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Innodata (INOD)

Participants
Amy Agress SVP, General Counsel & Corporate Secretary
Raj Jain Principle Financial Officer
Jack Abuhoff Chairman, President & CEO
Tim Clarkson Van Clemens & Company
Joe Furst Furst Associates
Charlie Pine Van Clemens & Co.
Tim Clarkson Van Clemens & Company
Call transcript
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Operator

Good morning, and welcome to the Innodata Q4 and Fiscal 2017 Results Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Amy Agress. Please go ahead, ma'am.

Amy Agress

Thank you, Rely. everyone. morning, Good joining for Thank us you today.

the detailed today CEO will with and speakers hear fourth Raj provide quarter about Abuhoff, both XX-months additional results Financial XXXX. Chairman Innodata; and from And a then will take who December Jack and of first, of Raj the follow We'll your business. We'll our for Our questions. Officer. are review ended Jain, XX, the Principle our Jack then perspective

time a that are statements limitation, statements risks contracts primarily that forward-looking work made a the during on by These nature Digital qualify me will inability including, that that and let of other services; assets for acquire; call. are are changes potential the terminated of and content and ventures be Data may our clients that completed intangible companies clients; projects; Solutions the We no reduced; First, on prospective will segment various providers in joint impairments undiscovered in not we our revenue without number may our ability market our requirements over could and or from to and depressed goodwill clients update value client the and difficulty that now our we Solutions market turn of and, obligation Media external may Exchange and of canceled to uncertainties the Commission. with of companies in forward-looking driving Digital of filings call information Securities and current which subject ability in projected other segment; materialize, growing execute cancel businesses our strategy; liabilities plans, largely materially. number investments; acquire; risks growth factors; results contracts and carrying of competitive volumes these based undertake from and or expectations of rise Raj. acquired integrating business clients strategic changes uncertainties competitors; the delay willingness businesses that of emergence conditions; Intelligence indicated and I time may and to acquisitions, committed potential with Data dependency business are the synergies give Solutions replace reduce, to in and actual technological projects or in and limited to other the of to factors; our continuing new or of our or concentration to to differ clients;

Raj Jain

quarter review you additional the for review financial perspective Jack Thank you, performance our everyone. performance XXXX to for on later will will performance. quarterly today joining fiscal the XXXX. morning, Amy. I then Thank us and business. Good start fourth and year the provide fiscal

prior to X.X million the year. to the in Intelligence. amounted Intelligence. of press X.X allocated to allocated revenues cost million, to Our data both million X.X XX.X costs the compared were to million that Media to we Digital and release. million digital which Media XXXX XX.X these in and and to what In XXX,XXX Data incurred XXXX, were In amounted costs set X.X and one-time out today’s one-time charges In charges years, and in we solutions which million XXXX, one-time Solutions XXX,XXX what charges allocated

in impact XXXX, XXXX. in our the to X.X charges compared Excluding these million of was EBITDA adjusted one-time million X.X

