Cellebrite DI Ltd

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 3. Business combination

Acquisition of Digital Clues Carved Out Assets:

On November 11, 2021, the Company completed the acquisition of Digital Clues LTD. (“DC”) carved out assets (“DC Assets”), for a total consideration of $20,000 . The DC Assets provide the ability to view, collect, and analyze information from on-line open sources, and produce actionable intelligence. The asset acquisition meets the definition of a business.

The purchase price allocation for the acquisition has been determined as follows:

Goodwill is primarily attributable to expected synergies arising from technology integration and expanded product availability to the Company’s existing and new customers. Goodwill is deductible for income tax purpose.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:

During the years ended December 31, 2023 , 2022 and 2021, the Company recorded amortization expenses of $496, $496 and $67, respectively.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 4. Intangible assets, net

Finite-lived intangible assets:

a. Amortization expense amounted to $3,347, $2,826 and $1,971 for the years ended December 31, 2023, 2022 and 2021, respectively.

b. The expected future amortization expenses by year related to the intangible assets as of December 31, 2023 are as follows:

Note 5. Marketable securities

Marketable securities consisted of the following:

As of December 31, 2023 and 2022, no continuous unrealized losses for 12 months or greater were identified.

The following table summarizes the Company’s marketable securities by contractual maturities:

Note 6. Prepaid expenses and other current assets

Note 7. Inventories

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 8. Property and equipment, net

Depreciation expenses were $6,664, $6,368 and $5,036 in the year ended December 31, 2023, 2022 and 2021, respectively.

Note 9. Other accounts payable and accrued expenses

Note 10. Derivative Instruments

The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates.

ASC 815, "Derivatives and Hedging" ("ASC 815"), requires the Company to recognize all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, an entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

Gains and losses on derivatives instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that are attributable to a particular risk), are recorded in accumulated other comprehensive income (loss) and reclassified into statement of income in the same accounting period in which the designated forecasted transaction or hedged item affects earnings.

The Company entered into option and forward contracts to hedge a portion of anticipated New Israeli Shekel ("NIS") payroll and benefit payments. These derivative instruments are designated as cash flow hedges, as defined by ASC 815 and accordingly are measured at fair value. These transactions are effective and, as a result, gain or loss on the derivative instruments are reported as a component of accumulated other comprehensive income and reclassified as Cost of revenues and Operating expenses, at the time that the hedged income/expense is recorded.

The Company currently hedges its exposure to the variability in future cash flows for a maximum period ofone year. As of December 31, 2023, the Company expects to reclassify all of its unrealized gains and losses from accumulated other comprehensive income to earnings during the next nine months. The fair value of the Company's outstanding derivative instruments at December 31, 2023 and 2022 is summarized below:

The effect of derivative instruments in cash flow hedging relationship on income and other comprehensive income for the year ended December 31, 2023, 2022 and 2021, is summarized below:

Derivatives in foreign exchange cash flow hedging relationships for the year ended December 31, 2023, 2022 and 2021 , is summarized below:

Note 11. Lease

The Company entered into operating leases primarily for offices. The leases have remaining lease terms of up to 10.5 years

The components of operating lease costs were as follows:

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Supplemental balance sheet information related to operating leases is as follows:

Minimum lease payments for the Company’s ROU assets over the remaining lease periods as of December 31, 2023, are as follows:

Note 12. Commitments and contingencies

From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated the Company would accrue a liability for the estimated loss. As of December 31, 2023 and 2022, the Company is not involved in any claims or legal proceedings which require accrual of liability for the estimated loss.

Note 13. Shareholders’ equity (deficiency)

a. Stock Split

On August 30, 2021, the Company’s board of directors approved a 1:1.0422 reverse stock split. As a result, all ordinary shares, Preferred Shares, options for ordinary shares, restricted share units,exercise price and net income (loss) per share amounts were adjusted retroactively for all periods presented in these condensed consolidated financial statements as if the stock split and change in par value had been in effect as of the date of these condensed consolidated interim financial statements.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

b. Ordinary Shares

As of December 31, 2023 and 2022, the Company was authorized to issue 3,454,112,863 shares of par value NIS 0.00001 per share ordinary share. The voting, dividend and liquidation rights of the holders of the Company’s common share is subject to and qualified by the rights, powers and preferences of the holders of the preferred shares as set forth below.

