Q3 2022 Innodata Inc Earnings Call
Good day, everyone and welcome to today's <unk> third quarter 2022 earnings call. At this time all participants are in a listen only mode. Later, you'll have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star one on your Touchtone phone you may withdraw yourself.
It's in the queue by pressing star into I will be standing by should you need any assistance and it is now my pleasure to turn the conference over to EMEA growth. Please go ahead.
Thank you raise a good afternoon, everyone. Thank you for joining us today.
The speakers today are Jack Apple have CEO of in our data and Morris Spinelli interim CFO , we'll hear from Jack first who will provide perspective about the business and then <unk> will follow with a review of our results for the third whether 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 E.
Of the Securities Exchange Act of 934 as amended and section 20 <unk> of the Securities Act of 1933 as amended.
We're looking statements include without limitation any statements 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.
Patients do you expect to their potential effects of the novel Coronavirus pandemic and the responses of government the general global population, our customers and the company there too.
Tax, resulting from the rapidly evolving conflict between Russia, and 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 solutions segment reliance on project based work and the primary.
Primarily at will nature of such contracts and the ability of these customers to reduce delay or cancel projects.
We have continued development of the markets, particularly new and emerging markets that our services and solutions support continuing digital data solutions segment revenue concentration in a 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 a 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.
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 <unk>.
Wired 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 or use up and reliance on information technology systems, including potential security breaches and cyber attacks.
Breaches for data breaches that resulted in the unauthorized disclosure of consumer 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 secured.
And exchange Commission, including our most recent reports on forms 10-K, 10-Q, and 8-K 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.
Actual results could differ materially from our current expectations.
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.
And adjusted EBITDA next year.
As you've probably heard many of the large tech companies have launched major layoffs and cost cutting measures are.
Our large social media customer recently significantly reduced its workforce and as a consequence, you're seeing interruptions and the work we do for them.
Bolivar work is critical to their ongoing operational goals and anticipate that our work will likely pick up again as responsibilities as bill laid off workers or respond to other employees.
That said our business plan conservatively is not dependent upon this occurred.
Despite these relatively significant disruptions, we managed to show a 6% year over year growth, which while not reflective of their ambitions supports our belief that our business growth engines remain intact.
So the general economic outlook as a result of the longer sales cycles and more levels of customer sign off we are.
Belief 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 as 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% 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 for our business continues to build momentum.
We now have 10 large customers for AI ml lifecycle services, which we believe will increase their spend with us in 2023, some significantly based on our current line of sight.
Many of these companies have revenues and multiple billions of dollars in the third quarter. We brought on four of these customers.
The use cases, we're lending include facial recognition retail anomaly detection automation chat bots security monitoring and voice to text.
Indeed, we are hoping to be in a position to announce several additional important wins and expansions with these and other customers by year end.
Our <unk> business, which enjoys a net retention of over 150% is also rapidly onboarding new customers chest.
Just yesterday, we announced two new customer wins for our <unk> platform that we believe will together yield approximately $1 1 million of annualized recurring revenue.
We also expanded the value of the <unk> engagement from an estimated one eight 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 a 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 strong pipeline.
We've also increased our mid market asps 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 are seeing that mid market deals incorporating this new product are increasing asps 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 it this year, we've continued to expand in new agility customer that is now our largest ever agility customer, we now valued them at $628000 of annual recurring subscription revenue.
Moreover, we're expecting this.
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. They are now getting into AI with model development and deployment.
And building AI enabled applications and platforms that have a blueprint for how to strike the right balance between humans and machines.
We believe that the circumstances around our social media customer our unique.
These are borne out of general market conditions, nor head of general economic uncertainty.
We remain enthusiastic about our market opportunity and the intrinsic value of our business.
I'll now call the turn the call over to Murray just to go over the numbers and then we will open the line for some questions. Thank you Jack Good afternoon, everyone. Let me recap the third quarter 2022 financial results revenue for the quarter ended September 32022 was $18 4 million up 6% year over year.
Net loss for the quarter ended September 32022 was $2 2 million or 12 cents per basic and diluted share compared to a net loss of <unk> 8 million or <unk> <unk> basic and diluted share in the same period last year.
