Q2 2020 Innodata Inc Earnings Call

Oh.

[music].

Ladies and gentlemen, you clarity on hold for today's conference call at this time, where somebody in today's audience and plan to be unduly shawky. Thank you for your patience and piece continued to hold.

[music].

Oh.

Good morning, and which ones come to the email data second quarter Twentytwenty earnings call. Today's conference is being recorded at this time I would like to turn the conference over to any Aequus. Please go ahead Tom.

Thank you I know good morning, everyone. Thank you for joining me today.

Good today, a Jack Apple how youre looking out there that Lockwood O'connor, our CFO with your phone Jack for who will provide perspective about the business and then DAPL will follow.

Our results for the second quarter.

Well take your question was button qualify the forward looking statements double major in the call restatement talking made pursuant to safe Harbor provisions of section 21.

Sure. These oneexchange active mine to 34 as amended and section 27, eight Securities Act 1933 as amended.

Forward looking statements include without limitation any statement Pittman crude diffs forecasts indicate Mumbai features adults cook ones are cheap.

These statements are based on management's current expectations assumptions and estimates on the subject to accomplish this cool uncertainties, including without limitation expected or potential effect of the novel Calamos virus cope with 19 pandemic and sponsors have got building the jumbo global population.

Our clients on the company their true that contract maybe terminated by client projected or committed financing floor may not materialize.

<unk> digital data solutions definitely line on project based work in the primarily up all nature, such contracts and the ability of these clients truebeams delay or cancel projects the likelihood of P.T. development that the market, particularly in emerging markets. The other services and solutions support.

Can you need digital data solutions segment revenue concentration my limited number of client.

Potential inability to replace projects that all completed cancelled or reduced.

Can you see on content providers knowledge oldies sackman.

You can use downturns and are depressed market condition, whether as a result at the Kolpin 19, pandemic or otherwise changes in external market factor.

It will be unwillingness of arc lines and prospective clients to execute business plan stuck it likes to required for services and solutions.

So called <unk> integrated into a lagging synergies from acquisitions joint ventures, and strategic investment 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 you acquire.

Changes in our business are cool strategy, the emergence of new local competitor potential sex and all the bulk of operation some interruption thing or purchase off our information technology systems and various other competitive in technological factor and other risks and uncertainties indicated some time to time.

You know filings with the Securities and Exchange Commission, improving our most recent reports on form 10-K, 10-Q, an 8-K and then there too we undertake no obligation to update forward looking information or two naps revisions to any forward looking statements, except as required by the federal security laws.

Actual results could differ materially from our current expectations. Thank you I'll now turn the call over she Jack.

Thanks very much.

Good morning, everybody. Thank you for June anymore color.

If you choose your first full quarter, where do your business, you're going to cope with 19 crisis.

No for to have lunch is excludes operating in this important I'm increasingly confident that despite being born you're positioned you accomplished a great deal this year.

Here's what I wouldn't be she was accomplished.

I believe we will seek city the globe Nucor, Synodex and agility platform businesses this year.

[noise] like <unk> will succeed at learned that he does.

Mhm customers.

Annotation market new markets, which we are just going after just started going after June four which is predicted to grow rapidly.

And I'd be which exceeded substantially reducing our operating costs for the chooses to even this year or 2.6 million and towards where do you want.

Let me pick teach a reasonable for some contracts and some coupons.

First of which the syndication deal.

I'm expecting that we grow both of these businesses this year, nor synodex business.

Well, the genes, which seems to extract complex medical data for lunch structured medical workers.

Let's try to kill their goods into additional markets.

This year you are building an additional other nations into Overachieved using eight.

Works, then engage in sheet shovels or just didn't insurance industry customers and we are bringing them select number of new cost much.

Our she needs are exposed <unk> revenues increased 20% deals last year.

Revenues this quarter increased from 31% year over year.

No the gives and she still small scale you said integrating.

Extraction process will enable us to standard chartered markets and give gifts patents to grow skilled business.

The business, which is contributing to free cash flow, we've enjoyed strong 60% plus incremental margins and really old <unk> recurring in nature.

Oh sure could go to jail.

The children's itself swaps wouldn't business.

Yeah works, a little platform that has been rank among the top tier.

No what we're just a small player Liberal billion dollar global PR works where more.

For subscription revenues assumption about Kan, Shu Wei and or bookings you ended the quarter, maybe year to date <unk> retention of 87% just a few points charter for children target of 90%.

Solid performance given the economic environment.

