Financial Data and Key Metrics - Q4 2023 revenue was $26.1 million, representing 35% YoY growth and 18% sequential growth, exceeding guidance by 6.5% [12] - Adjusted EBITDA for Q4 2023 was $4.3 million, exceeding guidance by 16% [6] - Full-year 2023 revenue was $86.8 million, up 10% from $79 million in 2022 [114] - Net loss for 2023 was $0.9 million, compared to a net loss of $12 million in 2022 [114] - Adjusted EBITDA for 2023 was $9.9 million, compared to an adjusted EBITDA loss of $3.3 million in 2022 [115] - Cash and short-term investments were $13.8 million at the end of Q4 2023, slightly down from $14.8 million in Q3 2023 [20] Business Line Data and Key Metrics - Generative AI development work for Big Tech companies drove Q4 growth, with a three-year deal worth $23 million annually signed with one customer [6][7] - Agility business posted adjusted EBITDA of $1.2 million in Q4, a 69% sequential increase, with a strong adjusted gross margin of 74% [33] - Managed services business has the lowest revenue per employee, while AI data engineering scaled services have multiple times higher revenue per employee [60] - Agility business achieved 15% growth in 2023 with a 69% adjusted gross margin for the year [33] Market Data and Key Metrics - The company has master service agreements with five of the "Magnificent Seven" tech companies, with significant growth expected from these relationships in 2024 [17][18] - The company is targeting two broad markets in 2024: Big Tech companies building generative AI foundation models and enterprises integrating generative AI [19][107] - The company expects Big Tech companies to spend hundreds of millions annually on generative AI development services [108] Company Strategy and Industry Competition - The company is focused on data engineering, which is critical for both Big Tech and enterprise AI deployments [111] - The company differentiates itself through high-quality data engineering, agility, and responsiveness to customer needs [28][91] - Competitors include ScaleAI, Accenture, and Cognizant, but the company emphasizes its unique focus on AI data engineering services [70] - The company leverages its Goldengate platform, which has 50 million parameters, for specific AI tasks, though it is not comparable to ChatGPT [59][138] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about 2024, targeting 20% revenue growth with the intention of exceeding this target [19][93] - The company believes it can fund its capital needs in 2024 through cash from operations without drawing on its Wells Fargo credit line [21] - Management highlighted the importance of data quality in AI implementations, emphasizing the company's 30-year track record in delivering high-quality data [90][91] - The company sees significant opportunities in reinforcement learning, reward modeling, and model assessment for generative AI [106] Other Important Information - The company spent $26 million on software and product development over the last five years, peaking at $8.9 million in 2022 and decreasing to $6.4 million in 2023 [67] - Cloud infrastructure spending is a couple of million dollars annually, primarily for software, infrastructure, and data hosting [68] - The company operates offshore delivery centers with cost-plus transfer pricing arrangements to comply with local tax regulations [24][116] Q&A Session Summary Question: How does Innodata fit into the AI ecosystem? - Innodata focuses on data accuracy and engineering, providing high-quality datasets for training large language models, which is critical for AI performance [27][36] Question: What is the market size for fine-tuning and reinforcement learning in AI? - The company referenced a Bloomberg estimate indicating significant market expansion for AI and large language model-related services [43] Question: Is Agility profitable on a GAAP basis? - Agility posted a GAAP profit of $440,000 in Q4 2023, in addition to its adjusted EBITDA profitability [98][162] Question: What is the status of the CFO search? - The company has an interim CFO and is focusing on strengthening its investor relations function, with no immediate plans to hire a full-time CFO [85][87] Question: How does revenue per employee compare across business lines? - Revenue per employee is lowest in managed services but significantly higher in AI data engineering scaled services, with a target adjusted gross margin of 35%-37% for these lines [60] Question: What are the company's plans for Agility in 2024? - Agility is profitable and the company plans to continue integrating generative AI into the platform, with new product capabilities in medical data extraction and AI roadmap advancements [33][157]

NEW YORK--(BUSINESS WIRE)--The law firm of Kirby McInerney LLP is investigating potential claims against Innodata, Inc. (“Innodata” or the “Company”) (NASDAQ: INOD). The firm’s ongoing investigation concerns whether Innodata and/or certain of its officers have violated the federal securities laws and/or engaged in other unlawful business practices. [Click here to learn more about the investigation] On February 15, 2024, Wolfpack Research published a report alleging that Innodata misrepresented the nature ...

ATLANTA, Feb. 15, 2024 (GLOBE NEWSWIRE) -- Holzer & Holzer, LLC is investigating whether Innodata Inc. ("Innodata" or the "Company") (NASDAQ:INOD) complied with federal securities laws. On February 15, 2024, Wolfpack Research published a report alleging that Innodata misrepresented the nature and extent of its business and operations. Following this news, the price of the Company's stock dropped. If you purchased Innodata stock and suffered a loss on that investment, you are encouraged to contact Corey Holz ...

BOSTON, Feb. 15, 2024 (GLOBE NEWSWIRE) -- Block & Leviton is investigating Innodata Inc. (NASDAQ:INOD) for potential securities law violations. Investors who have lost money in their Innodata Inc. investment should contact the firm to learn more about how they might recover those losses. For more details, visit https://www.blockleviton.com/cases/inod. What is this all about? On February 15, 2024, Wolfpack Research issued a report on Innodata that alleges "despite management's pumping that it is ‘delivering ...