key quarter revenues prior In XXXX. the million is in I’ll performance DDS mentioned in XX.X and revenues comparisons increase million $XX.X XX% were to segment, $XXX,XXX an Media came higher entirely reflects and Intelligence the quarter, $X.X $X.X $X.X XXXX fourth performance were quarter were and our or July My the to of adjusted revenues million revenues acquired quarter. segment the the compared of margin million DDS quarter $X.X million segment margins result X.X segments basis Our down will XXXX now XXXX. increase I'll The compared in of excluding compared margins fourth million. quarter line in due On X.X excluding of XX% XX% XXX,XXX in losses segment declines on Media XXXX. SG&A XXXX or incremental to charges revenues in review million were revenue $X.X our cost loss now And X.X for with versus to of the third to efficiencies. in X.X by customers. were and Data Total DDS, of were million Media primarily in than and quarter impact Agility XXXX. The or increase the the compared million items million quarter. -- XX% Agility level, coupled quarterly the in XXXX. consolidated these our segment declines. administrative were $X.X Solutions the of production in to in our gross $X.X level, revenue quarter. increase costs in increased three revenues gross of the margins Data of in fourth were charges. to IADS is DDS, IDS to again seasonal. issues XXXX XX% from acquisition $X.X margins the X.X million in gross in related to to a our the million fourth increased primarily a margin to the revenues XXXX $XX XXXX IDS sequential million to in cost revenues this year's revenues Media is our in IADS The of XXXX, million million basis, primarily to both Higher up that or third Intelligence. cost existing quarter. million X.X XXX,XXX IADS of and were business million, EBITDA Net increase were expenses. from million and quarter. from XXXX. million million $XXX,XXX in primarily In expense we calls. of million the from loss quarter DDS of million XX% or million and XXXX prior in exclude compared by drill IADS, of In EBITDA were primarily in quarter in acquisition a earlier Selling revenues. Gross was in and to was or in Intelligence lower review in Intelligence XXXX. SG&A current account general gross in Revenues SG&A $XX.X segment million. all one-time million the increase and prior fourth $XX the $X.X $X.X X% breakeven. $X The quarter. the million or third offset on in margin quarter. revenues prior Intelligence. comparing DDS revenues gross SG&A due were now excluding EBITDA At Digital third quarter the than year. in our in onetime the X.X in in basis, increase transition In the in efficiencies. planned segment increased driven third XXXX. in onetime X% from versus compared increased quarter last rose $X.X to the the $X.XX margins in XX% in amortization from conference X.X related and the the year-over-year $XXX,XXX revenues the cost up Adjusted SG&A was have million revenues $X.X I'll third The $X.X of Media gross $X.X revenues EBITDA or Intelligence our million At income in or XX% efficiencies the increased $XXX,XXX costs revenues was Growth costs business. of in in Digital in new $X.X and Media $XXX,XXX in in in XX% segment to X.X or Solutions both million adjusted the a from million quarter, X.X costs. from On compared million fourth comprised with losses in in helped revenues, was costs increase reduce million XX.X this

in current of in EBITDA Media compared $XXX,XXX of a $XXX,XXX and IADS, the quarter. the prior was loss The million $X current quarter $XXX,XXX comprised $XXX,XXX adjusted Intelligence. to DDS, is Our in adjusted EBITDA in in quarter

a deducting recorded interest, quarter the in to compared Moving tax compared net an quarter. our third the quarter in expense $XXX,XXX last the and earnings, earnings quarter. of fourth tax we fourth to income $XXX,XXX were $XXX,XXX million to expense loss $X.X benefit of of net a minority in net After tax

million million Our to in the cash quarter in $XX.X in investment compared fourth balance quarter. the was third $XX.X

exposure approximately to currency of and was $XXX,XXX our to this million first the the we of contracts the at now foreign At end a program our market, in for gain had $XXX,XXX CapEx year, expenses. $X.X will $XXX,XXX. on $XX revenues quarter end contracts the to the denominated quarter. $XXX,XXX foreign I previous the expect hedging forward quarter. Based hedge to million mark has of range a other proportion fourth in forward to our notional quarter, outstanding turn CapEx Our of be and we In items. of in compared to the

We law contain the on in the differ U.S. from a Cuts range president have and XXXX at had This of previous tax evaluated many provisions loss. end U.S. into included impact Tax Jobs the Act company. of of those which of signed that significantly the broad

of did the income U.S. revise company the earnings. the U.S. not on of our provision both generally income of previous from available not one-time resulting foreign have foreign of tax the the Corporation until the offset the rata subsidiaries, a to net We to of the U.S. impact Corporation respect tax provision any share as One must loss U.S. foreign Corporation. income generally include This distributed on income was against the were part with tax the operating loss provision as evaluation the act Under new was forward. the new XXXX lot, cash subject its didn’t to the in subsidiaries. income operations. new Under undistributed are provisions historical pro from the as flow carry

into taking income after As and new offset net operating of we the loss carry account $XX about million year-end have in against provision, under tax the foreign forwards.

