Good day and thank you for standing by. Welcome to the Cellebrite Q1 '22 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd like to hand the conference over to your speaker today, Anat Earon-Heilborn. Please go ahead.

Thank you, Sandra. Welcome to Cellebrite's first quarter 2022 financial results earnings call. Joining me today are Yossi Carmil, Cellebrite's CEO; and Dana Gerner, Cellebrite's CFO. This call is being recorded and a replay of this recording as well as the presentation that accompany this call will be made available on our website shortly after the call. A copy of today's press release and financial statements, including GAAP to non-GAAP reconciliations, as well as supplemental financial information for the first quarter are available on the Investor Relations website at investors.cellebrite.com. Statements made during this call that are not statements of historical facts constitute forward-looking statements. All forward-looking statements are subject to risk uncertainties and other factors that could cause matters expressed or implied by those forward-looking statements not to occur. They could also cause the actual results to differ materially from historical results and/or from forecast. 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 on March 29, 2022 as amended on April 14, 2022. The Company does not undertake to update any forward-looking statements to reflect future events or circumstances. Please note that in the coming weeks, management will participate in a number of investor conferences as detailed in today's press release. Please visit the events section of the Investor's webcast to access webcast of our presentations at these conferences where applicable. With that, I'd like to turn the call over to Yossi Carmil, Cellebrite's CEO.

Thank you, Anat, and thank you all for joining us. I would like to focus in this call on three main topics. First, our strong results for the quarter. Second, the healthy market environment. And third, the substantial growth potential we have within our existing customer base. We are excited to report a strong start to the year, delivering strong growth on top of an already robust comparable quarter last year. We are pleased to report that ARR increased 33% year-on-year and reached $201 million and revenue increased 17% and reached $62.4 million. This puts us on track to deliver on our target for the full year and on our long-term growth objectives. Next, our successful execution was also reflected in a net retention rate of 128% as of the end of March. This is the 13th consecutive quarter with NRR higher than 120% and we are very pleased with the strength of this metric. And moreover, during the quarter, we booked 18 deals larger than $0.5 million compared with 17 such deals in Q1 '21, driven by wider adoption of our digital intelligence suite of solutions. Now our performance reflects our position as a leading vendor in a growing and healthy market. Our growth is a result of two main pillars. The first is providing law enforcement agencies, the broadest, deepest and most innovative digital intelligence suite of solutions on the market. Our solution provide digital evidence Collect and Review, investigative analytics, investigative management and relevant services addressing the entire value chain of digital investigations. The second pillar is our focus on significantly increasing our wallet share within our existing customers. Our go-to-market strategy is designed to leverage Cellebrite's leading market position and strong customer base. Cellebrite has been a driving force in the field of digital Collect and…

Thank you, Yossi. As Yossi said, ARR grew 33% year-on-year, reaching $201 million by the end of March 2022. The main driver for ARR growth is once again the expansion within existing customers, representing 33% year-on-year growth. Yossi gave a few examples on how we sell more licenses and upsell and cross-sell additional solutions to existing customers. All of these examples fall [ph] into this packet. New logo contributed another 5% growth. And in addition, price increases and the transition to term license contributed modestly to AAR growth. Revenue in Q1 was up 17% from the first quarter last year and reached $62.4 million. The main growth driver continues to be total subscription revenues that increased 19% year-on-year. Total subscriptions represented 77% of the quarter revenue. Subscription licenses are an important growth driver for Cellebrite, if it helps create a long-term incentive to increase customer spending with us. For example, one of our largest deals in the quarter was with customer that was an early adopter of premium subscriptions when it was introduced in late 2019. In Q1, the customer renewed its subscription for the third time and extended the length of its commitment. We also saw strong growth in professional services revenue, which was up 64% compared to Q1 last year, reflecting the resumption of in-person training activity. In most countries, we are back to pre-COVID level of activity. Our GAAP gross margins was 82.4% in Q1 slightly above our expected range of the full year of 80% to 82%. Moving to operating expenses, I will discuss this on a non-GAAP basis. So the share-based compensation, amortization of intangible assets, acquisition operating expenses and onetime expenses are all excluded. Non-GAAP operating expenses of $49 million in the quarter increased significantly compared to Q1 last year, but only marginally on…

[Operator Instructions] We have the first question comes -- coming from the line of Tal Liani from Bank of America. Please go ahead.

Hey, this is Tomer Zilberman on for Tal Liani. Just a quick one for me. NRR of 128 was a bit lower than the past couple of quarters. Just want to get any takeaways there?

So as we described, when we are transitioning to subscription, we expect ARR and NRR to align throughout the years towards the revenue growth. So this was quite expected considering the fact that the first step of moving to subscription provide higher NRR than when you are aligning to a long-term subscription business model.

Thank you. Just one moment. Next question comes from the line of Jamie Shelton from Deutsche Bank. Please go ahead.

Hi, guys. Thanks for taking the question. Can you hear me, okay?

Sorry, Jamie. Could you repeat?

