Yet Another Value Podcast - Anek Capital's Orel Levy's Cellebrite Thesis $CLBT

Episode Date: August 1, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker is joined by Orel Levy of Anek Capital to discuss Cellebrite (ticker: CLBT). The conversation explores Cellebrite’s digital forensics tools, from cracking phones to managing and analyzing data. Orel provides a comprehensive overview of Cellebrite's business model, competitive positioning, and potential for growth. Topics include their shift to a SaaS model, the federal sector's role, AI integration, competitive threats like Palantir, and the company’s broader strategic outlook. They also touch on risks, including execution challenges, management turnover, and potential M&A speculation. Tune in to understand why Cellebrite is at the intersection of technology, law enforcement, and investing.If you're interested in the CLBT trata call mentioned during the podcast, see: https://www.trytrata.com/clbt____________________________________________________________[00:00:00] Podcast intro and sponsor mention[00:03:13] Cellebrite's history and pivot[00:06:08] Phone cracking explained[00:07:18] R&D moat and customer stickiness[00:08:40] Valuation versus growth peers[00:09:52] SPAC history and misunderstood model[00:13:41] iPhone cracking and misconceptions[00:15:03] Apple, Google cooperation risk[00:16:29] Growth potential and market size[00:21:27] Management turnover and CEO plans[00:27:38] Sale speculation and strategic fit[00:30:49] Mission-critical usage example[00:31:51] Federal budget and deployments[00:33:52] Event-driven budget growth potential[00:37:47] Guardian, Pathfinder, cloud ramping[00:42:58] Long-term risks: execution concerns[00:50:43] AI: neutral impact for now[00:53:39] Suncorp ownership and sale pressure[00:57:46] Ethics and private sector risks[01:00:00] Wrap-up and future conversationsLinks:If you're interested⁠ in the CLBT trata call mentioned during the podcast⁠, see: https://www.trytrata.com/clbtYet Another Value Blog: https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to yet another value podcast with your host, me, Andrew Walker. Today's episode, I say this about all my episodes, but I promise you, you are really going to enjoy this episode. We are talking about Slebright with Orlebe. He has done great work on it, whether you like compounders, event-driven, whatever you like. I promise you there's going to be something interesting in here for you. It's a really interesting company. You will hear it when I introduce the company, how interesting I think it is. It's a really interesting company that, you know, see the disclaimers at the end. I don't currently have a position, but I would not be surprised if I have a position at some point in the near or medium-term

future. I think you're really going to enjoy this conversation. And part of the reason you're going to join this conversation is because of the pre-work I did from Trada, who is the sponsor. So, and I'm kind of wearing their hat if you're on the YouTube. So with that, why don't we just do a natural transition to a word from our sponsor, Trada? And then we'll go into the podcast with Aurora Levy. This podcast is sponsored by Trana. Look, I already know you're going to like Trada. Why? Because you're interested in this podcast. You're listening to this podcast. And Trada is just like this podcast, though, unfortunately, largely without the handsome hosts. Trotta is anonymized transcripts of bysiders discussing their stocks that they're

following and kind of what they really think will drive the stock, what they really think the upsides are, what they really think the risks are. In fact, a huge way that I prep for my cell break podcast is there was an incredible discussion on the Trada platform where they were talking about, hey, here's the risk. Here's what I think the event path will play out. Here's what I've heard from experts who I've interviewed when I've talked to them about what they really think about the broadcast. So look, I think if you join Trada, you're going to get huge value, but even better, you can join as a lurker and you can just go and read all the transcripts. But if you want to join and actually start contributing to the platform too, Trada will take it one step

further and it'll be an anonymized interview. They'll publish it and they'll pay you hundreds of dollars to go on the platform and do anonymized interviews and talk about the you follow with other smart people who follow the stocks and long, short, all that type of stuff, nothing investing advice anywhere. But it's a really useful platform. And again, if you're listening to this podcast, I already know you're going to love the podcast. Go to try trotta.com or see the link of the show notes today to check it out. All right, hello, welcome to the yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on for the first time, Oral Levy from Anna Capital. Oral, how's it going?

Good, thank you for having me. Look, thank you for coming on. I'm super excited. to talk about this company today. I was selling you before. This is rare, but I was kind of like, it was just hitting all my boxes, and I'm really considering a position in this, which is rare.

But speaking of a position, before we get into the company and everything, disclaimers remind everyone that nothing on this podcast is investing advice. I don't have a position out. I mind in the future. I don't know. There's a full disclaimer at the end of this episode

if you want to listen to a full disclaimer or a legal disclosure. Anyway, Oral, the company that we're talking about today is Sell Bright. The ticker is CLBT. This has been popular in value and event investor circles on and off for the past couple of years for a bunch of different reasons that I'm sure we'll discuss,

including a Japanese holding company that's almost happening. But I'd love to just start with the high level. What is Sellbrite and why are they so interesting? I think Syllivan is one of those businesses that it's very hard to find them in a, I would see, a reasonable evaluation. It's such a quality business and earnings are so quality, but I think we will get to everything. So I think in a nutshell, what is CELBite actually doing?

So historically, they started around 2001, which was the foundation of the business. First, it was a telecom provider. So they were trying to solve the pain point of the telecom providers, but how can you transfer data from one phone to another? So let's say you are acquiring a new phone and you need to exchange your contact. So what was your options? CELBIT was your first option. This is why they bought YOSI as the founder each after. three years. He was previously in a telecom company. And by mistake, one of the products actually

a sheriff in, I forgot I think it was in New York. He bought the product by mistake. And then Sera actually realized that there is huge potential within public safety. It was very funny. So they had two businesses. They had the telecom slash retail business and they had the public safety, digital foreignisics software slash hardware. Around 2017, they spun out the retail slash telecom business. They sold it to one of the PEs for, I would say, it's not publicly the numbers, but around $20, $40 million, each. And then they just tabled down on the public safety. And I think going back around 2007, it was very funny that Stank Corporation, the Japanese company, actually bought them for the telecom business, not for the digital

Forenics. And now Stelabyte is the market leader by far in digital foreignics units. So think about it in a more simple terms you are trying to force. So you get, let's say you get one phone from an accident. So I think the most famous use cases with Sederby is someone tried to assassinate Trump. So you get a phone and there's plenty of data. I think the most famous narrative, the people think SEPA is just cracking the phone.

