 cents on a fully diluted basis. Overall, our weighted average diluted shares outstanding increased by a little more than 1% from the second quarter levels.
Speaker #2: We continue to thoughtfully manage our equity and incentive programs in ways that we believe will be minimally dilutive on a go-forward basis. Turning to the balance sheet, we ended September with $595 million of cash, cash equivalents, and investments.
Speaker #2: Free cash flow for the third quarter was $30 million. For the trailing 12 months, free cash flow was $140 million or 31% on a margin basis, compared with $102 million or 27% margin in the prior 12-month period.
Speaker #2: Let's shift gears and take a look at our expectations for Q4 and the full year. Which, to be clear, do not include any contribution associated with Quirilium acquisition, which is not yet closed.
Speaker #2: We anticipate our fourth quarter ARR will grow sequentially in the mid-single digits. We've left our full year outlook unchanged, with a range of $460 to $475 million.
Speaker #2: This reflects the traditional seasonality of our business in the second half of any year, given the volume of expiry agreements, the overall strength of our pipeline, and the uncertain timing of the near-term spending by U.S.
Speaker #2: federal agencies. We expect fourth quarter revenue in the range of $123 to $128 million. We expect our Q4 adjusted EBITDA in the range of $35 to $38 million.
Speaker #2: We're approximately 28 to 30 on a margin basis. Looking to our full year results, we've increased the midpoint of our revenue outlook and now anticipate 2025 revenue in the range of $470 to $475 million.
Speaker #2: Which represents growth of 17 to 18%. We have increased our full year 2025 adjusted EBITDA range and now expect $124 to $127 million or approximately 26 to 27% on a margin basis.
Speaker #2: And finally, I'd like to reiterate our view that 2025 will be an excellent year for free cash flow. Given the strong cash flow from operations year to date and relatively minimal capital intensity, we expect the company's free cash flow margin will be approximately 30%.
Speaker #2: Before we move to Q&A, I wanted to share some perspective on our 2026 planning. As Tom noted, we have multiple growth vectors. We're also mindful of the challenges we experienced this year in regard to the timing and magnitude of spending in the U.S.
Speaker #2: federal customer segment. Thus, the initial 2026 outlook we will share in February will be prudent, with a foundation grounded in the historic seasonality of our business, our RPO, our contractual backlog up for renewal, the expansion opportunity on those renewals, and the near-term opportunities to expand with the existing customers on multi-year contracts.
Speaker #2: We will also apply the same methodology that delivered a high level of forecast accuracy last quarter. It's important to note we have multiple ways to grow free cash flow by approximately 20% with 2% dilution.
Speaker #2: This will allow us to be very thoughtful in terms of how we set our initial outlook. We are optimistic that we will be able to increase our outlook over executes and captures the market opportunity in front of us.
Speaker #2: Let's take a quick look at the primary growth drivers across our platform that can serve as a foundation for an initial baseline target for healthy ARR growth.
Speaker #2: First,
Speaker #1: Several percentage points of growth . Second , we see solid expansion ahead for insights as we move into the home stretch for upgrades , drive broader adoption by extending our reach into new user groups and upsell advanced unlock solutions and automation offerings .
Speaker #1: We believe these dynamics should support growth least high of at single digits on a percentage basis . In 2026 . Our third growth driver involves and Guardian Pathfinder .
Speaker #1: The cornerstones of our digital investigation and analytics offerings . We anticipate healthy Guardian demand within our existing core markets . Expansion into the US federal sector , Australia and other select international markets .
Speaker #1: And sales of Guardian enterprise . In addition , we see further new business expansion combined with stronger renewal rates for Pathfinder . Success on these fronts is expected to contribute mid-single digit percentage points of AR growth .
Speaker #1: In excited about the growth prospects selling into our solutions customer base across defense , intelligence and enterprise verticals . Beyond the initial AR gained from Carilion once the transaction closes , we anticipate an incremental contribution of at least a couple percentage points to our AR growth rate .
Speaker #1: And remain finally , we optimistic about the taking to steps we're drive retention improved rates by minimizing churn as we evolve our pricing and packaging .
