Cellebrite DI Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

Key Takeaways

  • Q2 Financial Highlights: Revenue reached $76.7 M (up 23% YoY), subscription software grew 35%, ARR rose 28% to $274 M, adjusted EBITDA was $11.1 M (14.5% margin), non-GAAP EPS was $0.05, and cash plus investments totaled $245 M.
  • Upgraded 2023 Guidance: Full-year revenue midpoint increased by $5 M, ARR and adjusted EBITDA targets were raised, with 53–54% of annual revenue expected in the seasonally stronger second half.
  • Product and Strategic Progress: Unveiled UFED Ultra next-generation extraction tool and accelerated adoption of AI-powered Pathfinder analytics and Guardian evidence management, driving premium suite uptake.
  • Robust Demand and Retention: Closed 25 large deals over $500 K, achieved 125% dollar-based net revenue retention for the 18th consecutive quarter, led by strong growth in the Americas and EMEA.
  • Services Revenue Pressure: Declines in other non-recurring revenue and professional services partially offset subscription strength in Q2.
AI Generated. May Contain Errors.
Earnings Conference Call
Cellebrite DI Q2 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Welcome to the Cellebrite Second Quarter 2023 Financial Results Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. You may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. I would now like to turn the call over to your first speaker today, Mr.

Operator

Andrew Kramer. Mr. Kramer, the floor is yours.

Speaker 1

Thank you very much, Ashley, and welcome everybody to Cellebrite's 2nd quarter 2023 Financial Results Call. Joining me today are Yossi Carmiel, Stella Bright's CEO and Donna Gerner, conference call, CFO. There's a slide presentation that accompanies our prepared remarks. Please advance the slides in the webcast viewer to follow our commentary. Call, we will call out the slide number we are referring to in our remarks.

Speaker 1

This call is being recorded and a replay of the recording will be made available on our website call, let's start with slide number 2, a copy of today's press release and financial statements, including the GAAP to non GAAP reconciliation, slide presentation and the quarterly financial tables and supplemental financial information for the Q2 of 2023, call, the Q1 of 2023 and each quarter of 2022 and 2021 are available on the Investor Relations website at investors. Celebrate.com. Call, also unless otherwise stated, our Q2 2023 financial metrics as well as the financial metrics provided in our outlook call, that will be discussed on today's conference call will be on a non GAAP basis only and all historical comparisons are with the Q2 of call, 2022, unless otherwise noted. In addition, please note that the statements being 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 call, we are pleased to report that we are not required to report that we are not required to report that we are not required to report on the results and or from the results.

Speaker 1

Some of these forward looking statements are discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20 F filed with the SEC conference call, on April 27, 2023, the company does not undertake to update any forward looking statements to reflect future events or circumstances. The slide number 3 provides the agenda for today's call. And as you will hear, we delivered very strong Q2 financial results, call, made important strategic progress and have increased our full year 2023 financial expectations. And with that as a background, I'd like to turn the call over now Yossi Carmel, Cellebrite's CEO.

Speaker 2

Thank you, Andy, and thank you all for joining us today. Look, I'm excited to discuss our 2nd quarter results, which highlight our continued success in delivering the industry's leading digital intelligent software suite to public and private sector customers around the globe. As illustrated on Slide number 4, we delivered an excellent second quarter performance on all fronts. We reported strong financial results while making strategic progress in several areas, which are critical to our long term success. Our Q2 financial performance was highlighted by the following total revenue of $76,700,000 call, driven by subscription software revenue growth of 35%.

Speaker 2

ARR grew 28% to $274,000,000 Dollar based net revenue retention was 125%, which was our 18th straight quarter, above 120%. We closed 25 large deals, each valued at greater than $500,000 Adjusted EBITDA of $11,100,000 or 14.5 percent on a marginal base and non GAAP EPS of $0.05 And lastly, we ended Q2 with cash and investment totaling nearly $245,000,000 up $23,000,000 from Now with a strong first half of twenty twenty three behind us, we now move into the seasonally stronger second half of the year Turning to Slide 5. Cellebrite's customer relationship remained strong in Q2. Our ongoing investment in powerful customer driven innovation and go to market activities enable us to continue winning in the market. Our Q2 2023 revenue growth demonstrates our ongoing success in extending the scope of our relationship within the digital forensic unit expansion, we delivered our 2nd straight quarter of high teens revenue growth in the private sector.

