Anek Capital's Orel Levy's Cellebrite Thesis $CLBT

Podcast intro and sponsor mention You're about to listen to the 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 so bright with Ora Levy, the eight 80s. 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 the name is 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, I think you're really going to enjoy this conversation and a part of the reason you're going to join this conversation is because of the pre work I did from Trata, 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, Trata, and then we'll go into the podcast with the royal levy. This podcast is sponsored by Trata. Look, I already know you're going to like Trata. Why? Because you're interested in this podcast, you're listening to this podcast. And Trata is just like this podcast, though unfortunately largely without the handsome host. Trata is anonymized transcripts of by siders 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 prepped for my celebrate podcast is there was an incredible discussion on the Trata platform. 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 product cast. So look, I think if you join Trotter, 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, to Trotter will take it one step further and it'll be an anonymized, 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, talk about the stocks 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 tritrotta.com or see the link in the show notes today to check it out. All right, hello and 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 Ora Levy from Anna Capital. Ora, how's it going? Good. Speaker 2 Good. Thank you for having me. Speaker 1 Look, thank you for coming on. I'm super excited to talk about this company today. I was telling you before this is rare, but I, I was kind of like it was just hitting all my boxes and I I'm really considering a position in this, which is rare. But Speaking of position, before we get into the company and everything, disclaimers remind everyone that nothing on this podcast is investing advice. Don't have. I don't have a position now I'm 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, ECR legal disclosure. Anyway, Oral, the company that we're talking about today is Sellbrite. The ticker is CLBT. This has been popular in value and event investor circles on and off for the past couple years for a bunch of different reasons that I'm sure we'll discuss, including the Japanese holding company that's almost happy, but I'd love to just start with the high level. What is Sellbrite and why are they so interesting? Cellebrite's history and pivot I think. Speaker 2 Sullivan is one of those business that it's very hard to find them in a, I would say a reasonable evaluation. It's such a quality business and the earnings are so quality. But I think we will get to everything. So I think in a nutshell, what is that actually doing? So historically, they started around 2001 was the foundation of the business process was a telecom provider. So they were trying to solve the the 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 or few contacts. So what was your options? Celibate was your first option. This is why they bought Yosten is the founder each after three years. He's he he was previously in a telecom company and by mistake one of the products actually sheriff in I thought I think it was in York. He bought the product by mistake and then stead about actually realized that there is huge potential within public safety. It was it was very funny the story. So they had two businesses. They had, they had the telecom slash retail business and they had the public safety digital forensics software slash hardware. Around 2017 they spun out the the retail such telecom business for they sold it to one of the PS for I would say it's not publicly the the numbers, but around twenty, $40 million each. And then they just double down on the public safety. And I think going back around 2007, it was very funny that Stan Corporation, the Japanese company actually bought them for the telecom business, not for the digital phonetics. And I'll celebrate is the market leader by far in digital forensics units. So think about it in in more simple terms, you're trying to force. So you get, let's say you get 1 phone from an accident. So I think the most famous use case is we said about is someone tried to assassinate a Trump. So you get a phone and there's plenty of data. I think the the most famous narrative people think syllabi just cracking the phone. So it's not. So you crack the phone, which is something with the most easiest 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 who was next to whom? And then they used the Celebite product to actually analyse the data. And then the second part was actually the garden. The second part which we which we will get to everything is to actually move the data in, I would say custody of chain. But now the company is going 2028% with beautiful margins. The forecastle conversion is above 100%. And unlike most of the software companies because they never raised any money. So it's, it's bootstrap. The SBC is like is very minimal. So the the company's culture is very aligned with shareholders what we like. Phone cracking explained That's that's a great overview. Let me just pause. You mentioned so they do phone, they're phone cracking when it, when I read this company, I hear phone cracking and I want to dive into, I want to talk about the stock, the opportunity and everything, but I just want to dive into the phone cracking a little bit. And they obviously talk about the the Trump thing, where part of the story was, you know, Trump, the shooter is get 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, PA. They don't have the celebrate, they don't have the celebrate product. So they