It's not. So you crack the phone, which is something with the most easy option, but then you have a lot of structured and unstructured data. So they were actually using a lot of unstructured data in terms of the GPUs. So where was this guy? He was next to who. And then they used the cellarbytes product to actually analyze the data. And then the second part was actually the garden, the second part, which we would get to everything, is to actually move the data in, I would say, custody of chain. But now the company is going 20, 20% with beautiful margins. The agricultural conversion is above 100%. And I like

most of the software companies because they never raised any money. So it's bootstrap. The SBC

is very minimum. So the company its culture is very aligned with shareholders what we like. That's a great overview.

Let me just pause. You mentioned so they do phone cracking. When I read this company, I hear phone

cracking. And I want to dive into, I want to talk about the stock opportunity and everything, but I just want to dive into the phone cracking a little bit. And they obviously talk about the Trump thing where part of the story was, you know, Trump, the shooter gets killed and they want to investigate him. They take the, they take the cell phone to a regional office and I believe it was Butler, Pennsylvania. They don't have the cell bright, they don't have the cell bright product. So they have to take it to the Pittsburgh field office to analyze it and that takes four hours. And obviously, that's a

pretty nice selling point where you say, hey, if a, if a terrorism event happens, and your field office doesn't have this. I want to talk about all that. They've got other examples from their investor day. But let me just say, breaking into phones. That's what I think of when I hear this company. You said they do some other stuff, but why are they so unique?

Like, why can this little tiny bootstrap company, I believe they have one major competitor, but why are these guys breaking phones? And the first thing I thought when I looked at this, Palantir, why isn't Palantir offering this or something? So what's so unique about these guys? So, I think, personally, we need to understand that setabyte right now is spending the biggest amount in terms of R&D.

First, we need to remember that. So the digital phone isix units, it's a cat and mouse game in a way. You always have to crack the phone, iPhone, iOS, Samsung are always trying to prevent you from cracking the phone. So you always have to invest a lot of R&D. But I think it's not just that. It's a lot of data. that celebrate actually capture during those years.

And then once you capture the data and you have the logos, it's very, very, very hard to penetrate and acquire those logos. Because once you trust telebyte and you become a verb, then it's like it's very mission-critical. And I think the other side of the equation here is that whenever we invest in software companies, we're always asking the question ourselves, what is the TCO for the customer without the cost of ownership? And what is the ROI?

So right now, we usually take. going to look at it per cases. Usually the department will spend per case around $150. And the ROI that they are getting is so much higher. It's 10. It's 100% percent, it's 100x higher than what they are spending right now. So I think it's very hard to actually penetrate this kind of formula and acquiring this logo and this trust already.

That's great. So let me ask you, what are you seeing that the market is missing that makes it an off opportunity. And if I could just build on that, you know, I, hey, as part of the prep for this, I read an expert call or a buy side call that I sent you on Brata. And it's great, by the way. Say again? I think it was great. It was a really good one. Yeah, I really enjoyed the product. I felt like, I wrote all of those stuff. I was like, wow, it was very strange. I think they're the sponsor of this episode. So I'm not, I understand people who say, bias. I'm glad you said it. They're not paying you, but I read it and I was like, oh, dang, it was

really good. But the thing that struck at me is it was two bowls. And they were basically saying, hey, you've got a company here that's growing revenue 20% year over year with everything. You're talking about great margins, kind of Modi product, one competitor who they seem to be kind of eating their lunch on, all this sort of stuff, and, you know, companies that grow 20% year over year in the space don't trade for this multiple, right? Look at Axon. Look at Pounter. And it's certainly that they said it. I think that's what you're going to say, you're going to say when you say it, and I just look at that, I'm like, well, it seems kind of obvious. So what is the market missing that, you know, you're saying it?

Everybody's just kind of tearing their hair out. Why is it trading at this multiple? So right now, full disclosure, it seems like I'm the only, I'm the only bully here before you two, but we will go into everything. I have that question. I have that question of all, yes. Let's first look historically what the market missed instead of it. So they came via Spark, no one likes Spark, of course.

The stock was, they sold off from 10 bucks when it came via SPAC to round four. So back then, what did the market miss? The market means that source, they were doing a transition from a perpetual software to a subscription. And we all know that there's a belly in the top line, how you recognize. So perpetual, of course, you recognize everything on a spot, like in front of the revenues. And then when you switch the model, everything is changing. they missed their revenues by around 40% in 2022, also the margins.

And back then, the company was never really actually providing guidance before. So for them, providing guidance, it was kind of the first time. For them, if they provide guidance for the public market, they just need to be close to the guidance as private company. But of course, as we all know, if you miss by 1% sometimes, the market can actually punish you. So it was that. Also, some people actually elude.

and categorizing them in the same bucket as NSO. And of course, we don't know the story that Apple was trying to sue them. It was that, that, and beyond that, it was a very misunderstood story. Yossi and Donna, great operator. It was very hard for them to share the story. He's the ones with pony. They become a platform. And then once they started to accelerate the revenues again,

from there, I would say, 20 to the 25, 28% error, with beautiful margins. Then the market was like, wow, we have a second action here. And the market fell in love with the company. Everyone was throwing some narrative that Axon, because Axon bought 5% of the company in the SPAC. So everyone was throwing some narrative that Axon is going to buy them. It's probably going to be 25 because Adam, that Adam was actually,

he's the owner of touring the SPAC. Adam is going to get compensation if the stock is will reach 30 bucks. I think it's probably around 2026 August. That is correct. Everyone is assuming that everyone is assuming that they would reach there. And then everything kind of change. And this is what the market is missing. So what had changed in the formula, they had Q1.