Speaker 2

Geographically, our Q2 revenue and ARR growth were powered by the Americas and EMEA. In terms of our large deals, The average size of our Q2 2023 large deals grew 16% over last year, even though the number of the deals was slightly below the same period last year. Importantly, more than half of our large deals included premium And approximately 40% included either Pathfinder, our investigative analytics tool or Guardian, our evidence management solution or both. So overall, the spending environment on digital intelligent solution remains robust. Around the globe, Public safety is challenged by rising crime rates, increasingly sophisticated criminals, the proliferation of digital evidence across a wide range of conference call, smartphones and other devices, limited and increasingly strained police manpower and heightened interest around police operation and priorities.

Speaker 2

And to close this gap in public safety, law enforcement agencies around the globe continue to invest in digital intelligence solutions That will help modernize their investigative workflow to successfully advance and close cases, keep the community safe And meet other important KPIs. And as a result, we continue to see favorable budget tailwinds in the USA, Western Europe, Latin America and key parts of the Asia Pacific region with more customers in the public sector allocating more money for Cellebrite solutions than they did CELABYTE made important strategic progress over the past several months. So in June, we announced our plans to introduce UFED Ultra, A revolutionary next generation collect and review solution that enables digital forensic units to lawfully access and extract digital evidence from the broadest range of mobile phones. UFED Ultra is designed to deliver greater ease of use, time, we will be conducting a few more questions. We will be conducting a few more questions.

Speaker 2

And just as important, we've continued to see great uptake on our premium suite of solutions, which provides lawful access Our leadership in this sector is anchored by differentiated technological capabilities that remains unmatched across both iPhone iOS and on Android. And given these dynamics, we see substantial multiyear opportunity to upgrade and upsell our collection review solutions. We are also taking important steps to enhance Guardian, Our caisson evidence management workflow solution. We recently announced new features and functionalities for Guardian that make it easier and more efficient for examiners to share digital evidence with their investigators. I will highlight couple of great second quarter Guardian wins in a moment.

Speaker 2

Between Guardian and our premium as a service offering, We are just starting to scratch the surface of the revenue potential of cloud based digital intelligence solutions. We are accelerating our plans to build out our technical infrastructure and support the delivery of more high value cloud based solution. The Q2 was also marked by continued adoption of Pathfinder, our artificial intelligence power investigative analytics solution. We are on track to significantly expand our Pathfinder customer base this year and drive faster ARR growth. We believe that the investigative units represent CelebRight's 2nd primary growth engine, augmenting on our growth in digital forensic units.

Speaker 2

Accordingly, we are mobilizing our R and D, sales and marketing resources to ensure that we effectively and efficiently time, we will capitalize on this opportunity. On the R and D front, it is important to recognize that our investment in artificial intelligence benefits time, it's more than just our Pathfinder investigative analytics. In collective review, we have continued to strengthen our market leading physical analyzer platform With advanced machine learning capabilities, which makes it easier and faster for digital forensic units to identify relevant evidence call, within the vast volume of digital data across the broadest range of digital devices, applications and warrant returns. Conference call, in conjunction with reporting our results today, we also announced the appointment of Tom Hogan as Cellebrite's Executive Chairman. We believe that this action enhance our corporate governance and support Cellebrite as it moves into the next chapter of growth and market impact as a global digital intelligence leader.

Speaker 2

Tommy's experienced software veteran with a proven track record of success, call, including his most recent work at Vista Equity. Now I look forward to his counsel and support As we work together with the Board and the broader Cellebrite team to help shape and drive our strategy forward, scale up our business in our largest markets time, we are pleased to announce that our Board of Directors to 10 members, And we are also fortunate that the company's former Chairman, Chaim Shani of Israeli Growth Partners, a long standing CelebRite shareholder, We'll continue serving as a Director on our Board. Moving to Slide 6. Time, I would like to review several second quarter deals, which help illustrate some of the key drivers of our success. As noted earlier, adoption of premium by existing customers is steadily increasing.

Speaker 2

This quarter, we closed a major expansion of our premium footprint ahead of schedule with a large North American federal law enforcement agency along with an initial pathfinder engagement time, we will be conducting a question and answer session. Cellebrite Digital Intelligence Solutions is expected to help this customer Centralize its critical digital forensic capabilities at scale and supercharge its investigative capabilities. And as a result, our ARR at this account will nearly triple to approximately nearly US5 $1,000,000 In terms of new logos, we won a meaningful new customer in the Asia Pacific region that is expected to deliver nearly US250 US6000 dollars in IRR. This regional correctional service agency is deploying UFED, Premium as a Service and Pathfinder As part of its efforts to build its own house, digital forensic units to support strong investigative capabilities rather than call, we will now outsource these activities to other agencies. I would also like to briefly highlight 2 deals for Guardian conference call, that illustrate our success in leveraging our strengths in digital forensic units to extend our reach into new buying centers.

