RCS - Innodata Inc. - Innodata Reports First Quarter 2023 Results
12/05/2023 08:15
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RNS Number : 1768Z Innodata Inc. 12 May 2023
Innodata Announces Potentially Transformative Deals in Generative AI with
Three of the Largest Global Tech Companies and Reports First Quarter 2023
Results
NEW YORK, NY / ACCESSWIRE / May 12, 2023 / INNODATA INC. (NASDAQ:INOD) today
reported results for the first quarter ended March 31, 2023.
· Revenue for the quarter ended March 31, 2023 was $18.8 million,
compared to revenue of $21.2 million in the same period last year. The
comparative period included $4.4 million in revenue from a large social media
company that underwent a significant management change in the second half of
last year, as a result of which it dramatically pulled back spending across
the board. There was no revenue from this company in the quarter ended March
31, 2023.
· Net loss for the quarter ended March 31, 2023 was $2.1 million,
or $0.08 per basic and diluted share, compared to a net loss of $2.8 million,
or $0.10 per basic and diluted share, in the same period last year.
· Adjusted EBITDA was $0.8 million in the first quarter of 2023,
compared to Adjusted EBITDA loss of $1.0 million in the same period last year.
*
· Cash, cash equivalents and short-term investments were $10.8
million at March 31, 2023, consisting of cash and cash equivalents of $10.3
million and short-term investment of $0.5 million, and $10.3 million at
December 31, 2022, consisting of cash and cash equivalents of $9.8 million and
short-term investment of $0.5 million.
* Adjusted EBITDA is defined below.
The amounts in this press release have been rounded. All percentages have been
calculated using unrounded amounts.
Jack Abuhoff, CEO, said, "Over the last couple of weeks, we received verbal
confirmation from two of the largest five global technology companies that we
have been selected to provide data engineering for their innovation programs
in generative AI, the technology behind Chat GPT. One of these companies is an
existing customer and the other one will be a new customer. In addition, a
third company, also a new customer and another of the largest five global
technology companies, has indicated that they are likely to choose us, and we
have just reached agreement with them on terms of a master services agreement.
We believe these accomplishments are potentially transformative for Innodata."
Abuhoff continued, "For these companies, we expect to be performing a range of
data engineering work required to build cutting-edge generative AI. We expect
this potentially to include: creating training data sets that are used to
train the models; providing instruction data sets that teach the models to
follow instructions; providing reinforcement learning, a process by which we
align models with human values and complex use cases; and providing red
teaming and model performance evaluation. This work involves potentially
working in multiple languages and across several data modalities.
"With our existing customer, we are in the process of putting in place the
work order for our new win. With the two new customers, we are now in the
process of putting in place formal agreements and finalizing initial scope.
While we are confident that agreements will be inked, until this happens,
there is always the chance that it does not.
"The deals are potentially large. To illustrate, one of the new customers has
indicated that it will cut an initial purchase order for $2.5 million to get
us started, but it will be supplementing that as we move forward. They also
shared with us their vision for where the initial scope of work might go,
which, if fully realized, we believe could result in approximately $12 million
dollars of new quarterly revenues at maturity. Moreover, the draft contracts
that are now being worked on are, at the customers' requests, framework
agreements that enable the customers to easily add scope.
"Again, I want to emphasize that deals with the two new potential customers
have not yet been signed, but we are expecting to get them signed and for the
details to be worked out over the next few weeks.
"Based on our experience, we believe that these engagements will ramp up over
the course of several months. Typically, once an agreement is finalized, we
work with the customer to create detailed specifications and run pilots to
ensure that the specifications are yielding the intended results. Often times,
this requires several iterations. Once the specification is locked down, our
next step is to put in place the required infrastructure. This includes
custom-configuring technology systems, finalizing process designs, and
assembling human resources - data engineers and subject matter experts. This
can take two to three months typically. Once this is completed, ramp-up
begins. We typically ramp up slowly so that we can continue to test and refine
as necessary with the customer. Ramp-up can take three to six months to
achieve steady-state. The duration of the engagement will depend on many
factors, including the size of the model being built and the amount of ongoing
updating and tuning that will be taking place. These are often not knowable in
advance.