Customer Acquisition - Innodata added 372 new customers in the nine months ended September 30, 2023, averaging 124 new customers per quarter, a 33% increase compared to 93 new customers per quarter in 2021[135]. - The company emphasizes acquiring customers that align with strategic goals, focusing on potential revenue value rather than sheer numbers[135]. Revenue Performance - Total revenues increased to $22.2 million for the three months ended September 30, 2023, up approximately 20% from $18.4 million in the same period of 2022[149]. - Total revenues for the nine months ended September 30, 2023, were $60.7 million, up from $59.6 million in 2022, reflecting a 2% increase[185]. - DDS segment revenues rose to $16.1 million, a 26% increase from $12.8 million in the prior year, driven by higher volume from existing and new customers[150]. - Synodex segment revenues decreased to $1.7 million, down approximately 6% from $1.8 million, primarily due to lower volume from existing customers[151]. - Agility segment revenues increased to $4.4 million, a 16% rise from $3.8 million, attributed to higher volumes from subscriptions to the Agility AI-enabled platform[152]. - Revenues from the Agility segment increased by approximately 15% to $13.0 million for the nine months ended September 30, 2023, compared to $11.3 million in 2022[188]. Profitability Metrics - Adjusted Gross Profit for the three months ended September 30, 2023, was $9,518,000, compared to $7,088,000 for the same period in 2022, representing a 34% increase[143]. - Adjusted Gross Margin for the three months ended September 30, 2023, was 43%, up from 38% in the same period of 2022[143]. - Gross profit increased to $8.2 million for the three months ended September 30, 2023, compared to $6.1 million in 2022, with a gross margin of 37% versus 33%[160]. - Adjusted gross profit rose to $9.5 million in Q3 2023 from $7.1 million in Q3 2022, with adjusted gross margin increasing to 43% from 38%[176]. - The company incurred a net loss of $2.6 million for the nine months ended September 30, 2023, an improvement of $7.4 million compared to the previous year[207]. - Net income for Q3 2023 was $0.4 million, a turnaround from a net loss of $3.3 million in Q3 2022, driven by higher revenues in DDS and Agility segments[171]. Operating Costs - Direct operating costs rose to $13.9 million, an increase of 12% from $12.4 million, mainly due to higher revenues and new hires[155]. - Direct operating costs for the DDS segment increased to approximately $10.2 million, a 28% rise from $8.0 million, primarily due to higher revenues and labor costs[156]. - Direct operating costs for the Synodex segment decreased to $1.7 million, down 23% from $2.2 million, due to cost optimization efforts[157]. - Direct operating costs for the Agility segment decreased to $2.0 million, a 9% decline from $2.2 million, reflecting cost optimization initiatives[158]. - Direct operating costs for the nine months ended September 30, 2023, were $39.5 million, an increase of $0.7 million or 2% from $38.8 million in 2022[191]. Cash and Liquidity - The company has sufficient cash and cash equivalents to meet financial needs for at least the next 12 months[132]. - As of September 30, 2023, the company had cash and cash equivalents of $14.8 million, an increase from $9.8 million as of December 31, 2022[221]. - Working capital increased to approximately $6.4 million as of September 30, 2023, compared to $2.9 million as of December 31, 2022, reflecting an increase of $3.5 million[222]. - Cash provided by operating activities for the nine months ended September 30, 2023, was $5.8 million, compared to cash used of $1.7 million for the same period in 2022[226][227]. - The company plans to use cash and cash equivalents for capital investments, operational expansion, technology innovation, and potential business acquisitions[222]. Segment Performance - Gross margin for the DDS segment was 36% for the three months ended September 30, 2023, compared to 37% in the prior year[150]. - DDS segment gross profit rose to $5.8 million in Q3 2023 from $4.8 million in Q3 2022, with a gross margin of 36% compared to 37%[161]. - Synodex segment achieved breakeven gross profit in Q3 2023, improving from a loss of $0.4 million in Q3 2022, with a gross margin of 0% versus (24)%[162]. - Agility segment gross profit increased to $2.4 million in Q3 2023 from $1.7 million in Q3 2022, with a gross margin of 55% compared to 43%[163]. - The Agility segment's gross profit increased by $1.3 million, totaling $6.3 million for the nine months ended September 30, 2023, with a gross margin of 48%[199]. - The Synodex segment achieved a gross margin of 9% for the nine months ended September 30, 2023, compared to a loss margin of (16)% in the previous year[198]. Future Outlook - The company expects to manage liquidity through its Revolving Credit Facility and by reducing capital expenditures if there is a significant reduction in revenues[132]. - The company expects to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00 by December 31, 2023, as per the financial covenant in the Credit Agreement[225]. - The company is developing an additional AI-enabled industry platform for financial services institutions[129]. - The proprietary data annotation platform incorporates AI to reduce costs while improving consistency and quality of output[124].

Financial Data and Key Metrics - Q2 2023 revenue was $19.7 million, a 4% increase from Q1 2023 [57] - Adjusted EBITDA for Q2 2023 was $1.6 million, a 100% increase from Q1 2023 [57] - Cash and short-term investments at the end of Q2 2023 were $13.7 million, up from $10.8 million at the end of Q1 2023 [59] - Net loss for Q2 2023 was $0.8 million, compared to a net loss of $3.8 million in the same period last year [74] - Revenue growth excluding the large social media company would have been 13% year-over-year [34] Business Line Data and Key Metrics - Agility segment saw 13% year-over-year growth and returned to positive adjusted EBITDA in Q2 2023 [91] - Synodex segment improved gross margin for the second consecutive quarter and is developing new automated products [93] - Digital Data Solutions (DDS) segment is expected to see accelerated revenue and adjusted EBITDA growth as new deals ramp up [34] Market Data and Key Metrics - The company has secured deals with four out of the top five global tech companies, positioning itself to support AI and large language model (LLM) development [42] - The generative AI market is projected to grow from $83 million in 2022 to $85.9 billion by 2032, representing a 100% CAGR [114] - The company is involved in white-label programs, which allow it to scale services under the brand of large customers, potentially reaching tens of thousands of end customers [28][51] Company Strategy and Industry Competition - The company is focusing on generative AI and LLM development, leveraging its expertise in high-quality data and AI model building [14][15] - White-label programs are seen as a strategic opportunity to scale services without relying on the company's own sales and marketing efforts [28][51] - The company is building competencies in AI, model building, and data training, with a focus on enterprise LLM integration [15][54] - The company is well-positioned to benefit from the generative AI revolution, with a blue-chip client base and strong competitive advantages [110][113] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the transformative potential of the new deals, particularly in the generative AI space [110][113] - The company expects revenue and adjusted EBITDA growth to accelerate as new deals ramp up, though forecasting is challenging due to the dynamic nature of the contracts [34][82] - Management highlighted the early stages of the generative AI market and the company's readiness to capitalize on this opportunity [12][25] - The company is focused on executing its strategy and scaling its operations to meet the growing demand for AI and LLM services [77][83] Other Important Information - The company has secured a $10 million revolving line of credit with Wells Fargo to support growth and working capital requirements [59] - The company is in discussions with three other companies about its AI-powered regulatory workflow product [55] - The company is exploring additional white-label opportunities with other large tech companies [51] Q&A Session Summary Question: Execution risks of new contracts - The company is confident in its ability to execute the new contracts, citing its historical strength in execution and the alignment of the contracts with its competencies [63][77] Question: White-label program details - The white-label program involves providing data engineering services under the brand of a large customer, leveraging their salesforce and customer reach [88][89] - Pricing negotiations are handled by the customer, with the company providing upfront pricing [66] Question: Guidance and Wall Street coverage - The company provided guidance on expected revenue and adjusted EBITDA growth but noted uncertainty in the timing of ramp-ups [68][82] - The company is in discussions with analysts for potential Wall Street coverage [96] Question: Capacity and resource allocation - The company has the necessary engineering and performance management capabilities and can add human resources as needed to scale operations [94] Question: Pre-tax margin expectations - The company expects adjusted gross margins to be between 40% and 45% as it scales, with manageable SG&A expenses [100] Question: Insider stock sales - The CEO has not sold any shares, reflecting confidence in the company's future prospects [106]

