Q1 2024 Innodata Inc Earnings Call
Operator: Greetings. Welcome to the Innodata First Quarter 2024 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the first presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Amy Agress, General Counsel at Innodata. You may begin.
Greetings and welcome to the inner data first quarter 2024 results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Do you want should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: Note. This conference is being recorded.
Amy R. Agress: I will now turn the conference over to your host Amy address General Counsel and the data you may begin.
Amy R. Agress: Thank you, Paul. Good afternoon, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, CEO of Innodata, and Marissa Espineli, interim CFO. Also on the call today is Aneesh Pandarkar, Senior Vice President, Finance and Corporate Development. We'll hear from Jack first, who will provide perspective on the business, and then Marissa will follow with a review of our results for the first quarter. We'll then take your questions.
Amy R. Agress: Thank you Paul Good afternoon, everyone. Thank you for joining us today, our speakers today are Jack Apple Heart CERP, no data and Miranda Spinelli interim CFO also on the call today is that niche kind of her car senior Vice President finance and corporate development well here.
Amy R. Agress: Jack first who will provide perspective about the business and then the rates will follow with a review of our results for the first quarter well then take your questions before we get started I'd like to remind everyone that during this call we will be making forward looking statements, which are predictions projections or other statements about future.
Amy R. Agress: Before we get started, I'd like to remind everyone that during this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations, assumptions, and estimates, and are subject to risks and uncertainties. Actual results could differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's earnings press release, in the risk factors section of our Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission.
Amy R. Agress: These statements are based on current expectations assumptions and estimates and are subject to risks and uncertainties actual results could differ materially from those contemplated by these forward looking statements factors that could cause these results to differ materially are set forth in todays earnings press release.
Amy R. Agress: And the risk factors section of our Form 10-K Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We undertake no obligation to update forward looking information. In addition, during this call we may discuss certain non-GAAP financial measures in our SEC.
Amy R. Agress: In addition, during this call, we may discuss certain non-GAAP financial measures. In our SEC filings, which are posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliation of these measures with comparable GAAP measures. Thank you. I will now turn the call over to Jack.
Jack: Fillings, which are posted on our website you will find additional disclosures regarding these non-GAAP financial measures, including reconciliation of these measures with comparable GAAP measures.
Amy R. Agress: I will now turn the call over to Jack.
Jack S. Abuhoff: Good afternoon. We are very excited to be here with you today. We have lots of updates to share regarding the accelerated momentum you're experiencing across our business. First and foremost, we are pleased to announce record revenues for the quarter of $26.5 million, representing 41% year-over-year growth. Our growth in the quarter was driven by the value we are bringing to help the world's largest tech companies build AI large language models, or LLM. As a result of accelerated business momentum, we are raising our 2024 revenue guidance to an expected organic revenue growth of at least 40% year-over-year. This is double the growth rate we got into in the last quarter.
Jack: Good afternoon.
Jack S. Abuhoff: Very excited to be here with you today, we have lots of updates to share regarding the accelerated momentum.
Jack S. Abuhoff: Experiencing across our business.
Jack S. Abuhoff: First and foremost we are pleased to announce record revenues for the quarter of $26 5 million, representing 41% year over year growth our growth in the quarter was driven by the value. We are bringing to help the world's largest tech companies build AI large language models or L. L. M.
Jack S. Abuhoff: As a result of the accelerated business momentum we are raising our 2020 for revenue guidance to an expected organic revenue growth of at least 40% year over year.
Jack S. Abuhoff: This is double the growth rate, we guided to last quarter.
Jack S. Abuhoff: We are executing a multi-pronged strategy designed to deliver extraordinary levels of growth over the next several years as we extend what we believe is our early leadership in generative AI solutions. We're focused on providing solutions at three levels of the Gen AI stack. At the bottom layer, helping some of the world's largest tech companies and independent software vendors, or ISVs, develop generative AI foundation models; in the middle layer, helping enterprises that prefer not to build models from scratch but rather to leverage existing LLMs and other AI customized for them with their own data; and at the top layer, building generative AI-enabled platforms that are useful for niche industry requirements. Ahem. Our primary focus this year is on that We are pleased with the success we have had thus far.
Jack S. Abuhoff: We are executing a multi pronged strategy to deliver designed to deliver extraordinary levels of growth over the next several years as we extend what we believe is our early leadership in generative AI solutions.
Jack S. Abuhoff: We're focused on providing solutions are three levels of the Gen AI stack at the bottom layer, helping some of the world's largest tech companies and independent software vendors or I S. These develop generative AI foundation models in the middle layer, helping enterprises that prefer not to build models from.
Jack S. Abuhoff: Scratch, but rather to leverage existing LMS and other AI customized for them with their own data.
Jack S. Abuhoff: And at the top player building generative AI enabled platforms that are useful for niche industry requirements.
Jack S. Abuhoff: Our primary focus this year is on that first layer of the stack partnering with some of the world's largest tech companies to develop generative AI Foundation models.
Jack S. Abuhoff: We are pleased with the success, we are having thus far we entered the year with agreements in place with five of the so called magnificent seven companies, which are our group of well known high performing Big Tech companies and we believe we'll spend billions of dollars on generative AI data engineering over the next several years.
Jack S. Abuhoff: We entered the year with agreements in place with five of the so-called magnificent seven companies, which are a group of well-known, high-performing, big tech companies we believe will spend billions of dollars on generative AI data engineering over the next several years. We announced today that we rewarded yet another program expansion from one of our Big Tech customers, valuing this expansion at approximately $23.5 million of annualized run rate revenue once implemented.
Jack S. Abuhoff: We announced today that were rewarded yet another program expansion from one of our big check customers.
Jack S. Abuhoff: Were evaluating this expansion at approximately $23 5 million of annualized run rate revenue once implemented.
