Innodata(INOD) - 2023 Q3 - Quarterly Report

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$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$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$1.8 million, primarily due to lower volume from existing customers[151]. - Agility segment revenues increased to $4.4 million, a 16$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$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$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$2.2 million, due to cost optimization efforts[157]. - Direct operating costs for the Agility segment decreased to $2.0 million, a 9$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$2.4 million in Q3 2023 from $1.7 million in Q3 2022, with a gross margin of 55$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].