Speaker 2

Now in both wins, law enforcement agencies serving midsized U. S. Cities selected Guardian call, to modernize their Evidence Management workflow to efficiently track sensitive digital evidence as they advance investigations. In one deal, the combined purchase of Guardian and Premium as a Service is expected to increase Cellebrite's ARR at this police department by a factor time, we expect to be over $200,000 In the other deal, ARR for the CV's DA office will more than double to $330,000 And last, in the private sector, our intensified time, we have extended its users endpoint inspector for a more digital data collection from mobile, phones, computers and cloud applications as part of its forensic practice And that supports its corporate clients' legal, regulatory and compliance activities. ARR time, we'll nearly double into the low 6 figure range.

Speaker 2

Let's move to Slide 7 and update on our outlook. As we look ahead, we believe that we are well positioned 1st, the complexity and volume of digital data involved in today's crimes is rapidly increasing. 2nd, inefficient workflows are limiting the speed of investigations and contributing to a growing backlog of devices. And third, there is a greater public scrutiny call, on the ethics and accountability of law enforcement operations. Now based on our results to date, The trajectory of our business into the second half of this year and favorable market conditions, we have raised our annual 2023 guidance.

Speaker 2

Our updated revenue and ARR targets primarily reflect our ongoing success in gaining more wallet share with existing customers. As I have discussed, demand for our collect and review solutions remains strong, and this is augmented by attractive prospects to drive adoption call, we expect that the combination of our revenue growth And disciplined spending will enable us to deliver a major improvement in our adjusted EBITDA over the last year, along with strong cash generation in 2023. And Dana will share additional details on our updated guidance in short. Now while there is still a lot of hard work ahead, 2023 is shaping up to be a very good year for Cellebrite. It is a very exciting time for Cellebrite.

Speaker 2

The opportunities in front of us are substantial in size and global in scope. Our team is focused on fulfilling our mission to deliver powerful digital intelligence solutions that helps our customers modernize the workflow call, in support of protecting and saving lives, accelerating justice and ensuring data privacy. And by executing on our second half plan, we believe We'll stay on track to achieve our updated expectations for 2023, sustain our momentum in 2024 and keep Cellebrite well positioned for creating shareholder value over the long term. And with that, I will turn the call over to Dana for her financial review.

Speaker 3

Thank you, Yossi. Let's begin our review on Slide 9. We reported 2nd quarter revenue of $76,700,000 call, an increase of 23% against a relatively muted Q2 of 2022. Strong 35% growth in subscription revenue was offset by declines in both other non recurring revenue and professional services. Geographically, Our revenue growth was led by EMEA at 33%, followed by the Americas at 23%.

Speaker 3

As detailed on the slide, 88% of our total quarterly revenue came from software subscriptions versus 80% 1 year ago. Call, we expect the subscription revenue to represent 85% or more of our total revenue for the foreseeable future. Slide 10 details our ARR growth, which is an important forward looking KPI for Citebrae's sales momentum and the trajectory of future revenue. As Yossi noted, our ARR grew 28% year on year Within this category, more than 80% of the customer expansion growth came from our collect and review solutions. The contribution to existing customer ARR from our investigative analytics and evidence management solutions has more than doubled from 1 year ago.

Speaker 3

As you likely noticed, our subscriptions revenue growth of 35% outpaced our ARR growth, call, which is counter to the historical trend of subscription revenue modestly lagging ARR growth. This is primarily due to 2 factors. 1st, about 2 thirds of the difference was tied to the linearity of Q2 sales. In 2022, approximately half of our Q2 sales were closed at the end of the quarter, while the majority of this year's Q2 deals were closed during the 1st 2 months of the quarter. The balance of the difference is associated with certain large customers who transition from maintenance agreements to subscription licenses during the Q2 of 2023.