Revenue for the nine months ended September 32022, 6% to $9 6 million up 18% year over year net loss for the nine months ended September 32022, <unk> million or <unk> 37.
And diluted share compared to a net loss of <unk> 5 million or <unk>.
Basic and diluted share in the same period last year.
Adjusted EBITDA loss was $1 2 million in the third quarter of 2022 compared to adjusted EBITDA of <unk> 7 million in the same period last year adjusted EBIT loss.
With $2 5 million for the nine months ended September 32022, compared to adjusted EBITDA of $2 7 million in the same period last year.
Cash and cash equivalent or $10 7 million at September 32022, and $18 9 million at December 31, 2020.
2020, once again, thanks, everyone right. So we are now ready for questions.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
May will be yourself from the queue by pressing star and two.
Once again to ask a question. Please press the star and one as well.
Postponement to allow questions to queue.
And we'll take our first question from P. J <unk> with <unk> capital Management. Your line is open.
Hi, there hi, Jack.
Hi, good morning.
Sorry, we're doing the call in the afternoon good afternoon.
Good morning somewhere.
So congrats on putting up some some respectable growth in a tough environment.
I guess I just wanted to clarify your comment about that.
The plan for $10 million EBITDA next year does not count on.
Seeing the interruptions come back at the at the large customer I guess just to clarify does that assume.
Assume the current run rate that we've already seen in this third quarter or does it assume.
Some percentage coming back or just nothing.
So.
Yes, so let me so it assumes nothing so we're being very conservative about that.
That said, we don't believe that it's likely that nothing comes back.
Right.
Got it okay.
That's that's good that advice and conservative then.
Okay and then.
Maybe could you just give us a little color on the.
The listening product that sounds pretty exciting with the ASP increase.
Maybe a little bit of background on that and then what youre seeing there.
Sure were seeing very very favorable reception and one of the things that is interesting in our competitive set is there are other people that have a product thats similar to the one that we have but.
Theyre all companies that have grown by acquisition and they've acquired it and integrate it in ways that that is not particularly user friendly or helpful.
And we believe that we're the first company to build this and natively integrated into our platform, which enables a tremendous amount of functionality that wouldn't otherwise have.
Increasingly we've got customers who were.
Yeah.
Very much focused on being able to go back and forth between traditional media social media too to combine analytically data that's derived from all of these channels and to be able to work with that and we think we're uniquely be able to now provide that seamlessness in terms of the.
<unk>.
It's being received well we launched it in September we've got 20 people that are working on it we've got 65 people in the pipeline.
<unk> perspective really goes to the heart of.
What we can do to make our business performed better which is increasing our ASP.
We were closing deals now.
200% of our ASP year ago, when we're selling with the social media.
That form.
We're very focused on.
<unk>.
Extending that to many of our existing customers, making sure that we're selling it effectively to all of the new logos that we're talking to.
And we're also looking at extending it further we've got ideas for how we can add additional functionality, which again I think we'll be functionality that has never been natively integrated into a PR suite.
So we think we're on the right track there.
And as a reminder to ask a question that is star one.
We'll take our next question from David Buck with Douglas Your line is open.
Hi, Jack.
Hi.
Right good afternoon Dana.
Okay.
No.
One of my first questions I have for you is foreign currency with the strong dollar and with all your operations do you have around the world is that something Thats impacting your earnings at all right now.
Yeah. So it has two chief impacts for US we've got.
Contracts most of our contracts are U S dollar denominated, but we do have contracts that are Canadian dollar denominated euro dollar euro denominated in.
Pound Sterling denominated and the strong dollar has a negative effect on revenues from those contracts.
On the cost side, where we have offshore costs than we are.
Offset were benefited by the strong dollar.
Although some of that is we have to kind of give back in the form of salary adjustments and keeping our employees somewhat protected against.
Runaway inflation that they're seeing.
You net it all against each other.
Were benefited by a strong dollar.
Okay excellent that's that sounds good.
I have a question about one of your announcements that you made you made an announcement about.
Migrating our language accompany with the language model over to your model could.
Could you talk a little bit about that and what it takes to develop.
High performing language model.
Sure.
Just a few things there first of all.
We developed a high performing language model for this customer to enable them to integrated into their operations.
And to begin to automate certain tasks that are.
Tests.
That are important to them.