Part I – Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, cash flows, and stockholders' equity, along with detailed notes on significant accounting policies, specific asset and liability accounts, and other financial disclosures [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) The balance sheets show an increase in total assets and stockholders' equity from December 31, 2022, to June 30, 2023, with a corresponding increase in total liabilities | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------- | :----------------------------- | :------------------------------- | | Total assets | $51,605 | $48,042 | | Total liabilities | $31,678 | $29,996 | | Total stockholders' equity | $20,651 | $18,773 | | Cash and cash equivalents | $13,652 | $9,792 | | Accounts receivable, net | $8,359 | $9,528 | | Total current assets | $25,864 | $23,685 | | Total current liabilities | $21,383 | $20,816 | [Condensed Consolidated Statements of Operations and Comprehensive Loss (Three Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20months%20ended%20June%2030%2C%202023%20and%202022) For the three months ended June 30, 2023, the company reported a significantly reduced net loss compared to the same period in 2022, primarily due to lower operating costs and expenses despite a slight decrease in revenues | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenues | $19,655 | $19,987 | | Operating costs and expenses | $20,282 | $23,268 | | Loss before provision for income taxes | $(627) | $(3,281) | | Consolidated net loss | $(815) | $(3,831) | | Net loss attributable to Innodata Inc. and Subsidiaries | $(815) | $(3,833) | | Basic and Diluted Loss per share | $(0.03) | $(0.14) | [Condensed Consolidated Statements of Operations and Comprehensive Loss (Six Months)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) For the six months ended June 30, 2023, the company substantially reduced its net loss compared to the prior year, driven by a significant decrease in operating costs and expenses, despite a decline in total revenues | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Revenues | $38,494 | $41,179 | | Operating costs and expenses | $41,016 | $46,875 | | Loss from operations | $(2,522) | $(5,696) | | Consolidated net loss | $(2,928) | $(6,721) | | Net Loss attributable to Innodata Inc. and Subsidiaries | $(2,931) | $(6,648) | | Basic and Diluted Loss per share | $(0.11) | $(0.24) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) For the six months ended June 30, 2023, the company generated positive cash flow from operating activities, a significant improvement from the prior year, while investing activities continued to use cash, and financing activities provided cash | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by (used in) operating activities | $4,183 | $(3,872) | | Net cash used in investing activities | $(2,519) | $(3,638) | | Net cash provided by (used in) financing activities | $1,987 | $(297) | | Net increase (decrease) in cash and cash equivalents | $3,860 | $(8,421) | | Cash and cash equivalents, end of period | $13,652 | $10,481 | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Stockholders' equity increased from December 31, 2022, to June 30, 2023, primarily driven by additional paid-in capital from stock-based compensation and stock option exercises, despite the net loss - Total stockholders' equity increased from **$18,773 thousand** at January 1, 2023, to **$20,651 thousand** at June 30, 2023[18](index=18&type=chunk) - Additional paid-in capital increased by **$4,151 thousand** due to stock-based compensation and stock option exercises[18](index=18&type=chunk) - Deficit increased by **$2,931 thousand** due to net loss attributable to Innodata Inc. and subsidiaries[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and breakdowns of the figures presented in the condensed consolidated financial statements, covering accounting policies, specific asset and liability accounts, equity, and other financial commitments and contingencies [1. Summary of Significant Accounting Policies and Estimates](index=9&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Estimates) This note outlines the basis of presentation for the unaudited interim financial statements, principles of consolidation, use of management estimates, and key accounting policies including revenue recognition, foreign currency translation, derivative instruments, capitalized developed software, and income taxes - Interim financial statements are unaudited, include normal recurring adjustments, and are prepared in accordance with U.S. GAAP and SEC rules, to be read in conjunction with the 2022 Form 10-K[20](index=20&type=chunk)[21](index=21&type=chunk) - Consolidation includes Innodata Inc., its wholly-owned subsidiaries, and majority-owned docGenix, with all intercompany transactions eliminated[22](index=22&type=chunk) - Management makes significant estimates for items such as doubtful accounts, asset useful lives, impairment, deferred tax assets, stock-based compensation, and litigation accruals[23](index=23&type=chunk) - Revenue is recognized when services are rendered or goods delivered, with specific methods for DDS (quantity/resources), Synodex (quantity/licensing), and Agility (subscriptions/services/reseller)[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - Foreign currency translation adjustments for certain subsidiaries are included as a component of accumulated other comprehensive loss in stockholders' equity[32](index=32&type=chunk)[33](index=33&type=chunk) - Deferred taxes are based on financial statement and tax basis differences, with a valuation allowance maintained against US, Canadian, and European net deferred tax assets due to uncertainty of future taxable income[37](index=37&type=chunk)[38](index=38&type=chunk) [2. Short Term Investments – other](index=14&type=section&id=2.%20Short%20Term%20Investments%20%E2%80%93%20other) Short-term investments, primarily treasury bills and certificates of deposit, significantly decreased from December 31, 2022, to June 30, 2023 | Investment Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | | Treasury bills | $0 | $494 | | Certificates of deposit | $14 | $13 | | **Total** | **$14** | **$507** | [3. Accounts Receivable](index=14&type=section&id=3.%20Accounts%20Receivable) Net accounts receivable decreased from December 31, 2022, to June 30, 2023, with a slight increase in the allowance for doubtful accounts. The company adopted ASU 2019-04 with no material impact | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Gross Accounts receivable | $9,579 | $10,741 | | Allowance for doubtful accounts | $(1,220) | $(1,213) | | **Accounts receivable, net** | **$8,359** | **$9,528** | - Allowance for credit losses activity for the six months ended June 30, 2023, included **$332 thousand** in additions charged to expense and **$331 thousand** in write-offs against the allowance[47](index=47&type=chunk) [4. Goodwill and Intangible Assets](index=15&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased slightly due to foreign currency translation adjustments. The company holds significant acquired intangible assets and capitalized developed software, with estimated future amortization expenses detailed - Goodwill increased from **$2,038 thousand** at January 1, 2023, to **$2,069 thousand** at June 30, 2023, primarily due to foreign currency translation adjustment[48](index=48&type=chunk) - Total intangibles, net, were **$13,489 thousand** as of June 30, 2023, up from **$12,526 thousand** as of December 31, 2022[12](index=12&type=chunk)[50](index=50&type=chunk) Amortization Expense (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :----------------------------- | :------ | :------ | :------ | :------ | | Acquired intangible assets | $200 | $200 | $400 | $500 | | Capitalized developed software | $600 | $400 | $1,200 | $800 | Estimated Future Amortization Expense for Intangible Assets (in thousands) | Year | Amortization | | :--- | :----------- | | 2023 | $3,049 | | 2024 | $4,378 | | 2025 | $3,451 | | 2026 | $940 | | 2027 | $460 | | Thereafter | $1,211 | | **Total** | **$13,489** | [5. Income Taxes](index=18&type=section&id=5.