Common share confers upon its holders the following rights:

i. The right to participate and vote in the Company’s general meetings. Each share will entitle its holder, when attending and participating in the voting toone vote;

ii. Dividends or Distribution shall be paid or be made to the holders of Ordinary Shares, shall be in an amount equal the product of the dividend or distribution payable or made on each ordinary share determined as if all preferred shares had been converted into ordinary shares and the number of ordinary shares issuable upon conversion of such preferred share, in each case calculated on the record date for determination of holders entitled to receive such dividend or distribution; and

iii. The right to a share in the distribution of the Company’s excess assets upon liquidation pro rata to the par value of the share held by them.

c. Redeemable Convertible Preferred shares rights

On June 17, 2019, the Company issued 39,779,261 Convertible Preferred shares for $2.765 per share (the “Original Issue Price”) for the total consideration of $101,205 (net of issuance costs).

On June 17, 2019, IGP Saferworld Limited Partnership (hereinafter: “IGP”), an investment vehicle of IGP Capital, a venture capital firm based in Israel, invested $110 million in the Company, in exchange for the Company’s redeemable convertible preferred shares, representing 24.4% of the Company’s outstanding ordinary and preferred shares (see also Note 1 b and Note 13b). Following the IGP investment, the Company paid to its employees compensation in the amount of $4,034 includes in other expenses in the consolidated statements of operations and comprehensive income (loss).

On August 30, 2021, immediately before the consummation of the Merger with TWC, the Company’s Preferred Shares were converted into Ordinary Shares.

d. Option Plan, RSU’s and PSU’s:

On August 5, 2021, the Company adopted the 2021 Share Inventive Plan (the “2021 Share Incentive Plan). The 2021 Share Incentive Plan provides for the grant of share options (including incentive share options and non-qualified share options), ordinary shares, RSUs, PSUs, and other share-based awards.

The maximum aggregate number of shares that may be issued pursuant to awards under this 2021 Plan is 37,653,880. Out of which 12,435,797 were granted as of December 31, 2023.

As of December 31, 2023 the aggregate amount of options, RSUs and PSUs outstanding is 23,888,325.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

A summary of the Company’s option activity and related information is as follows:

The weighted average fair values at grant date of options granted for the year ended December 31, 2023, 2022 and 2021were $3.59, $2.86 and $5.04 per share, respectively.

The total intrinsic value of options exercised during the years 2023, 2022 and 2021, was $33,237, $12,116, and $8,547, respectively.

The aggregate intrinsic value of the outstanding options at December 31, 2023, 2022 and 2021, represents the amount of 15,728,176,18,121,448 and 25,440,041, respectively, outstanding options that are in-the-money as of such dates. The remaining 2,336,212 and 47,856 outstanding options are out-of-the-money as of December 31, 2022 and 2021, respectively, and their intrinsic value was considered aszero.

A summary of the Company’s RSUs and PSUs activity is as follows:

The weighted average fair value at grant date of RSUs and PSUs granted for the year ended December 31, 2023, 2022 and 2021 was $5.75, $6.02 and $8.27 respectively.

The total aggregate fair value of shares vested during the years 2023, 2022 and 2021 was $13,805, $3,025 and $927 respectively.

As of December 31, 2023, the Company had approximately $52,917 of unrecognized compensation expense related to non-vested shares options, non-vested RSU’s and non-vested PSU’s expected to be recognized over a weighted average period of 2.95 years.

e.2021 Employee Share Purchase Plan:

On August 5, 2021, the Company adopted the 2021 Employee Share Purchase Plan (“ESPP”).