Jack S. Abuhoff: Here it comes! This is on top of the 20 million in new programs with this customer we announced less than two weeks ago on April 24th. We expect that these programs will ramp up over the next two months. While our customer agreements typically contain early termination upon notice provisions, we believe this customer is committed to a significant multi-year LLM strategy from which we stand to benefit.
Jack S. Abuhoff: Okay.
Jack S. Abuhoff: This is on top of the 20 million of new programs with this customer we announced less than two weeks ago on April 24.
Jack S. Abuhoff: We expect that these programs will ramp up over the next two months while.
Jack S. Abuhoff: While our customer agreements typically contain early termination upon notice provisions. We believe this customer has committed to a significant multi year L. O M strategy from which we stand to benefit.
Jack S. Abuhoff: In fact, we are in discussions with this customer regarding potential new programs and expansions beyond what we have announced so far. We also signed two additional big tech companies, a large, prominent generative AI company, and a large, prominent consumer-facing ISV investing substantially in generative AI foundation models. As a result of these new wins, we now serve seven big tech customers.
Jack S. Abuhoff: In fact, we are in discussions with this customer regarding potential new programs and expansion beyond what we have announced so far.
Jack S. Abuhoff: We also signed two additional big tech companies or large prominent generative AI company and a large prominent consumer facing I S V investing substantially insurer today I Foundation models.
Jack S. Abuhoff: As a result of these new wins are we now serve seven big check customers. We believe we will continue to grow with these customer relationships in 2024 and that we may grow some of them, possibly quite substantially.
Jack S. Abuhoff: We believe we will continue to grow with these customer relationships in 2024 and that we may grow some of them, possibly quite substantially. For Big Tech customers, we provide a broad range of services to support their generative AI programs. This includes creating instruction data sets, which you can think of as the programming behind large language models. It also includes human preference data used in reinforcement learning and reward modeling to align models to human preferences and build guardrails against toxic biases and harmful responses. In a blog post last month that accompanied a major release, one of our large big tech customers stated that the quality of these instruction data sets has an outsized influence on the performance of their models and that some of their This statement crystallizes why we have become the partner of choice for such customers.
Jack S. Abuhoff: For Big Tech customers, we provide a broad range of services to support their generative AI programs.
Jack S. Abuhoff: This includes creating instruction datasets, which you can think of as the programming behind large language models.
Jack S. Abuhoff: It also includes human preferences day to Houston reinforcement learning and reward modeling to aligned models to human preferences, and build guardrails against toxic biases and harmful responses.
Jack S. Abuhoff: In a blog post last month at a company and a major release one of our large big Tech customers stated that the quality of these instruction datasets as an outsized influence on the performance of their models.
Jack S. Abuhoff: And that some of their biggest improvements in model quality come from carefully crafted instruction datasets and multiple rounds of quality assurance.
Jack S. Abuhoff: This statement crystallized is why have we while we have become the partner of choice for such customers.
Jack S. Abuhoff: We believe we are well positioned to anticipate big tech's changing needs and to grow with it. It is evident that big text aspirations extend beyond today's predominantly text-to-text English language model. We foresee expansion in terms of multimodal models, domain- and task-specific models, models natively built in more than 30 different languages, and models capable of complex reasoning. All of these dimensions will require modeling with the kind of data that we create. We believe we are still in the early innings of this journey.
Jack S. Abuhoff: We believe we are well positioned to anticipate big Tex changing needs and to grow with them.
Jack S. Abuhoff: It is evident that big Tex aspirations extend beyond today's predominantly texture text English language models.
Jack S. Abuhoff: We foresee expansion in terms of multimodal models domain and task specific models.
Jack S. Abuhoff: <unk>.
Jack S. Abuhoff: Natively built in more than 30 different languages and models capable of complex reasoning.
Jack S. Abuhoff: Well look these dimensions will require a modeling with the kind of data that we create.
Jack S. Abuhoff: We believe we are still in the early innings of this journey.
Jack S. Abuhoff: I encourage you to read the latest quarterly earnings transcripts from MAGSEV. Generative AI is a prevailing theme, with promises of more Gen AI models, more Gen AI in products, and commitments to multi-year investment cycles and CapEx increases to support aggressive AI research and product development. We believe the emerging enterprise market, which we call the middle layer, consisting of companies across verticals that seek to adopt generative AI technologies, to be another important growth factor for Innodata, one that will ultimately dwarf the big tech market for us.
Jack S. Abuhoff: I encourage you to read the latest quarterly earnings transcripts from the Max seven.
Jack S. Abuhoff: Generally if AI is a prevailing theme with promises of more gen. AI models, more generic AI and products and commitments to multi year investment cycles, and capex increases to support aggressive AI research and product development.
Jack S. Abuhoff: We believe the emerging enterprise market, which we call the middle layer consisting of companies across verticals that seek to adopt generative AI technologies to be another important growth factor for any data.
Jack S. Abuhoff: One that will ultimately dwarf the big check market for us.
Jack S. Abuhoff: In parallel with executing strategies to penetrate big tech, we're taking steps to prepare for what we foresee is a likely explosion in the enterprise space. We believe we are very well positioned due to our intimate knowledge of the Gen-AI roadmap of the large tech companies, which has enabled us to gain exceptional domain expertise on the future product needs of the enterprise market. We believe that enterprise adoption is about to enter a Cambrian period of explosive growth as a result primarily of three technological developments now underway. I'll explain and illustrate each with examples.
Jack S. Abuhoff: In parallel with executing strategies to penetrate big checks, we're taking steps to prefer prepare for what we foresee as a likely explosion in the enterprise space.