%20Income%20Taxes) The company's income tax provision is primarily for foreign taxes, with disproportionate effective tax rates due to losses in certain subsidiaries and a valuation allowance on deferred tax assets. Unrecognized tax benefits increased, and the company is contesting significant service tax assessments in India Effective Tax Rate | Period | Effective Tax Rate | | :----- | :----------------- | | H1 2023 | 16.1% | | H1 2022 | 18.0% | - Unrecognized tax benefits increased from **$1,680 thousand** at January 1, 2023, to **$1,752 thousand** at June 30, 2023[55](index=55&type=chunk) - The Indian subsidiary is contesting a service tax inquiry for July 2012-November 2016, potentially subject to **12.36%**-**15%** tax on **$57.0 million** revenue, plus interest and penalties[56](index=56&type=chunk) [6. Operating Leases](index=21&type=section&id=6.%20Operating%20Leases) The company has various operating lease agreements for its offices and service delivery centers, with total rent expense decreasing in both the three and six-month periods ended June 30, 2023, compared to 2022 Total Rent Expense (in thousands) | Period | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :----- | :------ | :------ | :------ | :------ | | Total rent expense | $395 | $481 | $799 | $974 | - Weighted-average remaining lease term is **47 months**, and the weighted-average discount rate is **9.13%** as of June 30, 2023[60](index=60&type=chunk) [7. Long-term obligations](index=23&type=section&id=7.%20Long-term%20obligations) Total long-term obligations increased from December 31, 2022, to June 30, 2023, primarily due to higher pension obligations and the acquisition of Microsoft licenses | Obligation Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Pension obligations - accrued pension liability | $6,431 | $5,906 | | Settlement agreement | $0 | $50 | | Microsoft licenses | $1,082 | $0 | | **Total long-term obligations** | **$7,513** | **$5,956** | - The company renewed a vendor agreement for Microsoft software licenses, technical support, and upgrades through February 2026, with approximately **$0.4 million** in annual payments[61](index=61&type=chunk) [8. Commitments and Contingencies](index=23&type=section&id=8.%20Commitments%20and%20Contingencies) The company is involved in a significant legal proceeding in the Philippines with a potential payment of $5.9 million plus interest, which is currently enjoined in the US. Other legal claims exist, with potential adverse outcomes estimated at $450,000 beyond recorded amounts - A 2008 judgment in the Philippines against a former subsidiary and Innodata Inc. for approximately **$5.9 million** plus interest (**12%** until June 2013, then **6%** per annum) is currently enjoined from enforcement in the US by a preliminary injunction[62](index=62&type=chunk) - The company is subject to various other legal proceedings and claims in the ordinary course of business[63](index=63&type=chunk) - Potential adverse outcomes from legal proceedings could reach approximately **$450,000** in the aggregate beyond recorded amounts[65](index=65&type=chunk) [9. Stock Options and Restricted Stock Units](index=24&type=section&id=9.%20Stock%20Options%20and%20Restricted%20Stock%20Units) Stock-based compensation expense remained stable. The company has outstanding stock options under the 2013 and 2021 plans, with a significant number exercised in H1 2023. Restricted Stock Units (RSUs) were granted, with vesting contingent on employment and financial goals Total Stock-based Compensation Expense (in thousands) | Period | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :----- | :------ | :------ | :------ | :------ | | Total stock-based compensation | $1,019 | $1,028 | $1,981 | $1,565 | - As of June 30, 2023, **5,767,840** stock options were outstanding under the 2013 Plan (weighted-average exercise price of **$3.16**) and **960,500** options under the 2021 Plan (weighted-average exercise price of **$3.38**)[67](index=67&type=chunk)[72](index=72&type=chunk) - During the six months ended June 30, 2023, a total of **896,884** options were exercised at an average price of **$2.50**[74](index=74&type=chunk) - As of June 30, 2023, **728,804** unvested Restricted Stock Units (RSUs) were outstanding, with approximately **$3.0 million** in related compensation cost yet to be recognized over a weighted-average period of **20 months**[76](index=76&type=chunk)[78](index=78&type=chunk) [10. Comprehensive loss](index=28&type=section&id=10.%20Comprehensive%20loss) Accumulated other comprehensive loss decreased from December 31, 2022, to June 30, 2023, primarily due to positive foreign currency translation adjustments and changes in the fair value of derivatives - Accumulated other comprehensive loss decreased from **$(2,108) thousand** at January 1, 2023, to **$(1,459) thousand** at June 30, 2023[79](index=79&type=chunk) - Foreign currency translation adjustment contributed **$127 thousand** in income for H1 2023, a positive change from a **$(626) thousand** loss in H1 2022[15](index=15&type=chunk) - Change in fair value of derivatives, net of taxes, contributed **$531 thousand** in income for H1 2023, a positive change from a **$(536) thousand** loss in H1 2022[15](index=15&type=chunk) [11. Segment reporting and concentrations](index=30&type=section&id=11.%20Segment%20reporting%20and%20concentrations) The company operates in three segments: Digital Data Solutions (DDS), Synodex, and Agility. Total revenues decreased for both the three and six-month periods, with DDS declining while Synodex and Agility grew. Non-U.S. customers represent a significant portion of revenues and accounts receivable Segment Revenues (in thousands) | Segment | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------ | :------ | :------ | :------ | :------ | | DDS | $13,180 | $14,181 | $25,927 | $30,092 | | Synodex | $2,112 | $1,945 | $3,976 | $3,614 | | Agility | $4,363 | $3,861 | $8,591 | $7,473 | | **Total Consolidated** | **$19,655** | **$19,987** | **$38,494** | **$41,179** | Segment Operating Profit (Loss) before income taxes (in thousands) | Segment | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------ | :------ | :------ | :------ | :------ | | DDS | $(216) | $(72) | $(497) | $1,381 | | Synodex | $(22) | $(831) | $(133) | $(1,819) | | Agility | $(389) | $(2,378) | $(1,892) | $(5,258) | | **Total Consolidated** | **$(627)** | **$(3,281)** | **$(2,522)** | **$(5,696)** | - For Q2 2023, one DDS customer generated approximately **10%** of total revenues. For H1 2023, two DDS customers generated approximately **10.7%** and **10.6%** of total revenues, respectively[92](index=92&type=chunk)[93](index=93&type=chunk) - Revenues from non-U.S. customers accounted for **44%** of total revenues in Q2 2023 (up from **38%** in Q2 2022) and **42%** in H1 2023 (up from **38%** in H1 2022)[92](index=92&type=chunk)[93](index=93&type=chunk) - As of June 30, 2023, approximately **49%** of accounts receivable was due from foreign (principally European) customers, and **25%** was due from two customers[94](index=94&type=chunk) [12. Loss Per Share](index=33&type=section&id=12.%20Loss%20Per%20Share) Basic and diluted loss per share improved for both the three and six-month periods ended June 30, 2023, compared to 2022. Options to purchase 6.7 million shares were anti-dilutive and excluded from diluted EPS calculation | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to Innodata Inc. and Subsidiaries (in thousands) | $815 | $3,833 | $2,931 | $6,648 | | Weighted average common shares outstanding (in thousands) | 27,860 | 27,226 | 27,661 | 27,192 | | Basic and Diluted Loss per share | $(0.03) | $(0.14) | $(0.11) | $(0.24) | - Options to purchase **6.7 million** shares of common stock were outstanding but not included in the computation of diluted loss per share because their effect would have been anti-dilutive[98](index=98&type=chunk) [13. Derivatives](index=33&type=section&id=13.%20Derivatives) The company uses foreign currency forward contracts to hedge exposure to foreign currency fluctuations, primarily in operating costs. These derivatives are designated as cash flow hedges, with changes in fair value recorded in OCI and reclassified to direct operating costs upon settlement - The company's policy is to enter derivative instrument contracts with terms up to **12 months** to hedge foreign currency exposures, particularly where revenue and expenses are in different currencies (e.g., Philippines, India, Sri Lanka, Israel)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - The total notional amount for outstanding derivatives designated as hedges was **$10.9 million** as of June 30, 2023, down from **$14.2 million** as of December 31, 2022[102](index=102&type=chunk) Effect of Foreign Currency Forward Contracts on OCI (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net gain (loss) recognized in OCI | $2 | $(744) | $244 | $(822) | | Loss reclassified from accumulated OCI into income | $106 | $203 | $287 | $286 | [14. Line of Credit](index=36&type=section&id=14.