have to take it to the Pittsburgh field office to analyze it. And that takes 4 hours. And obviously that's a pretty nice selling point where you say, hey, if 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 breaking into phones. That's what I think of when I hear this company. You said they'd do some other stuff, but why are they so unique? Like why can this little tiny bootstrap company? I, I, I believe they have one major competitor, but why are these guys breaking bones? And you know, the first thing I thought when I looked at this Palantir, why isn't Palantir offering this or something? So what's the unique question guys? R&D moat and customer stickiness So I think personally to understand that set by right now is spending the biggest amount in terms of R&D force. We need to remember that. So these are Forex units. It's a cat, 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. It's an about 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 TB and you become as well, 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 our the question ourselves, what is the TCO for the customer without the cost of ownership and what is the IOI? So right now we usually try to look at their cases. Usually department will spend per case on $150.00 and the hour that they are getting is so much higher, it's 10, it's 100 + 800 X higher than the 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. Speaker 1 That's great. Valuation versus growth peers So let me ask you, what are you seeing that the market is missing that makes it an alpha opportunity? And if I could just build on that, you know, I OK, as part of the prep for this, I read a an expert call or a buy side call that I sent you on Prada and it's. Speaker 2 Great, by the way. Speaker 1 Say again I. Speaker 2 Think it was great. Speaker 1 It was a really good one. Yeah, I I really enjoyed the. Speaker 2 Product. I felt like, I felt like I I hold all of those stuff. I was like, wow, it was very strange. Speaker 1 I, I think they're the sponsor of this episode. So I, I'm not, I understand people would say bias. I'm glad you said it. They're not paying you. But I read and I was like, oh, Dang it, it was really good. But the thing that struck at me is it was 2 bulls 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, low 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 Palantir and it's shortened. They said it. I think that's what you're going to say. You're going to say when you say, 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 seeing it, the bulls, everybody's just kind of tearing their head out. Why is it trading at this multiple? Speaker 2 So right now Full disclosure, it seems like I'm the only, I'm the only bullet here before Q2, but we will go into everything. SPAC history and misunderstood model I have that question as well, yes. Speaker 2 Let's first look historically what the market missed instead of by it. So they came via spark. No one likes Spark. Of course, the stock was they saw, they saw sort of from 10 bucks when they came via Spark to around 4:00. So back then, what did the markets miss? The market means that 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 the spot like in front of the the revenues. And then when you switch the model, everything is changing so far as they missed the revenues by around 40% in 2022. What's the margins? And back then like the, the, 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, 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 them and categorizing them in the same bucket as NSO. And of course we all know the story that Apple was trying to sue them. It was that, that and I think beyond that, this was a very misunderstood story. You're seeing Donna, great operator. It was very hard for them to share the story. He's the one to recording. They're becoming a platform. And then once they started to accelerate the revenues again from the, I would say 20 to the 2528% ARL 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 spark. So everyone was throwing some narrative Axon is going to buy them. It's probably going to be 2025 because Adam that Adam was actually he was he's the owner of two win the spark. Adam is going to get compensation if the stock is will reach 30 bucks. I think it's probably around 2026 August. So everyone was assuming that everyone or everyone is assuming that they will reach there and then then everything kind of change and this is where the market is missing. So what had changed in the form where I they had Q1, it was kind of soft. So the net new ERL was kind of lagging what the market was expecting. Then celibate was also guiding for a soft Q2 and celibate also embedded that H2 will include federal and federal that is around 70% of the business will go meetings or even 20% ish and now 23%. So you have, I would say the lack of clarity of the federal area. You have management turnover. So the founder just left and also the CFO just left. And now there's the new narrative that set up. I didn't manage to crack the new version of iPhone and we all know if there's bad anything about assuming some incremental stuff. So right now people are assuming that because they didn't manage to crack the 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 proved the stock for 25 to 1414 ish right now. Speaker 1 So that's great. So let me ask the first question in, in your opinion they they have craft the new iPhone, they can craft the new iPhone. So that's a risk that we're worried about that's kind of been put to bed. Speaker 2 They didn't crack it yet, but they're going to crack it. iPhone cracking and misconceptions[00:15:03] Apple, Google cooperation risk And it's, it's in the same cat and mouse game that we spoke about. And if servers are 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 confidence