Speaker #1: on AI and Centered cloud capabilities , and attractive multi-year terms . In terms of 2026 revenue growth , we believe our revenue growth rate will slightly growth trail our AR rate .
Speaker #1: This reflects the continued growth of our cloud based solutions and assumptions for relatively , non-recurring hardware and professional services revenue . In terms of revenue , seasonality , we have historically generated approximately 55% of our revenue in the second half of the year from a profitability we plan perspective , thoughtfully allocate capital to support to celebrates ongoing expansion in 2026 and beyond .
Speaker #1: As a reminder , our EBITDA margin is lower in Q1 and steps up over the course of the year . We also expect our AI investments across go to market product and the functions will lead to new levels of automation and scale and yielding headcount moderate expansion .
Speaker #1: This will produce operating leverage to drive improvement incremental in our adjusted EBITDA margin and enabling us to maintain a 30% or greater free cash flow margin in terms of our guidance philosophy going forward .
Speaker #1: We plan to set our 2026 outlook using tighter ranges supported by Bottoms Up . While Forecasting continually assessing the full year targets based on the most recent quarter's results and near-term visibility .
Speaker #1: We're very excited about our prospects to drive durable , profitable growth and strong free cash flow next year Finally , . joining Cellebrite very have been fortunate to spend a good deal of time with current and prospective shareholders .
Speaker #1: A frequent topic in recent engagements relates to the overhang associated with the sun Corporation , our largest shareholder owns 40% of the company's shares .
Speaker #1: I've had an opportunity to spend time with some members of sun's management , as well as some of their investors . Overall , I view these relationships as very positive .
Speaker #1: With that said, we are increasingly optimistic about opportunities that could emerge over the coming quarters and years for Sun to reduce its stake in an organized, structured, and thoughtful way that we believe will deliver value for shareholders of both Sun and Celebrate.
Speaker #1: I'd like to close by reiterating our view that Cellebrite remains well positioned to deliver another year of healthy growth . Strong profitability and excellent free cash flow with a minimal amount of dilution to shareholders .
Speaker #1: Our team is focused on closing out the year on a strong note while also putting the plans in place that we believe will enable us to expand customer relationships and increase shareholder value in 2026.
Speaker #1: Operator . That concludes our prepared remarks . We are ready for Q&A .
Speaker #2: 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 .
Speaker #2: 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 quality sound .
Speaker #2: Additionally , we do ask that you please limit yourself to one question and one follow up . Thank you . Our first question comes from Jeff Van Ree with Craig-hallum .
Speaker #2: Your line is open . Please go ahead .
Speaker #3: Great , thanks guys . Congrats on a good quarter and thank you for the color on the outlook . Two or 2 or 3 quick ones here .
Speaker #3: I If could just . Tom , in terms of the path forward to cloud adoption over time as a percent of RR . Are there any internal goals or any thoughts you can give us on how you see that percentage of RR that's going to be cloud evolving over the next , say , two , three years ?
Speaker #1: Hey Jeff it's Dave . How are you doing ? Thanks for the question . Jeff . We're continuing to work with our as they customers make their transition .
Speaker #1: We actually have customers that are 100% cloud. We have many that are in the hybrid stage, and then we certainly still have some making the transition.
Speaker #1: Right now we just have a very bent of proactive working with our customers . Many of our our products , as you know , are are already in the cloud and everything new that we're doing is in the cloud .
Speaker #1: And so from standpoint , it's just an ongoing partnership as as we we support them . And keep keep pressing forward with adoption .
Speaker #3: Yep . And on called Corellium , you it out as one of the 3 or 4 key growth drivers . I know you signed that new reseller relationship .
Speaker #3: color Just any in terms of what you saw , both things you were able to get across the finish line and maybe more .
Speaker #3: So what's building in the pipeline there ?
Speaker #4: sure . Hi . Yeah , Marcus . Yeah . Look , we've some good we've had initial momentum . We now have a significant pipeline , which we built like an eight figure pipeline .