Jack. first to of X.X for of revenue the revenue to guidance the $X.X million in of now million. quarter range of million. $XX.X in to million expect to I’ll range of the of of revenue you first the our growing we the range range $X.X XX.X to to $X IDS million and consisting terms XXXX, million be million in call MIS $X.X DDS revenues pass the million and in quarter over Thank In $XX

Jack Abuhoff

Thank today. morning, you, Raj. Good us everyone. you joining for Thank

of We’re Solutions to at provide performance core each other recently. some made going Digital quarter’s we for additional our announcements and segments I’ll the Data start context with our business. in

to than due Our of the fourth quarter by revenue revenue volume quarter X% higher increases our across is about third projects. handful

win the it Declines declined to underperformed the backlog year Looking value, revenue as record recognize booking that in was following failed at other sales enough XXXX. in performance. is year. sales we revenue of business whole a that but direct business book however, XXXX new the its we the XX side. estimated to on in million. the a XXXX and or XX half year in million, with as half with same the revenue disappointing roughly We DDS in revenue When we becomes we which XXXX

We in which bookings that we was of XXXX, million, exited out saw our XX.X as our to XXXX XXXX no we XXXX. revenue. regard recurring better XX% were that bookings turn in to our As backlog roughly be

outlook. place in decided variable XX operating million our structure would plan on as with did even revenue in approximately This costs have way put sales XXXX XXXX not align align over were our alignment cost conservative plan a a booking as significant X.X cost to structure improvement. we bookings costs The our our well nonetheless Under not Our to adjusted XXXX. certain savings by technology primarily EBITDA XXXX our Based and fixed excluding production secondly a with from labor reductions lowered fixed performance. to facility support production delivery that to from and revenue cost we And consolidation, cost on results million revenue costs including costs, lower significantly improve and cost cost XXXX. savings from too assume be come our outlook performance onetime to improved, might that improve this, about first innovation. statements

consists servant's charge restructuring costs reduction. of Our related cost $X.X million to this

to marketing important in with either overtime. have or which I shade or both think note associated investment we costs we sales to intend it is R&D that barriers no increase

In which focusing are addition key drive earnings performance, that propel to the to we the and value. bookings the is cost operating improving on takeout, will leverage our unlocking shareholder

driving have this successful we end, responsibility AI has customers. with very R&D that and for heart board course business. the the can innovations these put best on down DDS our to reverse and technologies that Towards focus the that doubling new more our on take doing direct I asked believe of efforts conversations we our machine recent learning I at by

in tools the they challenge will transformation and that are we efforts at that The datasets. report will strategies our increasingly be addition, is In in data to solutions towards and to analytics. raw digital data go-to-market enterprises value align disparate data move manage aligning is creating complexities seek our unprepared services, now looking incorporate I'll and we problem capabilities extraction, with many our advanced enterprises redoubling from and which the this workflow enrichment. our are business. It global Synodex in into to to awakening,

as to improvement We're we business XX% over this new is of as up successful start efficiency the pleased segment at we annual the revenue we the achieved the our customer value result producing in a Synodex a as winning technology. continued that was we with profitability this In early result quarter, new quarter due engagement to continued and in last $XXX,XXX The the of contract is primarily demand. opportunity large were last by and anticipated, contract saw and Synodex quarter. As up improvement current seasonal in expected winning anticipated to the last over call. operating QX. our whole The report to revenue of a XX% quarter was QX approximately IADS

underwritten last business to portion curtail insurance decided anticipated also its supports. of complex other our we As our the that which is business one their medically time, has accounts current life of product

no our they result, services will a longer QX. As require after

Fortunately, offset loss. our win should new this

million in we're have Our [has that about value to pipeline at total $XX opportunities active approximately $X.X are of contract which budget. stands] annual value, pursuing of most million appeared

remains turn our Although the business. Agility to progress slow. I'll now

media enterprise quarter-to-date from monitoring $X.X new subscription-based QX, QX, we value, QX. In monitoring added indicators and customers of generation. leading in our distribution sequential Our annual with new as increase business products Agility total both analysis Agility of includes increases in our an bookings generation. see of well $XXX,XXX continue SaaS as of our And for terms In business were million, targeting, Media contract X% like QX, XX we media making and solutions. of this business much to our strongest quarterly new revenues

over over leads or completed qualified increased QX by marketing demos and XX% by Our increased XX% MQL our QX.