Hey, can you hear me okay, just checking.

Yes, yes, we can hear you.

Quality is not that.

I was just curious to see how momentum is in getting your new Fed base connected to premium enterprise. I think you gave us some helpful color maybe last quarter or when it was initially announced. So I was, yes, curious to see if there's any momentum there. Thank you.

So as Yossi mentioned in the call, we have launched the Premium Enterprise last year, and just to showcase the premium as a service we started introducing customer with Premium Enterprise and we were seeing increased number of UFED connected to the premium by having more and more customer adopting the Premium Enterprise as their main advanced access solution. We do not provide currently exact numbers, but we are on track with our annual expectation and 2022 plans.

Just to add that, as we said last time, Premium Enterprise is main vehicle to bring advanced capabilities to the fields to all UFEDs. Obviously, combined with continuous investment on the UFED as such the access to the coding and the revenue. So we are basically very pleased with the way Premium Enterprise is performing at the moment and, as I said, remain the main -- major growth engine as part of Collect and Review activity.

Brilliant. Thank you very much, guys.

Thank you.

Thank you. Next question comes from the line of Louie DiPalma from William Blair. Please go ahead.

Thanks. Good morning, Yossi, Dana and Anat.

Good morning.

Good morning.

Hi, Louie.

Hi. Given all the global geopolitical tension, there's been a lot of industry news related to open-source intelligence. And with that context, I was wondering what has been the early adoption for your Digital Clues acquisition? Has it met your early expectations? And do you have plans for further investing in the Digital Clues asset and open-source intelligence, in general? Thanks.

Thank you for the question, Louie. First of all, I have to say that we are very pleased with the investment and very pleased with the fact that open-source intelligence is part of our offering. Q1, we can see that we have an increasing pipeline, I would say mainly in Europe, Asia Pacific and Latin America. And on top of that, there is a clear strong need in the USA on the state and local and on the federal side, which is obviously the case. Good traction on adopting is in the investigation space. Again, there are many awesome [ph] tools. But having an OSINT as a standard tool for investigation for policing, combined with the digital intelligence or connected to our Pathfinder, this is a key relative advantage of Cellebrite. And that resonates very well in police, and there is also expected interest in the intelligence department within the police and in some intelligence organizations. So we are very pleased with the start of the [indiscernible] so far.

We can also say that we are seeing an increased pipeline.

Great. And on the last earnings call, and thanks, Dana, for that. I believe you mentioned your target to increase, your quota-bearing headcount by 35% this year in order to take advantage of the healthy budget and your pipeline. So I was wondering do you have a status update on that target? Do you still plan to increase headcount by that amount?

So we -- to my memory, we were speaking about 1,000 plus employees. We are -- we said 920 by the end of this quarter, and we do expect to cross the 1,000 by the end of the year. This is according to our budgets and plans to meet our go-to-market and investment in technology. And we are on track.

Great. And one last one. Last year, you announced a partnership with Axon and you recently disclosed your partnership with Chainalysis. Can you discuss your decision to build the technology yourself versus partnering with a third-party? And how you expect your partnerships with Chainalysis and Axon to evolve over time?

I would say a generic statement to the partnerships. I think that when a company like us come with a clear aim to build an end-to-end investigative flow from the context of mode of operation of customers, we do not necessarily need to offer everything ourselves. It's a multi-vendor environment. And at the end of the day, we want to bring value to the customer. A key in such a strategy or customer approach is to know how to have an open system and collaborate with other vendors, good vendors, qualitative vendors that together with us bring value to the customer, because that's basically the end of the game. So the go-to-market of Cellebrite is not necessarily doing everything by itself, but also do partnerships work with channels. And obviously, the non-organic part which is less relevant to what you were asking. The partnership with Chainalysis is a great value to customers, because Chainalysis is the leading blockchain OS, a leading blockchain data platform. And obviously, the usage of cryptocurrency increase. So leveraging on this technology for criminal activity is a key element for our customers. Their expertise will be, I would say, seamlessly integrated into Cellebrite suite of solutions, PA and Pathfinder, and through this partnership, Cellebrite and Chainalysis are offering customers a window, I would say, to sophisticated criminal activity that begin I would say funded through cryptocurrency and masked by the anonymity of blockchain. Customers basically are able to identify cryptocurrency related activities, track the flow, create secure trail of evidence in a single place. And part of or I would say, as part of the digital investigation. As for Axon, this is really valuable for the customers with the ability to connect between well collected investigative data from our tools and analyzed by the Pathfinder and the connectivity, the integration with evidence.com. So that's in a nutshell regarding the philosophy, that's about to Chainalysis, just starting. Axon, we finished the integration and we are expecting a mutual approach to customers again to bring the value.

Sounds good. Thanks, Yossi.

Thank you.

[Operator Instructions] We have no more questions at this time. I would like to hand back over to the speakers for final remarks.

So before we conclude today's call, I would like to thank you all for joining us and wish you all a nice day. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may all disconnect.