It was kind of soft. So the net new ARR was kind of lagging what the market was expecting. Then the set about was also guiding for a soft Q2. And a cellar also embedded that H2 will include federal and federal, that is, around 70% of the business, will go meetings or even 20%-ish and out 23%. So you have, I would say, the lack of clarity of the federal IRM. You have management turnover. So the founder just left and also the CFO just left.

And now there's the new narrative that said about didn't manage to crack the new version of iPhone. And we all know if there's bad narrative, everyone is assuming some. incremental stuff. So right now, people are assuming that because they didn't manage to crack the new version of iPhone, they are losing market share to Magnet, and they didn't manage to crack the iPhone because most of their employees was actually in reserve duties. So many, many, many false stuff, and that actually took the stock from 25 to around 14-ish right now.

So that's great. So let me ask the first question. In your opinion, they have cracked the new iPhone. They can crack the new iPhone. So that's a risk that people are worried about. That's kind of been put to bed. They didn't crack it yet, but they're going to crack it. And it's in the same cat and mouse game that we spoke about.

And if Cerebizor is not going to crack the new iPhone with the highest R&D budget and the best employees, no one is going to do it. But again, what the market is missing, it's not the core business of Cstabite. People assume if they can crack the iPhone, the new iOS or the Android. So why using Stelabyte? And again, as we said earlier, it's not the case at all. So this is just the first point that the market is missing. So let me just quickly divert. I've got a lot of questions.

And you hit on a lot of the risks, and I do want to come back to them. But let me ask one risk that kind of jumped out to me when I was looking at this. You know, I remember, I can't remember how long ago, but there was some event. And I think this was Trump 1.0. He leaned on Apple that they needed to help the FBI crack a phone or open a phone or something. and they did. Because one risk that jumps out to me here that I think is worth addressing, what if Apple and Google, because Google does Android, Apple does iPhone,

what if Apple and Google just start working more with law enforcement and say, hey, if you need a phone craft, we will crack it for you, right? Like, what do you think about that risk? Because I could imagine all sorts of responses, positive, negative reasons, it won't happen, everything. But I'd love to just propose that base risk to you. So I think, for me, to give you like a good answer, we need to force understand what is Stelabyte products.

So I will say their platform, which they are actually converting to a new platform right now, that we will speak about it later in the code algorithm, I assume. But think about insights, their core product. It's a combination of all of their products that are serving the FU's digital forensics units. First thing, you have the cracking, and I'm trying to very simple advise. First, they have the iPhone or the Android cracking. The second part is that they actually analyzed the data for you. And then we need to remember that there's a lot of data that was actually removed from the phone.

So they deleted the data or unstructured data. So even if you have the phone, it's going to be very hard for it to actually analyze these data. So let's assume the worst. And again, we know it's not part of the DNA. So Apple, as we all know, Apple. They're very proud that their iPhones are very secure. But let's assume the worst, even if this is the case, all of those agents will continue to rely on celibite no matter what.

And I think a great example of that is, so in borders control, all of the phones are always open. So it's mandatory for the phones to be open. And they still use celibite and they are still lacking celibite. So if they had, let's say, a more budget, Barbates will go into celibite. That's great. Let me ask one more risk that jumps out to me, right?

Celebrate says, hey, there's this huge demand for our product. You know, we're continuing to sell. They're growing 20% a year. And I think a big bulk case is huge market, security. Like, the pitch is this is a play on cybercrime, but not just cybercrime as in, you know, Russia hacking crypto accounts. This is literally played on, hey, there's a shooter. He has a cell phone, all the data, like more advanced.

Like, we need to go get the cell phone and analyze the data, as you're saying. And if you believe that more and more criminals are going to have cell phones and data and connections, this is a beautiful play on that, right? And that's true. That's true. But then I'd also say, hey, why are they growing so quickly? Because they already have, we mentioned the FBI with the Trump shooting. They already have the FBI.

And you could say, oh, there's thousands of logos out there. But, you know, in a lot of fields, there are 20 big logos and then 1,000 small logos, and the 20 big logos move the needle. And I would just, I looked this up before. the New York Police Department. I live in the Upper East Side. They employ 40,000 police officers. Baton Rouge Police Department, where I've spent a lot of time. I'm from Louisiana. They employ 900. So you literally need 500, if I'm doing the math on that right. 50. No, 50. You need 50 Baton Rouge police departments to make up one New York Police Department. So it sounds great. Like, hey, we've got 20 logos and there are 5,000 out there. But they've already got the FBI. They've already got the

Is there this much growth out there for them? It's another part of the bear that sell by right now already captured all of the logos. And then, once they managed to first, three years ago, let me give some background, they try to shift all of their legacy customers to the more advanced product, because Insight, which combine their two or three legacy products into one. and every time you switch to insights, there's an uplift of, and it depends on the customer, of course, and aside, but it's very between 25 to 40%.

So now the bears are saying that, okay, so your growth actually accelerated because of the one-time inside conversion. You already capture all of the logos. Now what? When we actually spoke with those customers, right now, Cerebite might own all of the logos. In terms of penetration within the apartments,

it's still very, very, very low. and we still see a ton of room for one way to at least 20% going forward. I would say the next three to five years and then it will decelerate. I think another question here is why it wasn't faster if digital crime is actually going, according to management, on a 30% basis. And we all know that crime, unfortunately, is just on the rise. And there's so much backlog in those cases. Those cases, those digital cases, are just in.

every time, and CERB is not enough. So again, the question is, why CERB is only going only 20%. I think historically, I would see the answer was actually go-to-market issues. So Cerebride didn't really have, like, I would say, quality go-to-market. So this is why they changed the go-to-market, and they combined a lot of the departments inside Cerebrite. They bought a new CEMO, N-C-O, one came from actually Juniper,

and now they're actually starting to execute all over again. But for the Apple Guardian, which Guardian is their second product, it's actually used to share the data. Right now, they are replacing such a legacy tool. So if you're an agent, right now you are sharing evidence by USB or Sandisk, or sometimes we even spoke with some agents from Canada, they are flying all over to the U.S., gather the evidence, and then they're going back to Canada.