"This is a dynamic process, with customer dependencies and checkpoints
throughout, which makes it tough to do quarterly forecasting, but based on our
experience, the end result that gets us to full ramp up is typically achieved
in a roughly 12-month period.
"In terms of Q1, revenue was $18.8 million and Adjusted EBITDA was $800
thousand dollars. There was no revenue in the quarter from the three deals we
are announcing today, all of which happened in just the past couple of weeks,
well after Q1 close. It is also worth noting that there was no revenue in the
quarter from the large social media company which contributed $4.4 million in
revenue in Q1 of last year but dramatically pulled back spending in the second
half of last year as it underwent a significant management change. If we back
out revenue from this large social media company, our revenue growth in the
quarter over Q1 2022 would have been 12%. We believe that it is possible that
business from this customer could resume in the second half, but our 2023
business plan does not account for this upside. Our 2023 business plan also
does not account for revenue from the two new customers we have spoken about
today. Even without these elements incorporated, we expect that, exiting this
year, our revenue growth rate could potentially be high teens (or in the 20s,
backing out from 2022 the large social media company we just discussed) and
that our Adjusted EBITDA run rate could potentially exceed $15 million dollars
on an annualized basis."
Abuhoff concluded, "We ended the quarter with a healthy balance sheet - no
appreciable debt and $10.8 million in cash and short-term investments on the
balance sheet."
Timing of Conference Call with Q&A
Innodata will conduct an earnings conference call, including a
question-and-answer period, at 5:00 PM eastern time today. You can participate
in this call by dialing the following call-in numbers:
The call-in numbers for the conference call are:
1-888-506-0062 (Domestic)
+1 973-528-0011 (International)
Participant Access Code 408622
1-877-481-4010 (Domestic Replay)
+1 919-882-2331 (International Replay)
Replay Passcode 48182
It is recommended that participants dial in approximately 10 minutes prior to
the start of the call. Investors are also invited to access a live Webcast of
the conference call at the Investor Relations section of www.innodata.com
(https://pr.report/YLQMnUt0) . Please note that the Webcast feature will be in
listen-only mode.
Call-in or Webcast replay will be available for 30 days following the
conference call.
About Innodata
Innodata (NASDAQ: INOD) is a global data engineering company delivering the
promise of AI to many of the world's most prestigious companies. We provide
AI-enabled software platforms and managed services for AI data
collection/annotation, AI digital transformation, and industry-specific
business processes. Our low-code Innodata AI technology platform is at the
core of our offerings. In every relationship, we honor our 30+ year legacy
delivering the highest quality data and outstanding service to our customers.
Visit www.innodata.com to learn more.
Forward Looking Statements
This press release may contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. Words such as "project,"
"believe," "expect," "can," "continue," "could," "intend," "may," "should,"
"will," "anticipate," "indicate," "forecast," "predict," "likely," "goals,"
"estimate," "plan," "potential," "promises," or the negatives thereof and
other similar expressions generally identify forward-looking statements, which
speak only as of the date hereof.
These forward-looking statements are based on management's current
expectations, assumptions and estimates and are subject to a number of risks
and uncertainties, including without limitation, the expected or potential
effects of the novel coronavirus ("COVID-19") pandemic and the responses of
governments, the general global population, our customers, and the Company
thereto; impacts resulting from the rapidly evolving conflict between Russia
and the Ukraine; investments in large language models; that contracts may be
terminated by customers; projected or committed volumes of work may not
materialize; pipeline opportunities and customer discussions which may not
materialize into work or expected volumes of work; continuing reliance on
project-based work in the Digital Data Solutions ("DDS") segment and the
primarily at-will nature of such contracts and the ability of these customers
to reduce, delay or cancel projects; the likelihood of continued development
of the markets, particularly new and emerging markets, that our services
support; continuing DDS segment revenue concentration in a limited number of
customers; potential inability to replace projects that are completed,
canceled or reduced; our dependency on content providers in our Agility
segment; difficulty in integrating and deriving synergies from acquisitions,
joint venture and strategic investments; potential undiscovered liabilities of
companies and businesses that we may acquire; potential impairment of the
carrying value of goodwill and other acquired intangible assets of companies
and businesses that we acquire; a continued downturn in or depressed market
conditions; changes in external market factors; the ability and willingness of
our customers and prospective customers to execute business plans that give
rise to requirements for our services; changes in our business or growth
strategy; the emergence of new, or growth in existing competitors; various
other competitive and technological factors; our use of and reliance on
information technology systems, including potential security breaches,
cyber-attacks, privacy breaches or data breaches that result in the
unauthorized disclosure of consumer, customer, employee or Company
information, or service interruptions; and other risks and uncertainties
indicated from time to time in our filings with the Securities and Exchange
Commission.