Jack S. Abuhoff: We believe we are very well positioned due to our intimate knowledge of the journey a roadmap of large tech companies, which has enabled us to gain exceptional domain expertise and the future product needs of the enterprise market.
Jack S. Abuhoff: We believe that enterprise adoption is about to enter it Cambrian period of explosive growth is a result, primarily three technology developments now underway.
Jack S. Abuhoff: I'll explain and illustrate each with examples.
Jack S. Abuhoff: Today, enterprise users of data-driven AI are mostly using ChatGPT as a standalone application. We'll call this level zero use case. For example, if I'm an HR director at Innodata tasked with revising Innodata's employee handbook, I can prompt ChatGPT to write a first draft of the vacation policy.
Jack S. Abuhoff: Today enterprise users.
Jack S. Abuhoff: Our mostly using chat she P T as a standalone application well.
Jack S. Abuhoff: We will call this level zero use case.
Jack S. Abuhoff: For example, if I'm an HR director at any date attached with revising in a date as employee Handbook I can prompt CECI P. T to write a first draft of the vacation policy.
Jack S. Abuhoff: Companies are now shifting from this level zero to what we think of as level one. We think of level one systems as those based on retrieval augmented generation, or REG, which we believe are likely to become better performing for reasons I will explain shortly. RAG systems couple search technology and prompt engineering. With such a level one system, an Innodata employee might prompt an Innodata HR chatbot with a request like, "please summarize for me Innodata's vacation policy."
Jack S. Abuhoff: Companies are now shifting from this level zero to what we think of as level one.
Jack S. Abuhoff: We think of level one systems as those based on retrieval augmented generation or Reg, which we believe are likely to become better performing for reasons I will explain shortly.
Jack S. Abuhoff: Reg systems couple search technology and prompt engineering.
Jack S. Abuhoff: With such a level one system and then new data employee might prompt and in a data HR chatbot with a request like please summarize for me and a data as a vacation policy.
Jack S. Abuhoff: A search engine working behind the scenes would then retrieve Innodata's vacation policy from a large document repository and insert it into the prompt as context with an instruction to the LLM to answer the question primarily based on the inserted policy. RAG-based systems are about to become more useful as the latest crop of soon-to-be-released LLMs offer significantly expanded context windows. The context window refers to the amount of retrieved information that can be included in a prompt.
Jack S. Abuhoff: A search engine working behind the scenes, we've been retrieving of David's vacation policy from a large document repository and inserted into the prompt as context with an instruction to the L. A to answer the question primarily based on the uncertain policy.
Jack S. Abuhoff: Reg based systems are about to become more useful as the latest crop of soon to be released L O limbs or for significantly expanded context windows the con.
Jack S. Abuhoff: Text window refers to the amount of retrieved information that can be included with the prompt.
Jack S. Abuhoff: By including more context, the chatbot can become more consistent, relevant, and useful. One of the big tech companies is about to release a new model with a context window that is eight times larger than that of OpenAI's GPT-4 Turbo, enabling you to include, for example, 3,000 pages of documents in a single prompt. Today's expert or advanced expert augmentation systems are, for the most part, RAG-based systems that combine generative AI with humans in the loop to deliver improved productivity.
Jack S. Abuhoff: By including more context, the chatbot chatbot can become more consistent relevant and useful.
Jack S. Abuhoff: One of the Big Tech companies is about to release, a new model with the context window that has eight times larger than that of open AOS Chet <unk>.
Jack S. Abuhoff: <unk> G P T for turbo, enabling you to include for example, 3000 pages of documents in a single prompt.
Jack S. Abuhoff: Todays expert or advanced expert augmentation systems are for the most part rack based systems that combine generative AI with humans in order to deliver improved productivity.
Jack S. Abuhoff: In a few minutes, I'll give you an example of such a system we started working on for a customer in the quarter. We believe a second technology development called agentic workflows will enable what we'll call level two systems. With an agentic system, rather than asking a question to a chatbot, you present a goal to a virtual agent. Your virtual agent then accesses multiple backend systems, and LLMs talk to each other to accomplish your goal.
Jack S. Abuhoff: In a few minutes. So I'll give you. An example of such a system. We started working on for a customer in the quarter.
Jack S. Abuhoff: We believe the second technology development called Egencia workflows will enable what we'll call Buffalo two systems.
Jack S. Abuhoff: Within a gentex system, rather than asking question to a chat bot you presented a goal to a virtual agent.
Jack S. Abuhoff: Your virtual agent, then excesses multiple backend systems and <unk> talked to each other to accomplish your goal.
Jack S. Abuhoff: Egentic workflows really open up the kinds of things you can ask computers to do with LLM; with an agentic system, an Innodata employee might ask a virtual Innodata agent, "Please look up how many days off Innodata employees get, check how many days off I have left, and request a week off around my son's graduation, so long as there are still available hotels in Boston."
Jack S. Abuhoff: Agenda workflows really open up the kinds of things you can ask computers to do with L. O EMS with in a gentex system and in the data might employ.
Jack S. Abuhoff: Any data employee might ask a virtual and a data agent. Please look up how many days off in a David employees get check how many days off I have left and request a week off around my son's graduation, so long as there is still available hotels in Boston.
Jack S. Abuhoff: Imagine that. Now, while the full realization of agentic workflows may be years away, we believe incremental progress is being achieved and will likely accelerate. The third development that we believe will accelerate enterprise adoption is that the cost of training and serving models is likely to go down dramatically, making it possible for enterprises to train and serve models at scale. Once this happens, we believe that companies are likely to want to fine-tune their own models rather than relying on rag-based architectures. We'll call these levels three.
Jack S. Abuhoff: Imagine that.
Jack S. Abuhoff: Now while the full realization of Egencia workflows may be years away, we believe incremental progress is being achieved and will likely accelerate.
