Innodata(INOD)2024-02-23 03:33Financial 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]