of Cerabyte. People assume if they get, if they can't crack the iPhone, the new iOS or the Android. So why using Cerabyte? And again, as we as we said earlier, it's not the case at all. So this is just first point that the market is missing. Speaker 1 So let let me just quickly divert. I I've got a lot of questions and you 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, I think Trump, this was Trump one point O he leaned on Apple that they needed to help the FBI crack a phone or open a phone or something. And they did. I guess one risk that jumps out to me here that I, I think is worth addressing. What if Apple and Google, cause 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, 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. Speaker 2 So take it on for me to give you like a good answer, we need to source first understand what is TB products. So I would say their platform which they are actually converting to a new platform right now that we will speak about later in the code. I'll go in my assume, but think about inside the core product. It's a combination of all of the products that are serving the fewest digital Forex units. The first thing you have the cracking error. I'm trying to very simplifies. Suppose they have the the iPhone or the Android, 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 did the data or unstructured data. So even if you have the phone, it's going to be very helpful to actually analyze this 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 powered, 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 celibate no matter what. And I think a great example of that is so in borders control, all of the forms are always open. So it's mandatory to for the forms to be open and they still use cetabyte and they're still lacking cetabyte. So if if they had, let's say a more budget Barbies would go into Cetabyte. Speaker 1 That's great. Growth potential and market size 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, a, a big bull case is 20 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 1000 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, I've spent a lot of time, I'm from Louisiana. They employed, employed 900. So you literally need 500, if I'm doing the math on that right, 50, actually, 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's 5000 out there, but they've already got the FBI, they've already got the New York department. Like is there this much growth out there for them? Speaker 2 I think it's another part of the the birth exist that celibate right now already captured all of the logos. And then once they managed to force three years ago and to give some background, they try to shift out of their legacy customers to the more advanced product because insight, which combine the two or three legacy products into one. And every time you switch to insight, there's an uplift of it depends on the customer of content and size, but it's very between 25 to 40%. So now the bears are saying that OK, so your goal actually accelerated because of the one time inside conversion already capture all of the logos. Now what when we actually spoke with those customers right now celebrate might might all all of the logos. But in terms of penetration within departments, it's still very, very, very, very low and we still see the turn of the form 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 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 increasing every time and server is not enough. So again, the question is why server is only going only at 20%. I think historically, obviously the answer was actually going to market issues. So sterilize didn't really hard like I would say quality go to market. So that's why they change their go to market and they combine a lot of the departments inside celibate they bought and you see more NCL one came from actually Juniper and now they're actually starting to execute all over again. But for a little guardian, which guardian? It's the the second product. Actually used to share the data right now they're they're replacing such a legacy tool. So if you're an agent right now you're showing evidence by USB or or SanDisk or sometimes we even spoke with some agents from Canada, they're flying all over to the US, gather the evidence and then they're going back to Canada. It's a crazy, it's crazy. How inefficient is it? So Guardian is just the penetration according to our number, it's on three to 5% with the agents and we spoke with the agents. If it's so much critical for you guys and if it's the only solution, what, what is the barrier for, I don't know, a massive adoption. So I think 1 barrier just for Guardian, which is going by the way 100% and is, is approaching 6% of the error 1 barrier is that historically you could all, you could only share data with standby products. But if you're using standby and Magnet and you're trying to share data for Magnet, you couldn't do it with a with Guardian. But now it's actually, it's sort of according to our fellow research and historically somebody didn't put too much effort into it. So I think in the future it's, I think the main is here if I'm being even more precise is actually execution and new management is the new CEO and the new CFO and new CEO, new CEO, new CEO, the entire management has switched the last I would say 18 months. Management turnover and CEO plans Well, let's dive into that because I think that is a risk. And again, I, I, I reference the, 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 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 the the founder left last November, ish and the executive chairman took over the role as interim CEO. They just hired a new CFOII 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 earnings. 