Overview

Cellebrite is a SaaS company specializing in forensic solutions for law enforcement and investigative agencies. It provides essential services such as unlocking digital devices, extracting and analyzing data, and organizing findings for interpretation by investigators, judges, and legal professionals

Background

Founded in 1999 by three entrepreneurs and led by CEO Yossi Carmil through 2024, Cellebrite initially focused on mobile data transfer. In 2007, it pivoted to digital forensics with the release of its flagship Universal Forensic Extraction Device (UFED), which enabled law enforcement to extract critical data for investigations. That same year, Japan’s SunCorp acquired Cellebrite, retaining a stake even after the company went public via a SPAC in 2021. By 2014, tools like UFED Touch and UFED Cloud Analyzer were widely adopted by thousands of agencies to handle mobile and cloud-based data in complex cases. In 2020, Cellebrite expanded into computer forensics with the acquisition of BlackBag Technologies and has since invested heavily in AI-driven solutions to streamline evidence analysis. Today, Cellebrite is a leader in digital intelligence, addressing ethical considerations while navigating global demand, regulatory scrutiny, and expanding private-sector applications.

Product Offerings and Evolution

Cellebrite continuously enhances its solutions to meet the challenges of fast-evolving technology that complicates device access and data analysis. Its flagship platform, Insights, includes powerful tools like Review & Collect and UFED, which enable forensic teams to access devices and retrieve data stored in apps. Recent additions to the product suite support secure data sharing and collaboration among investigative agencies, including:

• Guardian: Enables secure sharing of criminal evidence with external teams.

• Pathfinder: Analyzes collected data to provide investigative insights.

These innovations have increased sales per customer, boosting the average revenue per user (net revenue retention reached 124% last quarter) and creating opportunities for future price increases through continuous product enhancements.

Revenue Model and Customer Base

Approximately 90% of Cellebrite’s revenue is derived from public-sector clients, primarily law enforcement agencies. The remaining customers include private-sector organizations, such as consulting and legal firms in heavily regulated industries. Cellebrite has successfully transitioned from one-time software sales to a subscription-based SaaS model, increasing recurring revenue from 47% of total sales in 2019 to approximately 85% in 2023. This subscription model supports cross-selling of additional services and fosters product experimentation, enhancing the platform's value for clients.

Market Position and Competitive Advantage

Cellebrite holds a strong position in the forensic solutions market with key differentiators, including:

• High Switching Costs: Law enforcement agencies rely on Cellebrite's solutions as mission-critical tools, making it challenging for clients to switch, especially as demand for Cellebrite’s services often outstrips clients' budgets.

• Strong Brand and Industry-Leading Technology: Cellebrite has become a standard in the forensic field, with courts and industry experts frequently requiring data in Cellebrite’s format.

While the market is healthy and growing, it faces limited competition. Cellebrite is often chosen as the primary service provider, with clients occasionally supplementing its offerings with competitive products but rarely switching due to the limited capabilities of alternatives.

Challenges in 2022

In 2022, Cellebrite faced several challenges. As a relatively new player among investors and a SPAC entity—an approach often met with skepticism due to underperforming companies going public through this route—the management initially struggled to operate as a public company. High market expectations led to missed revenue and earnings targets by 23% and 10%, respectively. Additionally, investor confidence was impacted by the acquisition of a key competitor by private equity firm Thoma Bravo, which raised concerns about increased competitive pressures.

Cellebrite traded at a relatively low multiple compared to its peers. At 3.5X sales, it was undervalued relative to companies like Axon and Tyler Technologies, which traded at multiples of 6–8X. Thoma Bravo's acquisition of a Cellebrite competitor valued the competitor at a 31X free cash flow multiple, while Cellebrite hovered around 16X. Unlike many of its peers, Cellebrite’s revenue primarily derives from software sales, providing advantages in capital structure and ROI. The company’s commitment to innovation is evident in its R&D investments, which are twice that of its competitors.

What the market was essentially missing about Cellebrite was the nature of its customer base. While most SaaS companies operate in the B2B space, Cellebrite primarily serves government clients, who are less driven by profit considerations and remain committed to solving crimes regardless of economic conditions. This positions Cellebrite for growth in any market environment.

The market also underestimated the critical value of Cellebrite’s products to its customers, who rely on these tools as essential components of their work. These factors together provide greater predictability in cash flows, which should warrant a higher valuation multiple—something the market has yet to fully recognize.

Strategic Moves to Enhance Value

To optimize its capital structure, Cellebrite recently redeemed SPAC-related warrants, limiting shareholder dilution to 5% (down from a potential 15%). Additionally, the SPAC sponsor has obtained approval to purchase approximately 19% of SunCorp’s shares, reducing SunCorp's control of Cellebrite’s equity to around 37%, contributing to a more balanced capital structure.

Why Cellebrite Was the Perfect Pick for Us

Cellebrite fit us like a glove due to its strong competitive advantage, or "wide moat," which provided a reliable basis for predicting cash flows with greater certainty. Not only was the moat substantial, but there were also relatively few competitors vying for market share. This solid market position gave Cellebrite ample growth opportunities and a long runway for expansion.

Additionally, Cellebrite’s leadership was a key factor. With a seasoned CEO who has been with the company since the beginning, essentially operating as a founder, the leadership demonstrated commitment and alignment with shareholders. We observed that most of the market either overlooked Cellebrite or underestimated its potential, allowing us to anticipate an acceleration in growth—a powerful catalyst in the investment world.

Moreover, we acquired Cellebrite at a significant discount, both in terms of peer valuations and cash flow valuations, enhancing the dual engine of multiple expansion and cash flows growth. Cellebrite stood out as one of the few tech companies we could envision thriving for the next decade or more, making it a rare find in today’s market.

Business Owners

Cellebrite's competitive advantages and market position have strengthened significantly over the past two years. The company’s growth accelerated as net revenue retention (NRR) remained high, supported by a stable customer base with low churn and few budget constraints. Cellebrite’s products are critical to its customers, driving exceptionally low churn. The stock has surged, and despite doubling our initial investment, we remain confident in Cellebrite’s moat, its long-term growth potential, and the company’s long runway for future expansion.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Our hedge fund may hold positions in the companies discussed and may actively trade in these securities. Our views are based on publicly available information and our internal analysis, which are subject to change without notice. We encourage readers to perform their own research or consult with a professional financial advisor before making any investment decisions. We assume no responsibility or liability for any errors or omissions in the content.