Fourth Quarter Revenue Up 35% Year-Over-Year
NEW YORK, NY / ACCESSWIRE / February 22, 2024 / INNODATA INC. (NASDAQ:INOD) today reported results for the fourth quarter and the year ended December 31, 2023.
* Adjusted EBITDA is defined below.
Amounts in this press release have been rounded. All percentages have been calculated using unrounded amounts.
Jack Abuhoff, CEO, said, "We are pleased to announce fourth quarter 2023 revenues of $26.1 million, representing 35% year-over-year growth and 18% sequential growth. We exceeded our guidance of $24.5 million by 6.5% as a result of strong customer demand for generative AI services and our ability to ramp up quickly to meet customer demand. In 2023 overall, we grew revenues 10%.
"It is worth noting that our Q4 2023 year-over-year revenue growth was 39%, versus 35%, and our year-over-year revenue growth was 23%, versus 10%, if we back out revenue from the large social media company that went through a highly-publicized take-private in 2022 in conjunction with which it terminated our services (as well as services from many of its other vendors) and laid off 80% of its staff. This customer contributed $8.5 million in revenue in 2022 and $0.5 million in revenue in Q4 of 2022. Beginning in Q1 2024, revenue from this customer will no longer provide a drag on year-over-year comparisons.
"We are also very pleased to announce fourth quarter Adjusted EBITDA of $4.3 million, exceeding our guidance of $3.7 million by 16%.
"Growth in Q4 was driven primarily by ramp of generative AI development work for one of the Big Five tech companies we signed mid-2023 and also benefited by the start of the generative AI development program with another of the Big Tech customers we announced late last summer.
"In late Q4, the first customer I mentioned signed a three-year deal with us for our current, initial program, with an approximate value of $23 million per year for each of 2024, 2025, and 2026, or $69 million for the three years, based on the not-to-exceed value of the statement of work. We're very proud of this achievement. It came with customer kudos for the work we've done and expressions of interest in expanding the partnership further. That said, and as a cautionary note, investors should understand that there are a number of ways under the SOW that the customer could terminate early or reduce spend if it chose to. We believe the quality of our services will always be the key to enduring customer relationships, not the stated term or value of a contract.
"We're off to a strong start to 2024. We entered the year with master service agreements in place with five of the so-called Magnificent Seven technology companies. With two of these companies, we are now solidly underway. A third also contributed to Q4 growth, with a more significant ramp-up from this customer starting this month. We are optimistic we will grow revenues with all three of these customers in 2024.
"With the remaining two of the five Mag Seven customers, we've barely gotten out of the gate, but we are optimistic about making significant inroads this year. We are also in conversations with several additional companies, including some of the most prominent leaders in generative AI today.
"We believe we have the strategy, business momentum and customer relationships to deliver significant revenue growth in 2024. We will stick with our annual growth target of 20% in 2024 with the intention of over-achieving this."
Abuhoff continued, "In 2024, we will target two broad markets. The first is Big Tech companies that are building generative AI foundation models and we believe are likely to spend significantly on generative AI development. For these Big Tech companies, we provide a range of services they require to support their gen AI programs. One of these services is the creation of instruction data sets. You can think of instruction data sets as the programming used to fine tune large language models. Fine tuning with instruction data sets is what enables the models to understand prompts, to accept instruction, to converse, to apparently reason, and to perform the myriad of incredible feats that many of us have now experienced. We will also be providing reinforcement learning and reward modeling, services which are critical to provide the guardrails against toxic, bias and harmful responses. In addition, we are also involved in model assessment and benchmarking, helping ensure that models meet performance, risk and emerging regulatory requirements. Based on my conversations with several of these companies, as well as public remarks they have made, we believe they are likely to spend hundreds of millions of dollars each year on these services. This spend is separate from and in addition to their spend on data science and compute, the other essential ingredient of high-performing large language models.
"Our second target market is enterprises across a wide range of verticals that seek to integrate and fine-tune generative AI models. These are still early days in terms of enterprise adoption of generative AI, but we believe that a decade from now virtually all successful businesses will have adopted generative AI technologies into their products and operations. For enterprises, our offerings including business process management, in which we re-engineer workflows with AI and LLMs and perform the work as ongoing managed services. We also offer strategic technology consulting, where we work with customers to define roadmaps for AI and LLM integration into both operations and products and build prototypes and proofs-of-concept. We also fine-tune models, both in isolation and as part of larger systems that incorporate other technologies. For enterprises, we are capable of going soup-to-nuts, everything from initial consulting to model selection to finetuning, deployment, and integration, as well as testing and evaluations to ensure that the LLMs are helpful, honest, and harmless.
"Also for enterprises, we offer subscription-based platforms and industry solutions that encapsulate AI - both our own models and leading 3rd party models. Much the way data is at the heart of the programming-like work we do for Big Tech, data is similarly critical to enterprise deployments. Enterprise use cases tend to be highly specific and targeted, requiring models that are trained with industry-specific or domain-specific data or that require significant prompt engineering efforts and in-context learning utilizing carefully curated and organized company data.