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, you talk Q1, you bring guide down and you talk about softness to DOGE. That's a rest before we're getting a guidance cut. Q2 we're cutting this year and maybe they didn't investigate 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 them in the face if they buy the stock. Speaker 2 90 percent, 90%. So first let's break it down. I think you're still and if he like we, I spoke with you still many times. He knows me personally. Speaker 1 I This is the basic bounder that we're talking about right here. Speaker 2 Yeah, so, 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, four, $150 million of payroll 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 that they are guiding, I think it's actually makes tons of sense. And we also need to remember that besides your scene, there's a great operators that are still in syllabi. For example, Olin the the CPO, the chief product officer that actually was a chief chief product officer came from a stop SAP and he knows the Internet CEO. I think it's going to be permanent. So I'm going to I'm just going to kill him permanent CEO. He actually met Tom before. So I think right now if you ask me, but syllabus was lacking 2-3 years ago. I would say probably two things. One scaling software business from five $500 million to $2 billion. So scaling the business and do and do probably MNA capabilities and Tom as as probably would I speak about him and starkly he was ACEO for more than a decade in software companies. So he was leading Thomson Reuters, he was leading a company called Corny. It actually sold to Terminus. He was the managing director at Vista at the PE. He before that he was working at Stop and HP as well. So he understand a lot how to actually execute and scare us into a 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 the fullest speculation. We actually think the new CFO, it actually came from New Orleans and he sold the business after a year. It's perfect combination because again, speculation here, the the new CEO didn't sell Model N to Vista, but he was the CFO of Model N and Vista acquired Model N2 years after he left. So probably they they knew each other before. And I think who's actually pulling the strings here are Adam from towing. So Adam from towing, he actually owns probably ten, $20 million in Celabyte in his personal money, so PA and also he owns 5% of Celabyte with the Spark so to win and he also owns 20% of the Japanese corporation of Suncorp. And I think he's actually going to push Celabyte to 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 competes with Tom Bravo. Oh, it's going to be, I would say Motorola. Oh, IBM's less action Accent. But when you spoke with Accent, many times it feels like Accent are trying to go more into the drones hardware space and that application because evidence.com is actually crashing it. And again, not competing with Sedabyte, it's rather missing the scene of the market. And Motorola is actually, it's the perfect fit for Motorola because Motorola is trying to increase their current revenues. They're trying to accelerate their top line. They're trying to buy more applications, the higher margins and higher how higher how I see. And usually they would require a company between a billion dollar to I would say around 4 or $5 billion. So if you put, I don't know, 30 bucks or Centabyte, it's probably fit the higher hand, higher range of Motorola. But again, 100% speculation 100%. Sale speculation and strategic fit No, look, you hit all, all the things, you know, the, the thing I thought was interesting and the reason I said I think upfront, I was like, I'm really interested in this stock a because you pitched in everything but BI read the the Trotter call again and there was a line. And as soon as I read, I was like, Oh no, this is catnip for me. Like, 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 you he retires and you hire ACFO 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, Truwind has about a year left until the last 1.5 million earned 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, I mean, I hear you, Axon. Axon invested 5% into the this back and Axon trades at, I'm looking at it. They trade at, let's call it 100 times EBITDA 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 the and it's trading for, I don't know, like 25 times even growing very quickly. You roll it all together and you're like, oh, like this. I've never seen something better designed to be sold. So yeah, let me. Speaker 2 Just think it's also, I think it's a classic, classic playbook because centabytes can go 20%. There's so much tailwinds is 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 terabytes. It makes sense because terabytes 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, I think the boosts are going to argue right now that they're, they're doing layoffs before Q2 in order to show that, OK. So we're going to take down, we're going to take down there by around 10 to $25 million, let's say 3 to 4%. But the, the 20% EBITDA margin was the flow as we said in the capital markets today, two years ago and we will show you much higher margins. So we're still a lot of 4045 even with one times dollar revenue. And then probably against speculation around Q3Q4, they will give you a guidance for 26 of acceleration in the avenues. Because if those federal budget will will delay and won't come into 2025 sell by budget, it's going to just push it sounds like they those guys can just cut a TB. It's a matter of when, not a matter of if. That's why we are such a big fan of the companies. It's so much critical. So you, you always know it's a matter of when and like let's let's say another company Zoom info. So in order to when you buy Zoom info, when it's because zoom info customer, it's always like, yeah, I can manage without them. It's