a of renewed year, on On these these the We acquisition acquire cycle been the QX. we PR discussing issues. either customers last we from inherited had product Newswire customers or that side, see will non-engaged, we’re customer last have think, calls, we database number large Agility as the related in we not retention result as when of other non-renewing using the a not and out of

that compelling, we In enables media but monitor text backend the QX, new via companies systems, just In Excluding and net images. media This to our their a that example, functions. customers enabled feature to to our has and retention they analyze powered QX. integration quarterly how streams with our an which images not to roadmap new early In want, customer shareable improving, been new based enables customer to is in references our engage to useful released these that AI track and to called for shift target with clients activity. also our innovative and beginning are. released logo social usage on-brand influencers their product expect now engineering customers, completed increases engineering for feature brand we team we or has influencer features our showing QX, be and we on steadily QX,

activity our XXXX, move performance. in improve engaged we As operating level we Board to deeply into

announced assessment make on segments. As formed special of our committee to board X, we in-depth December an our a

promising shareholder has course our the to Agility recurring and the to complexity each provide improve objective toward Our challenges and of have investments community and creating complex. to value business input, company strategy. that expand But To capabilities our and and addressable and is validate to of opportunities particular already core charting markets the the evaluate Angrisani, which external each segments consultant, turnaround adds retained IADS assets this promote valued revenue. leverage offerings these model,

have indicated skills Committee others. with for to to our will of company an consider time standing has In our Board’s which candidates. that final stated is on Outsell respect a our made the and Board core be the aligned In be not emerging best and we hired of committee two nominating addition, they not been announcement, needs. based Nominating it presently the the it assessment market and in the benefit company perform businesses business current could that also Determinations undertaken composition. in ways emerging might reviewing, interviewing have reelection. needs The would to market that be directors help December of to experience overall needs analysis Since

designated, form XX% Mishra, We stock Officer, of our alliance Committee restricted our be paid AK believe of We a directors executives further and of Operating our that the will our shareholders with interest taking in salaries this and stock. I Audit also large. restricted in fees other Chairperson than to to announced, principle, Chief incumbent that in be as to will appears and be fees the directors both

details ready questions. this We’re for Operator, now we’re working implementing through program. is the

Operator

Van first Clarkson from Tim question with & Company. Instructions]. [Operator our Clemens we'll And take

Tim Clarkson

breakeven now? think revenue think on your it what do the at a net typical right you you What revenues? what Hey, number would about mix of is net be do

Raj Jain

You breakeven point? mean the

Tim Clarkson

yeah. Yeah. I actually expenses, taking out the

Raj Jain

go range. give Again, let's So, you a I'll segment. by

DDS, it's from somewhere $X for So, $X.X million million. to

For million unchanged, it's for like $X.X to it's Media million. close Synodex, and $XX Intelligence,

Tim Clarkson

alright. Okay,

is annually quarterly Now is then? that that or

Raj Jain

absolutely you're Yes, right.

quarterly, So, had was for apologize. that number I I DDS, the

So, it's $XX change. an basis. about $XX Media million million quoted on $X.X number. change and annual annual was million an annual and I that's And Intelligence what number Synodex,

Tim Clarkson

X Okay. XX GAAP? and

Raj Jain

That is right.

Tim Clarkson

Right.

Okay.

this something on the guess I we've story Philippines legal lawsuit? some on right lost what's in off Now old some deal again? the

Jack Abuhoff

correct. that's and Yes,

lawsuit a take it a that taking up that to in we appropriate that was judgement, Philippines. continuing reserve for ended we appeal So, reserve. contingency We're but the

Tim Clarkson

Okay.