"The bottom line here is that data engineering is important for the big tech companies building generative AI foundation models and the enterprises adopting these technologies. Data engineering has been our focus for the past two decades, and we believe we are quite good at it."
Abuhoff concluded, "In response to some questions we've recently been asked by investors:
Marissa Espineli, Interim CFO, added, "Other questions we've gotten recently from investors have been:
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 - 383451
1-877-481-4010 (Domestic Replay)
+1 919-882-2331 (International Replay)
Replay Passcode - 49773
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. 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 certain 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. These forward-looking statements include, without limitation, statements concerning our operations, economic performance, and financial condition. Words such as "project," "believe," "expect," "can," "continue," "could," "intend," "may," "should," "will," "anticipate," "indicate," "predict," "likely," "estimate," "plan," "potential," "possible," "promises," or the negatives thereof, and other similar expressions generally identify forward-looking statements.
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, impacts resulting from the continuing conflict between Russia and the Ukraine and Hamas' attack against Israel and the ensuing conflict; 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; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; the ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services; 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; potential inability to replace projects that are completed, canceled or reduced; continuing DDS segment revenue concentration in a limited number of customers; our dependency on content providers in our Agility segment; difficulty in integrating and deriving synergies from acquisitions, joint ventures 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; 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, 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. These forward-looking statements speak only as of the date hereof.
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.
Company Contact
Marcia Novero
Innodata Inc.
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 use 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 | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | 26,112 | $ | 19,375 | $ | 86,775 | $ | 79,001 | ||||||||
Operating costs and expenses: | ||||||||||||||||
Direct operating costs | 15,948 | 12,740 | 55,482 | 51,533 | ||||||||||||
Selling and administrative expenses | 8,203 | 8,355 | 30,975 | 37,940 | ||||||||||||
Interest expense, net | 57 | 9 | 179 | 11 | ||||||||||||
24,208 | 21,104 | 86,636 | 89,484 | |||||||||||||
Income (loss) before provision for income taxes | 1,904 | (1,729 | ) | 139 | (10,483 | ) | ||||||||||
Provision for income taxes | 248 | 229 | 1,028 | 1,522 | ||||||||||||
Consolidated net income (loss) | 1,656 | (1,958 | ) | (889 | ) | (12,005 | ) | |||||||||
Income (loss) attributable to non-controlling interests | 4 | 2 | 19 | (70 | ) | |||||||||||
Net income (loss) attributable to Innodata Inc. and Subsidiaries | $ | 1,652 | $ | (1,960 | ) | $ | (908 | ) | $ | (11,935 | ) | |||||
Income (loss) per share attributable to Innodata Inc. and Subsidiaries: | ||||||||||||||||
Basic | $ | 0.06 | $ | (0.07 | ) | $ | (0.03 | ) | $ | (0.44 | ) | |||||
Diluted | $ | 0.05 | $ | (0.07 | ) | $ | (0.03 | ) | $ | (0.44 | ) | |||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 28,728 | 27,392 | 28,131 | 27,278 | ||||||||||||
Diluted | 31,983 | 27,392 | 28,131 | 27,278 |
INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,806 | $ | 9,792 | ||||
Short term investments - other | 14 | 507 | ||||||
Accounts receivable, net | 14,288 | 9,528 | ||||||
Prepaid expenses and other current assets | 3,969 | 3,858 | ||||||
Total current assets | 32,077 | 23,685 | ||||||
Property and equipment, net | 2,281 | 2,511 | ||||||
Right-of-use asset, net | 5,054 | 4,309 | ||||||
Other assets | 2,445 | 1,498 | ||||||
Deferred income taxes, net | 1,741 | 1,475 | ||||||
Intangibles, net | 13,758 | 12,526 | ||||||
Goodwill | 2,075 | 2,038 | ||||||
Total assets | $ | 59,431 | $ | 48,042 | ||||
LIABILITIES, NON-CONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable, accrued expenses and other | $ | 9,245 | $ | 9,880 | ||||
Accrued salaries, wages and related benefits | 7,799 | 6,136 | ||||||
Income and other taxes | 3,848 | 3,230 | ||||||
Long-term obligations - current portion | 1,261 | 877 | ||||||
Operating lease liability - current portion | 782 | 693 | ||||||
Total current liabilities | 22,935 | 20,816 | ||||||
Deferred income taxes, net | 22 | 65 | ||||||
Long-term obligations, net of current portion | 6,778 | 5,079 | ||||||
Operating lease liability, net of current portion | 4,701 | 4,036 | ||||||