not so critical for me in a way. Mission-critical usage example It's not project based. I'm not relying on them or on a daily basis, no. Speaker 1 As we said at the front, like you, 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, you're out of luck. Let me ask you a question on that front. I, I, I have so many questions left to ask. But the, these guys sell to the FBI, right? And we, I've mentioned the Trump example multiple time. They don't have it in the Butler office. They do have it in the Pennsylvania office. Why, why when they sell to the FBI, does the FBI have it in some have the most updated version in some offices and not in the other offices? Like is that they haven't paid the upgrade cost for the offices? Why haven't they paid the upgrade cost for the net? But it just, you know, when you say you sold to the FBI and it's a subscription as a service product, I kind of think cool, everyone's got Access and they've got updated versions at all times. Like I buy Excel for my prop my for my company. Everybody's got Excel updated all the time. Why? Why did the FBI not have it in all their offices updated? Federal budget and deployments I think it's a matter of budget and budget, 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 share of fields of their historical product is going to be end. So all of the customers has to migrate insights. So it's going to be a 50% migration. So some customers can push you back that the price uplift is a bit aggressive. But we have to remember that still by the second-half is almost so much stronger both profitability and ARR. It's usually, again I would say after about 60% of the ARL, because the way the the physical budget of federal agents is usually Q2Q3 is when the the year is the end for them. So usually against speculation, maybe there's going to be a budget flush in AQ 3 because everyone was waiting in Q1Q2 as you mentioned, waiting for the dodge, waiting for BBB. Speaker 1 You 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 it 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, they've mentioned a few times, hey, in 2027 the US is hosting the World Cup in 2028, 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, I wonder if 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 risk. And I don't understand why they're human trafficking risk or why they should really up the budget that much for again, the, the Olympics are in Lai think the World Cup, the finals are going to be in the New York area. Like these are people who already have so bright, so why should these be like big spurs to increase the budget? Event-driven budget growth potential Of course, as we mentioned, usually if they have one of the 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 element of the price and it's consumption based, But the second products which is Gaudian. So if you have, as you mentioned, if you want to share the evidence, you have to use the Syllabyte software in order to maintain the casting of chain. And then the third product, I think there was the shooting, I forgot where it was in Oakland, there was a massive shooting and they used the Syllabyte Pathfinder really speak about Pathfinder. It's the third product to actually analyse what happened there. So what Syllabytes trying to actually do is they're trying to become for A1 trick pony solution to a full platform of a case to case. So they they they call it from a case to closure. So first you get 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 is not allowed didn't watch those evidence. So you can those evidence are actually clippable in code 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 IU investigators units, so very different and those guys actually need to actually build the case to present to 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 their growth. So Petfinder, the CAGR the last three years is 50%, which is very, it's incredible. And the Guardian is actually 100%. And by the way, the cloud product is approaching 20% of the business and it's going hundred 150% every year. So I think it just it's a matter of dying. Sorry to be in the same formula, but those agents are buying. I think what said about was the more lacking is the is the go to market. So they were forced focusing on insights. They didn't put so much focus on insights on guardian soil. Then then they needed to realize how to sell to a fairly new customers that didn't even know them. So I would say the the the few guys vigil for the units, the tech in general is very penetrated. It's a logople duopoly in a way. Everyone knows celebrite, but in the other department nobody knows them. And then you have both five other new players we can actually speak about. It's celebrite. Sometimes it's actually Axon with evidence.com, sometimes it's Motorola, sometimes it's actually Palantir with the much higher range of customer. And then it can also be Bognite and nice to other Israeli companies. But we think that actually the market is always mistaken because he thinks Axon is actually competing with them. But as we know Axon, their BNA 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 instead about an Axon aren't really competing some of the customers we spoke to actually using both of them, but it takes sometimes to actually teach the customers this way. Celabyte by the way, around two 250 employees of Celabyte are actually teaching how to use the Celabyte Audax. 