Innodata Inc Q3 2023 Earnings Call Transcript

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

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Thanks for taking my questions. Jack, I'm curious -- as it relates to the first Big Five customer that you expect may be able to reach an exit run rate of $23 to $25 million of annual revenue. Was there a meaningful contribution in the third quarter? You highlighted it for most of the customers, but I didn't hear if it made a significant contribution. And maybe if you can quantify it for the third quarter.

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Great. I think your story is not as well known right now, and it may become, but I want to understand how these programs are scaling. Is it that, for example, the one going to $23 million to $25 million, or even your second contract that you expect to generate $8 million compared to $3 million, is it you're providing more services and/or different offerings? You're providing more testing? And so you're testing more time, fine-tuning more in terms of volume. I'm just trying to understand what drives scale, $3 million to $8 million, or zero getting to $25 million?

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Great. And then as you're scaling these programs, what are the investments you need to make? Is it people? Do you need more infrastructure? Just trying to understand as revenue grows, what investments you have to make.

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Okay. Thank you.

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Hey Jack. Good to see you a couple of weeks ago. I just wanted to ask the same questions I asked you in person, on the call. The first question was, historically, Innodata has done great work and gotten projects, and then the projects have ended and the stock has gone way up, and gone way down. What's different about the kind of work you're doing now, that you're not looking to be a one-and-done project, that it's going to continue to grow and scale? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 02, 2023 / 9:00PM, INOD.OQ - Q3 2023 Innodata Inc Earnings Call I was using an analogy of a skyscraper and you guys are putting in the initial foundation, how would you describe how this is going to build?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Sure. Yes, the other key question I asked publicly is you know, is this work you're doing? Is it within the framework of Innodata's competency, or even more specifically so far, are all the clients delighted with the kind of work you've done so far?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : When I look at your contracts -- one $5 million a quarter, another one potentially up to $10 million a quarter -- I mean, I know you're not giving you any kind of projections for next year, but it seems like you should be able to do $30 million or plus at some point next year, just based on these contracts playing out?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Right now, getting back to Agility, it had a really an excellent quarter, strong profitability and EBITDA. Looks like you're doing just under $20 million annually there. What would be, in the private market, some kind of multiple sales, would a company like that be worth?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Do any of your competitors have any comparable AI capability in that area? Like Agility?

Question: Tim Clarkson - Van Clemens & Co., Inc. - Analyst : Great. Well, thanks. I'm done. Good quarter. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 02, 2023 / 9:00PM, INOD.OQ - Q3 2023 Innodata Inc Earnings Call

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

Question: Dana Buska - Feltl and Company - Analyst : Congratulations on an excellent quarter.

Question: Dana Buska - Feltl and Company - Analyst : You're very welcome. I have a couple of questions. First of all, one of the things that I've been reading in the literature is that there's a big attempt to kind of automate a lot of the stuff that you do -- fully automate it. And I was wondering, do you foresee a time when the there's going to be no need for humans in the loop for the services you provide?

Question: Dana Buska - Feltl and Company - Analyst : Okay. Good to know. With the contract that you signed, the master service agreement you signed with the company that's expected to spend hundreds of millions of dollars, with AI services, what is your roadmap or strategy about going to get some of that business from that customer? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 02, 2023 / 9:00PM, INOD.OQ - Q3 2023 Innodata Inc Earnings Call

Question: Dana Buska - Feltl and Company - Analyst : Okay. Excellent. One of the announcements you made, you talked about creating a golden dataset for a medical information company, or like an insurance company. Could you tell us what a golden dataset is, and what it means your business?

Question: Dana Buska - Feltl and Company - Analyst : Alright. And what does that mean for your business that you're able to do that? You're working with this customer to do that?

Question: Dana Buska - Feltl and Company - Analyst : Okay. Okay, excellent. And then one last question. When you start tackling your enterprise marketplace, how are you anticipating that you're going to go by doing that? Are you going to have to like add more salespeople -- more consultants? How are you thinking about tackling that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 02, 2023 / 9:00PM, INOD.OQ - Q3 2023 Innodata Inc Earnings Call

Question: Dana Buska - Feltl and Company - Analyst : Okay. Thank you. That's it for me.

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Yes, great. Thanks for taking my follow up. Clearly your offerings address large language models, data annotation, even when the enterprise is growing or if not, will be growing very fast. But if I'm not mistaken, there's significant revenue base that predates this, that you were talking about before that was a little bit more lumpy? Correct me if I'm wrong, if that doesn't still exist. So is that business still stable, declining, or growing, as we think about next year for our own sake?

Question: Brian Kinstlinger - Alliance Global Partners - Analyst : Great. Okay. Thank you so much.

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : Hey, Jack, congratulations on being a visionary in this area. Obviously, you have the first mover advantage, and since ChatGPT and Microsoft -- there's kind of like a tsunami in this area, and I'm sure there's been a major shift of capital into this area through the venture community and also the private equity community along with all the existing technology companies that are going to be chasing IT services, for generative AI. Can you talk a little bit about the competition, and where you are with regard to the competition, and maybe talk about some of the valuations in that segment of the marketplace to give us an idea of what your company could be worth?

Question: Bruce Galloway - Galloway Capital Partners, LLC - Analyst : What are some of the valuations that are being done out there on like a price to revenue basis?

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

Question: Tim Madey - White Pine Capital - Analyst : Hi, Jack. Congratulations on your quarter. Nice job. Two quick questions -- one is, could you talk a little bit about gross margins, and what do you expect over the near term?

Question: Tim Madey - White Pine Capital - Analyst : Yes, I guess I was looking at direct operating costs over revenues, and I'm coming to a lower number, but I figured it's somewhere in the adjustment. Certainly the revenue growth and the adjusted EBITDA looks fantastic. But maybe I can take it offline just to understand how to think about adjusting gross margins, or looking at direct operating costs over revenue growth? I'm a little confused there.

Question: Tim Madey - White Pine Capital - Analyst : Okay. So there's an add back there. Okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 02, 2023 / 9:00PM, INOD.OQ - Q3 2023 Innodata Inc Earnings Call

Question: Tim Madey - White Pine Capital - Analyst : Okay. I understand now. Thank you. Last question. I was on the Microsoft call the other day, and I couldn't help but notice that they're using Copilot also. You've trademarked that PR coPilot. How does how does that work, where they're using Copilot around large language models also? Well, I think it's a really good name. I think it's a great name. I was just kind of wondering, did they talk to you before they started using that name or are they white labeling that from you?

Question: Tim Madey - White Pine Capital - Analyst : I know that. (laughter) Just last quick question. I was thinking about the question earlier. We've been tracking you for years, and you had some great projects over the years. And I was wondering if you could talk a little bit about the history and what you learned on some of these projects and how it relates to your current business, kind of time lineage or heritage altogether for us?

Question: Tim Madey - White Pine Capital - Analyst : Yeah, that's -- some of the criticism I've heard on large language models, is that if the datasets not right, the answer might sound logical, but it could be false. How do you ensure, or could you talk a little bit more about the skill set of putting together the right dataset for the right model to make sure that you're getting the right output?

Question: Tim Madey - White Pine Capital - Analyst : Got it. Great. Well, thanks. I'll jump back in the queue.