Speaker #4: And that is spread equally across the cohorts that we said , which would be defense And intelligence . into the global 2000 . To date , we have processed two two orders and Q4 , we expect to transact some more .
Speaker #4: Yeah. Hey, Jeff, to.
Speaker #1: color , this Underscore is Tom . I keep .
Speaker #4: Reminding people this business was roughly a $15 million IRR . Core business . And I don't in the law of , you know , lots of shouldn't numbers be lost on people that the pipe we already see is Marcus mentioned is double digit millions of of achievable pipe .
Speaker #4: And so and that's before we've even closed the transaction . So you know , again we just keep building more enthusiasm . also And referenced we've uncovered use cases that we didn't necessarily anticipate or plan .
Speaker #4: You know , 9 to 12 months ago when we started this conversation with Corellium . And so the , you know , and I guess the positive is , you know , the there was there a modest contribution from reseller in the quarter .
Speaker #4: Yes . But it's you could argue it's almost immaterial . So we didn't hit these numbers on the back end of Corellium back back door reseller stuff .
Speaker #4: So was it largely a , you know , a core celebrate production . But the active and real , you know , sort of Tam and pipeline is very encouraging .
Speaker #3: Yeah . Got it . And just then lastly , as it relates to the 2026 plan , thanks for the insights on those for primary growth Sort of just drivers .
Speaker #3: looking at a swag of the ranges you gave , their sort of looks like roughly 20% ish RR . But curious if just you'd be willing to provide any bounds around that or any expanded insights just in terms of what you think growth prospects for about year ?
Speaker #3: Thanks next .
Speaker #4: Yeah , I know it's tempting to answer that , Jeff , and we'd love help you out to and throw you a number and a bone , but we just we really want to reserve that until we close the year .
Speaker #4: And put a bow around the opportunity . But what we are doing , which I think is atypical at this stage , at least historically for us , is we are sort of going public with a level of confidence that you will see an accelerate whatever is .
Speaker #4: the growth year This . We do have confidence that that growth rate will accelerate in 2026 . We're just not prepared today to put a number on it .
Speaker #4: That's what you'll get in February . But growth is going up and that's against , by the way , you know also it gets overlooked .
Speaker #4: You know the law numbers that of big denominator in the baseline has this gone up year . So we're going to accelerate our growth against a bigger baseline .
Speaker #4: But that's all we really are ready to share at this point .
Speaker #2: Our question next comes from Essex with J.P. Morgan . Please go ahead .
Speaker #5: Hi . Good afternoon . Thank you for taking the question . And congrats for me as well . On the on the solid results .
Speaker #5: Maybe to follow up to Jeff's question to start and then I have a follow up on on Tom , I think you noted that that you're addressing CFIUS issues in real time .
Speaker #5: How significant are those issues and are there any contingency plans for a case where you might hit a roadblock there in terms of , you know , taking that into to the federal business ?
Speaker #5: Just wondering what that process looks like . And what the risk is to close at this point .
Speaker #4: Yeah . You know , nothing's 100% . So I can't I can't write a check that I can't cash on that front . But I you , you put if would tell my a gun to head , I'd say 98% odds that we'll get this done .
Speaker #4: And and I think that will similar odds that we'll get it done . This quarter . We're we're in the final stages . I will there was say more inspection than we anticipated , combined with all the chaos in government and the shutdown didn't help some of the case managers and people involved and just coordinating input across DOJ and DoD and all the people that was a care little bit tougher , given what's been happening the last six weeks .
Speaker #4: The other positive , if you if you're a full person , is if this stuff wasn't powerful and if it wasn't relevant to these agencies , wouldn't care they so much the about IP was protected .
Speaker #4: So the bad news is , they ran us through the little bit wringer a more than we expected . But it's because the stuff really does matter to agencies that you care about that keep us safe .
Speaker #4: But we're , you know , hate I sports metaphors , but we're on the one yard line and we have high confidence that we'll we'll push the line here it over in the next , you know , 4 to 6 weeks .
Speaker #5: it . Got That's super helpful . And then maybe just a follow up on Cellebrite federal . Any any sense of what the contribution was there quarter in progress .