Total liabilities | 34,436 | 29,996 | ||||||
Non-controlling interests | (708 | ) | (727 | ) | ||||
STOCKHOLDERS' EQUITY | 25,703 | 18,773 | ||||||
Total liabilities, non-controlling interests and stockholders' equity | $ | 59,431 | $ | 48,042 |
INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Year Ended | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net loss | $ | (889 | ) | $ | (12,005 | ) | ||
Adjustments to reconcile consolidated net loss to net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation and amortization | 4,716 | 3,889 | ||||||
Stock-based compensation | 4,027 | 3,283 | ||||||
Deferred income taxes | (276 | ) | 217 | |||||
Provision for doubtful accounts | 426 | 480 | ||||||
Pension cost | 1,046 | 943 | ||||||
Loss on lease termination | - | 125 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (5,116 | ) | 1,303 | |||||
Prepaid expenses and other current assets | 372 | (226 | ) | |||||
Other assets | (171 | ) | 750 | |||||
Accounts payable, accrued expenses and other | (490 | ) | 322 | |||||
Accrued salaries, wages and related benefits | 1,653 | (310 | ) | |||||
Income and other taxes | 605 | 13 | ||||||
Net cash provided by (used in) operating activities | 5,903 | (1,216 | ) | |||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (5,564 | ) | (6,526 | ) | ||||
Proceeds from (purchase of) short term investments - others | 493 | (507 | ) | |||||
Net cash used in investing activities | (5,071 | ) | (7,033 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 3,324 | 332 | ||||||
Payment of long-term obligations | (452 | ) | (639 | ) | ||||
Net cash provided by (used in) financing activities | 2,872 | (307 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 310 | (554 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 4,014 | (9,110 | ) | |||||
Cash and cash equivalents, beginning of year | 9,792 | 18,902 | ||||||
Cash and cash equivalents, end of year | $ | 13,806 | $ | 9,792 |
INNODATA INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
Consolidated | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income (loss) attributable to Innodata Inc. and Subsidiaries | $ | 1,652 | $ | (1,960 | ) | $ | (908 | ) | $ | (11,935 | ) | |||||
Provision for income taxes | 248 | 229 | 1,028 | 1,522 | ||||||||||||
Interest expense | 105 | 9 | 400 | 11 | ||||||||||||
Depreciation and amortization | 1,237 | 1,053 | 4,716 | 3,889 | ||||||||||||
Severance** | - | - | 580 | - | ||||||||||||
Stock-based compensation | 1,029 | 913 | 4,027 | 3,283 | ||||||||||||
Non-controlling interests | 4 | 2 | 19 | (70 | ) | |||||||||||
Adjusted EBITDA (loss) - Consolidated | $ | 4,275 | $ | 246 | $ | 9,862 | $ | (3,300 | ) | |||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
DDS Segment | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income (loss) attributable to DDS Segment | $ | 974 | $ | (501 | ) | $ | 223 | $ | (711 | ) | ||||||
Provision for income taxes | 246 | 228 | 1,018 | 1,423 | ||||||||||||
Interest expense | 104 | 9 | 395 | 10 | ||||||||||||
Depreciation and amortization | 351 | 211 | 1,161 | 694 | ||||||||||||
Severance** | - | - | 33 | - | ||||||||||||
Stock-based compensation | 986 | 760 | 3,511 | 2,690 | ||||||||||||
Non-controlling interests | 4 | 2 | 19 | 4 | ||||||||||||
Adjusted EBITDA - DDS Segment | $ | 2,665 | $ | 709 | $ | 6,360 | $ | 4,110 | ||||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
Synodex Segment | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income (loss) attributable to Synodex Segment | $ | 238 | $ | (282 | ) | $ | 219 | $ | (2,525 | ) | ||||||
Depreciation and amortization | 144 | 174 | 623 | 656 | ||||||||||||
Severance** | - | - | 6 | - | ||||||||||||
Stock-based compensation | (10 | ) | 130 | 167 | 258 | |||||||||||
Non-controlling interests | - | - | - | (74 | ) | |||||||||||
Adjusted EBITDA (loss) - Synodex Segment | $ | 372 | $ | 22 | $ | 1,015 | $ | (1,685 | ) | |||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
Agility Segment | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net income (loss) attributable to Agility Segment | $ | 440 | $ | (1,177 | ) | $ | (1,350 | ) | $ | (8,699 | ) | |||||
Provision for income taxes | 2 | 1 | 10 | 99 | ||||||||||||
Interest expense | 1 | - | 5 | 1 | ||||||||||||
Depreciation and amortization | 742 | 668 | 2,932 | 2,539 | ||||||||||||
Severance** | - | - | 541 | - | ||||||||||||
Stock-based compensation | 53 | 23 | 349 | 335 | ||||||||||||
Adjusted EBITDA (loss) - Agility Segment | $ | 1,238 | $ | (485 | ) | $ | 2,487 | $ | (5,725 | ) |
** 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 December 31, | Year Ended December 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
DDS | $ | 19,646 | $ | 13,579 | $ | 61,576 | $ | 56,523 | ||||||||
Synodex | 1,807 | 1,729 | 7,511 | 7,105 | ||||||||||||
Agility | 4,659 | 4,067 | 17,688 | 15,373 | ||||||||||||
Total Consolidated | $ | 26,112 | $ | 19,375 | $ | 86,775 | $ | 79,001 | ||||||||
SOURCE: Innodata Inc.