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 adopt. And you can also see it with dialer that's sending ERP to to sometimes also public safety. Guardian, Pathfinder, cloud ramping That's great. Let me, I, I, I've got so many questions left. Let me just pause here. We kind of addressed it, but I, I always like to make it clear, you know, the market is a really competitive place. And again, I, 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? Speaker 2 I think it's, that's such a great question because I'm always when, when you see one of like one of your top picks, any investment recommendation, everything for disclosure. When you see one of your topics, they're actually going down every day by 40%. You're asking yourself, what am I missing? What am I missing? Why is the market so very sure. So first syllabi didn't have the Fed ramp and everyone was assuming that fed ramp is going to maybe delay for 25. Then a week ago they got the sponsor for Fed ramp stock was up 4% the day and then day after it went down 3%. So I'm like wow, what is the market missing? And then I'm like, OK, service may be missing the twenty, $25 million of EBITDA. And then I just it's a combination of all, 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 gold algorithm doesn't actually makes sense and it's they, they will actually decelerate going from 2026 and they will have to to hold the 2028 guidance. And it's like it's a more show me story for the street. It's not like people are are 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 is been the Co ish already the last two years. So he's very familiar with the story. Second thing, the Co and the CFO, they will be probably aligned with shareholders. And I would say the third thing in terms of the Q2 and around a month ago they they bought William say how to pronounce it Kwaliyan Kwilliam, which probably going to add around fifteen $25 million of ARL on a full year basis. So let's say you just take the half of the four months of the year and it's going to be another 9:50 or $12 million of ARL. And the several that are just lacking one Big 12 big customers within the federal and once they go the the federal, I think they can actually do it. So I think the market is is more skeptic. On the gold algorithm, the Q2 and your management and once you feel comfortable with everything, I think it's all it's reverse to be good to actually break down the gold algorithm, how we see it high level. So first we need to remember that 98 or 9096% of the ALR growth, let's say the 20% ish is coming from the installed base. Then the question is how is actually divided within the installed base? So 3 to 4%. Speaker 1 Of. Speaker 2 Those 20%, so when I'd say, let's call it 10 to 15% is actually coming from the inside migration. I would say the second part is coming. So the more five, 7%, the majority of the goal is actually coming from new products like Guardian and Pathfinder. The other part is the is the most expansion with the gain insights is another 3 to 4%. They usually increase pricing every year and it's it's very between 2 to 4%. Usually they they can follow magnet because the magnets they're raising prices between 5 to 10% every year seed expansion. But we need to remember ballpark the sector itself is going 15 to 30%. So celibate has a lot of food to go and the set aside and the market in general is so focused that Cetabyte doesn't really have room to go because they penetrate 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 Cetabyte products. And yeah, so yeah, I, I tried to get the full picture of those. I think that was. Speaker 1 Great. Let me ask you a slightly different question. Let's put aside, as we said, the bulls bears, Everyone is terrified of the Q2 print and possibly for good reason. Let's put aside that because yes, the Marks 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 laid out a lot of bull points here, right? That position, the growth in Michigan, what keeps you up the most at night with the long term of the position? Is it acts on as a competitor? Is it Palantir? You said they're selling very high end software. Very high end can go to very low end pretty quickly. Like what? What kind of keeps you up the most at night? I I mentioned Apple working with law enforcement to craft phones more. What's your biggest worry here? Long-term risks: execution concerns To be honest, it's mainly execution with the new management. This is why this is what keeps me up at night. I think Palantir is cashing it again in the upper, upper, upper market and we need to remember that. So every time Palantir is taking a new customer, it's such a big construct. It could vary between 25 to $100 billion, even bigger. Sometimes Sebi doesn't even operate in, in those same customers. So if, if it's not going to get acquired, I don't know in two years from now, then we're asking ourselves internally what is the higher that we can actually achieve here. So let me ask you that. Let me if the company is going 2025% every year, let's assume 20% error with higher margins every year and assume a 20 free cash flow. What is the IRR that you you would expect here? I will expect. Speaker 1 You'd expect a pretty guard, 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, celebrate right now has a $3 billion EV and everything Andrew and Oral are saying is really interesting. But they're going to do this year about 120 million and EBITDA as their guide before you know, it seems like they might take a dump, there's 30 million. Speaker 2 Take up the EBITDA, take up, I think if the EBITDA would probably come up, I think again speculation. Speaker 1 I'm just I'm using their guide from the Q1 about 120 and Adjusted EBITDA. It's Adjusted EBITDA 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 tax, you know, after stock comp, this is a $3 billion EV. Yes, the 20% growth is great and it shouldn't 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. Speaker 2 So usually when we analyze the software company, you always look on the free cash flow because most of the software companies as we know, they will try to manipulate the numbers. So for example, one of those ATM player, IE they force, they will capitalize