Speaker 3

Slide 11 details the historical trends call, for our non GAAP gross margins and non GAAP operating expenses, which exclude share based compensation, amortization of intangible assets and acquisition related expenses. Our 2nd quarter 2023 gross margins of 83.6% In terms of operating expenses, 2nd quarter operating expenses were $54,700,000 an 8% increase from the prior year, call, primarily due to higher personnel costs and the impact of certain one time projects on our G and A expenses. With that said, Our 2nd quarter spending benefited from prudent expense management, the timing and pace of hiring activities And favorable changes in foreign exchange rates tied to the Israeli shekel. We ended June with 966 employees, call, which is unchanged from a year ago. As a reminder, our objective in 2023 is to keep total headcount relatively flat with the year end of 2022 levels.

Speaker 3

Turning to Slide 12, the combination of higher revenue and prudent spending resulted in adjusted EBITDA in the quarter of $11,100,000 or 14.5 percent on a margin basis. This is a major improvement over the same quarter last year and it exceeded our plans entering this quarter. Our Q2 non GAAP operating income was $9,400,000 with non GAAP net income of $10,700,000 or $0.05 on a fully diluted basis. We had a very good quarter of cash generation, producing $16,600,000 in cash from operations. We finished the Q1 with $244,600,000 in cash, cash equivalents and investments, up 23 point $4,000,000 from the end of the Q1.

Speaker 3

Now let's move to Slide 13. As detailed in our press release and as Yossi highlighted, time, we've raised our financial 'twenty three targets. Cederbory's original and updated guidance is displayed on this slide. We have increased our revenue outlook for 2023. In doing so, we appraised the midpoint of our updated 2023 revenue range by $5,000,000 We anticipate strong subscription revenue growth in the second half of this year, partially offset by more muted professional services and other Nami Clearing revenue.

Speaker 3

Historically, we generate the majority of our revenue in the second half of any given year and we expect this trend to hold true in 2023 53% to 54% of full year revenue anticipated over the next two quarters. We have also increased our ARR target range for the year. Our current view in our anticipated ARR at year end reflects a relatively consistent level of ARR expansion in absolute dollars from Q2 to Q3 And from Q3 to Q4, geographically, the Americas and EMEA regions have been standout performers time, we expect that trend to continue. As we look ahead, we expect that our December ARR growth will largely come from expansion within existing customers, call, which we anticipate will continue to be fueled by our collection review solutions with growing contributions from both Guardian and Pathfinder in the second half of this year. From a profitability standpoint, we have raised a range for adjusted EBITDA and adjusted EBITDA margins, Even as we plan to continue funding important investments that will help us innovate, build strong customers' relationships and further scale our organization.

Speaker 3

We move into the second half of our year with a strong financial foundation that we expect will be further fortified We started cash inflows from operations over the coming quarters. This provides us with sufficient fiscal flexibility to reinvest in our business and carefully evaluate opportunities such as potential M and A, partnership and alliances A CetaBytes approach is the 2nd anniversary of becoming a public company later this month. We are hitting our stride. Our strong Q2 results and attractive prospects Profitable growth in the second half of this year have enabled us to increase our 2023 guidance. We are excited about our strategic direction

Speaker 1

Operator, that concludes our prepared remarks and we're now ready for Q and A.

Operator

Thank you. Our first question will come from Jeff Van Rhee with Craig Hallum. Please go ahead.

Speaker 4

Great. Congrats, guys. It looks really good. A number of questions for me. First, maybe just start on Guardian Pathfinder.

Speaker 4

You called out some pretty good momentum there. I wonder if you time, I'd like to spend

Speaker 1

a minute more

Speaker 4

talking about the sales motion and what you figured out with respect to the appropriate buyer, the process, just How you feel about that motion? What still needs to be improved?

Speaker 2

Maybe I will take it for a start. First of all, Guardian is an important solution basically to help digital forensic units and investigative units Basically to, I would say, modernize the flow and contribute to scalability, functionality, which is around case management And Evidence Management. Now at this stage, Guardian was launched or The Guardian was launched Last year in 2020 practically 2022 and we are pretty much in a starting phase. There are several dozens of Guardian customers and hundreds of users at the moment. We plan to take important steps, I would say, over the coming quarters to continue driving adoption of this platform into our installed base.

Speaker 2

And obviously, there is a need, if I could say, for the Guardian and Evidence Management, The need for more education, efforts around customer success, and the sales cycle here is a little bit longer. When it comes to Pathfinder, actually we are, I would say, very pleased at this stage with our position. Definitely an important solution that which appeals to not to the digital forensic unit, but for the investigative units. As I said, we believe that this is the 2nd growth engine of Cellebrite side by side with the digital forensic units. And we have closed dozens of Pathfinder deals over the last 12 months and cross sell and up sell this offering.