%20Line%20of%20Credit) The company entered into a secured revolving line of credit with Wells Fargo Bank for up to $10.0 million, maturing in April 2026. The borrowing base was $2.9 million as of June 30, 2023, and the facility was not utilized during Q2 2023 - On April 4, 2023, the company entered into a secured revolving line of credit with Wells Fargo Bank for up to **$10.0 million**, maturing on April 4, 2026[105](index=105&type=chunk) - The borrowing base for the Revolving Credit Facility was approximately **$2.9 million** as of June 30, 2023[105](index=105&type=chunk) - The company did not utilize the Revolving Credit Facility during the three-month period ended June 30, 2023[105](index=105&type=chunk) - The Credit Agreement contains a financial covenant requiring the company to maintain a fixed charge coverage ratio of not less than **1.10 to 1.00** by December 31, 2023[105](index=105&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including a business overview, analysis of financial performance for the three and six months ended June 30, 2023, liquidity and capital resources, and critical accounting policies [Business Overview](index=39&type=section&id=Business%20Overview) Innodata is a data engineering company focused on ethical, high-performing AI, offering AI Data Preparation, AI Model Deployment and Integration, and AI-Enabled Industry Platforms (Synodex for medical records, Agility PR Solutions for public relations). Its capabilities are built on 30 years of data expertise and R&D in applied AI - Innodata's mission is to help companies deliver ethical, high-performing artificial intelligence (AI)[116](index=116&type=chunk) - Core offerings include AI Data Preparation (collecting, creating, annotating training data, training AI algorithms), AI Model Deployment and Integration (developing custom AI models, fine-tuning models, data engineering support), and AI-Enabled Industry Platforms (SaaS and managed services like Synodex for medical records and Agility PR Solutions)[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - The company's operations are classified into three reporting segments: Digital Data Solutions (DDS), Synodex, and Agility[129](index=129&type=chunk) [Prevailing Economic Conditions and Seasonality](index=41&type=section&id=Prevailing%20Economic%20Conditions%20and%20Seasonality) The company believes it has sufficient liquidity for the next 12 months. Operating results are subject to quarterly fluctuations due to project changes and seasonal factors, particularly in the fourth quarter due to holidays and in the Synodex segment due to life insurance application volumes. New customer acquisition is a key indicator, with a focus on revenue value over sheer numbers - The company believes existing cash and cash equivalents provide sufficient liquidity for at least the next **12 months**[130](index=130&type=chunk) - Quarterly operating results fluctuate due to project changes, start-up delays, and inability to replace completed projects. Fourth-quarter margins are typically reduced by higher wages due to Asian holidays[131](index=131&type=chunk) - The Synodex segment experiences seasonal fluctuations, with lowest revenue in Q3 and highest in Q4, linked to life insurance applications[132](index=132&type=chunk) - In H1 2023, the company added **235** new customers (average **118/quarter**), a **26%** increase over 2021 but a **6%** decrease from 2022, with a strategic emphasis on acquiring customers with higher potential revenue value[133](index=133&type=chunk) [Non-GAAP Financial Measures](index=43&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP financial measures, Adjusted Gross Profit and Adjusted EBITDA, to offer greater transparency into core operating performance, believing they assist investors in period-to-period comparisons - Non-GAAP financial measures (Adjusted Gross Profit, Adjusted EBITDA) are provided to assist investors in making period-to-period operating result comparisons and offer greater transparency into core operating performance[136](index=136&type=chunk)[137](index=137&type=chunk) - Adjusted Gross Profit is defined as revenues less direct operating costs, adjusted for depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance, and other one-time costs[138](index=138&type=chunk) - Adjusted EBITDA is defined as net income (loss) attributable to Innodata Inc. and its subsidiaries before interest expense, income taxes, depreciation and amortization of intangible assets, plus additional adjustments for loss on impairment, stock-based compensation, non-controlling interests, non-recurring severance, and other one-time costs[143](index=143&type=chunk) [Adjusted Gross Profit and Adjusted Gross Margin](index=43&type=section&id=Adjusted%20Gross%20Profit%20and%20Adjusted%20Gross%20Margin) Consolidated Adjusted Gross Profit increased slightly for Q2 2023, and Adjusted Gross Margin remained stable for H1 2023. Segment-wise, Synodex showed significant improvement in Adjusted Gross Profit and Margin, while DDS saw a decrease Adjusted Gross Profit and Margin (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | **Consolidated** | | | | | | Adjusted Gross Profit | $8,126 | $7,975 | $15,546 | $16,642 | | Adjusted Gross Margin | 41% | 40% | 40% | 40% | | **DDS Segment** | | | | | | Adjusted Gross Profit | $4,688 | $5,348 | $9,126 | $12,134 | | Adjusted Gross Margin | 36% | 38% | 35% | 40% | | **Synodex Segment** | | | | | | Adjusted Gross Profit | $457 | $66 | $822 | $(123) | | Adjusted Gross Margin | 22% | 3% | 21% | (3)% | | **Agility Segment** | | | | | | Adjusted Gross Profit | $2,981 | $2,561 | $5,598 | $4,631 | | Adjusted Gross Margin | 68% | 66% | 65% | 62% | [Adjusted EBITDA](index=46&type=section&id=Adjusted%20EBITDA) Consolidated Adjusted EBITDA significantly improved, turning from a loss in 2022 to a profit in 2023 for both the three and six-month periods. All segments showed improved Adjusted EBITDA, with Synodex and Agility moving from losses to positive or reduced losses Adjusted EBITDA (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | **Consolidated** | | | | | | Adjusted EBITDA (loss) | $1,583 | $(1,303) | $2,413 | $(2,305) | | **DDS Segment** | | | | | | Adjusted EBITDA | $792 | $602 | $1,524 | $2,496 | | **Synodex Segment** | | | | | | Adjusted EBITDA (loss) | $342 | $(359) | $582 | $(1,128) | | **Agility Segment** | | | | | | Adjusted EBITDA (loss) | $449 | $(1,546) | $307 | $(3,673) | [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section details the financial performance for the three and six months ended June 30, 2023, compared to the same periods in 2022, analyzing revenues, operating costs, gross profit, selling and administrative expenses, income taxes, net income (loss), and non-GAAP adjusted metrics across the company's segments [Three Months Ended June 30, 2023 and 2022](index=48&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) For Q2 2023, total revenues slightly decreased, but net loss significantly improved due to lower operating costs and expenses across all segments, particularly in selling and administrative expenses [Revenues](index=48&type=section&id=Revenues_Q2) Total revenues decreased slightly by 1% for Q2 2023. DDS segment revenues declined by 7%, while Synodex and Agility segments grew by 11% and 13% respectively | Segment | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (in thousands) | Change (%) | | :------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | Total Revenues | $19,655 | $19,987 | $(332) | -1% | | DDS | $13,180 | $14,181 | $(1,001) | -7% | | Synodex | $2,112 | $1,945 | $167 | +11% | | Agility | $4,363 | $3,861 | $502 | +13% | [Direct Operating Costs](index=48&type=section&id=Direct%20Operating%20Costs_Q2) Total direct operating costs decreased by 2% for Q2 2023, primarily due to headcount reductions and cost optimization efforts, despite unfavorable foreign exchange impacts and higher content/depreciation costs - Total direct operating costs decreased by **$0.3 million** (**2%**) to **$12.7 million** in Q2 2023 from **$13.0 million** in Q2 2022[153](index=153&type=chunk) - The decrease was driven by **$1.6 million** lower labor costs (headcount reductions), partially offset by **$0.7 million** unfavorable foreign exchange, **$0.3 million** higher content costs, and **$0.2 million** higher depreciation/amortization[153](index=153&type=chunk) - Direct operating costs as a percentage of total revenues decreased from **65%** to **64%**[153](index=153&type=chunk) - Synodex segment direct operating costs decreased by **18%**, improving its percentage of segment revenues from **116%** to **86%**[155](index=155&type=chunk) [Gross Profit and Gross Margin](index=49&type=section&id=Gross%20Profit%20and%20Gross%20Margin_Q2) Consolidated gross profit slightly decreased, but gross margin remained stable at 35% for Q2 2023. Synodex segment showed a significant increase in gross profit and margin, turning from a loss to a profit | Segment | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (in thousands) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Total Gross Profit | $6,940 | $7,000 | $(60) | | Total