the sales commissions of the customer for same year and also capitalize the expenses. And then you're like, how much is this business actually generating Cash, Cash? And it's like, it's crazy. Speaker 1 You're you are preaching to the choir here and 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 EBITDAR you'll ever find in test. First thing I did, I went and looked 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 because I me. Speaker 2 Too 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, sell expense, I'm paying this is a shareholder. And then you see a couple like centabyte, which I love their DNA because it's a bootstrap. They're very efficient. Every dollar they spent, they monitor this dollar like so much this every incremental dollar. So we think more when we think about centabyte on it's like capital basis. So right now for 2025 it's 5% for cash for yield, but but the six it's around I would say 8% per cathode yield for a company that's going double digits markedly there that is operating in a counter cyclical environment. So efficient. Like to me it sounds like a no brainer in a way once you pass the Q2. So I think everyone, I, I, I stick with many biases on the name everybody side is especially with the same thing. 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, OK. The new CFO historically from you, Eric, the first quarter he came, he actually maintained the guidance. And I think right now I think also the, the way he was saying this, the market is punishing us for queries 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 the H2 numbers by 25,000,000 of the fair out and also expects 28 guidance because the CFO he wants a clear place for Britain raise. And again, let me just speculate here, I think Q2 can actually be a clear event because all of the uncertainties is kind of bone 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 though that's the position. I love how they were. So the, the way there are source 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 M&A, they're going to do actually big M&A. And the company said we're going to do attacking 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, why, why am I such a big fan of the company? The company is going 50 to 80% every year. It's very emission critical. It's the same Logos was already partnering with this company for the last 7-8 years. The founder is going to stay with Cerebrite and it was around 120. So they pay like 5 XL for coming going 50%. It's like you can see the way they they think with your capital such as sort of capital. So like they're just throwing money like they don't think about shareholders. They are very lined with shoulders the way they think, the way they operate. So that's why I 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 that he, he was treating capital as a shareholder. So they they're sort of capital. So by doing buybacks when the stock is down using the the the company currency to to buy to buy new companies when the stock is very high. So let's say 2527 ish. Speaker 1 It's great. I, I love everything you said. Just one, one last risk question and then I have a few Ren questions. I, I want to ask AI. The company is, 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 model tools. They probably have very unique data in terms of analyzing this. You could tell me that or you could 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 you're trying to interpret that data. Well, once the phone's cracked, AI analyzes can analyze every uncracked phones data equally. All of a sudden, you know, you can go ChatGPT discovery. I, I, I'm, 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, AIAI victim, where would you think they fall? AI: neutral impact for now I'll probably say neutral like so we need to remember those agents. It's like they didn't even move to the crowd that's just transitioned into the crowd. It's going to take them another decade or five to seven years to adopt massive AI tourism. But if they will adopt the AI tours set about is investing in AI since 20/16/2015. So they are the the marketing there by far. This why we actually modeled them. All of the margins unlocked will will come from the certain marketing. So we need to remember that vertical SAS companies usually have super high margins because the way you acquire a customer, it's more PLG golf. So a customer will be your advocate, He will advocate for your products and you will get the same customer because everyone knows in a way. But you will spend let's say 25 to 40% on R&D, let's say IE Viva systems, for example. But you know, I, I remember the same. We used to on Viva. We've always got the same birthdays 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 thin, probably going to be thin in the next 5 to 7-8 years in a way. And, and I would say before that they have some other other other problems to solve. So again, let's just sum it up. I think satellites will actually be a beneficiary here. But I would say it's only going to move the needle in a way in the next, you know, three to five years each. But maybe a mistake here. Maybe the adoption is going to be much faster, Which farm, I don't know. But either there's going to be adoption. Remember that in order to penetrate those logos it takes years of trust and fed the classification. So again, it's going to be celebrate, not some other player. Speaker 1 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 hit anything you've missed just on ownership structure. We've already talked about some of them. This was AD SPAC that that carries our flags, you know, but they, I think there's a real company here D SPAC this we talked about Truewind who was the SPAC sponsor still owns 5% and they get kicked in at 30 at $30 per share. I just want to ask one last question. Suncorp Japanese Corp. I mean, this company's ownership structure is so funny because they started as AUS company. They get bought by Suncorp, a Japanese company. They get an investment from an Israeli VC company, and then they go public through AD stack. 