Speaker #5: There with regard to like building that out to better penetrate the federal vertical ? I understand that shutdown's a headwind , would love a but little bit a little bit of color around , you know , where the efforts are focused there and how they're positioned as you kind of like head into fiscal 26 .
Speaker #4: Yeah . The good news is just to , you know , I know it's a lot of babble when we go through these scripts .
Speaker #4: But , you know , the first half was was tough . We sort of held the line . It certainly didn't deliver the that we growth historically , which is what , you know , which was the headwind for our full year .
Speaker #4: The good news is we got back in growth in Q3 mode and even better , it wasn't just growth . We nailed of a couple very strategic clients , and I'll let Marcus add some color because I think it's fair to use those wins as sort of a proxy for product fit .
Speaker #4: And momentum . And trust in the US federal space . But Marcus , why don't you add some color ? Yeah , sure .
Speaker #4: So it was a it was actually a very strong quarter for federal . The team executed particularly well . I'll draw attention to a couple of deals .
Speaker #4: And you guys know these are all in the in the public domain . You don't have to search too hard to find the names , but I won't do them in talk about injustice and them specifically .
Speaker #4: A large agency, which does protection services, placed an order with us in excess of $11 million. This represents a significant expansion compared to previous years, including some new products.
Speaker #4: And we're very confident that that was also a share . Taking opportunity for us . And then another agency following up very , which is very well known in the market and protects a lot of us .
Speaker #4: had our We largest expansion year with that ever had . we've So between 30 and 35% expansion on the base . And then investigating new products .
Speaker #4: And interestingly , taking us for the first time into the cloud . So we talked about this cloud journey . We're now seeing federal customers be a lot more aggressive in the movement to the cloud , which bodes exceptionally well for our ATO process with FedRAMP .
Speaker #4: We'll be taking advantage with the only cloud enabled solution high in the market in the forensic segment . So good execution and we feel a lot more to come .
Speaker #4: The other the other the other thing I would add before somebody is asks we've talked I talked in the think we last call about a very large client that we expected to renew in the first half of 26 , and we expected that renewal rate to go up significantly .
Speaker #4: The performance in the U.S. Fed in the third quarter did not include any of that. So that is still in the hopper and still something that we expect to win and close in the first half of 2026, which is material.
Speaker #2: For our next from question comes Tomer Zilberman with Bank of America . Please go ahead .
Speaker #6: guys Hey , I wanted to ask about federal and your thoughts around the performance this quarter . Mostly wanting to ask , you know , how do you differentiate the the growth this quarter from potential budget flush as it was their fiscal year end versus maybe the more secular underlying recovery that you're talking about ?
Speaker #6: And then I have a follow up .
Speaker #4: Yeah . I mean you know , flush is is a budget thing . But I mean , remember , we're on the mission side .
Speaker #4: So , you know , this this the products that we have have to be used . And so we're not like we're not selling licenses for word processors .
Speaker #4: So we don't really, unfortunately, see budget flush because we're mission critical and we're program driven. So I would like to think it's down to solid execution and a good product-market fit that has driven all of our games in that sector.
Speaker #4: didn't really We because of the see shutdowns and slowdowns , the normal , what we call UFOs , which I'm sure you're familiar with the unidentified funding requests , they were not a part of it .
Speaker #4: They were just solid execution into 3 or 4 of our key clients .
Speaker #6: Got it , got it . As a follow up for Dave , I appreciate your commentary around your discussions with Suncor . You know , it's been an ongoing conversation the last few years .
Speaker #6: Just wanted to ask as as you speak with the other side , have you gauged any sense of urgency in terms of where that goes , or do you foresee this being a long term kind of trend ?
Speaker #1: I don't see urgency . I think going back to my prepared remarks , I see him being very organized , structured , thoughtful , obviously some corporation owned 100% .
Speaker #1: It's come down over 55% . And so I think it is you'll find them again measured and thoughtful and rational and and I think that's you know what we're hoping to communicate to everybody .
Speaker #4: Yeah, I mean obviously that’s stuff that we don’t have full control over. Or you could even argue, limited control over. But you know, the devil’s in the details of your question.