Gross Margin | 35% | 35% | 0% | | DDS Gross Profit | $4,398 | $5,300 | $(902) | | DDS Gross Margin | 33% | 37% | -4% | | Synodex Gross Profit (Loss) | $295 | $(200) | $495 | | Synodex Gross Margin | 14% | (11)% | +25% | | Agility Gross Profit | $2,247 | $1,900 | $347 | | Agility Gross Margin | 52% | 50% | +2% | [Selling and Administrative Expenses](index=51&type=section&id=Selling%20and%20Administrative%20Expenses_Q2) Total selling and administrative expenses decreased significantly by 26% for Q2 2023, primarily due to cost optimization efforts, including headcount reductions and lower marketing expenses across all segments - Total selling and administrative expenses decreased by **$2.7 million** (**26%**) to **$7.6 million** in Q2 2023 from **$10.3 million** in Q2 2022[162](index=162&type=chunk) - The decrease was driven by **$2.0 million** lower labor costs, **$0.5 million** lower marketing expenses, and **$0.2 million** lower recruitment and professional fees[162](index=162&type=chunk) - As a percentage of total revenues, selling and administrative expenses decreased from **52%** to **39%**[162](index=162&type=chunk) - Synodex S&A expenses decreased by **60%**, from **26%** to **9%** of segment revenues, and Agility S&A expenses decreased by **40%**, from **110%** to **60%** of segment revenues[164](index=164&type=chunk)[165](index=165&type=chunk) [Income Taxes](index=53&type=section&id=Income%20Taxes_Q2) Provision for income taxes decreased for Q2 2023, primarily consisting of foreign taxes, with effective rates disproportionate due to losses in certain subsidiaries and valuation allowances - Provision for income taxes was **$0.2 million** for Q2 2023, down from **$0.6 million** for Q2 2022[167](index=167&type=chunk) - Effective income tax rates are disproportionate due to losses incurred by U.S., Canadian, and European subsidiaries, and a valuation allowance on their deferred taxes[168](index=168&type=chunk) [Net Income (Loss)](index=53&type=section&id=Net%20Income%20(Loss)_Q2) Consolidated net loss significantly improved by $3.0 million for Q2 2023, driven by lower operating costs and higher revenues in Synodex and Agility segments - Consolidated net loss was **$(0.8) million** for Q2 2023, a **$3.0 million** improvement from **$(3.8) million** in Q2 2022[169](index=169&type=chunk) - Synodex segment net income was **$0.1 million** for Q2 2023, an **$0.8 million** change from a **$(0.7) million** loss in Q2 2022[170](index=170&type=chunk) - Agility segment net loss was **$(0.3) million** for Q2 2023, a **$2.2 million** change from a **$(2.5) million** loss in Q2 2022[170](index=170&type=chunk) [Adjusted Gross Profit and Margin](index=53&type=section&id=Adjusted%20Gross%20Profit%20and%20Margin_Q2) Consolidated Adjusted Gross Profit slightly increased for Q2 2023, and Adjusted Gross Margin improved by 1 percentage point. Synodex segment showed a substantial increase in Adjusted Gross Profit and Margin | Segment | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Consolidated Adjusted Gross Profit | $8,126 | $7,975 | $151 | +1.9% | | Consolidated Adjusted Gross Margin | 41% | 40% | +1% | | | Synodex Adjusted Gross Profit | $457 | $66 | $391 | +592% | | Synodex Adjusted Gross Margin | 22% | 3% | +19% | | [Adjusted EBITDA](index=55&type=section&id=Adjusted%20EBITDA_Q2) Consolidated Adjusted EBITDA significantly improved, turning from a loss of $1.3 million in Q2 2022 to a profit of $1.6 million in Q2 2023. All segments showed improved Adjusted EBITDA | Segment | Q2 2023 (in thousands) | Q2 2022 (in thousands) | Change (in thousands) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Consolidated Adjusted EBITDA (loss) | $1,583 | $(1,303) | +$2,886 | | DDS Adjusted EBITDA | $792 | $602 | +$190 | | Synodex Adjusted EBITDA (loss) | $342 | $(359) | +$701 | | Agility Adjusted EBITDA (loss) | $449 | $(1,546) | +$1,995 | [Six Months Ended June 30, 2023 and 2022](index=55&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) For H1 2023, total revenues decreased by 7%, but the company significantly reduced its net loss by $3.7 million, primarily due to substantial reductions in operating costs and expenses across all segments [Revenues](index=55&type=section&id=Revenues_H1) Total revenues decreased by 7% for H1 2023. DDS segment revenues declined by 14%, while Synodex and Agility segments grew by 11% and 15% respectively | Segment | H1 2023 (in thousands) | H1 2022 (in thousands) | Change (in thousands) | Change (%) | | :------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | Total Revenues | $38,494 | $41,179 | $(2,685) | -7% | | DDS | $25,927 | $30,092 | $(4,165) | -14% | | Synodex | $3,976 | $3,614 | $362 | +11% | | Agility | $8,591 | $7,473 | $1,118 | +15% | [Direct Operating Costs](index=56&type=section&id=Direct%20Operating%20Costs_H1) Total direct operating costs decreased by 3% for H1 2023, driven by lower labor costs from headcount reductions and cost optimization, partially offset by unfavorable foreign exchange impacts and higher content/depreciation costs - Total direct operating costs decreased by **$0.8 million** (**3%**) to **$25.6 million** in H1 2023 from **$26.4 million** in H1 2022[189](index=189&type=chunk) - The decrease was driven by **$3.4 million** lower labor costs (headcount reductions), partially offset by **$1.5 million** unfavorable foreign exchange, **$0.4 million** higher depreciation/amortization, and **$0.3 million** higher content costs[189](index=189&type=chunk) - Direct operating costs as a percentage of total revenues increased from **64%** to **66%**[189](index=189&type=chunk) - Synodex segment direct operating costs decreased by **13%**, improving its percentage of segment revenues from **111%** to **88%**[191](index=191&type=chunk) [Gross Profit and Gross Margin](index=57&type=section&id=Gross%20Profit%20and%20Gross%20Margin_H1) Consolidated gross profit decreased by $1.9 million for H1 2023, and gross margin decreased by 2 percentage points. Synodex segment showed a significant increase in gross profit and margin, turning from a loss to a profit | Segment | H1 2023 (in thousands) | H1 2022 (in thousands) | Change (in thousands) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Total Gross Profit | $12,905 | $14,773 | $(1,868) | | Total Gross Margin | 34% | 36% | -2% | | DDS Gross Profit | $8,557 | $11,824 | $(3,267) | | DDS Gross Margin | 33% | 39% | -6% | | Synodex Gross Profit (Loss) | $498 | $(435) | $933 | | Synodex Gross Margin | 13% | (12)% | +25% | | Agility Gross Profit | $3,850 | $3,384 | $466 | | Agility Gross Margin | 45% | 45% | 0% | [Selling and Administrative Expenses](index=59&type=section&id=Selling%20and%20Administrative%20Expenses_H1) Total selling and administrative expenses decreased significantly by 25% for H1 2023, primarily due to cost optimization efforts, including lower labor, recruitment, and marketing expenses across all segments - Total selling and administrative expenses decreased by **$5.1 million** (**25%**) to **$15.4 million** in H1 2023 from **$20.5 million** in H1 2022[200](index=200&type=chunk) - The decrease was driven by **$2.9 million** lower labor costs, **$1.2 million** lower recruitment and professional fees, and **$1.0 million** lower marketing expenses[200](index=200&type=chunk) - As a percentage of total revenues, selling and administrative expenses decreased from **50%** to **40%**[200](index=200&type=chunk) - Synodex S&A expenses decreased by **64%**, from **31%** to **10%** of segment revenues, and Agility S&A expenses decreased by **34%**, from **115%** to **66%** of segment revenues[202](index=202&type=chunk)[203](index=203&type=chunk) [Income Taxes](index=60&type=section&id=Income%20Taxes_H1) Provision for income taxes decreased for H1 2023, primarily consisting of foreign taxes, with effective rates disproportionate due to losses in certain subsidiaries and valuation allowances - Provision for income taxes was **$0.4 million** for H1 2023, down from **$1.0 million** for H1 2022[204](index=204&type=chunk) - Effective income tax rates are disproportionate due to losses incurred by U.S. and Canadian subsidiaries, and a valuation allowance on their deferred taxes[205](index=205&type=chunk) [Net Income (Loss)](index=60&type=section&id=Net%20Income%20(Loss)_H1) Consolidated net loss significantly improved by $3.7 million for H1 2023, driven by lower operating costs and higher revenues in Synodex and Agility segments - Consolidated net loss was **$(2.9) million** for H1 2023, a **$3.7 million** improvement from **$(6.6) million** in H1 2022[206](index=206&type=chunk) - DDS segment net loss was **$(1.2) million** for H1 2023, a **$1.3 million** change from a **$0.1 million** net income in H1 2022[207](index=207&type=chunk) - Synodex segment net income was **$0.1 million** for H1 2023, a **$1.5 million** change from a **$(1.4) million** loss in H1 2022[208](index=208&type=chunk) - Agility segment net loss was **$(1.8) million** for H1 2023, a **$3.5 million** change from a **$(5.3) million** loss