We booked about $760000 just need business small direct show stuff, which in combination with all the attention. We believe is enough to continue to grow our business model.

So far we've kept her skills to the small because we want to first we had crack the code in terms of skilled stresses structure in Hungary book trials.

Actual results rigorous funding needs in these areas. Some she wasn't told me my dream to Q4 20 months.

We practically trip bookings towards sales executives.

Now with this improved sales productivity.

Economics now support rapidly scaling the sales force notwithstanding the chesler shielding important.

We're now ready the members to our models to figure out exactly how fast can you go get more resources.

We took a day I did annotation, though no if you've been following her story blessed past few years, you'll get the board Synodex, New Jersey calls or core markets, leading medical financial information publishers and legal problems.

Those core markets was 52 small for us to support.

Works.

Well just late last year, we discovered a whole all the markets that is practically need to order for us and that is really jokes needs formative stages and significant growth expected in the next several years.

It's market.

Hey, guys data preparation and annotation market.

That's good news you grow from 1.9 billion, what's your chips required to be 22 actually.

Okay, that's going to his team's didn't want to build more need to train. These models with large quantities of very high quality data.

But the express continued frustration that redone quality data to test for which there is equipped.

The report that even high school, partly I projects regularly we sell because they're not trained them largely quality datasets.

Hey, I data preparation includes collecting cleaning and normalizing data as well attitude in class surprising and segmenting data.

No. We are cautiously stupid things that we believe with the best in the world providing.

But we've traditionally provided them too small markets.

No we're using much larger market was emerge.

Given our history being a leading provider of high quality data to be legal financial medical information companies.

You are clear to us to becoming a leading provider data preparation and annotation.

To companies that have seeking to build models these and other returns.

The only started marketing and selling IRI data prep and Magnetation services in Q4 last year.

Nevertheless to do you is close to 15 customers. We have another 16 customers late stage pipeline that are expected to close in the second minutes.

We are forecasting the totaled 3.5 billion of Bolton excuse me 2.5 million bookings from niche market. This year.

And you're expecting that a majority of these deals will produce recurring managed services revenue at our truck margins.

We've also identified opportunities to license or data education platform, which is a question looks teaching version of our internal production platform that weve refined over many years.

But it's worth mentioning that one of our recently the education wins.

With a prominent big Tech companies.

To secure gets work beat out certain encumbrance remains a good some space or more quality market builders.

Our current type lunch bags hedge funds.

Trading platforms furniture research films as well this drug companies a drone companies software companies and two big Tech companies.

In the quarter, we saw sequential revenue, you're just about $500000. Indeed, yes.

We expect.

Half of this will come back she is we're able to get the full project coming back into our delivery center because its attributable to a customer project that we can only provide this equipment situated within the facility.

Never houses from a combination of smaller customers, who requirements declined due to cope with Nike and disruption.

Looking out over the year, we're predicting that the durability of our new did an occasional market.

In combination with a fortress extensions from one of our largest.

Traditional Barton claims.

<unk>, Nevertheless, enable us to show sequentially improve the weapons.

We talked about bookings.

Like you did talk or just little bit more about that.

Uhhuh old works or new business saw Smith, we look for tumors bookings, the leading indicator of gross and important indicators show sector.

Looking across our businesses.

Just the first half from 2020, you've already booked 71% as our full year 29 team bookings.

We're presently forecasting beating 20 million to bookings like 32 concepts.

And that's notwithstanding the environment that we're now working.

Let's now turn to cost management.

In order to enable our business continuity platinum or Coke responds club.

Needed to position our team members with encrypted laptops and desktops as rolls remote Internet access and club processing and storage.

Q2, this cost us approximately $400000.

We now have plans in place to reduce these costs over the next several quarters.

Well as a plan to drive additional significant cost savings across the business.

We expect that the result would be a net savings of approximately $2 million and 2020 and $2.6 million and 2021, each as compared to 29 too.

Our savings include reducing these states and data center costs and other cost associated with popularity large scale systems.

You are continuing to undertake a strategic evaluation, that's how best to allocate our capital the new sources in view of the divergent can tell market opportunities you're person to person for books.

Well, we clearly presents significant levels of uncertainty and we're all guessing about how we went normal she returns and you stepped in duration of the economic slowdown that is projected.

That said, we have so far prevails and for all the reasons I've just discussed let's work has to meaningful progress notwithstanding the macro Barton.