Jack, on think growth prospects Just kind of different are a general basis, then? businesses you do what the the for three

Jack Abuhoff

think that opportunities. I has interesting each

looking some experienced $X.X I Synodex Agility our their and issues learning, think refer And that. very probably the with Awakening. substantial enrichment machine related double data strong of I are operations, acquisition is digital Global come terms that well platform we've as in have I capabilities extraction, for got long we're to got that progressed strong hopefully has value in to billion if we’re median business strategies though market. embracing income the on there me. too quarter to sequentially, But products and there Clearly, bode the as quarter-to-quarter growing and can that making embracing accelerate. we the to gives we're -- fundamentally to opportunity very we’ve DDS nicely well high retention digit we we for well dynamics incoming seeing high-quality from And as choose that Data know. their business good I’ve marketing, a which industry, intelligence. combination think in in customers that it's growth. this long move improvements the In different $X aligned been But in business. who that core through challenging, a the think certainly probably continue, that's artificial enterprises very we that industry. an I we to sales billion is we're Increasingly, and there that breakeven of just that very products we've think in using may data to the got the transformation been business the is seeing progress think we've Market we customer different extremely quality indicators that forecasting

there, we Global several to growth and Awakening. Data our of are are aligning think doing. we products that services there be is that things as One to our So, going

savings we can machine the The but some we the finding great savings virtue those in the focus. AI And and business how taking in operate work making how second we’ve it my and is go-to-market cost even redirecting additional operate capabilities. of done thirdly, and then and of into business learning

I the lot there And was Our most need was agree and a to up. on I has best revenue the years bookings the focus board back put on whole focused go producing determined, when and I market. that, that get of

Tim Clarkson

right. Right,

of have adding to now starting signs that a just somethings can out You been see make you happen or some for months you’re there? couple

Jack Abuhoff

we’re And working be lag a certainly, opportunity. in there’s going hard think bookings. got the the to to from I and is There we’ve pipeline plan. even right think bookings-to-revenue I and

making minutes we’re in we require that to just grow, But reverse need of going ago producing it’s wasn’t to level we XXXX, it So, I’ve we sales for our it as now, in that. make in think earlier that I that few some year, benefit up I’m a we’re fact things that continue can accrues to the said be hoping in the and doing XXXX the in improvements lines otherwise, progress XXXX booking if just order to that is to does, that, that progress of to, us but XXXX. that certainly, the

Tim Clarkson

this Now say would not percentage quarter, with business of based? you versus repeatable what, was in last more project your what

Jack Abuhoff

have. you Raj

Raj Jain

like Yes. It’s close to XX%, XX%.

Tim Clarkson

that? Why typically. And is seasonality fourth to first quarter there some is quarter from

Jack Abuhoff

there end to folks applications the the applications towards have the of companies hard insurance because seasonality real the triggered where what their in are push year will service. some bring Synodex life and our sales for contests, In is business, sales need

seasonality less segments the business. in is there think other I of

Operator

question next Associates. Furst [Operator from Furst Joe with We'll take Instructions]. our

Joe Furst

these question understood for heard a numbers. right and you. If other just Raj the gentlemen. I numbers morning Good

million around XX You breakeven XX.X that a and $XX was for the analyze million. year about basic points business you X.X first quarter estimates if somewhere the $XX your between times and are that's said even at

So means the missing something with year. would fairly next business basic be numbers? that your for Am profitable I

Raj Jain

good on just the that's high-level $XX numbers. giving right million. mentioned $XX Joe, you at you're to the Based Thanks QX right. I And what yeah, annualizing you're revenue math be at Again, million. morning. it to close going to is be breakeven is No, least would if that, for close estimate

So, you have the numbers may are right. This does unforeseen not include incur. any that cost onetime to cost and we any have

Joe Furst

Sure. -- X insurance million bit then the your business And you about again, that to the ahead. X.X said a roughly so profitable. $X with breakeven and in new is X.X, again go And that's little

Raj Jain

No, I just correct. is echoing, that was

Joe Furst

And breakeven be is if close less you're XX would mean grow the that's little that business that breakeven X.X just to can little slightly your to X.X and a then new a pretty is quarter. short, the I too. but bit million doing Okay. you bit

So quarters will you've improved very that's disappointing. certainly recent been these be which much for

So have more glad Thanks. to you see positive outlook. that and

Raj Jain

Good.

