Innodata Inc.

Good day, everyone, and welcome to today's InnoData Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. You may withdraw yourself from the queue by pressing star and 2. I will be standing by should you need any assistance, and it is now my pleasure to turn the conference over to Amy Acra. Please go ahead.

Thank you, Reza. Good afternoon, everyone. Thank you for joining us today. Our speakers today are Jack Abelhoff, CEO of InnoData, and Mariz Espinelli, Interim CFO. We'll hear from Jack first, who will provide perspective about business, and then Mariz will follow with a review of our results for the third quarter. We'll then take your questions. First, let me qualify the forward-looking statements that are made during the call. These statements are being made pursuant to the safe harbor provisions of Section 21 of the Securities Exchange Act of 1934 as amended and Section 27 of the Securities Act of 1933 as amended. Forward-looking statements include without limitation any statement that may predict, forecast, indicate, or imply future results, performance, or achievements. These 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 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, that contracts may be terminated by customers, projected or committed volumes of work may not materialize, acceptance of our new capabilities, continuing digital data solution segment reliance on project-based work, 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 market, particularly new and emerging markets that our services and solutions support, continuing digital data solution segment revenue concentration in the limited number of customers, potential inability to replace projects that are completed, canceled, or reduced, our dependency on content providers in our agility segment, a continued downturn in or depressed market conditions, whether as a result of the COVID-19 pandemic or otherwise, 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 and solutions, 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, changes in our business or growth strategy, the emergence of new or growth in existing competitors, 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 information customer, employee, or company information, or service interruptions, and various other competitive and technological factors and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission, including our most recent reports on Forms 10Q and 8K and any amendments thereto. We undertake no obligation to update forward-looking information or to announce revisions to any forward-looking statements, except as required by the federal securities laws, and actual results could differ materially from our current expectations. Thank you. I will now turn the call over to Jack.

Good afternoon, and thank you for joining our call. Our Q3 revenue was $18.4 million, exceeding the guidance we provided in our last call. We expect that Q4 revenue will show sequential improvement from Q3. Due to our rigorous focus on costs, we expect to be adjusted EBITDA positive in Q4, and our business plan calls for us to achieve greater than $10 million in adjusted EBITDA next year. As you have probably heard, many of the large tech companies have launched major layoffs and cost-cutting measures. Our large social media customer recently significantly reduced its workforce. And as a consequence, we are seeing interruptions in the work we do for them. We believe our work is critical to their ongoing operational goals and anticipate that our work will likely pick up again as responsibilities of the laid off workers are assigned to other employees. That said, our business plan conservatively is not dependent upon this occurring. Despite these relatively significant disruptions, we managed to show 6% year-over-year growth, which, while not reflective of our ambitions, supports our belief that our business growth engines remain intact. Although the general economic outlook has resulted in longer sales cycles and more levels of customer sign-off, we believe that our products and services are critical to helping our customers stay competitive and achieve their cost and efficiency goals, and that increased spending on such initiatives is a secular trend. Forrester recently recommended companies maintain spending on AI initiatives despite a potentially deep recession looming in order to increase efficiency and stay competitive. And in a recent survey, more than 75 percent of technology leaders said that they expect their firms to be spending more on technology this year, notwithstanding economic uncertainty, with investments focused on cloud computing, machine learning, artificial intelligence, and automation. Outside these transitory issues, we believe our business continues to build momentum. We now have 10 large customers for our AI ML lifecycle services, which we believe will increase their spending with us in 2023, some significantly, based on our current line of sight. Many of these companies have revenues in multiple billions of dollars. In the third quarter, we brought on four of these customers. The use cases we're landing include facial recognition, retail anomaly detection, automation, chat bots, security monitoring, and voice to text. Indeed, we're hoping to be in a position to announce several additional important wins and expansions with these and other customers by year end. Our Synodex business, which enjoys a net retention of over 150%, is also rapidly onboarding new customers. Just yesterday, we announced two new customer wins for our Synodex platform that we believe will together yield approximately $1.1 million of annualized recurring revenue. We also expanded the value of the Synodex engagement from an estimated 1.8 to 2.3 million of anticipated annual recurring revenue as we began ramping up this engagement this month. On the agility front, we've seen 107% year-over-year increase in our year-to-date bookings, and we expect this trend to continue through the remainder of the year as a result of a strong pipeline. We've also increased our mid-market ASP from a year ago by 49%, with large increases in the number of deals significantly exceeding the average. And now that we've launched our new social media listening product, which we announced in September, we're seeing that mid-market deals incorporating this new product are increasing ASP by 200%. To date, we have 20 customers using our new social listening product, and we have 65 prospective customers in our pipeline. Another significant accomplishment is that this year we've continued to expand a new agility customer that is now our largest ever agility customer. We now value them at $628,000 of annual recurring subscription revenue. Moreover, we're expecting this ARR to increase further based on additional expansions. For this customer, we developed a new critical awareness capability that we believe could have broader application in the market. Consequently, We believe that the secular growth trends underlying our business remain robust. Over the past year, we believe that we have proven that we are well positioned to serve the growing AI market, helping companies that are already deep into AI with large-scale data collection and annotation, helping companies that are now getting into AI with model development and deployment, and building AI-enabled applications and platforms. that are blueprints for how to strike the right balance between humans and machines. We believe that the circumstances around our social media customer are unique, neither born out of general market conditions nor out of general economic uncertainty. We remain enthusiastic about our market opportunity and the intrinsic value of our business. I'll now turn the call to go over the numbers, and then we'll open the line for some questions.