it's crazy how inefficient is it. So Guardian is just the penetration according to our number. It's on 3 to 5% with the agents. And we spoke with agents. If it's so mission critical for you guys and if it's the only solution, what is the barrier for, I don't know, a massive adoption? So I think one barrier just for Guardian,

which is going, by the way, 100% and is approaching 6% of the error. One barrier is that historically you could all, you could only share data with celebrate products. But if you're using satellite and magnet and you're trying to share data from magnet, you couldn't do it with a guardian. But now it's actually,

it's sort of according to our fellow research. And historically, Cereby didn't put too much effort into it. So I think in the future, I think the main risk here, if I'm being even more precise, is actually execution, a new management,

is the new CEO and the new CFO, a new CEO, new CEO, the entire management has switched the last, I would say, 18 months. Well, let's dive into that because I think that is a risk. And again, I will reference the Trotter call that we talked about. I'll reference other conversations I've had. You even started to mention it. The bear case here, and there are other bear cases, but the immediate bear cases, when you listen to Bulls, they say, hey, the CEO slash, let's just basically call him the founder because he joined a year after, but he did this. The founder left last November-ish, and the executive chairman took over the role as interim.

They just hired a new CFO. We're still in July this month. And so the bear case is kind of, hey, you've got an interim CEO. You know, what CEO, if this company is going to grow 20% forever, what founder leaves the company as like kind of the things are just really getting spicy? That's number one. Number two is, hey, the CFO just left. They had a soft Q1, and on the Q1 call, they were saying, hey, you know, Doge and everything, the feds are kind of hesitant to deploy. So not that that affects the longer term or medium term outfit, but you combine interim CEO, which with maybe a new CEO, they even said, we're going to have the CEO business settled by Q2 earning.

So you bring in a new CEO, or I think they're probably going to name the interim CEO, permanent CEO, we can talk about that. You bring in a new CFO, Q1, you bring guide down and you talk about softness due to Doge, that's a rest. before we're getting a guidance cut. 100%. We're cutting this year. And maybe they didn't invest your day in 2024, which was very interesting. Maybe we kind of bring down a longer term card. So I don't think that impacts the business or the valuation, but that does impact, hey, it feels like everyone thinks they're going to wake up in August and have a 15% down day,

hit him in the face if they buy the stock. 100%. 100%. So first, let's break it down. I think E. Austin, and if he, like, we, I spoke with Yostin, many times, he knows. me personally I this is the basic founder that we're talking about right here yeah so I think if he's going to hear this

podcast like I have so much respect for him really really I appreciate him so much but as he know because he told me this personally taking the company from zero to let's say 400 450 million dollars of error was so much for him and he had to sacrifice so much of his personal life and I think he was in the company for more than 15 years and once you have to sacrifice so much

and you realize that you are not the right person to take the business for $400 million to the billion dollars to the billion dollars that they are guiding, I think it actually makes tons of sense. And we also need to remember that besides you're seeing, there's great operators that are still in celibite. For example, Ronen, the CPO, the chief product officer

that actually was a chief product officer came from SAP, and he knows the internship CEO, I think it's going to be permanent. I'm just going to kill him permanent CEO. He actually met Thor before. So I think right now, if you ask me, but Selaide was lacking two, three years ago. I would say probably two things.

One, scaling software business from $500 million to $2 billion. So scaling the business and two probably M&A capabilities. And Tom has probably going to speak about him and historically he was a CEO for more than a decade in software companies so he was leading thompson reuters he was leading a company called coni that actually sold to terminus he was managing director at vista another pee before that he was working at um sub and HP as well so he understand a lot how to actually execute and scale a software business I think what

The bears were probably saying also in the transcript that, unfortunately, he was sick, but according to our conversation with Tom, he has fully recovered. And the way we see it, said about it's probably going to get acquired in a year or two. And Tom is going to be the permanent CEO for the next two years with the new CFO. And again, this is a full speculation. We actually think the new CEPO that actually came from New Ehrlich and he sold a business after a year. it's a perfect combination because again,

speculation here. The new CEO didn't sell Model N to Vista, but he was the CFO of Model N and Vista acquired Model N two years after he left.

So probably they knew each other before and I think who's actually pulling the streets here are Adam from Touring. So Adam from Tourin

he actually owns probably 10, $20 million in Settabite in his personal money, so PA, and also he owns 5% of SETabyte with the SPAC, so 2WIN, and he also owns 20% of the Japanese corporation, Sankorp. And I think he's actually going to push Sennabyte through a transaction in a year or so. And then the question is, who's going to acquire them? I think, again, speculation, there's three candidates here. It's either going to be Vista.

They will try to copy or compete with Tom Bravo. Oh, it's going to be, I will let's say Motorola, or IBM slash action. But when you spoke with Axon many times, it feels like Axon are trying to go more into the drone hardware space and that applications, because everything.com is actually crashing it. And again, not competing with Cerevite, instead of another misinterested of the market. And Motorola, actually, it's the perfect fit for Motorola, because Motorola is trying to increase their economy revenues, they're trying to accelerate their top line, they're trying to buy more

applications, the higher margins, and how I see. And usually they require a company between a billion dollar to, I would say, around four or five billion dollars. So if you put, I don't 30 bucks on a satellite, it's probably fit the higher range of Motorola. But again, 100% speculation, 100%. No, look, you hit all the things. You know, the thing, the thing I thought was interesting, the reason I said, I think up front, I was like, hey, I'm really interested in the stock, A, because you pitched in everything, but B, I read the Trotocall again, and there was a line, and as soon as I read it, I was like, oh, no, this is Katnip for me. They look, you got a CFO who, like, you know, he was a one-time CFO of an Israeli company, and this company did

really well, but he retires and you hire a CFO who his last job was selling new relic, and you bring in Atama Bravo, like basically partner, becomes the executive chairman and then looks like he's going to become the CEO. And by the way, True wind has about a year left until the last $1.5 million earn out plugs expire. You roll it all up and you're like, oh, this is a company that's getting packaged to be sold. And then by the way, I mean, I hear you, Axon invested 5% into the SPAC and Axon trades at, I'm looking at it, they trade at, let's call it, a hundred times EBITA. and you've got this business here that's growing 20%

that should have synergies with them that is a new product line that they could probably push through a lot of it and it's trading for, I don't know, like 25 times even out of growing very quickly. You roll it all together and you're like, oh, like I've never seen something better designed to be sold. So yeah, let me just...