We think the work we're doing there is very representative of what businesses are all going to have to face, which is a world where.
UI has folded into their operations.
Every professional starts to look at it.
Regardless of domain look at AI is something that's constantly running in the background acting as a co pilot, helping them along and whatever it is that they do.
So the work that we've done there is very much oriented to figuring out well, how do we integrate the technology into their environment.
And then.
Once we do that how do we present that capability to humans, how do we augment the work that humans too.
Corporate way.
And I think we are.
We do work like this where we're figuring out a lot of things have kind of first impression we're creating blueprints that are replicable across businesses that we work with which is super exciting.
Inevitably what we have to do when we demonstrate that we can build a model that works for someone as well then the next thing is.
We've got legacy client server applications and legacy databases, which are not cloud enabled that needs to be migrated to benefit from from the AI ml. So that becomes additional scope that we're able to do.
For this particular customer we see that work ahead of us along with additional migration work.
As well as additional models because they are getting very good results with what we've built so far.
Okay excellent I would I would assume that that would be recurring revenue that is that how you look at that.
A combination so there'll be recurring revenue in terms of the ongoing management.
And optimization of <unk>.
The ml.
<unk>.
There'll be one time revenue in terms of.
Cloud migration.
But we think that there'll be recurring customer revenue in terms of migrations because we do believe that that will continue for a while.
And then pure recurring revenue from our models, because there's always the need to be retraining and re optimizing the models to comport with.
Heterogeneous data that's coming into the company.
Okay, Okay great.
Ed.
You type in your last press release, you tighten a little bit about your banking platform that you're developing.
Could you talk a little bit about how thats going along.
Yes, so again the blanking banking platform is another example of exactly what I was just referring to.
It's looking at how do you integrate domain specific tasks with AI, how do you build the co pilots that people are going to increasingly be needing to use in their jobs.
Yes.
In that application and what we're doing is we're looking at a large.
Several hundred people in one of the world's leading banks, where understanding the work that they do how they've done it in the past.
We're helping them re imagine how that work can be done in a different way that benefits from our technology. So we're able to think about eliminating all of the road time consuming aspects of their jobs.
We're able to really rethink how the job gets done assigning the appropriate tasks to the AI and the appropriate parts of those tasks to humans.
It's coming along very very well, we've got a large number of users there that are.
Working with our product and liking it very much and they didn't ask us to but we just completely we had like an epiphany well here's just curious even a better UI that you can use and we showed them that last week and they just loved it so very excited about that network.
Okay wonderful is that that's a product that you are thinking about taking that to other banks.
The correct assumption.
It's a long and we'd love to.
And we are in discussions with other banks right now, we're very focused on getting it right here.
Here.
What we think that the fundamental architecture and the way to think about human and machine will be reproducible and transportable to other environments banking and non banking and.
The needs that they are applying it to our needs that.
Many financial institutions and nonfinancial institutions have so there is definitely applicable 82.
Two other places both direct and indirect.
Okay excellent.
That does it for me right now thank you.
Thanks Dana.
And it appears there are no further questions in the queue I'll turn the program back to Jakob allows for any additional or closing remarks.
Thank you operator.
The momentum in our business is evident we have had large customers for our AI ml solutions for that were just one recently.
That we anticipate will grow in 2023, some significantly <unk>.
Despite the economic downturn.
We have three recently announced wins in the <unk> business two of which are ramping up now and one likely to ramp up in the first quarter.
And agility, we're seeing 107% year to date increases in bookings of 49% increases in mid market ASP, 200% increase in mid market ASP.
When combined with our new social media platform.
So really across the businesses, we're succeeding at land and expand as well as reaching new logos.
And we believe that we're actually well positioned to navigate a challenging economy.
Now on the other side of the ledger.
Unequally standing alone is the unforeseeable circumstances that have affected our large social media customer.
Importantly, our business plan, which includes growth as well as a near term return to positive adjusted EBITDA.
Is not dependent on business with this customer picking up even though we anticipate the fed will likely will.
So our enthusiasm about our market opportunity and our conviction in the intrinsic value of our business truly remains as strong as ever.
Thank you all for joining and I'll look forward to our next call.
This concludes today's program. Thank you for your participation and you may disconnect at any time.
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Okay.
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