in H1 2022[209](index=209&type=chunk) [Adjusted Gross Profit and Margin](index=60&type=section&id=Adjusted%20Gross%20Profit%20and%20Margin_H1) Consolidated Adjusted Gross Profit slightly decreased for H1 2023, but Adjusted Gross Margin remained stable at 40%. Synodex segment showed a substantial increase in Adjusted Gross Profit and Margin | Segment | H1 2023 (in thousands) | H1 2022 (in thousands) | Change (in thousands) | Change (%) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Consolidated Adjusted Gross Profit | $15,546 | $16,642 | $(1,096) | -6.6% | | Consolidated Adjusted Gross Margin | 40% | 40% | 0% | | | DDS Adjusted Gross Profit | $9,126 | $12,134 | $(3,008) | -24.8% | | DDS Adjusted Gross Margin | 35% | 40% | -5% | | | Synodex Adjusted Gross Profit (loss) | $822 | $(123) | $945 | +768% | | Synodex Adjusted Gross Margin | 21% | (3)% | +24% | | | Agility Adjusted Gross Profit | $5,598 | $4,631 | $967 | +20.9% | | Agility Adjusted Gross Margin | 65% | 62% | +3% | | [Adjusted EBITDA](index=61&type=section&id=Adjusted%20EBITDA_H1) Consolidated Adjusted EBITDA significantly improved, turning from a loss of $2.3 million in H1 2022 to a profit of $2.4 million in H1 2023. All segments showed improved Adjusted EBITDA | Segment | H1 2023 (in thousands) | H1 2022 (in thousands) | Change (in thousands) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Consolidated Adjusted EBITDA (loss) | $2,413 | $(2,305) | +$4,718 | | DDS Adjusted EBITDA | $1,524 | $2,496 | $(972) | | Synodex Adjusted EBITDA (loss) | $582 | $(1,128) | +$1,710 | | Agility Adjusted EBITDA (loss) | $307 | $(3,673) | +$3,980 | [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash and cash equivalents increased, and working capital improved. It believes existing liquidity is sufficient for the next 12 months and has a $10.0 million revolving credit facility, which was unutilized in Q2 2023. Operating activities generated cash, while investing activities used cash for capital expenditures | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $13,652 | $9,792 | | Working capital | $4,481 | $2,869 | - The company believes its existing cash and cash equivalents and internally generated funds will provide sufficient liquidity for at least the next **12 months**[223](index=223&type=chunk) - Net cash provided by operating activities was **$4.2 million** for H1 2023, a significant improvement from **$3.9 million** used in H1 2022[225](index=225&type=chunk)[226](index=226&type=chunk) - Net cash used in investing activities was **$2.5 million** for H1 2023, primarily for capital expenditures of **$3.0 million**[227](index=227&type=chunk) - Net cash provided by financing activities was **$2.0 million** for H1 2023, mainly from proceeds of stock option exercises[229](index=229&type=chunk)[230](index=230&type=chunk) - A **$10.0 million** secured revolving line of credit with Wells Fargo Bank was available but not utilized during Q2 2023[224](index=224&type=chunk) [Critical Accounting Policies and Estimates](index=65&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on estimates and judgments for various items, including revenue recognition, allowances, asset valuations, deferred taxes, stock-based compensation, litigation, and derivatives. These estimates are subject to inherent uncertainty, and actual results may differ materially - The preparation of condensed consolidated financial statements requires management to make estimates and judgments that affect reported amounts of assets, liabilities, revenues, and expenses[231](index=231&type=chunk) - Significant estimates include those related to revenue recognition, allowance for doubtful accounts, useful life of long-lived and intangible assets, impairment of goodwill, valuation of deferred tax assets, stock-based compensation, litigation accruals, pension benefits, and valuation of derivative instruments[231](index=231&type=chunk) - Estimates are based on historical and anticipated results, trends, and assumptions, but actual results could differ significantly and have a material adverse effect[231](index=231&type=chunk) [Off-Balance Sheet Arrangements](index=65&type=section&id=Off-Balance%20Sheet%20Arrangements) The company reported no off-balance sheet arrangements - The company has no off-balance sheet arrangements[233](index=233&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for smaller reporting companies - This item is not applicable for smaller reporting companies[234](index=234&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2023. No material changes in internal control over financial reporting occurred during the six months ended June 30, 2023 - The company's disclosure controls and procedures were effective as of June 30, 2023, based on an evaluation by management, including the principal executive officer and principal financial officer[236](index=236&type=chunk) - There have been no material changes in the company's internal control over financial reporting during the six months ended June 30, 2023[237](index=237&type=chunk) Part II – Other Information [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8 of the financial statements for detailed information on legal proceedings, which includes a significant Philippine litigation case - Information regarding legal proceedings is incorporated by reference from Note 8, Commitments and Contingencies, in the Notes to the Condensed Consolidated Financial Statements[238](index=238&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) The company operates in highly competitive markets, with significant investments in new AI capabilities that may not yield expected returns. International operations expose the company to various risks, including economic factors, tax demands, and currency fluctuations. The revolving credit facility's variable interest rate and restrictive covenants also pose risks - The markets for the company's services, platforms, and solutions are highly competitive, with few barriers to entry and competition from in-house personnel[240](index=240&type=chunk) - Significant investments in new AI capabilities, such as large language models, increase costs and may reduce profitability if expected revenues or profit margins are not achieved[241](index=241&type=chunk) - International operations in countries like the Philippines, India, Sri Lanka, Canada, the UK, Israel, and Germany expose the company to risks including adverse economic factors, discretionary tax demands, staffing difficulties, trade restrictions, currency controls, data privacy laws, AI regulation, labor disputes, and limitations on repatriation of earnings[242](index=242&type=chunk)[252](index=252&type=chunk) - Debt under the Revolving Credit Facility has a variable interest rate based on SOFR, which may increase borrowing costs, and the facility contains restrictive covenants (e.g., fixed charge coverage ratio of **1.10 to 1.00** by December 31, 2023) that could impair business operations or lead to default[246](index=246&type=chunk)[247](index=247&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or repurchases of equity securities during the three months ended June 30, 2023 - No unregistered sales of equity securities or repurchases of equity securities occurred during the three months ended June 30, 2023[248](index=248&type=chunk) [Item 3. Defaults Upon Senior Securities](index=68&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[249](index=249&type=chunk) [Item 4. Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - No mine safety disclosures were reported[250](index=250&type=chunk) [Item 5. Other Information](index=68&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[251](index=251&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including credit agreements, security agreements, guaranties, and certifications - Exhibits include the Credit Agreement, Security Agreement, and Guaranty dated April 4, 2023, with Wells Fargo Bank[254](index=254&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed/furnished[254](index=254&type=chunk)[255](index=255&type=chunk) - The financial statements are formatted in Extensible Business Reporting Language (XBRL)[254](index=254&type=chunk) [Signatures](index=71&type=section&id=Signatures) The report is signed by Jack S. Abuhoff, Chief Executive Officer and President, and Marissa B. Espineli, Interim Chief Financial Officer, on August 10, 2023 - The report was signed on August 10, 2023, by Jack S. Abuhoff, Chief Executive Officer and President, and Marissa B. Espineli, Interim Chief Financial Officer[258](index=258&type=chunk)

Innodata, Inc. (NASDAQ:INOD) Q1 2023 Earnings Conference Call May 11, 2023 5:00 PM ET Company Participants Amy Agress - Senior Vice President and General Counsel Marissa Espineli - Interim Chief Financial Officer Jack Abuhoff - President and Chief Executive Officer Conference Call Participants Tim Clarkson - Van Clemens Dana Buska - Feltl Operator Greetings. Welcome to Innodata's First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will fo ...