Jack S. Abuhoff: The third development that we believe will accelerate enterprise adoption is that the cost of training and serving models is likely to go down dramatically.
Jack S. Abuhoff: Any possible for enterprises to train and serve models at scale.
Jack S. Abuhoff: Once this happens we believe that companies are likely to want to fine tune their own models, rather than relying on Reg based architectures will call. These level three systems.
Jack S. Abuhoff: Level 3 systems will support more complex use cases and enable sensitive information to be processed in private clouds or on-premises, rather than being served up as context to third-party foundation models. We intend Inundated to offer enterprises all of the services they require to navigate the journey from level zero to level three and beyond. This will include custom development, integration, and fine-tuning services, as well as managed services, services around data readiness and data governance, and industry-specific workflow platforms.
Jack S. Abuhoff: Level three systems will support more complex use cases and enable sensitive information to be processed in private clouds are on premises rather than being served up as context to third Party Foundation models.
Jack S. Abuhoff: We intend in a data to offer enterprise all of the services they require to navigate the journey from level zero to level three and beyond.
Jack S. Abuhoff: This will include custom development integration and fine tuning services as well as managed services services around data readiness and data governance and injured industry specific workflow platforms.
Jack S. Abuhoff: We are not alone in our thinking that the enterprise market for generative AI is about to explode. In a report last year, Bloomberg estimated the market for generative AI-focused IT services will grow to nearly $22 billion by 2027 and to nearly $86 billion by 2032, representing a 100% compounded annual growth rate for the 10 year period from 2022 to 2032. To position ourselves to drive enterprise growth, we are expanding our talent base, creating new accelerators, and winning new reference engagements.
Jack S. Abuhoff: We are not alone in our thinking that the enterprise market for generative AI is about to explode.
Jack S. Abuhoff: In a report last year Bloomberg estimated the market for generative AI focused I T services will grow to nearly 22 billion by 2027 and to nearly 86 billion by 'twenty 32.
Jack S. Abuhoff: Representing a 100% compounded annual growth rate for the 10 year period from 2022 to 2032.
Jack S. Abuhoff: To position ourselves to drive enterprise growth, we're expanding our talent base, creating new accelerators and winning new reference engagements.
Jack S. Abuhoff: This quarter, one of the largest legal information companies in the world engaged us to develop a new LLM-based workflow system for their complex operational processes spanning legal and regulatory law in multiple European countries in multiple languages. This is an example of what I referred to a few minutes ago as an advanced level one system.
Jack S. Abuhoff: This quarter one of the largest legal information companies in the world engaged us to develop a new L. O N based workflow system for their complex operational processes spending legal and regulatory law in multiple European countries in multiple languages.
Jack S. Abuhoff: This is the example of what I referred to a few minutes ago as an advanced level one system.
Jack S. Abuhoff: Our implementation uses GPT and a combination of several techniques, including chain of density, prompt engineering, and a vector database with similarity matching. Our generative AI-enabled workflow system is expected to enable the customer to drive significant operational savings across high-cost processes that previously relied entirely on humans with language and legal expertise. This quarter, we also delivered a generative AI-powered tool that gathers on-the-fly insights from large-scale textual data, contextually analyzes the data for specific areas of interest, and performs language translation.
Jack S. Abuhoff: Our implementation uses G P T and a combination of several techniques, including change of density prompt engineering and affect your database with similarity matching.
Jack S. Abuhoff: Our generative AI enabled workflow system is expected to enable the customer to drive significant operational savings across high cost processes that previously relied entirely on humans with language and legal expertise.
Jack S. Abuhoff: This quarter, we also delivered a generative AI powered tools like others under flight insights from large scale textual data.
Jack S. Abuhoff: Textually analyzes the data for specific areas of interest and performs language translations.
Jack S. Abuhoff: The technology aims to increase an organization's efficiency by ensuring knowledge workers are equipped with the intelligence needed to make informed decisions. We built it into our Agility Public Relations platform, where we call it Intelligent Insight. We made intelligent insights generally available to agility customers in the quarter, and it has been well received. To build the solution, we utilized RAGBASE Prompt Engineering.
Jack S. Abuhoff: It's technology aims to increase the organization's efficiency by ensuring knowledge workers, who are equipped with equipped with the intelligence needed to make informed decisions.
Jack S. Abuhoff: We built it into our agility public relations platform, where we call it intelligent insights.
Jack S. Abuhoff: Made intelligence intelligent insights generally available to agility customers in the quarter and it has been well received.
Jack S. Abuhoff: To build the solution, we utilize Reg based prompt engineering.
Jack S. Abuhoff: We recently demonstrated it as an accelerator to one of our large banking customers, and it inspired a proof of concept that we are now executing. Agility revenue in the quarter increased 16.5% year over year, we have over 1,400 direct customers, and we're generating cash. We've been a leader in the industry rolling out cutting-edge generative AI functionality that is bending the productivity curve for PR and communications professionals. We started early last year with the release of PR Copilot, a generative AI implementation that helps people write press releases and media pitches.
Jack S. Abuhoff: We recently demonstrated it as an accelerator to one of our large banking customers and it inspired a P. O C that we are now executing.
Jack S. Abuhoff: Do you have any revenue in the quarter increased 16, 5% year over year, we have over 1400 direct customers and we're generating cash.
Jack S. Abuhoff: We've been a leader in the industry rolling out cutting edge generative AI functionality that is bending the productivity curve for PR and communications professionals.
Jack S. Abuhoff: We started early last year with the release of PR Copilot degenerative AI implementation that helps people right press release press releases and media pitches.
Jack S. Abuhoff: In Q1, we announced the general availability of Intelligent Insight. We are planning another five significant generative AI feature releases over the course of the second half of this year and into the first quarter next year. As a result of what we believe is our generative AI leadership in the PR space, in the first quarter, we converted over 35% of demos to wins, up from less than 20% prior to the implementation of our generative AI roadmap.
