Cellebrite DI Ltd. (CLBT) Earnings

Management highlights

- Leadership Transition * The Board appointed Shiv Ramji as CEO, effective immediately, accelerating a pre-planned succession of former CEO Tom Hogan, who will remain as a board advisor. * The transition was moved up to position a product-centric leader with experience building scalable cloud-native AI platforms to capitalize on the company's growing market opportunity. * Iftach Smith, a seasoned Cellebrite product/engineering executive, will lead product and technology on an interim basis while a permanent search is conducted. - Q2 Performance Context * Cellebrite missed internal and guidance ARR and revenue targets, as several large expected transactions slipped past quarter-end due to unanticipated administrative and procurement delays, particularly for U.S. federal and European government cloud and AI deals. * The company noted no deals were lost; approximately $4 million in slipped deals have already closed post-quarter-end, and sales cycles have elongated by an average of 6 weeks. - Strategic Priorities * The core long-term strategy is to build a unified, AI-powered investigative intelligence platform that converts digital data from any device/source into court-admissible, actionable intelligence to compress the investigation lifecycle. * A shared Cellebrite AI layer is being built specifically for digital investigations, with strict controls for evidence provenance, verification, auditability, and human oversight, focused on reducing time to insight and action. * Immediate operational priorities include raising sales execution standards via more rigorous pipeline qualification, and tightening forecasting discipline by weighting observable customer actions and explicitly accounting for extended procurement timelines for large government deals. * H2 2026 product priorities include expanding Genesis to high-security/on-premise/air-gapped environments (with an anchor customer already secured), extending Corellium to additional use cases, and advancing drone forensics capabilities. - Early New Product Wins * The company secured its first major FedRAMP-authorised Guardian deal with a long-standing U.S. federal customer, as part of a multi-product, multi-million dollar transaction; the 7-figure Guardian order alone was ~35x the average SLG Guardian annual spend. * Genesis gained early adoption across local police departments, major metropolitan agencies, district attorneys, and correctional organizations, with trials expanding to the U.K., Australia, and Europe in Q3.

Guidance

- Full year 2026 ARR guidance was revised downward to a range of $550 million to $560 million, a $15 million reduction at the midpoint, representing 14% to 16% YoY growth; the revision reflects slower ARR uplift from Insights conversions, prudence around extended deal timelines from new procurement requirements, and removal of upside from large, unpredictable deals. - Full year 2026 total revenue guidance was lowered to $555 million to $561 million, representing 17% to 18% YoY growth. - Full year 2026 adjusted EBITDA guidance was raised to $153 million to $159 billion (28% margin), driven by continued cost discipline; the guidance already absorbs ~3 percentage points of FX headwind from the Israeli Shekel (ILS). - The company maintains expectations for at least a 1 percentage point improvement in full-year gross revenue retention rate, and reaffirms target 30% free cash flow margins for 2026. - Q3 2026 guidance calls for ARR of $524 million to $528 million (net new ARR of $16 million to $20 million), revenue of $145 million to $148 million, and adjusted EBITDA of $42 million to $45 million (29% to 30% margin). - Management expects to deliver step-up profitability and free cash flow growth in 2027, as FX headwinds abate, new products scale, and the business operates without material headcount expansion.

Segment performance

Overall: Total annual recurring revenue (ARR) grew 21% year-over-year (YoY) to $508 million; total revenue was $131 million, up 16% YoY. Subscription revenue reached $119.5 million (up 16% YoY), accounting for 91% of total revenue. Gross profit increased 16% to $112 million for an 86% gross margin; adjusted EBITDA was $31.8 million for a 24% margin. By geography: Americas represented 53% of total ARR and grew 19% YoY; EMEA represented 34% of total ARR and grew 23% YoY; APAC represented 13% of total ARR and grew 29% YoY. Within the Americas, U.S. Federal ARR growth accelerated to the mid-teens after being flat at end-2025, while Defense and Intelligence (DNI) ARR grew 25% YoY. U.S. state and local (SLG) government ARR growth slowed to just below 20% from mid-20% growth in 2025, with new products contributing enough to avoid mid-teen growth. By product: Legacy extractions/unlocks will represent ~80-81% of total ARR by end-2026. Newer growth products contributed 25% of the $15 million sequential ARR increase in Q2 2026, up from 18% in Q1 2026. In its first full quarter of availability, new offerings including Guardian Investigate, Advanced Unlocks, and drone forensics added meaningful net new ARR and opened higher spending levels. The newly launched Genesis AI solution secured ~$400,000 in ARR in the final weeks of Q2, and has grown to nearly $1 million ARR in the weeks following quarter-end. Insights conversion reached 65% of the installed base by end-Q2, but incremental ARR uplift from pricing and footprint expansion during conversion was lower than expected, particularly in the SLG segment.

