Innodata Inc. (NASDAQ:INOD) Q3 2019 Earnings Conference Call November 7, 2019 11:00 AM ET Company Participants Amy Agress - Senior Vice President & General Counsel Jack Abuhoff - Chairman & Chief Executive Officer Robert O’Connor - Chief Financial Officer Conference Call Participants Tim Clarkson - Van Clemens Operator Good morning, and welcome to the Innodata Third Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Agress. Please ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number: 001-35774 INNODATA INC. (Exact name of registrant as specified in its charter) Delaware 13-3475943 (Stat ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number: 001-35774 INNODATA INC. (Exact name of registrant as specified in its charter) None (Former name, former addr ...

Part I – Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited Q1 2019 financials show revenues at $13.7 million, a $0.5 million net loss, and total assets at $52.7 million, influenced by new lease accounting standards Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $12,161 | $10,869 | | Total current assets | $25,728 | $27,273 | | Right of use asset | $7,784 | - | | Total assets | $52,680 | $46,051 | | Total current liabilities | $14,600 | $14,292 | | Total liabilities | $22,209 | $22,051 | | Total stockholders' equity | $30,471 | $30,566 | Condensed Consolidated Statement of Operations (in thousands, except per share amounts) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenues | $13,694 | $14,120 | | Direct operating costs | $9,560 | $9,894 | | Selling and administrative expenses | $4,602 | $3,916 | | Net loss | $(451) | $(276) | | Loss per share (Basic and diluted) | $(0.02) | $(0.01) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,101 | $1,652 | | Net cash used in investing activities | $(485) | $(625) | | Net cash used in financing activities | $(387) | $(301) | | Net increase in cash and cash equivalents | $1,292 | $772 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business segments, new lease accounting standard adoption, a $7.8 million right-of-use asset, ongoing tax inquiry, and significant client concentration - The company operates in three segments: **Digital Data Solutions (DDS)** as its core business, and two venture businesses, **Synodex** (medical data transformation) and **Agility PR Solutions** (SaaS platform for PR)[24](index=24&type=chunk)[25](index=25&type=chunk) - Effective January 1, 2019, the company adopted the new lease accounting standard (**ASU 2016-02**), recognizing a right-of-use asset and a corresponding lease liability on the balance sheet[58](index=58&type=chunk)[94](index=94&type=chunk) - The company is contesting a tax inquiry in India regarding service classification for periods between July 2012 and November 2016, which could subject approximately **$67.0 million** in revenue to service tax if unsuccessful[77](index=77&type=chunk) - A 2008 judgment in the Philippines against a former subsidiary, purportedly also against Innodata Inc., amounts to approximately **$6.2 million** plus interest The company has obtained a preliminary injunction in the U.S. against enforcement of this judgment[80](index=80&type=chunk) - There is significant client concentration, with two clients in the DDS segment accounting for **26%** of total revenues for the three months ended March 31, 2019[115](index=115&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 3% revenue decrease to $13.7 million, an 18% rise in selling and administrative expenses, and an increased net loss of $0.5 million, while maintaining adequate liquidity [Business Overview](index=28&type=section&id=Business%20Overview) Innodata is a global services and technology company structured into a core DDS segment and venture businesses Synodex and Agility, leveraging a three-tiered AI infrastructure - The company's core business is the **Digital Data Solutions (DDS)** segment, which combines deep neural networks and human expertise to make unstructured information usable for digital products and AI[130](index=130&type=chunk)[132](index=132&type=chunk) - Venture businesses include **Synodex** (SaaS platform for medical data) and **Agility PR Solutions** (SaaS platform for PR professionals), which leverage core capabilities to target specific industry solutions[131](index=131&type=chunk)[155](index=155&type=chunk) - The company's technology infrastructure is built on a **three-tiered system**: an orchestration layer to configure workflows, a microservices layer of deep learning networks for automated tasks, and a human-expert layer for review and continuous machine learning improvement[147](index=147&type=chunk)[148](index=148&type=chunk)[151](index=151&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Q1 2019 total revenues decreased 3% to $13.7 million, direct operating costs remained stable, but selling and administrative expenses rose 18%, leading to a wider $0.5 million net loss Revenues by Segment (in thousands) | Segment | Q1 2019 | Q1 2018 | Change (%) | | :--- | :--- | :--- | :--- | | DDS | $10,177 | $10,477 | -3% | | Synodex | $1,024 | $981 | +4% | | Agility | $2,493 | $2,662 | -6% | | **Total** | **$13,694** | **$14,120** | **-3%** | - Direct operating costs decreased by **$0.3 million** (**3%**) to **$9.6 million**, remaining stable at **70%** of total revenues for both Q1 2019 and Q1 2018[188](index=188&type=chunk) - Selling and administrative expenses increased by **$0.7 million** (**18%**) to **$4.6 million**, primarily driven by a **$0.6 million** increase in the DDS segment due to higher professional fees, incentives, and new hires[193](index=193&type=chunk)[194](index=194&type=chunk) Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | DDS | $565 | $1,231 | | Synodex | $162 | $7 | | Agility | $(257) | $96 | | **Consolidated** | **$470** | **$1,334** | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2019, the company held $12.2 million in cash, with $2.1 million from operating activities, maintaining sufficient liquidity for the next 12 months Liquidity Measures (in thousands) | Measure | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $12,161 | $10,869 | | Working capital | $11,128 | $12,981 | - Of the **$12.2 million** in cash, **$5.7 million** was held by foreign subsidiaries and **$6.5 million** was held in the United States[206](index=206&type=chunk) - Net cash provided by operating activities was **$2.1 million** for the quarter, mainly due to a **$2.5 million** decrease in accounts receivable from improved collection efforts[210](index=210&type=chunk) - The company anticipates capital expenditures of approximately **$1.0 million** to **$2.0 million** over the next 12 months for technology and infrastructure upgrades[213](index=213&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&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[224](index=224&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2019, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2019, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were **effective**[227](index=227&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[228](index=228&type=chunk) Part II – Other Information [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the 'Legal Proceedings' disclosure in the company's 2018 Annual Report on Form 10-K for detailed information - For details on legal proceedings, the report refers to the disclosure in the Annual Report on Form 10-K for the year ended December 31, 2018[230](index=230&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported compared to those disclosed in the company's 2018 Annual Report on Form 10-K - No material changes to risk factors were reported compared to those disclosed in the 2018 Form 10-K[231](index=231&type=chunk) [Other Items (Items 2, 3, 4, 5)](index=45&type=section&id=Other%20Items%20(Items%202,%203,%204,%205)) The company reported no unregistered sales of equity securities, no defaults, no mine safety disclosures, and no other information under Item 5 - The company reported **'None'** for the following items: Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, Mine Safety Disclosures, and Other Information[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) [Exhibits](index=46&type=section&id=Item%206.%20Exhibits) The report lists various exhibits filed with the Form 10-Q, including a Rights Agreement, an Offer of Employment, and CEO/CFO certifications - **Key exhibits** filed include a Rights Agreement (4.1), an Offer of Employment for Robert O'Connor (10.1), and CEO/CFO certifications (31.1, 31.2, 32.1, 32.2)[237](index=237&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) þ Annual report under section 13 or 15(d) of the securities exchange act of 1934 For the fiscal year ended December 31, 2018 ¨ Transition report under section 13 or 15(d) of the securities exchange act of 1934 Commission file number 001-35774 INNODATA INC. (Exact name of registrant as specified in its charter) incorporation or organization) 55 Challenger Road Ridgefield Park, New Jersey 07660 (Address of principal e ...