Operator

with we'll And from to Van Pine Clemens question Co. our go & Charlie next

Charlie Pine

I a I get couple to just Yeah. things clarified. have of that wanted

think consultant turnaround or remarks of retention about point were in hiring call. the you your in that I a discussing around when

$XX million. Were around for you down $XX you're numbers You've that XXXX. centered the the those of you about that mentioned million had business said something And look that scribbled bookings business looking I at total when DDS? at business

Jack Abuhoff

was just DDS. yes. That talking about Charlie Hi, I

Charlie Pine

Alright.

and is some do ask you of to finalized thing anticipate that kind The that about consultant recommendations when to in December. wanted you're of the turnaround get other list from the I organization other you brought going

Jack Abuhoff

to the them. written written So, to them gotten both them it with well. with recommendations of is meet And continuing from or and gotten as we've board's work

Charlie Pine

you at Have at juncture? on presented this this to they point acted Okay. that anything you

Jack Abuhoff

answer is yes. the So,

in in in think improving prospective them were working the of with performance. operating we with terms we were I the parallel work conjunction with doing

business where modeling could were that on come thinking needed business we of expense the detrimental without effect And in the a to growth. that about and future out sizing we having do. So, reduction the

on those We have worked with them plans.

Operator

take we’ll Clarkson Company. [Operator another Instructions]. And Tim Van & with Clemens from question

Tim Clarkson

about to at point the question. from and This X were that of I least ongoing left But I’m there too. we guessing and you from feel just years isn’t appreciate good the him really really over he that on that O’Neil wanted a good my contributions I know put out X, that terms,

there, wanted I that appreciate out put So, really his I contributions. just to

Jack Abuhoff

that. thank sure They definitely saying he’ll appreciate be his hard echo make you I’m sought hear difficult made as and that. that We We Tim to improve performance. and sentiments you some to decisions just great on said. them but glad to your exactly very that, doesn’t operating for well. we as I make what echo had contributions I were with deliberation

Operator

Ladies Abuhoff turn and or this remarks. question-and-answer Jack concludes to Mr. for gentlemen, any additional this today’s At session. closing I’d like to the conference back

Jack Abuhoff

operator. you, Thank

current sequential our quarterly we think results is our strongest good saw business this deals of work worth in metrics of we on quarter this keep going all XXXX as business we’re that well in our as had We closing levels sequential large new generation we segments. new and revenue QX anticipated, new continued a had Synodex to we growth. will we terms Agility. as in deliver in deals and pipeline underlying closing, profitable in three the with in position year improvements we’re quarter, about as marketing next to our today in about customer continuing into retention improvements see [$XXX,XXX] So, closed at

today. our And shedding revenue board do directors. focused performance year, about is level We should thank shareholder in a program late cash a still new this everybody, to value. by to I help X.X align while the up generating conservative is on our which has to at very be call QX, flow. costs needed look the Again, making consultants operating lastly, for XXXX is it million. we shareholder outside board As lends actively case projection last which reduction value cost from business low joining undertake and to to and our in and interviewing mentioned, think We you, lower retained we creation DDS, and the of completed XXXX both free strategic cost

Operator

Today’s XXXX time. today at X time conference is pm available pm for replay Eastern X to from April Eastern X,

may XXXXXXX. by pass You the X-XXX-XXX-XXXX dialing are X-XXX-XXX-XXXX Again, numbers pass recording the XXX-XXX-XXXX conference. This access today's code XXX-XXX-XXXX using or code or concludes XXXXXXX.

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