I think it's also sort of the top. I think it's a classic, classic B-E playbook because celibite can grow 20%. There's so much tailwinds. It's the market leader. They can generate so much cash. So I think right now, the contribution margins right now are around 25 to 35% each percent. And again, speculation, but one of our friends actually told us the numbers of magnet.

And they are generating so much higher margins than setabite. It makes sense because celibite are trying to invest so much. And by the way, they just did the layoff. There's speculation that they just did the layoff. And I think the Bulls are going to argue right now that they're doing layoffs before Q2 in order to show that, okay, so we're going to take down, we're going to take down the ARR by around $10 to $25 million of ARR, let's see, 3 to 4%. But the 20% every the margin was the flow, as we said in the capital markets day two years ago, and we will show you much higher margin.

So we are still a root of 40, 45, even with one times. over revenues. And then probably, again, speculation around Q4, they will give you a guidance for 26 of acceleration in the revenues. Because if those federal budget will delay and won't come into 2025 budget, it's going to just push. It's not like those guys can just cut cedarbyte. It's a matter of when, not a matter of if. This is why we are such a big friend of the companies. It's so mission critical. So you always know it's a matter of when. And like, let's say another company, Zoom Info. So in order to, when you buy Zoom Info, when it's people with Zoom Info customers,

it's already like, yeah, I can manage without them. It's not so critical for me in a way. It's more project-based. I'm not relying on them on a daily basis. No, as we said at the front, like you have a terrorist event on your hands and you need to crack the phone and then you don't have this product. You're out of luck. let me ask you a question on that front. I have so many questions left to ask. But these guys sell to the FBI, right? And I've mentioned the Trump example multiple times. They don't have it in the Butler office. They do have it in the Pennsylvania office. Why when they sell to the FBI, does the FBI have it in some office, have the most updated version in some offices and not in the other offices? Like, is that they haven't paid the upgrade costs for the offices? Why haven't they paid the upgrade costs to that? But it just, you know, when you say you sold to the FBI and it's a subscription as a

service products. I kind of think, cool, everyone's got access and they've got updated versions at all times. Like, I buy Excel for my company, everybody's got Excel updated all the time. Why did the FBI not have it in all their offices updated? I think it's a matter of budget and budget allocation, but again, for us, it's always a matter of when and not if. And we spoke with many customers. Some customers can now push you back a little bit on insights. By the way, next year, it's a very important milestone. So the shell fears of their historical product is going to be end.

So all of their customers has to migrate to insights. So it's going to be another 50% migration. So some customers can push you back that the price uplift is a bit aggressive. But we have to remember that Stelabyte, the second half is almost so much stronger, both profitability and ARR. It's usually, again, I would say, up there's 60% of the error because the way the physical budget of federal agents is usually Q2, Q3 is when the year is the end for them. So usually, again, speculation, maybe there's

going to be a budget flash in Q3 because everyone was waiting in Q1 Q2. And as you mentioned, waiting for the Dodge, waiting for BBB. You've used the term, it's a matter of when, not if, a few times. And that's one of the things I like here, right? Like mission critical, unique software where, hey, it's almost an insurance product, right? Where hopefully we don't need it, but if there's an event, we're going to need it. And if you're that NYPD, you're going to need it. They've mentioned a few times, hey, in 2007, the U.S. is hosting the World Cup. In 2008, there's the Olympics in Los Angeles.

So those are two big events, and they think that flushes out the budget a lot. And I'm one hand that I can understand why, right? You're worried about terrorist events and everything. I get that. But they've also mentioned both of those events are huge human trafficking risks. And I don't understand why they're human trafficking risks or why they should really up the budget that much for, again, the Olympics are in L.A. I think the World Cup, the finals are going to be in the New York area. Like, these are people who already have sub right. So why should these be like big spurs to increase the budget? So first, as we mentioned, usually if they have one of their products, you don't have it enough. So they have maybe in one of the offices and they need more because sometimes there's another. of the price in it, it's consumption-based.

But the second product, which is Guardian, so if you have, as we mentioned, if you want to share the evidence, you have to use the celibite software in order to maintain the custody of chain. And then the third product, I think there was a shooting. I forgot where it was in Oakland.

There was a massive shooting. And they used the celibite Pathfinder, we didn't speak about Pathfinder, it's their third product to actually analyze what happened there. So what CERBIT is trying to actually do is they're trying to become from a one-trick pony solution to a full platform of a case-to-case. So they call it from case to closure. So first, you get at the phone, you crack the phone, you analyze all of the structure and unstructured data,

then you are using Guardian to actually move the data while maintaining the custody of chain. So no one did not allow, didn't watch those evidence. So you can, those evidence are actually clippable in court. And then you are actually approaching a very different customer base. So it's the same logo, but a very different customer base. We call them a investigator's units. So very different. And those guys actually need to actually build the case to present to the judge.

So the penetration of Petfinder and Guardian is still between 2% to 5%. And I think now it's actually ramping up. And those products are actually around 25% of the error growth. So PetFinder, the Kegger, the last three years is 50%, which is very incredible. And the garden is actually 100%. And by the way, the cloud product is approaching 20% of the business. And it's going 150% every year. So I think it's a matter of time.

I'm sorry to repeat the same formula. But those agents are buying. I think what Cerebert was the more lacking is the go-to-market. So they were first focusing on insights. They didn't put so much focus on insights, on Guardian, sorry. Then they needed to realize how to sell to a very new customer that didn't even know them. So I would say these few guys, digital politics units,

the tech in general is very penetrated. It's a logoply, droplet, in a way. everyone knows Celebrite, but in the other department, no one really knows them. And then you have four or five other new players that we can actually speak about. It's Cerebrite. Sometimes it's actually Axon with Evidence.com. Sometimes it's motorona. Sometimes it's actually a volunteer with the much higher range of customers.