[Part I – Financial Information](index=2&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, show a decrease in total revenues and a reduced net loss compared to the same period in 2022, with a positive turn in cash flow from operations [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly increased to $49.1 million as of March 31, 2023, while total stockholders' equity saw a minor decrease to $18.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $10,330 | $9,792 | | Total current assets | $23,493 | $23,685 | | Total assets | $49,135 | $48,042 | | **Liabilities & Equity** | | | | Total current liabilities | $21,170 | $20,816 | | Total liabilities | $31,441 | $29,996 | | Total stockholders' equity | $18,418 | $18,773 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For Q1 2023, revenues decreased to $18.8 million, but the net loss improved to $2.1 million, driven by a significant reduction in selling and administrative expenses Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $18,839 | $21,192 | | Direct operating costs | $12,874 | $13,414 | | Selling and administrative expenses | $7,797 | $10,190 | | Loss before income taxes | ($1,895) | ($2,415) | | Net loss attributable to Innodata | ($2,116) | ($2,815) | | Basic and Diluted EPS | ($0.08) | ($0.10) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was a positive $1.8 million in Q1 2023, a significant improvement from a $1.5 million use of cash in the prior-year period Q1 2023 vs. Q1 2022 Cash Flows (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,784 | ($1,496) | | Net cash used in investing activities | ($1,707) | ($1,939) | | Net cash provided by (used in) financing activities | $251 | ($12) | | Net increase (decrease) in cash | $538 | ($3,475) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment performance, a tax contingency in India, a legal contingency in the Philippines, and a new $10.0 million credit facility - The company's operations are classified into three reporting segments: **Digital Data Solutions (DDS), Synodex, and Agility**[80](index=80&type=chunk) - The company is contesting a tax assessment in India that could subject approximately **$57.0 million in revenue** from July 2012 to November 2016 to service tax, for which no liability has been recorded[53](index=53&type=chunk) - On April 4, 2023, the company entered into a new Credit Agreement with Wells Fargo for a secured revolving line of credit of up to **$10.0 million**, maturing in April 2026[99](index=99&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses an 11% year-over-year revenue decrease to $18.8 million, an improved net loss of $2.1 million due to cost controls, and sufficient liquidity for the next 12 months [Business Overview](index=26&type=section&id=Business%20Overview) Innodata is a data engineering company focused on high-performing AI, with offerings in AI data preparation, model deployment, and AI-enabled industry platforms - The company's mission is to help companies deliver on the promise of ethical, high-performing AI[108](index=108&type=chunk) - Core offerings include AI Data Preparation, AI Model Deployment and Integration, and AI-Enabled Industry Platforms[113](index=113&type=chunk) - The company added **129 new customers in Q1 2023**, a **3% increase** over the quarterly average in 2022[125](index=125&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Q1 2023 revenues fell 11% to $18.8 million, driven by a 20% decline in the DDS segment, but a 24% reduction in S&A expenses improved net loss and Adjusted EBITDA Revenue by Segment - Q1 2023 vs Q1 2022 (in millions) | Segment | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | DDS | $12.7 | $15.9 | -20% | | Synodex | $1.9 | $1.7 | +12% | | Agility | $4.2 | $3.6 | +17% | | **Total** | **$18.8** | **$21.2** | **-11%** | - Selling and administrative expenses **decreased by $2.4 million (24%)** YoY, primarily due to cost optimization efforts, including lower recruitment, professional fees, and marketing expenses[154](index=154&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net loss attributable to Innodata | ($2,116) | ($2,815) | | Adjustments (Taxes, Interest, D&A, etc.) | $2,917 | $1,813 | | **Adjusted EBITDA** | **$801** | **($1,002)** | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) With $10.3 million in cash and a new $10.0 million credit facility, management believes liquidity is sufficient for the next 12 months, with $6.5 million in planned capital expenditures Liquidity Measures (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,330 | $9,792 | | Working capital | $2,323 | $2,869 | - A new secured revolving credit facility of up to **$10.0 million** was established with Wells Fargo on April 4, 2023, enhancing liquidity[178](index=178&type=chunk) - The company anticipates capital expenditures of approximately **$6.5 million** over the next 12 months, primarily for software development and technology upgrades[182](index=182&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not applicable for smaller reporting companies[187](index=187&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were **effective as of March 31, 2023**[189](index=189&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[190](index=190&type=chunk) [Part II – Other Information](index=38&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is contesting a significant judgment in the Philippines against a former subsidiary with a potential payment of approximately $5.9 million plus interest - Information regarding legal proceedings is incorporated by reference from Note 8, Commitments and Contingencies[192](index=192&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) New risks related to the company's Revolving Credit Facility have been added, including variable interest rate exposure and the impact of restrictive covenants - A new risk factor was added concerning the variable interest rate (based on **SOFR**) of the new **Revolving Credit Facility**, which could increase borrowing costs[193](index=193&type=chunk) - The **Revolving Credit Facility** contains restrictive covenants, including a fixed charge coverage ratio, which may limit management's discretion and the company's ability to conduct its business[194](index=194&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No sales of unregistered equity securities or repurchases of equity securities occurred during the first quarter of 2023 - **No unregistered sales** of equity securities or share repurchases occurred in Q1 2023[195](index=195&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including agreements for the new Wells Fargo credit facility and required CEO and CFO certifications - Filed exhibits include the Credit Agreement, Security Agreement, and Guaranty related to the new Wells Fargo credit facility, as well as Sarbanes-Oxley certifications[200](index=200&type=chunk)

Innodata Inc. (NASDAQ:INOD) Q4 2022 Earnings Conference Call February 23, 2023 5:00 PM ET Company Participants Amy Agress - Investor Relations Jack Abuhoff - Chief Executive Officer Marissa Espineli - Interim Chief Financial Officer Conference Call Participants Tim Clarkson - Van Clemens Dana Buska - Feltl and Company Marco Petroni - MG Capital Management Craig Samuels - Samuels Capital Management Operator Greetings. Welcome to Innodata’s Fourth Quarter and Fiscal Year 2022 Earnings Call. [Operator Instruct ...