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

The aggregate number of Shares that may be issued pursuant to rights granted under the ESPP shall be 1,871,687 Shares. In addition, on the first day of each calendar year beginning on January 1, 2023 and ending on and including January 1, 2033, the number of Shares available for issuance under the Plan shall be increased by that number of Shares equal to the lesser of (a)1.0% of the Shares outstanding on the last day of the immediately preceding calendar year, as determined on a fully diluted basis, and (b) such smaller number of Shares as may be determined by the Board. If any right granted under the ESPP shall for any reason terminate without having been exercised, the Shares not purchased under such right shall again become available for issuance under the ESPP.

As of December 31, 2023 and 2022,587,579 and 290,053 ordinary shares had been issued under the ESPP. The ESPP is compensatory and, as such, results in recognition of compensation cost.

f. Share based compensation expenses related to the consolidated statements of operations recognized were comprised as follows:

Note 14. Net (loss) income per share

The following table sets forth the computation of basic losses and earnings per share:

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 15. Fair value measurements

Warrant liability

Upon the closing of the transaction,20,000,000 Public Warrants and 9,666,667 private warrants, that were both issued by TWC prior to the transaction, were outstanding to purchase the Company’s Ordinary Shares. Each warrant entitles the holder to purchaseone Company Ordinary Share at a price of $11.50 per share, subject to adjustments. The warrants are exercisable at any time commencing 30 days after the completion of the transaction and expire five years after the Closing Date or earlier upon redemption or liquidation. The Company may redeem the outstanding Public Warrants in whole and not in part at a price of $0.01 per warrant at any time after they become exercisable, provided that the last sale price of the Company Ordinary Shares equals or exceeds $18 per share, subject to adjustments, for any 20 trading-days within a 30 trading-day period ending three business days prior to the date on which the Company sends the notice of redemption to the warrant holders.

The private warrants have similar terms as the Public Warrants, except that the private warrants may be exercised for cash or on a cashless basis at the holder’s option and the private warrants will not be redeemed by the Company as long as they are held by the initial purchasers or their permitted transferees, but once they are transferred, they have the same rights as the Public Warrants.

The Company has classified the warrants assumed during the Merger (both public and private) as a liability pursuant to ASC 815-40 since the warrants do not meet the equity classification conditions. Accordingly, the Company measured the warrants at their fair value. The warrants liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of comprehensive loss.

During the year ended December 31, 2022,500 public warrants were exercised in a total amount of $5.

The estimated fair value of the private placement warrant liabilities is determined using Level 3 inputs. Inherent in a Black-Scholes valuation model are assumptions related to expected share-price volatility, expiration, risk-free interest rate and dividend yield. The Company estimates the volatility of its common share based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expiration of the warrants. The dividend yield is based on the historical rate, which the Company anticipates will remain at 0%.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:

Restricted sponsor shares liability and Price adjustment shares liability

7,500,000 Ordinary Shares issued to TWC Tech Holdings II, LLC, out of a total of 13,500,000 shares, are Restricted Sponsor Shares and will vest in 3 tranches of 3,000,000,3,000,000 and 1,500,000, upon achievement of the triggering events (as defined in the Business Combination Agreement)); if at any time during the Price Adjustment Period the price of Ordinary Shares will be greater than or equal to $12.50, $15.00 and $30.00, respectively, over anytwenty trading days within anythirty trading day period. In the event of a post-Closing change of control transaction involving the Company, any Restricted Sponsor Shares not previously vested will vest and will be entitled to participate in the change of control transaction. The probability of such event was considered by the Company. Upon the expiration of the Price Adjustment Period (a period ofseven years), any unvested Cellebrite Shares that have not vested as of such time will be forfeited. The Company security holders shall be entitled to vote their unvested Restricted Sponsor Shares and receive dividends and other distribution, and to have all other economic rights, in each case, with respect to such Restricted Sponsor Shares while they remain unvested.