And then it can also be prognite and nice to other Israeli companies. But we think actually the market is always mistaken because he thinks Auxon is actually competing with them. But as we know, Axon, the DNA was always more internal investigation, not external. So how to actually monitor the police or to monitor the agent and not to monitor outside of the agent. So Stelabite and Axon are not really competing. Some of the customers we spoke to are actually using both of them. But it takes sometimes to actually teach the customers. This is SETabyte, by the way, around 250 employees of Stelabyte are actually teaching how to use the Stelibite products.

We need to remember that public safety, their penetration using the software is still like 15 years, I don't know, behind all of the other software guy, the other customer. It's very hard for them to actually adapt. And you can also see it with Tyler, that's sending ERP to sometimes also public safety. That's great. Let me, I've got so many questions left. Let me just pause here. We kind of address it, but I always like to make it clear.

So the market is a really competitive place. And again, I think we've hit on a lot of different things here. But what do you think you see in Sellbrite that the market is kind of missing or discounting that makes this a risk-adjusted alpha opportunity? I think it's such a great question about I'm always, when you see one of, like one of your topics, again, any investment recommendation and everything for this code, when you see one of your topics that are actually going down every day by 40% you are asking yourself, what? What are I missing? What am I missing? Why is the market so very sure? So, first,

Sederbeye didn't have their FedRAM and everyone was assuming that FedRamp is going to maybe delay for 2025. Then a week ago, they got the sponsor for FedRAM. Stock was up 4% in the day, and then the day after it was down 3%. So I'm like, what is the market missing? And then I'm like, okay, CERB is maybe missing the 20, 25 million dollars of EBITDA. And then I just say it's a combination of four, I would say, big stuff for it's Q2. Everyone is afraid of Q2. It's new management. It's the, everyone is afraid that the growth algorithm doesn't actually make sense.

And it's, they, they will actually decelerate going from 2026 and they will have to, to pull the 2028 guidance. And it's like, it's a more show me story for the street. It's not like people are, uh, are skeptic about the. quality of the business again. And what we think the market is actually missing that we need to remember that first, it's not a new management. The chairman has been the CEO-ish

already in the last two years. He's very familiar with the story. Second thing, the CEO and the CFO, they will be probably aligned with shareholders. And I would say the third thing, in terms of the Q2, around a month ago, they bought Quillium,

how to pronounce it, quallium, quillium, which is probably going to add around $50, $25 million of ARR on a full-year basis. So let's say you just take the half of the four months of the year, it's going to be another $10 or $12 million of ARR. And then several that are just lacking one, two big customers within the federal. And once they go to the FedWR, I think they can actually do it. So I think the market is more skeptic on the growth algorithm, the Q2, and new management.

And once you feel comfortable with everything, I think it's when we're also able to actually break down the goat algorithm, how we see it high level. So first, we need to remember that 98 or 96% of the ALR goal, let's say the 20% is coming from the install base. Then the question is, how is actually divided within the install base? So 2 to 4% of those 20%. So let's say, let's call it 10 to 15%. It's actually coming from the inside migration.

I would say the second part is coming. So the more 5% percent, the majority of the growth is actually coming from new products like Guardian and PetFinder. The other part is the more sit expansion with, again, insights, is another 3 to 4%. they usually increase pricing every year. It's between 2 to 4%. Usually they can follow magnet because the magnet is raising prices

between 5% to 10% every year. Cid expansion, but we need to remember ballpark, the sector itself is going 15% to 30%. So Ceylbite has a lot of room to grow. And the set aside and the market in general is so focused that Cetabat doesn't really have room to go because they painted with all of those logos anymore. So we actually see that 2026 will be a massive acceleration

if this year they will pull down their guidance. Because as we mentioned, those federal guys will have to buy even much more of satellite products. And yeah, I try to give the full picture of those years. I think that was great. Let me ask a slightly different question. Let's put aside, as we said, Bulls, bears, everyone is terrified of the Q2 print and possibly for good reason.

Let's put aside that because, yes, the market could suck, all that. But that does not matter for the long term of the thesis, right? When you think about the long term of the thesis, we've laid out a lot of bull points here, right? That position, the growth, the mission group. What keeps you up the most at night with the long term of the position? Is it asked on as a competitor? Is it Palantir, you said they're selling very high end? software very high, we can go to very low and pretty quickly.

What kind of keeps you up the most at night? I mentioned Apple working with law enforcement to crack phones more. What's your biggest worry here? To be honest, it's mainly execution with the new management. This is why I'm, this is what keeps me up at night. I think Palantir is crashing it again in the upper, upper, upper market. And we need to remember that so every time Parantir is taking a new customer,

It's such a big contract. It could vary between $25 to $100,000, even billion sometimes. Somebody doesn't really operate in those same customers. So if somebody is not going to get acquired, I don't know, in two years from now, then we are asking ourselves internally, what is the IRA that we can actually achieve here?

So let me ask you that. Let me, if a company is going 20, 25% every year, let's assume 20% error with higher margin is every year and assume a 20x free cash flow. What is the error that you would expect here? Well, I would expect, no, sorry, continue. You'd expect a pretty good, but let me put that back to you in a different form. I think there's two assumptions there, right? If I was a bear on this stock, I would say, hey, SELBright right now has a $3 billion

EV and everything Andrew and Orwell are saying is really interesting. But they're going to do this year about $120 million and EBITDA is their guide before, you know, it seems like they might take it down. There's $30 million. Take up, I think. If the EBDA will probably come up, I think, against speculation. I'm using their guide from the Q1. About 120. And adjusted EBDA, it's adjusted EBDA.