Speaker #4: When you say long term , are you you know , is your expectation or question on a sell down over five years or over five months or .
Speaker #4: I think to But Dave's point , you know , they've been pecking away for years . Our guess is they'll continue to peck away and I don't since I don't have control or insight to specifics , but I would expect to see .
Speaker #4: My guess is you'll see some more sell down over the the near future than , say , a five year horizon .
Speaker #2: Our next question comes from Louie De Palma with William Blair. Please go ahead.
Speaker #7: Tom, David Marcus, and Andrew, congrats on the EBITDA guidance raise.
Speaker #4: Thank you .
Speaker #7: How should investors view the positioning of Guardian Investigate relative to Pathfinder? And are you still working on a SaaS version of Pathfinder?
Speaker #4: Great question. It's really a good question because it's really important to our value proposition and our strategies as we go forward. Pathfinder will persist.
Speaker #4: I think of Pathfinder as either an on-prem or VPC-based analytic engine that is optimized for processing correlations and analytics and insights.
Speaker #4: When you have multiple phones and the data sources , we control now , fast forward to Guardian investigate , which is an evolution from a lot of capability around the examiner and forensics into the world of the detective and the investigator to provide very not only robust , robust case management capability , but also the ingestion and the ability to drive work streams and collaboration across a broad range of different data sources , some of which we control and we create , and some of which are created by other vendors in the ecosystem .
Speaker #4: And then complement that Guardian investigate with a cloud based as contrasted with pathfinders of VPC product , a cloud based very intensely enabled AI analytic engine that can now prosecute and interrogate all the data that we surface that sits in Guardian investigate , and the data that we're able to pull in and combine with to to drive what we think will be the most insightful analytic engine in the world of investigations .
Speaker #4: Yeah , and I can I'll follow on from Tom there and add that the way the simple way to think about it is Pathfinder is for multiple extractions of multiple phones into the into into the hundreds .
Speaker #4: when you look at Whereas investigate that is a multiple data source . So you actually need the horsepower and the number of our customers answering the question on cloud or on prem , the nature of what they do with multiple phone extractions in the hundreds or dozens or even thousands , they need that on prem power , and they want to be off the cloud to do it .
Speaker #4: So there is going to be two variants . One is going to be cloud based , and one is going to be on prem .
Speaker #4: And the two actually interwork with each other and that they are not duplicative and/or replace each other at all.
Speaker #7: makes sense . So That there likely will be customers that subscribe to both Pathfinder and Guardian investigate . Right ?
Speaker #4: 100% . I mean , Guardian investigators is is actually one of the industry's first forays into multi data source . For instance , being able to ingest CD-RW records with and then cross cross-reference those to the cell phone is very powerful .
Speaker #4: And so that will be a functionality that would be pervasive within investigate and would be additive to the deep work that we do in the cell phone extraction on Pathfinder .
Speaker #4: The completely competitive .
Speaker #2: Her next question comes from Bovine Shaw with Deutsche Bank. Please go ahead.
Speaker #8: Great . Congrats from me as well . And thanks for taking my questions . I guess first , just maybe a little bit on the defense and intelligence kind of vertical .
Speaker #8: Can you just talk about the pipeline there and how maybe the go-to-market strategy and the sales cycles for this vertical compare to your core kind of buyers' buying centers?
Speaker #4: Yeah . So great , great question . Obviously , defense and intelligence has been it's been strong for a number of years in the US .
Speaker #4: The previous in US previous regimes was was kind of policing the world in a number of areas . What we've now is from threats coming in from from all over the world , particularly in Eastern Europe .
Speaker #4: As you know , we're seeing the NATO spend increase to the 2% commitment . And that is driving , you know , warfare is now not only physical , it's predominantly digital .
Speaker #4: So what we're now seeing is in Europe. I take this, this pipeline in Q4, my top four largest deals will actually all be defense and intelligence out of Europe.
Speaker #4: What we've now done is we are collaborating across all of my regions . We have a new single leader that we'll be appointing for DNI to actually drive that strategy forward .