Jack S. Abuhoff: In Q1, we announced the general availability of intelligent insights.
Jack S. Abuhoff: We are planning another five significant generative AI feature releases over the course of the second half of this year and into the first quarter next year.
Jack S. Abuhoff: As a result of what we believe is our general today, our leadership in the PR space in the first quarter, we converted over 35% of demos to winds up from less than 20% prior to implementation of our generative AI roadmap.
Jack S. Abuhoff: Our customers told us that one of their biggest challenges was that they needed more hours in the day. With our generative AI innovations, we're making tactical PR a less labor-intensive process, giving our customers the time back they need for strategic thinking. For both the big tech market as well as the enterprise market, we see additional opportunities in model safety evaluation and responsible and ethical AI. We began working on trust and safety for one of our big tech customers in Q4 2023, providing model assessment and benchmarking services, which help ensure that models meet performance, risk, and emerging regulatory requirements.
Jack S. Abuhoff: Our customers told us that one of their biggest challenges was that they needed more hours in the day.
Jack S. Abuhoff: With our generative AI innovations, we're making tactical P. R. A less labor intensive process, giving our customers the time back they need for strategic thinking.
Jack S. Abuhoff: For both the big Tech market as well as the enterprise market, we see additional opportunities in models safety evaluation and responsible and ethical AI.
Jack S. Abuhoff: We began working on trust and safety for one of our Big Tech customers in Q4, 2023, providing model assessment and benchmarking services, which help ensure that models meet performance risk and emerging regulatory requirements.
Jack S. Abuhoff: We learned a lot from the work and development we've been doing on this engagement, so we decided to share our learnings, tools, and innovation with the market more broadly. Just a couple of weeks ago, we announced the release of an open source LLM evaluation toolkit and a repository of 14 semi-synthetic and human-crafted evaluation data sets that enterprises can utilize for evaluating the safety of their large language models in the context of enterprise tasks. Using the toolkit and the datasets, data scientists can automatically test the safety of underlying LLMs across multiple harm categories simultaneously.
Jack S. Abuhoff: We learned a lot from the work and development we've been doing on this engagement. So we decided to share our learnings tools and innovation with the market more broadly.
Jack S. Abuhoff: Just a couple of weeks ago, we announced our release of an open source L. O M evaluation toolkit together with a repository of 14th semi synthetic and human crafted evaluation datasets that enterprises can utilize for evaluating the safety of their large language models in the context of enterprise tasks.
Jack S. Abuhoff: Using the tool kit and the datasets data scientists can automatically tests the safety of underlying L. M is across multiple harm categories simultaneously.
Jack S. Abuhoff: Developers can understand how their AI systems respond to a variety of prompts and can identify remedial fine-tuning required to align the systems to the desired outcome. We expect to release a commercial version of the toolkit and more extensive, continually updated benchmarking data sets later this year. In Q1, we won two additional engagements for LLM safety and evaluation, one for a hyperscaler's own foundation models and one for an enterprise customer of the hyperscaler through the white-label program we have in place with the hyperscaler. In addition, in Q1 2024, we started pilots for a new customer and an existing customer around LLM trust and safety. I'll conclude with this.
Jack S. Abuhoff: Developers can understand how their AI systems respond to a variety of prompts and can identify remedial fine tuning required to widen the systems to the desired outcomes.
Jack S. Abuhoff: We expect to release the commercial version of the tool kit and more extensive continually updated benchmarking data sets later this year.
Jack S. Abuhoff: In Q1, we won two additional engagements for L. M safety and evaluation, one for our Hyperscale or his own foundation models and one for an enterprise customer of the hyper scaler through the White label program, we have in place with the hyper scaler.
Jack S. Abuhoff: In addition in Q1 'twenty 'twenty four we started pilots for a new customer and an existing customer around L O Amtrust and safety.
Jack S. Abuhoff: I'll conclude with this we believe we have an incredible opportunity in front of US. We believe we have the talent capabilities and scalability to support the world's leading <unk>.
Jack S. Abuhoff: We believe we have an incredible opportunity in front of us. We believe we have the talent, capabilities, and scalability to support the world's leading companies' efforts to build AI models and services and to help enterprises advance AI and generative AI technologies. We believe we can drive best-in-class growth over the next several years and maintain our early leadership position in generative AI services. Moreover, we believe we can accomplish this without the need to raise equity, incur debt, or burn cash.
Jack S. Abuhoff: Company's efforts to build AI models and services and to help enterprises advance AI and <unk> AI technologies.
Jack S. Abuhoff: We believe we can drive best in class growth over the next several years and maintain our early leadership position in generative AI services.
Jack S. Abuhoff: Moreover, we believe we can accomplish this without the need to raise equity to incur debt or to burn cash.
Jack S. Abuhoff: This year, based on our current growth forecast, we intend to invest approximately $3.5 million in recruiting costs to scale our business and approximately another $3 million in new sales, marketing, and product development talent. The recruiting costs relate to the significant increase in revenues we expect this year and will not be incurred next year to support that revenue going forward. The investment in sales, marketing, and product development is encouraged to continue our growth momentum, and we anticipate that it will yield revenue and profitability benefits primarily next year and beyond.
Jack S. Abuhoff: This year based on our current growth forecast, we intend to invest approximately $3 5 million in recruiting costs to scale, our business and approximately another $3 million in new sales marketing and product development talent.
Jack S. Abuhoff: The recruiting costs related to the significant increase in revenues. We expect this year and will not be incurred next year to support that revenue going forward.