Stock comp is not, you know, what we've seen at some other companies, but there is real stock comp here, about 30 million. So if I was kind of a bear, I'd say, hey, that's $90 million of pre-taught. you know, afterstock comp, this is a $3 billion EV. Yes, the 20% growth is great, and it should be very high margin. But once you tax that stock, comp, and, you know, eventually no one grows 20% forever, eventually run into all the market size issues that Andrew kind of started the podcast, that are you really playing for a lot of alpha here? I think would be the other pushback.

So usually when we analyze the software company, we always look on the free cashdown, because most of the software companies, as we know, they try to manipulate the numbers. No, who would they do that? So, for example, one of those 8CM players, i.e. day force, they will capitalize the sales commissions of their customer, and also capitalize the R&D expenses. And then you're like, how much is this business actually generating cash?

Real cash, and it's like, it's crazy. You are preaching to the choir here. On the Trotter call, both the analysts, one thing that jumped out to me when I was just starting to research, they said, hey, this is like the cleanest adjusted EBITL you'll ever find in text. So clean. First thing I did, I wouldn't look for capitalized R&D expenses. None of that. Like, it is a very, I love everything you said.

I'm like, I'm sorry to interrupt you, but I'm so excited by what you said it because I'm 100%. Me too. Every software you analyze, the SBC, like you speak with the CFO and he's like, no, it's not a real expense. And you're like, yes, of course you said expense. I'm paying this as a shareholder. And then you see a couple like Cerebite, which I love their DNA.

Because it's a bootstrap, they're very efficient. Every dollar they spend, they monitor this dollar, like so much. This is every incremental dollar. So we think more when we think about Cerebite on a free capital basis. So right now, for 2025, it's 5% for cash on yield. And 2026, it's around, I would say, 8% per cash on yield. So a company is going in double digits, market leader, that is operating in a to a technical environment, so efficient.

To me, it sounds like a non-brainer in a way. Once you pass the Q2, so I think everyone, I speak with many biases on the name. Every biocide is pushing with the same team. We have Q2 on our head. We will get probably 10% on our head. And then we also have new management. We don't know how they're going to guide. So then I'm taking them, okay, the new CFO, historically from New Relic,

the first quarter he came, he actually maintained the guidance. And I think right now, I think also the Aya, the way he was saying this, the market is punishing us for quiries we haven't done yet in a way. And I'm like, 100%. So right now, I'm like, let's say they put down their age two numbers by $25 million of the fair hour. And also, it depends on the aid guidance. Because the CFO, he wants a clear plate for a bit and raise. And again, let me just speak with here.

I think Q2 can actually be a clearing event because all of the uncertainties is kind of gone. Stratramp, the sponsor, you already got. The Q2 is already behind you. Now the guidance is very conservative. You know how the CFO is guiding. And maybe, maybe they're going to actually disclose some buybacks, which I think is, I don't think it's a must, but yes, they can do buybacks. By the way, even the rest of the position, I love how they will.

So the way there are stewards of capital, I love it. Like, the market was, I met with a company in Chicago, in the William Blair conference. And most of the buy, the, the buy side was like they're going to do it on somebody with MNA. They're going to do a big MNA. And the company said, we're going to do between a token and around $150 million. And we're going to buy a company that we already knew for, I don't know, the last five to seven years. And the company they bought, I love it.

Why am I such a big fan of the company? The company is going 50 to 80 percent every year. It's very mission-critical. It's the same logos. CERVite was already partnering with this company for the last seven, eight years. The founder is going to stay with Cedarbrite, and it's around 120. So they pay like 5xARR for coming going 50%. It's like you can see the way they think with your capital, such as capital of capital.

So they're just drawing money, like they don't think about shareholders. They are very aligned with shareholders the way they think, the way they operate. This is why I sleep very well at night, but of course we have a new CFO that we don't know how he's going to guide. But looking historically, he was always very conservative and he was the way he was treating capital, he was looking capital as a shareholder. So very, very sort of capital. So by doing buy banks when the stock is down, using the company currency to buy to buy new companies, when the stock is very high, so let's say 25, 27-ish.

It's great. I love everything you said. One last risk question, and then I have a few random questions I want to ask. AI. The company is starting to use AI for some of their data analytics, and I'm sure they've already been using it, all that sort of stuff. But it does strike me, you could tell me this company is a massive AI beneficiary for a variety of reasons. More data to analyze. They can analyze it better using AI and language models tools. They probably have very unique data in terms of analyzing this.

You can tell me that, or you can tell me, hey, AI is a risk to every software company. And you know what it's a real risk to? You crack a phone and you're trying to interpret that data. Well, once the phone's cracked, AI analyzes every uncracked phone's data equally. All of a sudden, you know, you can go chat GPT discovery. I'm probably being a little facetious there, but you could see how AI could be a risk along a whole lot of vectors to this as well. So I'd love to just ask you, AI beneficiary. AI victim?

Where would you think they fall? I'll probably say neutral. So we need to remember those agents. It's like they didn't even move to the crowd. They're just transitioning to the crowd. It's going to take them another decade or five to seven years to adopt massive AI tools. But if they will adopt the AI tools,

Cerevite is investing in AI since 2016, 2015. So they are the market leader by far, This is why, when we actually model them, all of the margins unlock will come from the sales marketing. So we need to remember that vertical sales companies usually have super high margins because the way you require a customer, it's more PGG product net goals. So a customer will be your advocate, he will advocate for your products, and you will get the same customer because everyone knows the in a way, but you will spend, let's say, 25 to 40

percent on R&D, let's say IEVibra systems, for example. But, you know, I remember the same, we used to want to Viva. We always got the same basis on Viva. Yeah, but Peter, the founder, never even speaks about AI. And Peter was always saying, listen, those pharma guys, they have such bigger problems than AI right now. So if AI is going to be a thing, it's probably going to be thinking in the next five to seven, eight years in a way. And I would say before that, they have some other problems to solve. So again, just to sum it up, I think satellites will actually be a beneficiary here.

