CLBT 7.29.25

They don't have debt, they're very low CapEx, they have perpetual R&D credits from Israel, relatively low stock-based comp for a fast-growing software company.

I share a lot of your thoughts. I would reiterate on the limited competition piece — it is limited and also in many instances people have both. This is not an instance where it has to be a single source provider on the phone unlocks. If one can't unlock it, they'll have the other one as backup. Usually they have a primary they're using, but it's not a single source, which I think is interesting.

Scale matters in terms of having R&D dollars to invest, and they have it — they're the largest. They're building a bit of an ecosystem, and they're at the tip of the spear with the data collection. But then there's the analysis and handling of the data that is also equally important, or in many ways more important, for their customers. The chain of command or the chain of possession on evidence is really important and being able to document it. It's a little harder to enter this business than you might think.

There are two tailwinds — there's the growth in data and the complexity of data. The types of data on phones can range from geolocation data, different communication platforms like Snap or WhatsApp, texts, photographs, etc. You have the types and sources of data that are increasing in volume and complexity which makes technology more important. You have a customer that's plagued by static case closure rates and long backlogs and budgets that don't really allow them necessarily to throw people at the problem. Technology is a logical solution here.

I would layer in two other themes in terms of our investment thesis. One is the company increasingly talks about the use of AI, which I'm generally skeptical of, but I think here is appropriate for efficiency gains for their customers. A simple example is they can quickly analyze a person's 10,000 photos and pull out ones that have things that police officers might be interested in like firearms, drugs, naked body images — versus going through all 10,000 one at a time.

They also have the ability — if you have a crime scene where you gather 10 phones, you don't know who the main suspect is or how people know each other — you can through their offerings and create this mosaic of people who maybe had been in the same places at the same times or share contacts in common or had communication between different people. There are these efficiency gains that you should be able to increasingly monetize. They have been taking price but primarily through additional functionality. I don't think that they're at the ceiling on their pricing efforts.

There's this other short-medium term bullish scenario that you can interpret a bunch of recent actions against: their SPAC sponsor True Wind has 1.5 million shares that vest if the stock price equals $30 or more, which at this point is within a year — next August. You basically have a SPAC sponsor that has $45 million of incentive to get the stock price up. It would not surprise me at all if the company was sold — maybe to the private equity firm that bought their competitor given the financial profile that was just spoken about. It's a very sellable asset.

For example, the CFO change that just happened — the person they brought in, in his last job, they led the sale of the company New Relic. I don't think it was an accident they took out the former CFO whose first language was Hebrew and had never sold a company and replaced it with a guy who's sold a couple of companies.

I'm more inclined to hold it for five years, but I think there's some reasonable chance you wake up and lo and behold they get bid at exactly $30 by some private equity firm between now and next August when the option expires for True Wind.

The fact that their main competitor was taken out by private equity suggests private equity is at least interested in this space. The same private equity group probably couldn't buy out Cellebrite as well but doesn't mean that someone like Vista wouldn’t do it.

Where is the interim CEO from? What was his background?

Vista.

He was an operating partner at Vista. If I had to guess, gun to my head, he's going to become the permanent CEO. He'll run a bit more of the Vista playbook, and they're getting dressed up with the new CFO for sale.

Now on the negative side in the very short term, it's not exactly clear what short term incentives are. Might they lower guidance and kitchen sink some stuff so they can have a series of beats and raises going into the sale process? Maybe. It might be painful going through that process. Maybe it's priced in, I don't know.

You can look at the stock chart right now on July 21st, and you can see that it's gone from a peak in the mid-20s to $14.50 or somewhere around there. Similarly, focused government securities software companies like Palantir and Axon have gone gangbusters this year. Cellebrite's underperformed those two guys by over 100% on average year to date. That suggests that there are some issues with the company.

The first couple of things are — Analyst 2 alluded to this — they just replaced their CFO, surprisingly, and they've had their long-term CEO step down at the beginning of the year and was replaced with an interim CEO who was acting as…

He was executive chairman at the time, he was working two days a week.

They keep playing musical chairs and moving these guys' roles and titles around.

Part of it is also that this person, the executive chairman now / interim CEO had a health issue while he's been in the role and had cancer. He talks about it. He's a little older and there's a reasonable question if he's the right person for the job for the long term.

My thesis is I really wouldn't be surprised if he takes the job, and it's sold in a year.