Jack S. Abuhoff: Investment in sales marketing and product development are encouraged to continue our growth momentum and we anticipate that they will yield revenue and profitability benefits, primarily next year and beyond.
Jack S. Abuhoff: We anticipate approximately 70% of the recruiting costs to be incurred in Q2, and most of the OPEX investment to be incurred in the second half of the year. We are making these investments while simultaneously driving year-over-year growth in adjusted EBITDA and building cash on our balance sheet. At the end of Q1, our cash balances were $19 million, up from $13.8 million at the end of Q4 2023, driven by positive cash flow from operations and tight working capital management. I'll now turn the call over to Marissa to go over the numbers, and then we'll open the line for some questions.
Jack S. Abuhoff: We anticipate approximately 70% of the recurring of the recruiting costs to be incurred in Q2, and most of the opex investment to be incurred in the second half of the year.
Marissa: We are making these investments while simultaneously driving year over year growth in adjusted EBITDA and building cash on our balance sheet.
Marissa: At the end of Q1, our cash balances were $19 million up from $13 8 million at the end of Q4 2023, driven by positive cash flow from operations and tight working capital management.
Marissa: I'll now turn the call over to risk score for the numbers and then we'll open the line for some questions.
Marissa Espineli: Thank you, Jack, and good afternoon, everyone. Let me briefly share with you our 2024 first quarter financial results. Revenue was $26.5 million, up 41% from $18.8 million in the same period last year. Net income was $1 million, or $0.03 per basic and diluted share, compared to a net loss of $2.1 million, or $0.08 per basic and diluted share, in the same period last year. The adjusted EBITDA was $3.8 million compared to adjusted EBITDA of $0.8 million in the same period last year. Cash and cash equivalents, and short-term investments were $19 million at March 31st, 2024 and $13.8 million at December 31st, 2023. We currently have an unused line of credit of $10 million with $9.2 million as a borrowing basis.
Marissa: Thank you Jack and good afternoon, everyone. Let me briefly share with you I'd point to identify our first quad amongst our results.
Marissa Espineli: Louis Kansas explained five Marion up quite different by Samsung, even quaint eight <unk> in the same period last year net income was one there are three cents per basic and diluted share compared to a mere plus up to 1 million or eight cents per bushel and I'll loop of sorry, Anglophone keratoplasty eyes and Kathy.
Marissa Espineli: EBITDA was <unk> 8 million compared to adjusted EBITDA 0.8, <unk> in the same period last year.
Marissa Espineli: Cash and cash occurred.
Marissa Espineli: And short term investments Langton Marion at my side. The first 90 to 94 and 13.8 million at December 31st Chromebook granted through well.
Marissa Espineli: Currently have an unused line of crowding and they're learning the ropes nine point to leroux borrowing base.
Marissa Espineli: So thank you, everyone. Paul, we're ready for questions. Certainly.
Speaker Change: So thank you everyone.
Paul: We're rapidly five questions.
Operator: Certainly. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Paul: Certainly at this time, we'll be conducting a question and answer session.
Operator: If you would like to ask a question. Please press star one on your telephone keypad.
Operator: A confirmation tone will indicate your line is in the question queue.
Operator: You May press Star two if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: Once again, please press star 1 on your phone at this time if you wish to ask a question. Please hold while we poll for questions. The first question today is from Aria Cole from Cole Capital.
Operator: Once again, please press star one on your phone at this time, if you wish to ask a question.
Operator: And please hold while we poll for questions.
Aria Cole: The first question today is coming from ARIA Cole from Cole capital.
Aria Cole: Are your line of his life.
Aria Cole: Yes, thank you. Again, congratulations on the good sales results and the good feedback you're getting from customers who are asking you for additional business. Jack, one quick question.
Aria Cole: Yes. Thank you again, congratulations on the good sales results and the good feedback you're getting from customers who are asking for.
Aria Cole: Even your additional business Jack one quick question currently companies can grow organically and we can also grow through acquisition I was trying to get an update on your thought process for how important thing acquisitions could be a part of your growth going forward.
Jack S. Abuhoff: Clearly, companies can grow organically. They can also grow through acquisition. I was trying to get an update on your thought process for how important acquisitions could be as a part of your growth going forward.
Jack: Alright. Thank you for the question. So the business plan that we're currently executing successfully as an organic only plant.
Aria Cole: R.A., thank you for the question. So the business plan that we're currently executing successfully is an organic only plan. You know, we've got a strategy in place that we think we can successfully deliver through organic growth and through the resources that are available to us and that we're able to augment our team with. You know, from time to time, we will kick the tires on potential inorganic opportunities, but I think the important thing is that we're not dependent upon them for growth. We recognize that those come with risks that are not necessarily, you know, risks that one incurs with a or get primarily organic strategy. And that's the way we're executing right now.
Aria Cole: We've got a strategy in place that we think we can successfully deliver through organic growth.
Aria Cole: And through the resources that are available to us and that we're able to augment our team with.
Aria Cole: You know from time to time, we will kick the tires on potential inorganic opportunities, but I think the important thing is that we're not dependent upon that for growth.
Aria Cole: We recognize that those come with risks that.
Aria Cole: Or not necessarily.
Aria Cole: Risks.
Aria Cole: That one incurs were they.
Aria Cole: Or get primarily organic.
Aria Cole: Strategy and that's the way we're executing right now.
Jack S. Abuhoff: Understandable. Then the follow-up is looking at organic growth. When you look at the financial [inaudible] 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?
Speaker Change: Understood and then the follow up is looking at organic growth when you look at the.
Jack S. Abuhoff: Our financial.
Jack S. Abuhoff:
Jack S. Abuhoff: The.
Jack S. Abuhoff: Employees, what sort of sales per employee can you generate when you're primarily providing them.
Jack S. Abuhoff: Services for these large.