Speaker #4: And we're we're we're very happy with where we are and where we're being brought into it . accreditations in that Our space are second to none .
Speaker #4: The fact that we have ATO and are heading for FedRAMP High sets us apart at a completely different level from the competition. We have a number of people that are ex-Say What.
Speaker #4: but let's say they I won't did things in the which kept military us safe and they are very well connected . And we are we are exceptionally grateful to the customers a shot there .
Speaker #4: giving us And we're very excited about the potential that we have on a global basis .
Speaker #8: That's very helpful there . And maybe just as a follow up for David , you talked about the the EBITDA strength . And in your prepared remarks , you kind of noted disciplined hiring .
Speaker #8: How much of that that maybe lower than expected hiring is a function of volatility in the federal business versus kind of efficiencies you might be getting from Gemini or other areas .
Speaker #8: And then as you talk about targeting , accelerating growth next year , how does hiring play a role there ?
Speaker #4: That's a great question .
Speaker #1: right now , I I think we are the disciplined hiring . I think from a capital allocation , really , we think about what's going into product .
Speaker #1: So you heard about investigate . You've heard about just the other AI initiatives that are going across all products . And those are prioritized .
Speaker #1: And that's what we're going after . We have , I think , a very detailed go to market model with markets that we run .
Speaker #1: And so I'd say our we have our hiring model . I think we have our AI initiatives that are driving efficiency across our business .
Speaker #1: And I guess that is the discipline framework that we use to to guide how we're doing . And and so I think we have a long term orientation around our business , around how to capture and fulfill our long range model .
Speaker #1: And that kind of works its way back into our hiring decisions .
Speaker #4: Yeah . I mean , I would add that our ramp of headcount growth has been on a steady decline for the last three years because of improved efficiencies and much of which is AI enabled .
Speaker #4: And that will continue in 2026 . And I would tell you that of the modest growth , roughly half of it is going into our go to market organization .
Speaker #4: So that Marcus can respond to interest levels and opportunities across both the public and private sector around the world . So but , but it's a it's a it's a healthy story .
Speaker #4: Yeah. We're able to express in sales and increase in quota carrier ratios to the back office functionality that you see in the go-to line.
Speaker #4: So, we're always increasing that ratio of actual people who deal with customers away from back office. We see that continuing for a sustainable amount of time.
Speaker #2: Our next question comes from Shaul Ale with TD Cowan. Please go ahead.
Speaker #9: Thank you . Good afternoon and congrats on the strong set of results . And outperformance . My question is on on the competitive landscape .
Speaker #9: So Cellebrite operates in the market . I think characterized by high barriers of entry . What can you tell us on the current competitive landscape ?
Speaker #9: And are you seeing, or have you seen, any newcomers into new adjacencies in the current market? Thank you.
Speaker #4: Yeah , I'll take that one . You know , first to get to the end of your question , there's there's no to your point about barriers to entry .
Speaker #4: That's a very real observation . And as a result , you know , we would not be able to call out or point to any , any significant .
Speaker #4: There are always startups and pop-ups in every industry, but there are no meaningful new entrants from a competitive perspective. So, we continue to see the same people we have.
Speaker #4: good We have competition . We respect our competitors . They're good companies . But I got to tell you , we sort of like our hand and how we stack up right now .
Speaker #4: And as some of the things alluded to sort of hit the shores over the next 90 days, our view is that our competitive positioning is going to increase very quickly.
Speaker #4: So same competitors , good companies , but like where we sit , yeah , you know , we feel very comfortable again . We have some we have some strong competitors respect them a lot .
Speaker #4: But as I said, I think with Tom, we agree we have a winning hand here. I would say that what we do have is the ability to control, manage, and optimize the workflows, and the data puts us in prime position.
Speaker #4: There are a number of AI entrants. If anyone went to IACP, you would see them. For me, they open up not only potential partnership opportunities but also M&A opportunities for us.
Speaker #4: But again, we back our own AI ability to understand that it's a difficult industry to break into, both from customer intimacy and from understanding the sensitivity to data.