Risks & headwinds

- Unanticipated new procurement and administrative requirements for cloud and AI deals with government customers have elongated sales cycles, creating forecasting uncertainty; as a foreign entity, Cellebrite now faces new foreign entity permit (FEP) requirements for U.S. federal cloud deals that even agency sponsors were unaware of, causing 4-5 week delays on recent transactions. - New EU freedom of information regulations added unanticipated legal and audit requirements for cloud deals with European government customers, requiring data to be stored in sovereign locations and mandating vendor anonymization, causing deal delays in Q2. - Insights conversion ARR uplift has been lower than expected, particularly in the U.S. SLG segment, as the remaining unconverted customer base has less need for expanded platform capabilities than earlier migrating cohorts. - Foreign exchange volatility related to the ILS creates ongoing headwind to profitability. - Large strategic cloud and AI deals involve more internal customer stakeholders, leading to longer and less predictable sales cycles than the company's historical transaction base.

Analyst Q&A

• Q: What gives Cellebrite confidence in the company's long-term growth potential after the Q2 miss, and can you elaborate on administrative issues in EMEA? /

  A: Management frames 2026 as an execution reset, not a reset of long-term growth opportunity. Large multi-product cloud and AI deals are now occurring, even with extended procurement timelines, demonstrating customer demand for the expanded platform. In EMEA, unanticipated new EU freedom of information requirements for cloud-stored investigative data created unexpected legal delays for Q2 cloud transition deals, but all 4 delayed cloud deals have now been approved, and the team has established processes to meet these new requirements going forward.

• Q: What caused elongated sales cycles for Defense and Intelligence (DNI) versus civilian federal business, and how confident are you in DNI growth for the rest of the year? /

  A: DNI deal timelines have not meaningfully slowed; delays are concentrated in the civilian side of U.S. federal business. Two key factors for civilian delays are that agencies do not yet have standardized procurement processes for cloud and AI solutions, and as a foreign entity, Cellebrite encountered new unanticipated foreign entity permit (FEP) requirements for cloud technology. The company has now secured a master FEP, which will expedite future deal processing at the departmental level, and DNI growth remains solid at 25% YoY.

• Q: What explains lower-than-expected ARR uplift from Insights conversions, and will this issue continue for the remaining 35% of unconverted customers? /

  A: Lower uplift is driven by two core dynamics: the remaining unconverted customer cohort is more mature, with existing legacy products already well-deployed across their organizations, so customers have less need for expanded footprint and pricing uplift during conversion. Additionally, customers now have the option to allocate spending to newer products like Guardian and Genesis instead of expanded Insights licenses. Gross revenue retention for converted Insights customers is up several points, showing strong stickiness for the solution.

• Q: Who are the early adopters of Genesis, and how has the product monetized so far outside of initial budgeting cycles? /

  A: Early Genesis customers cover a broad range, including international law enforcement, state-level attorneys general, and enterprise customers, with no single segment dominating early adoption. Deal sizes range from ~$6,000 to ~$200,000, and the product grew from $400,000 in Q2 ARR to nearly $1 million in the weeks following quarter-end. As a consumption-based product, Genesis enables dynamic in-cycle upgrades and product-led growth outside of traditional annual budgeting cycles, which creates more flexible monetization than legacy Cellebrite products.