No. We didn't want to continue to proceed along all the pads, where no one or the concentration doesn't don't see or areas. We will provide updates as we progress through this evaluation.

Well now turn the call over the longer we're taking through the numbers after which we will come back and you take a kick the questions.

Very much a walk and I'll turn it over to you.

Absolutely.

[noise] decline working.

2020.

Forward looking was 13.6 million in second quarter of 2019.

Net loss was 46 million anything for the 2022 cents basic and diluted share.

Good.

[music].

Net loss of 7 million what has changed.

And do each.

Thank you.

To the first.

Okay.

Upon if you say Dee Ann Johnson I know, we are experiencing temporary difficulty with our conference. Please be advised to Hollywood. Thank you.

[noise].

[noise] mm and [noise].

And.

[noise]. Please go ahead.

Okay. My colleagues that are one I will start from the comps, so I'm not sure where where I.

Dropped out.

Total revenue was 13.9 million in second quarter 2020.

5% decline from 14 point pardon.

In the first quarter of 2020.

Total revenue was 13.6 million in the second quarter 29 team.

Net loss was point Sixmillion in the second quarter of 2020, or two cents per basic and diluted share compared to a net loss of Concord million or one cents per basic and diluted share in the second in the fourth quarter 2020, net loss of <unk> point 7 million or three cents per basic and diluted share second quarter 2019.

For the first six months of 2020 total revenue was 28.4 billion an increase of 4% from 27.3 million in the first six months of 2019 net loss was point 9 million or four cents per basic and diluted share in first six months are we talking net loss was 1.1 billion or 4% are forced to.

Cents per basic and diluted share in the first six months of 20 to 29 team.

Cash cash equivalents were 13.5 million at June 32 to 2020 compared to 10.9 million at December 31st 2019.

One other data point, 99% affected his global team members are presently deployed.

Approximately 95% working remotely.

Really take question [noise].

[noise]. Thank you, ladies and gentlemen, if you wish to ask a question at this point piece because they pressing star one I mean, it's kinda funky Pat Peacemaker training assumption is switched off two of them you're sitting into each of equipment.

And that's again star one to ask a question we will pause for just a baseball much turnover every when an opportunity to sitting in for question.

Once again, ladies and gentlemen.

One to ask a question and we take our first question from Tim Clackson from that Kevin. Please go ahead.

Hi, Jack.

Okay, and then pick.

<unk> on this cost reduction in valves, but no Utah is it sort of 2 million. This you're an additional 2.4 million or would be the total 2.4 million when you factor in the.

The combination of the of the expected expense reductions.

Yes, it it would be 2 million this year in two point Sixmillion next year cumulative.

Oh, great Remeasuring that savings in terms of structural cost and operating costs over 2019 as a baseline.

Right. So it's not it's about 2 million plus 2.6 million as a total of 2.6 million.

That's correct right. Okay now in terms of a a jody once you give us a little bit more color. Why you think you know where suddenly doing better there.

Selling and in this different difficult environment.

Yeah, No I think John.

You know week when you look himself stations like agility there.

Couple of things that have to be in place. The first thing is you need a product in place and product to people walk.

And we we've done a tremendous amount of work on the product over the last couple of years you did a very important reliefs just in the fourth quarter.

And the results of the work that we've done the release that we've done.

He is enabling us to compete with the two largest companies that dominate this market.

Oh in addition to that you know the drugs and validate battles.

Right.

Im not saying gosh up another nine years since its right.

The top products.

He's got a lot going on there without doesn't foundation and you need to work on your bookings can you talk in more attention.

A retention numbers are way up over where they've been in the past those no setting the call. Today. There are just a couple of points shy of the 90% net retention that we aim for and we think that in this market given what's going on that's a tremendous results.

Booking inside a you know we had a lot of things you have to figure out there how do we.

How do we train the cheap how do we measure to how do we know appropriately manage and monitor the team really the creeks with which it.

How do we compensate for taking the there's a tremendous amount of experimentation thing, but once you get right.

Subscale before we scale because if you.

You scale a process that's worked or.

You know it.

Which is magnified the bad results.

And we worked on though and you know what we're very happy with.

<unk>.

The the tripled our bookings for.

Current executive over the course of last year.

Which you know there's a tremendous results when you take that capability, which is a result of all that work done on process and training.

And.

Cells oversight management measurement tick that some combination of course, a great products.

Very large markets.

And then Barry you know demonstrated high and improving retention rates that isn't themselves business recipe to grow.

In Dallas or whatever we're very excited about being where we are right now.