Speaker #4: It's not that it's very hard to trust people who are coming in with a new AI algorithm written in code that you think is going to take it apart.
Speaker #4: That's not what our customer base is going to do . And so we're comfortable with our position to expand it . Yeah . And that's a double pile on .
Speaker #4: But given given the sensitivity of of what we do , who we help and what their mission is have , they the . The brand and the track record and the proven capability of the limited vendors in this space are a big deal .
Speaker #4: This isn't some back office trivial thing that people are willing to take flyers on . It's important to them that they deal with people they have dealt with for 20 years that have delivered that , that are focused and committed to the space and that they trust .
Speaker #4: It talks about sell when it's called the Cellebrite report , when they go to court , when they say , I've celebrated a phone , that's very hard to undo , that's become , you know , in the mindset of our customers over a number of number of years .
Speaker #2: Our next question comes from Mike Cikos with Needham. Please go ahead.
Speaker #10: Great . Thanks for taking the questions here , guys . And I'll echo my congratulations on on the strong results . The reiterated AR guide and then the the confidence that you guys are exuding as far as that top line Reacceleration for next year .
Speaker #10: So, congrats on that. I just wanted to unpack a couple of items here, but great to see that U.S. federal return to this growth dynamic.
Speaker #10: I don't want to be dismissive . I believe you guys called it out a couple of times in the prepared remarks , but the strength that you saw out of US state and local , as well as Latin America , can you kind of unpack that a bit more as far as what you saw from those two segments ?
Speaker #10: The durability of that growth from where we stand here and maybe potentially size up with the contribution was if we're trying to stack rank drivers of outperformance.
Speaker #10: Sorry, I know there's a lot to unpack, but again, it was a solid quarter for execution, and I just wanted to highlight that.
Speaker #4: Yeah , sure . Great question . And my SLG leader will be very be she'll thankful that you're giving us some props because they continue to execute consistently and and to a certain extent , it's a gift that keeps giving .
Speaker #4: So, what are the drivers you know? The crime type in the U.S. continues to be digitally driven. So, what do you mean by that?
Speaker #4: Is there a number of cases that require the unpacking of phones? Most agencies we sell to still have a backlog of cases and a backlog of phones.
Speaker #4: And that means that our driver is not limited by , by , by by that . Now , that's crime . But but that is what we need .
Speaker #4: That is what we see . There is no end in sight . We also saw , even through the shutdown , grant budgets were available .
Speaker #4: So, the government was actually working hard to get the grants out because these grants matter; they know that a number of people rely on them to meet their objectives.
Speaker #4: In case reduction and solving crime . So that was the driver there . And there's no end in sight . We're very comfortable with our competitive position there .
Speaker #4: I've got a good team, and Nicole and her team continue to execute exceptionally well. So, thank you to her and Zach for what they do.
Speaker #4: Latam is is great . I mean Latam is the is an example of again . High crime units . Very well connected at a national level .
Speaker #4: A solid team which works very well with partners and sells the end to end solutions . So if you looked at the perfect way to execute , then my goal is a CRO is to get everyone to be in the as Latam with same boat our end to end solutions , they truly believe in the sea to sea and deliver the sea to sea .
Speaker #4: The case of closure executed incredibly well. We are also very well connected politically with a number of senior sellers that have been in that region for a number of years, which is actually very hard to compete against.
Speaker #4: So, two great teams, and thank you for reflecting that. But we don't see their growth rate slowing.
Speaker #2: Our next question comes from Eric Martinuzzi with Lake Street. Please go ahead.
Speaker #11: My question has to do with the use of cash to finish the quarter. Real strong. The cash balance at close was $600 million.
Speaker #11: to Now , I know you've got a check to write when Corellium closes . That's 170 million , but still , it will leave you with a substantial balance here .
Speaker #11: Just curious to know your priorities as far as internally focused, maybe more M&A. What's the use of cash post?
Speaker #4: Call Dave; take a first pass at this, and then I might jump in and add color. But Dave, why don't you take it?
Speaker #4: Well yeah .
Speaker #1: Let me maybe just round out one data point . So Trillium , you're right . That will be a significant piece of cash when that closes , which we're so incredibly excited about .