But I would say it's not going to move the needle in the way in the next three to five years, each. But maybe I'm mistaken. Maybe the adoption is going to be much faster, which farm, I don't know. But if there's going to be adoption, remember that in order to penetrate those logos, it takes years of trust. And FedWamp and classification. So again, it's going to be celibite, not some other player. that's fantastic last question and then i want to give you the chance to just wrap up i i think we've had a very comprehensive thing but obviously you've done tons of work here and i want to give

you a chance to anything best just on ownership structure we've already talked about some of them this was a de-spaq that that carries flags you know but i think there's a real company here de-spaq this we talked about true wind who was the spack sponsor still owns 5% and they get kicking at 30 at 30 dollars per share i just want to ask one last question suncourt japanese I mean, this company's ownership structure is so funny because they started as a U.S. company. They get bought by Suncorp, a Japanese company. They get an investment from an Israeli VC company, and then they go public through a D-SPAC. Like, it's just crazy.

But SunCorp owns, let's just round it, 50% of the company. And you look at this company and say, oh, cool, they've got SunCorp, Japanese company, 50% owner. Japanese companies, maybe it's changing a little bit, but not exactly known for, you know, being urgent with their capital. Let's put it nicely. what do you just kind of when you look at SunCorp here you look at the ownership structure

what do you just kind of think what do you think SunCorp's motivations are both we need to remember and I'm not trying to criticize anyone but SunCorp actually sold to IGP the Israeli P-E slash Vichy

and they sold Cerebite so a big portion of their satellite chairs they are on one X revenues I don't know 10X every that is so obviously they need an activist so like they knew what are they holding

what kind of a gem they're holding here and now I think SunCorp actually has like three four activists that we spoke the majority of them everyone is pushing SunCorp to actually sell everyone like there's so many funny campaigns there's even a funny song about about Sun I forgot who was the activist but there's the funny song that every year

the song goes something like that A year goes by and SunCorp again didn't provide our shareholders any value because they don't care about shareholders, blah, blah, blah, something like that. And I think it's a matter of time when SunCorp will sell Cerebrite. I'm not saying they will send everything. Maybe they will just try to sell portions by purchase. And I can just say that we can feel comfortable that Adam owns Cerebite and also Sancorp. So he will act, I don't know, in other benefit in a way. And Adam, I think we should remember that he was ex-A-KR, he was a partner at K-KR,

he was doing software and fintech companies, a big transaction. So he knows those kind of stuff. And he's very motivated. For those who don't know, Suncorp, the Japanese company, was a popular value investor like a venture in play because they owned a lot of self, right? and they were trading for a discount. True wind offered to buy some corp,

if I remember, they're so involved. But I just wanted to mention it because anyone's going to look at the beneficial ownership, see Japanese holding company 40%. I think it probably works out well, but it is something. Look, this has been great. We're almost up at an hour,

but I just want to stop. I think we've covered most, not all, because I had so many questions that I found this so interesting. But I'd love to just pause here. Is there anything we didn't hit or anything we kind of glanced over that you think we should have discussed harder?

I think Celibite is a very, very, very complex story. It took, it took hours of field research just to actually understand the need to really. Every time, let's see, you do 20% of the research and you are like, okay, what is this? Then you're doing another 20% you hate some kind of a pushback. I think it's a very complex story. But once you do the homeworks, you understand it's such a gem. and I think we need another four hours to actually expand on every product.

Why is Michigan critical? Where's the penetration? We didn't even speak about the private market that 10% of the business, also going 20, 25%. There's a lot, a lot, a lot of still leverage here. No, it's really, actually, I did have one other risk. So you mentioned the private market

and they said, hey, tier one banks and insurance companies especially are looking into it. And you could... In the companies in general, yes. but you know there is the risk here i think it was their investor day or maybe it was their most recent earnings call i can't remember but they said hey you know we're very this is powerful technology you know i i don't know if you're familiar with the batman movies but you think the batman movie number two where they turn everyone's cell phone into like a surveillance device

it's not quite the ability to crack anyone's phone you sell that in the wrong hands and that's that's a potential criminal tool instead of a criminal investigation tool and they mentioned hey, we might have to cut off some customers because they're doing, you know, and I could also imagine a kind of dystopian police state where cellbrides been used to crack open the dissidents' cell phones and arrest dissidents or something. Do you worry or how do you think about that risk? Because it might sound over the top, but that is a real risk for this company. 100%.

100%. I think, first, I'm so happy that you bought this up because 2021, 2020, 2020. they had to drop many customers in their Asia segment because so right now if you think about their channel, the GRR, so most attention rate, people can assume it's actually 90% so they have 10% churn every year and then you can ask me, how is it so mission critical if 10% is churning every year? So then you actually have to break it down. Two to four percent actually is coming from those countries, that celibite is, they have to, I don't know, first chairman, those customers, they have to drop them in a way.

So countries, when it's celibite doesn't feel, so I would say, comfortable operating. Ceybite also has another like EHG ethic committing that they actually tell the CELAID where they can operate and where they can't operate. So I think it was a headwin, but right now it's not a headwin anymore. within the private sector, I think it's not a headwin because CERBite doesn't put so much efforts in this segment.

And Cerebite is not the market leader there. There's another private competitor that is the leader by far within the private segment. And if you ask me the shareholder, I prefer the public sector. It's so much more stable, so much more efficient. And the private sector can actually work

with Cerebite as a project base. So let's say one of their employees, they are afraid that he store some part of the data to launch his own company. So they're using his phone with satellite, but then maybe they won't expand further. So it's a more project-based, not mission-critical. This is why the chain within the enterprise, so the private side is much higher than the public side. And it's less mission-critical for them.

No, that's great. Or I'm going to have to wrap it up here, unfortunately, because I have a meeting. But this has been, again, I said it up front, and all my podcasts are my base. I tend to like all the ideas, but this has just been a fascinating idea diving into it. It's got a lot of event angles. It's got a lot of quality compound angles. Like, I'm honestly surprised it's not more popular among the value investor. You've done great work here.

I really appreciate you reaching out coming on the podcast. And we're going to have to have you on again because the software world is an interesting place and there's plenty of other interesting companies. Cool. Thank you so much for having me. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guess or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.