Obviously, you know there's not the economic environment.

The business pardon me if at any of US we're hoping for.

But we think with the numbers, where they are we've got what it takes to power through those choppy waters.

I know at one time, you thought that companies in this industry are worth about three times revenues do you still think that's true.

No. We saw a couple of important acquisitions take place last year in this space.

One of which was I want to see it was five times revenue.

You know there their valuation.

Well I'll have to check that and come back to you, but a yeah I mean, when you look at.

Yes businesses, where we are typically value based on their ability to grow older ability to to penetrate marketing and the cash flows that are forecasted as a result of that.

I think we're extraordinarily well positioned right now given given the work that we've done that was also wish him.

Okay, all right, let's move to Synodex. So you know it seemed like it was forever tried to get these life insurance companies to bowls, what's what's changed that there is finally starting to sign some contracts.

Yeah I think.

I think a few things have changed first.

What are the good thing is is we are becoming more and more.

Fishing to what we do we're cutting out.

Oh cycle time, but it takes for us to produce data, where we're automating where we haven't automated before.

And.

You know we have companies that are clients more conservative by nature.

Dave because you know progressive be more operationally you know relied upon us we've got great partnerships in place with many of the leading insurance companies and where we're succeeding at expanding those relationships.

No one of things that we're working on news.

Is integrating a ahi more more essentially into you know our technology mill products in this area.

And I think you know as we do that we're going to see additional use cases open up for both within insurance halt, but then also watch out of insurance and we're very excited about.

Because that'll bring additional markets you know availability to us it will make us.

Oh, you know more efficient in terms of the work that we do it will reduce cycle time, and those who walks and stuff that the industry is looking for so very upset about.

And as well.

Right right.

It was so I was listening to a one of the seminars you gave because I'm in a data website and you talked a lot about the you know the advancement of data has in terms of quality of data.

You know I know you're bench at one point, though you do you did some work for a major broker trauma and they were really astounded at the difference in the quality of the information you can you explain exactly why innodatas competing anything coming up with better data than the competition.

Sure happy too. So if you think about our legacy or they can see Williams.

In taking you know companies like Apple and Bloomberg Amazon Thomson Reuters and.

And satisfying.

There you know extraordinarily demanding requirements for high quality data.

So we built our come pretty around you know producing extraordinarily high quality data at that very.

Cost effective you know meats.

[music].

No our problem and our constraining factor was the you know there you know a couple of examples of companies who are customers for highly refined data for.

Financial medical them.

Legal datasets.

You don't see rentals or even a couple handfuls of publishers.

But that doesn't give us enough market space two to two grogan too and as a result every now and then we'd see a big projects within that budget can come to an n., regardless of our small market.

Fast forward to today, Chris vote of what's going on and they are you are seeing companies you know well in all sorts of verticals or who are launching they are projects.

You know a common denominator.

Is that what you need to make an AI qlogic successful is exactly what we're good at given its high quality data.

And lots of.

So all the sudden you know when are we went from the market as a couple handfuls of companies to market that.

It's virtually any company that's looking to embrace artificial intelligence and as we all know this moving the newspapers that's pretty much includes every company out there.

Slide show.

<unk> high quality data.

It is absolutely the fuel that's going to feed explosive growth in AI that world expecting to see take place and we think we're just ideally positioned to in order to all position that fuel.

Right right that you talked about doing a a maybe a toll about three to half million an AI this year.

I mean, how close are weighted thing you know some of these two three 400000 dollar deals turning into 234 or 5 million dollar deals is that.

Is that five years away or is that pretty calls.

That's what I'm <unk>, but when I forgot that I look at some of the companies that have been in this space longer than we have.

Who incidentally in competitive contest, where now be [laughter], So oh right when I look at them and I see you know how how are they successful.

And you know I'm one of the things that they.

The most successful companies among the does get broken into.

Can you know you can figure that you know the five big five tech companies and then there's another 10 outside if that that are.

Almost are equally important.

And future companies are spending tens of millions of dollars per year.

On you know high quality data engineering for a high quality data annotation.

So we know that one of the key things that we need to accomplishes we need to break into these companies as markets and my understanding is you know you got to break into law.

And once you do that and that's kind of your ticket to another 1 million to develop a reputation and you can get a tremendous matter traction from there.

Given the truly good news in Q2.

Is that we we closed the deal or first steel in this market.

Oh, and we're going to sort of slow you've got to prove ourselves.