Holders of the Ordinary Shares and vested RSUs, in each case as of immediately prior to the Effective Time, are eligible to receive up to 15,000,000 Ordinary Shares that will vest in 3 tranches of 5,000,000 upon achievement of the triggering events (if at any time during the Price Adjustment Period the price of Ordinary Shares will be greater than or equal to $12.50, $15.00 and $17.50, respectively, over any 20 trading-days within any 30 trading-day period.) or upon a Change of Control (as defined in Merger Agreement) before thefive (5) year anniversary of the Closing Date.

The restricted Sponsor shares liability and Price adjustment shares are measured at fair value using Level 3 inputs.

The Company has determined that the price adjustment shares, and the restricted sponsor shares are freestanding financing instruments since those rights are legally detachable and separately exercisable. The Company has determined that the price adjustment rights, and the restricted sponsor shares are not indexed to Company’s stock since if a change of control occurs, all the shares underlying the price adjustment shares and the restricted sponsor shares will be issued regardless of the company’s stock price. Therefore, the Company accounted for the price adjustment shares and for the restricted sponsor shares as a liability measured at fair value through earnings.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:

Note 16. Accumulated other comprehensive income (loss)

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 17. Revenues

Disaggregation of Revenues

The following table provides information about disaggregated revenue by geographical areas

Contract Balances

The following table provides information about accounts receivable, contract assets, and contract liabilities from contracts with customers:

Unbilled receivables include amounts related to the Company’s contractual right to consideration for completed performance objectives not yet invoiced. The increase in contract balances is consistent with the increase in the overall operation of the Company.

Contract liabilities consist of deferred revenue. Revenue is deferred when the Company invoices in advance of performance under a contract. The current portion of the deferred revenue balance is recognized as revenue during the 12-month period after the balance sheet date. The non current portion of the deferred revenue balance is recognized as revenue following the 12-month period after the balance sheet date. Of the $194,882 and $159,409 of deferred revenue as of December 31, 2022 and December 31, 2021, respectively, the Company recognized $141,307 and $104,868 as revenue during the year ended December 31, 2023 and 2022, respectively.

Remaining Performance Obligations

The Company’s remaining performance obligations are comprised of product and services revenue not yet delivered. As of December 31, 2023 and December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $331,996 and $276,409 respectively, which consists of both billed consideration in the amount of $242,823 and $194,882 respectively, and unbilled consideration in the amount of $89,173 and $81,527 respectively, that the Company expects to recognize as revenue. As of December 31, 2023, the Company expects to recognize the majority of its remaining performance obligations as revenue in the year ended December 31, 2023.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 18. Taxes on income

A. Israeli taxation

1. Corporate tax rates in Israel:

The tax rates relevant to corporations in Israel in the years 2023, 2022 and 2021 is 23%. However, the effective tax rate reported by a company that derives income from a Preferred Enterprise or Preferred Technological Enterprise (as discussed below) is lower.

2. Tax benefits under the Law for Encouragement of Capital Investments, 1959 (“the Investment Law”) Approved/Beneficiary Enterprise

Pursuant to the Investment Law, the Company was awarded “Approved Enterprise” and “Beneficiary Enterprise” status under the government alternative benefits path beginning in 2003 until 2018 (included). During this period the Company was entitled to beneficial tax rates of 0% –10%. The Company decided to terminate its “Approved” and ”Beneficiary Enterprise” status early and enjoy beneficial tax rates under the “preferred technological enterprise” status effective beginning 2019.

In the event of distribution of dividends from income taxable at 0% tax rate (the “Trapped Earnings”) as part of the Approved Enterprise or Beneficiary Enterprise statuses, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the Approved or Beneficiary Enterprise’s.

During the year ended December 31, 2021, the Company distributed approximately $71,000 attributable to all of the Company’s Trapped Earnings and recorded a related income tax expense of approximately $7,000.

During October 2022, a final ruling was signed by the Company and the ITA, according to which, the Company paid approximately $4,900.