Speaker #1: But that's $150 million , hundred and 70 million . And so I think when we look at it again , looking forward to getting them on board , obviously we'll continue to invest .
Speaker #1: And so you're right. Over call it two quarters of the normal OPEX cash that we would... we would keep, call it $150 to $150 million.
Speaker #1: We are maintaining a little bit of surplus cash that we do. Look at this as a pretty interesting opportunity, both in terms of companies like William rapidly that are scaling.
Speaker #1: We also see some other adjacencies, and so I think we're going to continue to maintain some flexibility so that we can continue to grow the business.
Speaker #2: Our next question comes from Jonathan Ho with William Blair. Please go ahead.
Speaker #12: Hi . Let me echo my congratulations as well with your insights . Conversions ahead of schedule . What does that mean for you from a future IRR and upsell perspective , particularly as these customers suite and maybe start to renew .
Speaker #4: Yeah , it's a great question . I mean , it means that we are expanding our cross-sell opportunity . The important thing for insights , insights was the first position to allow us to get to our case , to closure , which then means storing and then analyzing and workflow in the data .
Speaker #4: So, most of our customers wanted to get the initial work done to get onto a much more modernized extraction and review technology, which they now have.
Speaker #4: So we now have expansion potential going across into our Guardian platform and our Pathfinder platform, but it does also open up in the DNI.
Speaker #4: And this is why DNI is such a key part for us , where insights is fully , not fully tapped . And we do see with our triage functionality working in the field in different use cases , a an expansion for insights into into the DNI on a global basis .
Speaker #4: So we got a nice vector to continue. We're not through the base yet. We still got work to do in 2026.
Speaker #4: And then we'll be moving in . And we already have thoughts about our next version of insights . Clearly , which is going to be moving decoding into a different format to enable our customers to do even more , even quicker and increase their productivity again .
Speaker #4: So insights in the end , it's a part of the journey and there will be a son of insights coming along at some point .
Speaker #4: Yeah . And the other thing I would add to that , it's not very sexy , but but unit growth , I mean those macros I talked about almost any agency you go talk to today , they've got huge case backlogs and crime .
Speaker #4: Unfortunately for all of us , as I said , isn't going away . And the use of digital is was in the 90% range .
Speaker #4: It's eventually going to be pushing 100 . And so , you know , there's unit growth opportunity in even where we've migrated . People insights , the pricing power you have , unit growth plus all the cross-sell plus the acquisitions plus plus plus .
Speaker #4: So you know , you know , and that all fuels and contributes to the optimism I think you're hearing about our opportunity to maintain our growth into accelerate it actually into 2026 .
Speaker #4: There's also one thing if I could pile in , Tom , is we're breaking the link between the number of operators and the number of licenses .
Speaker #4: I mean , previously there was it was an operator could only extract so many phones . Our automation and workflow tools allow that process to be automated .
Speaker #4: And so the actual number of licenses per user can increase pretty dramatically . And start those eating into backlog . Those backlogs , as we get into 26 , yeah .
Speaker #4: And and I know we're at the end here , but the other thing that it creates an opportunity that we don't talk a lot about is the the cloud and storage economics around Guardian .
Speaker #4: As we collect more and more , petabytes of information , assuming that we we . Thoughtfully price and package that offering , that becomes another ramp of growth of profitable , profitable growth for the company that did not exist .
Speaker #4: You know, a few years ago.
Speaker #2: This concludes the Q&A portion of today's call. I would now like to turn the floor over to Andrew Kramer for additional or closing remarks.
Speaker #4: Thank you very much , Angela , and thank you very much to our analysts and our shareholders and prospective shareholders for their participation today .
Speaker #4: If you do have questions, feel free to reach out to Investor Relations. There are a number of virtual and in-person engagements that we have scheduled over the coming weeks, and we look forward to speaking with you at that time.
Speaker #4: Thank you very much .
Speaker #2: Thank you. This concludes today's celebration of third quarter 2025 financial results conference call. Please disconnect your line at this time, and have a wonderful day.