But as I said in my prepared remarks and competing against.

That's an incumbent providers and when you're not an incumbent I'd tell you. It's so hard to break it. So you would you get some likes it.

He visited several incumbents are fighting for the business, it's you're doing something right and you know rather told us what we're doing right no our quality was off the charts.

But you know our intention is to eat up progressive the growth that relationship, which we think that one relationship can you know as I said, there's a couple of do spending tens of millions of dollars a year on data you know for AI.

You know extend that cultivate that they'll be up most of care and use that to pivot into other relationships in this market, where there's a lot of show incestuous activity and a lot of people talk to people and in share what you're doing and and you know we get the trucks.

Right. One last question, let me let me ask you. This if I was trying to.

Break into the sanitation dismissive Lv I.

How difficult would it be for somebody a startup that doesn't have the kind of experience in a data has to be able to do what needs to be done.

But you know it's a funny thing, it's a market that looks like it should be simple until you try to go.

We could be brief.

Couple of things to the table that are absolutely critical then is our.

Our technology stack, you know weve been building technologies to refine data for many many many years.

And when you're talking about high quality data, you're not talking about being able to do 80% of that you're talking about being able to to do it.

The point, where it makes me, perhaps one ever had 20000 possibilities. So.

You got back that quality standards is critical you've broken technologies to be able to answer that.

But that's right up there the second thing that we've got as we've got very deep domain expertise.

And the areas that are you know implicated by a lot of what's going on now works <unk> financial data vehicles medical data on deep domain expertise that we can bring to the table. There in the third thing that we've got is we know how to integrate hey.

Hi, it's a problem.

Training data for a <unk> building training datasets for AI, So we're able to builds.

Good luck with assistance to the problem, but a lot of companies would not be able to.

Sure sure.

Well I you know, it's very exciting and no. One last question, what we'll do the incremental margins on some of the say I business.

You know, it's not just similar to other business that we do you know in D.S. I'd say you know, it's safe to think about it its 50 or 60% incremental.

Right right. So you start making a lot Meyer more money at a slightly higher revenues.

Correct.

Right, Okay, I'm trying to I appreciate it thanks for the great good quarter, especially in the context of one last thing I know.

Nobody pays attention devaluation anymore, but you know data trades for about a 60% of sales I mean, Microsoft trades at 11 time sell for others.

No way is there's a big differential between the devaluation of the of an internet and some of these are high tech stocks that have already.

Gone way way up some without a pass.

Thanks, the painting, thank you I've never mind, or ladies and gentlemen that I want to ask a question.

An important they can.

I want to ask a question.

They post purchase commitments to know if it wasn't opportunity to pick huh.

Ladies and gentlemen.

<unk>.

I was telling to calling back to host for any additional remarks.

Thank you operator.

Oh, well just recap a couple of things that we've talked about.

Notwithstanding Djokovic 19, Martin if it were in were forecasting very meaningful progress and 2020.

The particularly rosenberg's arsons actually Ingevity, plus one businesses, we validated the chili's readiness to scale with additional investment sales.

Core GBS business, we validated our ability to serve.

The new rapidly growing markets, you get pay our data prep and labeling services that 15, new customer wins just in the initial six months marketing resources.

And that includes what are the best known global Big Tech companies.

We have another 16 companies in our late stage pipeline that we're looking to close in certain that we had $400000 BCP related expenses in the quarter, which we anticipate and will be reducing as we optimize our tech stack for working remotely and we've identified.

Additional cost savings that we are continuing to roll into all of them into.

We weren't going into the second half an early next year.

What do you mean that the new DCT related expenses against or identified cost savings were actually expecting in net cost reduction as compared to 29 King was approximately 2 million in 20 22.6 million 2021.

And Oh, we continue to have a very strong balance sheet.

13.5 million in cash at the end of Q2, which is an increase of 2.8 million over Q1.

Again, thank you all for joining us today right. There. She continued success in else do well. Thank you.

Thank you today's conference if nothing happens hurry pain from two P.M. eastern today on September 15.

20 Twond peak.

Two PM Easter you may access going according invite dining Seth isn't one mine for five seven seal eight casino or 1888 to feel a 3111 to using passcode one killed eight 9077.

I can't get numbers are 71, 9.5708 to feel 1888 to see all 3111 to passcode one to eight nine C. O. Seven seven this concludes today's conference you may now.

Disconnect.

[music].

Oh.

[music].

Uh huh.

[noise].

Oh.

[noise] Oh.

[noise].