Jack S. Abuhoff: Technology companies and what sort of what are the gross margin range. You think you can achieve when people have time as being optimally utilized.
Jack S. Abuhoff: Sure. So, you know, we target At a consolidated level, we target about 40% adjusted gross margin. When you back out the one-time recruiting charges that relate to the revenue that we're scaling up for, And if you back out, you know, sales and marketing investments that we plan to have, you know, to be returning on that investment in the following year. From a revenue per employee, you know, we don't track that, although, you know, it is notable, and it's not lost on us that, you know, our revenue employee has gone, or with the large language model work that we're doing, is probably four to even five times in excess of what it was historically with the business process management service.
Speaker Change: Sure. So you know we target.
Jack S. Abuhoff: <unk>.
Jack S. Abuhoff: At a consolidated level, we target about 40% adjusted gross margin.
Jack S. Abuhoff: When you back out the one time recruiting charges that relate to the revenue that we're scaling up for.
Jack S. Abuhoff: And if you back out sales and marketing investments that we plan to have.
Jack S. Abuhoff: To be returning on that investment in the following year.
Jack S. Abuhoff: From a revenue per employee we don't track that although you know it is notable and it's not lost on us that.
Jack S. Abuhoff: Our revenue employee has gone with the large language model work that we're doing is probably four to even five times in excess of of what it's been historically with the business process management services.
Jack S. Abuhoff: 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, or turnover of employees will be kept to a minimum level.
Speaker Change: Got it and just finally.
Jack S. Abuhoff: In terms of and employee retention.
Jack S. Abuhoff: Youre going to be in a more competitive marketplace for employees in the future and I'm, just wondering what youre, putting in place to try and make them in our data a place that people really enjoy working at where your churn hopefully our turnover employees will be kept to a minimal level.
Jack S. Abuhoff: For the most part, over the years, churn has not presented a problem for us that we weren't able to manage. We were able to keep it at a level that was way below that of most of our competitors. Just this past quarter, we were elected as one of the best places to work by, you know, in two different locations. So we believe that we will be able to manage it, and we're very excited about the, obviously, very excited about the growth opportunity in front of us. Great. Well, thank you.
Jack S. Abuhoff: So for the most part over the years.
Jack S. Abuhoff: Churn has not presented a problem for us that we weren't able to manage.
Jack S. Abuhoff: We were able to keep it at a level that was way below that of most of our competitors.
Jack S. Abuhoff: Just this past quarter, we were elected as one of the best places to work by you know in two different of our locations.
Jack S. Abuhoff: So we believe that we will be able to manage it and.
Jack S. Abuhoff: We're very excited about the obviously very excited about the growth of our project in front of us.
Aria Cole: Okay, great. Well, thank you, and best of luck.
Speaker Change: Okay, great well, thank you and best of luck. Thank.
Speaker Change: Thank you.
Operator: Thank you. The next question is coming from Tim Clarkson from Van Clemmens. Tim, your line is live.
Aria Cole: Thank you. The next question is coming from Tim Clarkson from Van Clemens, Tim Your line is live.
Timothy Clarkson: 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 in 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.
Timothy Clarkson: Hey, Jack obviously, a great quarter, just wanted to go over some of the basics for some of US luddites here. So.
Timothy Clarkson: And what I'm hearing is that you guys make like three mistakes in 20,000 annotations. Can you just, you know, talk about how that's really, it seems simple, but it's a real foundational skill. You do more than that, obviously, but that really is what initially separates you from the competition in a big way.
Timothy Clarkson: When I when I originally realized that entity out of was getting involved in the artificial intelligence. The one thing that was really helpful. For me to understanding why you guys are successful is just you know the accuracy and the top guy from IBM explained it to me that I B M. They had a 75% failure rate largely because.
Timothy Clarkson: Of inaccuracies and what I'm hearing is you guys make like three mistakes in 20000 annotations.
Timothy Clarkson: Could you just talk about how that's really a it seems simple, but it's a real foundational skill you're doing more than that obviously, but that that really is what initially separates you from the competition in a big way.
Jack S. Abuhoff: So, Tim, thank you for the question. Absolutely.
Speaker Change: So Tim Thank you for the question. So absolutely I think data quality has been proven to lead to great model performance and we have customers that I mentioned, a few minutes ago, who.
Jack S. Abuhoff: I think data quality, you know, has been proven to lead to great model performance. And we have customers that I mentioned a few minutes ago who, with their new releases, are attributing their incremental improvements to their data quality. And we're working for those customers. So, you know, we're thrilled that we are producing those great outcomes for our customers, and we're seeing that those great outcomes are leading to, you know, expansions and growth In terms of, you know, LLMs, there are three critical ingredients.
Jack S. Abuhoff: Who with their new releases are attributing their incremental improvements to their data quality and we're working for those customers.
Jack S. Abuhoff:
Jack S. Abuhoff: So you know we're we're thrilled that you know we're.
Jack S. Abuhoff: Producing those great outcomes for our customers and we're seeing that there was great outcomes are leading to expansion and growth.
Jack S. Abuhoff: In terms of <unk>. There are three critical ingredients Theres computers data science and then there's you know data engineering work that we do.
Jack S. Abuhoff: There's compute, there's data science, and then there's, you know, data engineering work that we do. Um, given the investments that these companies are making and the kind of risk that they're taking and the strategic emphasis that they're placing on these developments. It's critical for them to have the kind of data that will result in the models that they build. You know, we think we're very well positioned, we're doing great work, and we think the future's very bright.
Jack S. Abuhoff: Given the.
Jack S. Abuhoff: The.
Jack S. Abuhoff: Okay.
Jack S. Abuhoff: Investments that these companies are making and the kind of risk that they're taking and the.
Jack S. Abuhoff: Strategic emphasis that they're placing on these developments it's.