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? Suncorp ownership and sale pressure We need to earn then. I'm not trying to criticize anyone but Suncorp actually sold to IGP the Israeli fee classification and they sold set by so big portion of their set by shares. They are on 11X revenues. I don't know, 10X everyday ish. So obviously they need an activist. So like they knew what are they holding? Like what kind of a gem they're holding here. And now I think Suncorp actually has like 3-4 activists and we spoke the majority of them. Everyone is pushing Suncorp to actually sell, sell everyone. Like there's so many funny campaigns there. There's even a funny song about about Sun. I, I forgot who was the activist, but there's the funnest 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, celebrate. I'm not saying they will sell everything. Maybe they will just try to sell portions by per shares. And I can just say that we are kind of, I can, we can feel comfortable that Adam owns Cerebite and also Suncorp. So will he will act, I don't know in our benefits in a way. And I don't, I think we should remember that he was ex AKR, he was a partner AKR, he was doing software and fintech companies a big transactions. So he knows those kind of stuff and he's very motivated. Speaker 1 The for those who don't know, Suncorp, the Japanese company was a popular value investor, like a venture and play because they owned a lot of self right and they were trading for a discount. Truewind offered to buy Suncorp. If I remember there's solo involved. But I, I, I just wanted to mention it because anyone's going to look at the beneficial ownership. See Japanese holding company 40%. I, I, I think it probably works out well, but it is something. Look, this has been great. We're, we're almost up in an hour, but I just want to stop, stop. I think we've covered most, not all because I, I had so many questions. 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? Speaker 2 I think Celabite is very, very, very complex story. It took, it took us hours of field research just to actually understand the needy gritty because every time, let's say you do 20% of the research and you are like, OK, what is this? Then you're doing 20%. You hate some kind of a pushback. I, I think it's a very complex story, but once you, you do the homeworks, you understand said about it's such a gem. And I think we need another 4 hours to actually expand on every product. Why is Michigan critical? Where's the penetration? We didn't even speak about the, the private market. There are 10% of the business also going 2025%. There's a lot, a lot, a lot of a lot of still elaborate here. Speaker 1 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 are looking into it and you could. Speaker 2 But it's in general, yes. Speaker 1 But, you know, there is the risk here. I, 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, I don't know if you're familiar with the Batman movies, but you think the Batman movie #2 where they turn everyone's cell phone into like a surveillance device. It's not quite the, 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 Selbright's been used to crack open the dissidents cell phones and arrest dissidents or something. Do you worry or how, how do you think about that risk? Because it might sound over the top, but that is a real risk for this company. I. Speaker 2 I think first, I've been so happy that you brought this up because 2020 1/22/2022, they had to drop many customers in their Asia segment because so right now if you think about the churn, the GLR, so was rotation rate, people can assume it's actually 9090%. Ethics and private sector risks So they have 10% churn every year. And then then you can ask me how is so much critical if 10% churning every year. So then you actually have to break it down 2 to 4% actually is coming from those countries. It's centabyte is, is they have to, I don't know, first Chairm those customers, they have to drop them anyway. So countries when it's Centabyte doesn't feel, so I would say comfortable operating. Centabyte also has like another like Eng ethic committing that they actually did a Centabyte where they can operate and where they can't operate. So I think it was a headwind. But right now it's not a headwind anymore within the private sector. I think it's not, it's not a headwind because Cerbite doesn't put so much effort in this segment and Cerbite is not the market leader there. There's another private competitor 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 Cerbite as a project base. So let's say one of the one of their employees, they, they felt he stole some all 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 despite the churn within the enterprise. So the private the private side is much higher than the public side and it's less mission critical for them. Speaker 1 Yeah, that's great. Or I'm going to have to wrap it up here, unfortunately, because I have media, but this has been, again, I said it up front and all my podcasts are my baby. I, 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, I'm honestly surprised it's not more popular among the value investor commitments. Oral, you've done great work here. I really appreciate you reaching out coming on the podcast. Wrap-up and future conversations And we're going to have to have you on again, because the the software world's an interesting place, and there's plenty of other interesting 9. Speaker 2 Percent cool. Thank you so much for having me. Speaker 1 A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.