3. Tax benefits under the Law for Encouragement of Preferred Enterprise and Preferred Technology Enterprise

On May 16, 2017 the Knesset Finance Committee approved Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) — 2017 (hereinafter: “the Regulations”), which provides rules for applying the “Preferred Technological Enterprise” tax benefit track including the formula that provides the mechanism for allocating the technological income eligible for the benefits

Commencing in 2019 the Company elected the Preferred Technology Enterprise status to apply under the Law for the Encouragement of Capital Investments (the “Investment Law”). The approval is currently in affect for the tax years 2019 to 2023. The Company expects to continue to meet the conditions to be entitled to the “Preferred Technological Enterprise” status beyond 2023.

Income subject to the Preferred Technology Enterprise status is taxed at reduced tax rate of 12% and income from manufacturing activity in Area A is taxed at reduced tax rate of 7.5%.

4. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

Management believes that the Company currently qualifies as an "industrial company" under the above law and as such, is entitled to certain tax benefits including accelerated depreciation, deduction of public offering expenses in three equal annual installments and amortization of other intangible property rights for tax purposes.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

5. Tax Benefits for Research and Development:

Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows a tax deduction for research and development expenses, including capital expenses, in the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Expenses incurred in scientific research that are not approved by the relevant government ministry are amortized over a three-year period starting from the tax year in which they are paid.

6. Foreign Exchange Regulations:

Under the Foreign Exchange Regulations, the Company calculates its Israeli tax liability in U.S. dollars according to the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. The tax liability, as calculated in U.S. dollars is translated into NIS according to the exchange rate as of December 31 of each year.

B. Income taxes on non-Israeli subsidiaries:

The Company’s subsidiaries incorporated in the US, Germany, Singapore, Australia, Brazil, UK, France, Canada, Japan and India are taxed according to tax laws in the countries of their residence. The Company’s effective tax rate depends on the geographical mix of where its profits are earned. In the year 2023, the Company’s U.S. subsidiary is subject to combined federal and state income taxes of 24% and the subsidiaries in Germany and Singapore are subject to corporation tax at a rate of approximately 33% and 17% respectively. As of December 31, 2023, the Company had approximately $45,431 undistributed earnings of its subsidiaries.

These undistributed earnings were designated as indefinitely reinvested.

In the event of a distribution of those earnings in the form of dividends, a sale of the subsidiaries, or certain other transactions, we may be liable for income taxes, subject to an adjustment, if any, for foreign tax credits and foreign withholding taxes payable to certain foreign tax authorities.

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

C. Deferred taxes

Deferred taxes recognized for the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows:

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

A reconciliation of the amount that would result from applying the Company’s statutory tax rate in Israel to income before income tax expense to the reported amount of income tax expense allocated to continuing operations is as follows:

(Loss) income before income tax expense is comprised as follows:

Tax expense (income) allocated to continuing operations is comprised as follows:

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

Interest expense recognized related to uncertain tax positions amounted to $173 , $129 and $92 in 2023 , 2022 and 2021, respectively. Total accrued interest as of December 31, 2023 and 2022 was $470 and $297, respectively, and were included in accrued expenses.

The Company currently does not expect unrecognized tax benefits to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate.

The Company’s income tax assessments in Israel through the year 2017 are considered final.

The Company is subject to income tax in other jurisdictions outside of Israel, of which the major jurisdiction is the U.S. The Company’s operation in the US is subject to potential examination for tax years 2020 and afterwards.

Timing of the resolution of audits is highly uncertain and therefore, as of December 31, 2023, the Company cannot estimate the change in unrecognized tax benefits resulting from these audit within the next 12 months.

Note 19. Financial (expense) income, net

Cellebrite DI Ltd. and its Subsidiaries

Notes to consolidated financial statements

U.S. dollars (in thousands, except share and per share data)

Note 20. Transactions and Balances with Related Parties

SUN Corporation, the Company’s controlling shareholder is also a reseller of the Company in the Japanese market.

A. Transactions with SUN Corporation

B.

C. Balances with SUN Corporation