Our actual results could differ materially from the results referred to in
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, uncertainty around the COVID-19
pandemic and the effects of the global response thereto and the risks
discussed in Part I, Item 1A. "Risk Factors," Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
other parts of our Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on February 24, 2023, as updated or amended by our other
filings that we may make with the Securities and Exchange Commission. In light
of these risks and uncertainties, there can be no assurance that the results
referred to in the forward-looking statements will occur, and you should not
place undue reliance on these forward-looking statements.
We undertake no obligation to update or review any guidance or other
forward-looking statements, whether as a result of new information, future
developments or otherwise, except as may be required by the Federal securities
laws. These forward-looking statements speak only as of the date hereof.
Company Contact
Marcia Novero
Innodata Inc.
Mnovero@innodata.com (mailto:Mnovero@innodata.com)
(201) 371-8015
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity with U.S. GAAP
("GAAP"), we provide certain non-GAAP financial information. We believe that
these non-GAAP financial measures assist investors in making comparisons of
period-to-period operating results. In some respects, management believes
non-GAAP financial measures are more indicative of our ongoing core operating
performance than their GAAP equivalents by making adjustments that management
believes are reflective of the ongoing performance of the business.
We believe that the presentation of this non-GAAP financial information
provides investors with greater transparency by providing investors a more
complete understanding of our financial performance, competitive position, and
prospects for the future, particularly by providing the same information that
management and our Board of Directors uses to evaluate our performance and
manage the business. However, the non-GAAP financial measures presented in
this press release have certain limitations in that they do not reflect all of
the costs associated with the operations of our business as determined in
accordance with GAAP. Therefore, investors should consider non-GAAP financial
measures in addition to, and not as a substitute for, or as superior to,
measures of financial performance prepared in accordance with GAAP. Further,
the non-GAAP financial measures that we present may differ from similar
non-GAAP financial measures used by other companies.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc.
and its subsidiaries in accordance with U.S. GAAP before interest expense,
income taxes, depreciation and amortization of intangible assets (which
derives EBITDA), plus additional adjustments for loss on impairment of
intangible assets and goodwill, stock-based compensation, income (loss)
attributable to non-controlling interests, non-recurring severance, and other
one-time costs.
We use Adjusted EBITDA to evaluate core results of operations and trends
between fiscal periods and believe that these measures are important
components of our internal performance measurement process.
A reconciliation of Adjusted EBITDA to the most directly comparable GAAP
measure is included in the tables that accompany this release.
INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share amounts)
Three Months Ended
March 31,
2023 2022
Revenues $ 18,839 $ 21,192
Operating costs and expenses:
Direct operating costs 12,874 13,414
Selling and administrative expenses 7,797 10,190
Interest expense, net 63 3
20,734 23,607
Loss before provision for income taxes $ (1,895 ) $ (2,415 )
Provision for income taxes 218 475
Consolidated net loss (2,113 ) (2,890 )
Income (loss) attributable to non-controlling interests 3 (75 )
Net Loss attributable to Innodata Inc. and Subsidiaries $ (2,116 ) $ (2,815 )
Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic and Diluted $ (0.08 ) $ (0.10 )
Weighted average shares outstanding:
Basic and Diluted 27,460 27,158
INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, 2023 December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents $ 10,330 $ 9,792
Short term investments - other 512 507
Accounts receivable, net 8,462 9,528
Prepaid expenses and other current assets 4,189 3,858
Total current assets 23,493 23,685
Property and equipment, net 2,590 2,511
Right-of-use asset, net 4,109 4,309
Other assets 2,252 1,498
Deferred income taxes, net 1,583 1,475
Intangibles, net 13,064 12,526
Goodwill 2,044 2,038
Total assets $ 49,135 $ 48,042
LIABILITIES, NON-CONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other $ 9,068 $ 9,880
Accrued salaries, wages and related benefits 6,766 6,136
Income and other taxes 3,582 3,230
Long-term obligations - current portion 1,121 877
Operating lease liability - current portion 633 693
Total current liabilities 21,170 20,816
Deferred income taxes, net 57 65
Long-term obligations, net of current portion 6,288 5,079
Operating lease liability, net of current portion 3,926 4,036
Total liabilities 31,441 29,996
Non-controlling interests (724 ) (727 )
STOCKHOLDERS' EQUITY 18,418 18,773
Total liabilities, non-controlling interests and stockholders' equity $ 49,135 $ 48,042
INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2023 2022
Cash flows from operating activities:
Consolidated net loss $ (2,113 ) $ (2,890 )
Adjustments to reconcile consolidated net loss to net cash
provided by operating activities:
Depreciation and amortization 1,091 873
Stock-based compensation 962 537
Deferred income taxes (94 ) 44
Pension cost 253 11
Loss on lease termination - 125
Changes in operating assets and liabilities:
Accounts receivable 1,149 487
Prepaid expenses and other current assets 158 (63 )
Other assets 21 144
Accounts payable, accrued expenses and other (608 ) (533 )
Accrued salaries, wages and related benefits 627 (407 )
Income and other taxes 338 176
Net cash provided by (used in) operating activities 1,784 (1,496 )
Cash flows from investing activities:
Capital expenditures (1,702 ) (1,939 )
Purchase of short term investments - others (5 ) -
Net cash used in investing activities (1,707 ) (1,939 )
Cash flows from financing activities:
Proceeds from stock option exercises 321 26
Payment of long-term obligations (70 ) (39 )
Redemption of non-controlling interest - 1
Net cash provided by (used in) financing activities 251 (12)
Effect of exchange rate changes on cash and cash equivalents 210 (28 )
Net increase (decrease) in cash and cash equivalents 538 (3,475 )
Cash and cash equivalents, beginning of period 9,792 18,902
Cash and cash equivalents, end of period $ 10,330 $ 15,427
INNODATA INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands)
Three Months Ended March 31,
Consolidated 2023 2022
Net loss attributable to Innodata Inc. and Subsidiaries $ (2,116 ) $ (2,815 )
Provision for income taxes 218 475
Interest expense, net 63 3
Depreciation and amortization 1,091 873
Severance** 580 -
Stock-based compensation 962 537
Non-controlling interests 3 (75 )
Adjusted EBITDA / (loss) $ 801 $ (1,002 )
Three Months Ended March 31,
DDS Segment 2023 2022
Net income (loss) attributable to DDS Segment $ (641 ) $ 763
Provision for income taxes 215 533
Interest expense, net 62 3
Depreciation and amortization 225 224
Severance** 33 -
Stock-based compensation 806 371
Non-controlling interests 3 -
Adjusted EBITDA $ 703 $ 1,894
Three Months Ended March 31,
Synodex Segment 2023 2022
Net income (loss) attributable to Synodex Segment $ 14 $ (785 )
Depreciation and amortization 162 41
Severance** 6 -
Stock-based compensation 58 49
Non-controlling interests - (75 )
Adjusted EBITDA / (loss) $ 240 $ (770 )
Three Months Ended March 31,
Agility Segment 2023 2022
Net loss attributable to Agility Segment $ (1,489 ) $ (2,793 )
Provision for income taxes 3 (58 )
Interest expense, net 1 -
Depreciation and amortization 704 608
Severance** 541 -
Stock-based compensation 98 117
Adjusted EBITDA (loss) $ (142 ) $ (2,126 )
**Represents non-recurring severance incurred for a reduction in headcount in
connection with the re-alignment of the Company's cost structure.
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED REVENUE BY SEGMENT
(Unaudited)
(In thousands)
Three Months Ended March 31,
2023 2022
Revenues:
DDS $ 12,746 $ 15,911
Synodex 1,865 1,669
Agility 4,228 3,612
Total Consolidated $ 18,839 $ 21,192
SOURCE: Innodata Inc.
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