Speaker 2

And we are pretty much satisfied with where we stand right now. We need just to continue to do the way we are doing right now.

Speaker 4

Okay. That's helpful. And then if you maybe just an open ended question on pipeline. As you look at what's playing out in the pipeline, What variance, pro and con, just maybe depth, geo variance, large, mid, small trends, Product trends, competitive landscape, any thoughts on what you're seeing in the pipe, maybe expand a bit?

Speaker 2

Pipeline of the company It's healthy. And I would say it's healthy cross segments. If I look at the federal in the United States or Americas, On our state and local government, both in America and in EMEA, I basically see a very Good picture in terms of pipeline as we look ahead. One can also say that Our sales ticks and especially our sales operation and not only that we have a healthy pipeline, we were able in Q2 To bring deals quicker, manage very well the elements of the normal tendency of lumpiness in large deals, And we are very satisfied in that respect. Also the sales cycle, if I look at it, remains the same In all geographies and in all segments, again, when it comes to collection review, short few weeks to 1 quarter, We're pretty much ticking the box here and successfully.

Speaker 2

And when it comes to the Pathfinder and Guardian, a Good pipeline, but a longer sales cycle, which takes can take between 6 months to 18 months. But all in all, a good picture.

Speaker 4

Sounds great. And one last if I could sneak it in on the M and A front. I know there's a lot of incremental capabilities that would make sense within the suite. Can you just give a little sense on the urgency, depth and breadth of the See depth and breadth of the pipeline, what we should expect over the next 3 to 6 months?

Speaker 2

So regarding M and A, 1st of all, organically, we have a very clear plan, and I think we are clear about that. When it comes to M and A, we have that's, I would say, part of our strategy. And we are looking for alternatives and we're looking for options. There are some currently on the radar. It has to fit In terms of our needs, I can say that we are looking at opportunities which are in the mix of small technological, bolt on tuck ins, which will be suitable for the current portfolio and enabling us to deal better with the fulfillment of our Existing plan and side by side, we are also looking for options for some large opportunities, which will scale us up also in adjacent areas.

Speaker 2

Specifically in the private sector, I can also share that we are looking at several opportunities, which will give us options, which are going beyond The collection and e discovery where we are placed right now at the moment.

Speaker 4

Yes, very helpful. Okay, great. Very helpful. Thank you.

Speaker 2

You're welcome.

Operator

Thank you. We'll take our next question from Jamie Shelton with Deutsche Bank. Please go ahead.

Speaker 5

Hi, guys. Congrats on the solid execution. Just a couple of housekeeping questions for me. Can you provide us what percent of the UCEDD base Is now connected to premium as of fiscal 2Q. And then I've got 1 or 2 follow ups.

Speaker 5

Thanks.

Speaker 3

So Hi, Jamie. Thank you for the kind words. We are expanding our premium offering within our existing base. We've been at the low teens, closed meetings last quarter. We increased and passed the meetings this quarter And it's an ongoing effort and continuous penetration.

Speaker 5

Very helpful. Thank you. And I'm probably nitpicking here, but I saw the net dollar attention time, you can take down a few percentage points sequentially. Is there any additional color there you can provide? And I guess any Color on how we should expect that to trend from here?

Speaker 3

Well, the net dollar retention rate is actually following our ARR trend, which We said we'll converge in the midterm with the revenue. Our revenue case, our expectation is on the past 20%. So we expect ARR to get closer and net dollar retention slightly below. We also

Speaker 5

And then last one maybe for Yossi. I mean, many of your cybersecurity public peers are talking about the application of generative AI Within their product set, I was interested to get your view and if you can if you see potential application of, I guess, Security centric large language models within your portfolio.

Speaker 2

The question was related to AI, to artificial intelligence?

Speaker 5

Specifically, generative AI and the use of large language models on your data set.

Speaker 2

So look, first of all, we continue to invest in enhancing AI capabilities, and as I said, both in Physical Analyzer And in Pathfinder Solutions. It is important for investigators the way we look at it because It helps to automate time consuming tasks and basically make investigations at least in our view and in the view of our customers more efficient. So we believe that AI We'll play increasingly important role in digital investigations over the coming years. And we are investing in each one Our product, physical analyzer as part of the collection review and Pathfinder in several areas. So far, our investment has been primarily focused on developing our own machine learning models.

