Innodata Inc Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Aria Cole - Cole Capital - Analyst : Yes, thank you. Again, congratulations on the good sales results and the good feedback you're getting from customers who are asking, giving you additional business. Jack, one quick question. Clearly, companies can grow organically. They can also grow through acquisition. I was trying to get an update on your thought process or how important acquisitions could be as a part of your growth going forward?

Question: Aria Cole - Cole Capital - Analyst : Understood. Then the follow-up is looking at organic growth. When you look at the financial employees, what sort of sales per employee can you generate when you're primarily providing services for these large technology companies? And what sort of -- what is the gross margin range you think you can achieve when people's time is being optimally utilized?

Question: Aria Cole - Cole Capital - Analyst : Got it. And just finally, in terms of employee retention, you're going to be in a more competitive marketplace for employees in the future. And I'm just wondering what you're putting in place to try and make Innodata a place that people really enjoy working at, where your churn hopefully, our turnover employees will be kept to a minimal level?

Question: Aria Cole - Cole Capital - Analyst : Okay, great. Well, thank you and best of luck.

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Hey, Jack. Obviously, a great quarter. Just want to go over some of the basics for some of us Luddites here. So when I originally realized that Innodata was getting involved in artificial intelligence. The one thing that was really helpful for me understanding why you guys are successful is just the accuracy, and the top guy from IBM explained it to me that at IBM, they had a 75% failure rate, largely because of inaccuracies. And what I'm hearing is you guys make, like, three mistakes and 20,000 annotations. Can you just talk about how that's, really, it seems simple, but it's a real foundational skill. You're doing more than that, obviously. But that really is what initially separates you from the competition in a big way.

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Right. Now, just as kind of an extension to that idea. I mean, one of the challenges, obviously, what Innodata historically was do a project and then it ended, and there wasn't a durability of revenues. Can you comment on how durable you think this new business model is going to be into the future?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Right. Now historically, back in the, I don't know if you call it the good old days, but the old days when you guys were picking on projects, you're doing $20 million, I remember netting 15%, 20% after tax, and it seems like you got these one-time expenses with sales investments, but separating those out, it seems like there's certainly a potential to have 15% to 20% pretax margins once you guys get onto a solid run rate.

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Now, these investments would be directly tied into AI then right, on that part of the business?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Right, great. Well, good luck. It's an exciting future. Thank you.

Question: Dana Buska - Feltl and Company - Analyst : Hi, Jack.

Question: Dana Buska - Feltl and Company - Analyst : Congratulations on a wonderful quarter. I have just a couple of questions for you. You talked a little bit about the demand for training on enterprise data. Can you talk a little bit more about that? And are you seeing more enterprises look to train their own models?

Question: Dana Buska - Feltl and Company - Analyst : Okay, great. And along those lines, I seem to read, come across articles of how companies are coming up with it tools and software to speed up fine-tuning and doing trust and safety. Can you talk a little bit about how that may affect your business and do you consider that to be a threat?

Question: Dana Buska - Feltl and Company - Analyst : Okay, excellent. That sounds excited. When you're looking at hiring these new recurring cost, could you talk a little bit about hiring the new people? Could you talk a little bit about what type of positions you're looking to hire? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 9:00PM, INOD.OQ - Q1 2024 Innodata Inc Earnings Call

Question: Dana Buska - Feltl and Company - Analyst : Okay, great. And then one question about agility. It looked like it grew about 20% last quarter. Is that a growth rate that you are targeting for this year? Is that growth rate that you think is sustainable?

Question: Dana Buska - Feltl and Company - Analyst : Okay, excellent. That sounds very exciting. Thank you for taking my questions.

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : Hey, Jack, congratulations. It seems like you're gaining a lot of traction. Just to quantify the size of these contracts and some of the new additions, you mentioned the $23.5 million add-on to the $20 million hyperscaler that you announced in April. I guess that was the one that was doing $23 million a year that extended it for three years. So that alone is a $43.5 million add-on from the $23 million, which on a base of $86 million last year, that's over 50% growth rate just from one customer. Can you give us some quantification on some of these other contracts, how big they could be, and how much they can scale to? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 9:00PM, INOD.OQ - Q1 2024 Innodata Inc Earnings Call

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : So looking at your current infrastructure, your personnel, and your installed base, I mean, do you have the capability, adding $3 million in personnel and $3 million in CapEx seems very modest amount for the scalability and the upside that you have with all these huge contracts coming through?

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : Okay. And also, as far as the cash generation, you generated like $5.2 million in cash, is that mostly from receivables? Or is it pure cash from operations or combination thereof?

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : Okay, great. Thanks. Excellent job. Thanks.