Speaker 2

And we will continue to explore ways, I would say to open source based AI models, which we can implement on our own capabilities. I hope it is helpful.

Speaker 5

Brilliant. Thanks a lot and congrats again guys.

Speaker 2

Thank you very much.

Operator

Thank you. We'll take our next question from Tal Liani with Bank of America. Please go ahead.

Speaker 6

This is Tomer Zillberman on for Tal. Two questions from me. The first question, just wanted to close in on something you mentioned during your prepared remarks, so you said that the ARR growth this year was supported by customer expansion and more than 80% of that was collect and review. And I think you also mentioned that you're seeing or you're expecting to see significant expansion within Pathfinder and to grow ARR through that. So my question is, What you expect the impact of not in collect and review, but analytics and management to be on ARR list growth?

Speaker 6

And also additionally, what you're expecting the revenue breakout to be within your different product lines?

Speaker 3

We currently don't really provide detailed information for each and every of our product offering, we just provide general guidance. And as the base of both Pathfinder and Guardian is substantially smaller than the base of growth for Correction review, we expect it to contribute on a percentage growth more than the correction review. But from a dollar perspective, still the majority will come from correction call, both on the ARR and on the revenue growth.

Speaker 6

Got it. And as a follow-up on regional trends, you saw growth accelerate in America and EMEA, But I think you actually saw some slowdown in APAC. So any color you're seeing across the 3 regions?

Speaker 2

So first of all, I would say that we believe that the APAC region has a significant growth potential. And We also informed recently about the appointment of a new regional leader, and we plan to continue upgrading the regional sales leadership In that area, I can also say that we continue to see pretty much favorable budget tailwinds when it comes to specific Subregions over there, Australia, New Zealand, Japan and Singapore. And we believe we are only starting basically to scratch the surface over there. Now while indeed in Q2 revenue grew just 2%, it trended favorably versus Q1 results. And ARR in APAC grew solidly 22% and was generally in line With our plan.

Speaker 2

So I would say that we are pleased with the market position. We are pleased with the pipeline in some of the larger markets. And while it will take us some time basically to make the relevant changes, we are positive and confident that it will look much better as we progress through the year.

Speaker 1

Got it. And if I

Speaker 6

can actually sneak in one last question. I appreciate the commentary on UFED Ultra. I know it's early days, but any initial customer conversations that give you confidence On the growth potential here and what is your customer target versus just selling normal UFED Along with premium. Thank you.

Speaker 2

So the shorter answer is a little bit too early because in June we announced our plans to introduce the UFED Ultra. And obviously, we plan that the Ulfil Ultra will deliver great ease of use, simplified workflow, we are adding here the full file system, which was part previously only part of the premium. Current plan is to begin sales and marketing activities, which support to UFED Ultra before the end of 2023 and specific timing and general availability will be obviously shared with our customers. We believe that the future and functionality will be obviously substantially with greater value on the fly I can say And it will be priced accordingly, but it's too early because it's still not there out there in the market. The expectations are very high.

Speaker 2

And last word, let's not forget that the UFED Ultra represents a significant upgrade opportunity for thousands of existing UFED customers, but they are over 30,000, so that's an amazing business opportunity and an amazing improvement from all the operation of the customers.

Speaker 6

Great. Thank you.

Operator

We will take our next question from Louie DiPalma with William Blair. Please go ahead.

Speaker 7

Yossi, Donna and Andy, good afternoon.

Speaker 2

Good afternoon. Good afternoon.

Speaker 7

When Premium customers add Pathfinder to their suite. On average, how much does ARR increase by?

Speaker 3

Well, it varies to the size of the Pathfinder that they will choose and the size of the Customers can start with few 10,000 of dollars and ramp up to 100 of 1000 and even more.

Speaker 7

Okay, great. And yes, that seems like it's a big catalyst for the increase in Large deal sizes. My next question, we are under the impression that there were price Increases that were implemented following the Grayshifted and Magnet merger. Have you seen Those price increases in the market and has this positively benefited Celebrate?

Speaker 3

Well, we've heard from customers that they've been encountered with a substantial price increase request time, the requirements by Magnet and by Grayshifts throughout the year until now. You'll see you as more color maybe?

Speaker 2

No. In that respect, Indeed, both Magnet and Braceship implemented, I would say, fairly large price increase during the first half of the year. I can say that it was not well reviewed and perceived by the customers. We I chose at this stage to do a rather modest one, which was well perceived by customers. Let's not forget that in the public sector, our customers are Living with fixed budget and they need to do the relevant adoption, nothing to add beyond that.

Speaker 7

Great. Yossi, Ann, are you still the only software provider that can unlock the iPhone 14 or have Competitors caught up on that front.

Speaker 2

I would say that at the moment when it comes to the latest and greatest So I'm talking about operating system 16 ish. We have the best capabilities today unmatched To anything else that exists in the market.

Speaker 7

Sounds good. Thanks everyone.

Speaker 3

Thank you.

Operator

Time, we will take our next question from Mike Nikos with Needham and Company. Please go ahead.

Speaker 1

Hey guys, thanks for getting me

Speaker 8

on the call here. And I appreciate the walked up guidance that we're receiving today as well. I guess I wanted to ask you a little bit about hiring and it's more of a philosophy or strategy question. When I'm thinking about or when you're thinking about the hiring trends at Cellebrite, can you help us better understand I guess the trade off you're making because obviously we're seeing the growth move higher as well as those EBITDA margins. And just what gives you the confidence when going through that hiring to ensure that you're appropriately, adding talent

Speaker 2

If we are looking into the future in terms of our, I would say exciting challenges, which are around continuous We've got today clear path of maintaining and maintaining and based on our reputation, successfully hiring Additional talents in that respect. When it comes to the area of Evidence Management and I would say also cloudifying and coming with the SaaS offering, which is related to what we do right now, Guardian, Premium as a Service, but at the end of the day, we would like to offer everything on cloud. We are building right now successfully The relevant team in the house and it seems that over there we are pretty much successful by hiring and bringing the talents That will help us basically to combine successfully, I would say, on prem and cloud in the future to come. So also there, Very successful. And I would say that we if we look at our OpEx plan, we are capable to do it And we are doing it.

Speaker 2

When it comes to the go to market organization, we clearly need to invest In the good mix between product sellers and solution and value added sellers and in customer success, especially when it comes to the implementation and cross sell and upsell of solutions such as Pathfinder and Guardian. And in that respect, We have a clear view about what we need to recruit and we are also very successful in doing that. I don't know if I answered the question, But that's what makes us busy at the moment in terms of variety of, I would say, future challenges and what we need to bring on board. And we're pretty much about we're pretty confident about what we're doing in that respect.

Speaker 8

No, that's great. You're actually starting to feed into where I wanted to take this. So specific to the hiring for the go to market as an example, right? Can you help us think about The average tenure of the sales force, our new reps ramping at a similar rate or is there potential acceleration in the amount of time it takes for them to ramp just because I'm trying to judge the I guess some of the pieces under the hood And put that in the context of the execution that the sales force has obviously been demonstrating more recently in this environment.

Speaker 2

Yes. First of all, I want to reemphasize the fact that our sales ticks. Our sales machine works. If you remember last year, we talked about lumpiness and people which left and fluctuation. We could see that in Q2 and in H1, We're actually capable to bring things even quicker than faster than we thought.

Speaker 2

And in that respect, As I said, we need to make sure that we have a good combination between the people who will deal with transactional business And the people that we deal with value added selling and rather complex solutions. But the onboarding, I think you mentioned that. Well, year nothing changed. When we bring people for the product selling, it's a pretty much quick onboarding of what we call the sales machine. That's great.

Speaker 2

When it comes to the onboarding, which is related to solution sellers, it goes more in the area of 2 quarters, but we are well positioned and well equipped with what we have right now, and we are putting a good eye on good people all the time. We are not waiting for Challenges to happen. We are, so to say, operating in advance.

Speaker 8

Terrific. Thank you very much.

Operator

Thank you. This concludes the Q and A portion of today's call. I would now like to turn the floor over to Cellebrite CEO, Yossi Camille, for additional closing remarks. Please go ahead.

Speaker 2

Thank you. So first of all, thank you all for joining. As I said at the end of my pitch, we are in a very good momentum, A lot of hard work to do, but we increased the guidance. We are pretty much confident about our ability to grow And to continue the journey and execute our strategy, I thank you for joining us. Thank you for the trust and have a great day.

Operator

Concludes today's Cellebrite Second Quarter 2023 Financial Results Conference Call. Please disconnect your line at this time and have a wonderful day.

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