Jack S. Abuhoff: Critical to them to have the kind of data that will result in the models that they.
Jack S. Abuhoff: And the accuracy of the models that they're building so.
Jack S. Abuhoff: We think we're very well positioned we're doing great work in and we think the future is very bright.
Jack S. Abuhoff: Right. Now, just as kind of an extension to that idea, one of the challenges, obviously, with Innodata historically was, you do a project, and then it ends, and there wasn't a durability of revenues. Can you comment on how durable you think this new business model is going to be in the future?
Speaker Change: Right now just it is kind of an extension to that idea I mean, one of the challenges obviously in a data. Historically was you know you do a project and then it ended and there wasn't a durability of revenues could you comment on how durable you think this new business model is going to be into the future.
Jack S. Abuhoff: I think it's still very early days, you know; we see lots of lots of developments that are taking place. I mentioned, you know, several of those.
Jack S. Abuhoff: So I think it's extremely.
Jack S. Abuhoff: Early days still we see lots of.
Jack S. Abuhoff: Lots of developments that are taking place I mentioned several of those rebuild.
Jack S. Abuhoff: We believe that we're still in the early innings of executing. All of these opportunities where we're now starting to talk to our customers about multimodal models for multiple languages, more complex reasoning tasks that they want the models to be able to take on. [inaudible] At the same time, we're landing more and more companies, and we're getting into enterprise opportunities. So, you know, we think there's a tremendous amount of growth opportunity in front of us.
Jack S. Abuhoff: We believe that we're still in the early innings of of executing well.
Jack S. Abuhoff: All of these opportunities where we're starting to now you don't talk to our customers about multimodal models about multiple languages more complex reasoning tasks that they want the models to be able to.
Jack S. Abuhoff: To take on.
Jack S. Abuhoff: <unk> domain and task specificity.
Jack S. Abuhoff: All of these things are early for them and we think we're early in our partnerships with them such that we're going to be able to drive multiyear growth as a result of their multiyear investments.
Jack S. Abuhoff: At the same time, we're landing more more companies and were getting into the enterprise opportunity. So we think theres a tremendous amount of growth opportunity in front of us.
Jack S. Abuhoff: Right. Now, historically, you know, back in the, I don't know if you call it the good old days, but the old days when, when you guys were picking on projects, you know, you were doing 20 million. You know, I remember netting, you know, 15, 20% after tax. And, you know, it seems like, you've 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% pre-tax margins once you guys get onto a solid run rate.
Jack S. Abuhoff: Right now historically, you know back in the <unk>.
Jack S. Abuhoff: No if you call it the good old days, but the old days when when you guys were were peaking on projects you know Youre doing 20 million you know I remember netting you know 15, 20% after tax and you know it seems like.
Jack S. Abuhoff: You got these one time expenses with the sales investments that separating those out it seems like there's certainly a potential to have 15% to 20% pre tax margins once.
Jack S. Abuhoff: You guys got into a solid run rate.
Jack S. Abuhoff: So yeah, I think that's certainly what we're pursuing. We think the opportunity is there. We also think it's important, as I mentioned, to be investing in our growth. We believe that we have an opportunity in front of us to create a truly great company. And, you know, we're very excited about that.
Speaker Change: So yes, I think that that's certainly what we're pursuing we think the opportunity is there. We also think it's important as I mentioned to be investing in our growth.
Jack S. Abuhoff: Okay.
Jack S. Abuhoff: We believe that we have an opportunity in front of us to create a truly great company and we're very excited about that.
Jack S. Abuhoff: Now, these investments would be directly tied to AI then, right, on that part of the business.
Jack S. Abuhoff: Now these investments would be directly tied into a high then right on that part of the business.
Jack S. Abuhoff: Exactly right. It's right.
Speaker Change: Exactly right.
Timothy Clarkson: Right. Great. Well, good luck. It's an exciting future. Thank you. Thank you, Jim.
Speaker Change: Alright, great well.
Timothy Clarkson: Good luck, it's a it's an exciting future. Thank you.
Speaker Change: Thank you Dave.
Operator: Thank you. The next question will be from Dana Buska from Felton. Dana, your line is live.
Speaker Change: Thank you. The next question will be from Dana Abu Scott from Filton Dana Your line is live.
Dana Buska: Hi, Jack.
Dana Buska: Hey, David Congrats.
Dana Buska: Congratulations on a wonderful quarter. I have just a couple 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?
Dana Buska: Congratulations on a wonderful Carter.
Dana Buska: I have just a couple of questions for you.
Dana Buska:
Dana Buska: You talked a little bit about the the demand for training on enterprise data can you talk a little bit more about that.
Dana Buska: And are you seeing more enterprises look to train their own models.
Jack S. Abuhoff: I think we're going to see more enterprises training their own models when the cost of doing so comes down, which we believe is inevitable. For the most part, what enterprises are looking to do now is to use their own data as context within RAG implementations. And even with that, we see a lot of opportunities that are now being piloted and, you know, POCs in their very early days in terms of getting things into development or past development and into implementation.
Dana Buska: So I think we're going to see more enterprises training their own models when the cost of doing so comes down which we believe it is inevitable for the most part what enterprises are looking to do now is to use their own data as context within rag implementation.
Jack S. Abuhoff: <unk>.
Jack S. Abuhoff: And even with that we see a lot of opportunities that are now being piloted and P. O sees.
Jack S. Abuhoff: Very early days in terms of getting things into development or past development into implementation.
Jack S. Abuhoff: We think we're going to be there in order to help accomplish that. Again, the quality of the data that feeds those models and the kinds of integrations that become possible, especially with large context windows, is going to improve the results of those models and what can be achieved with them. We're very well positioned to, you know, help enterprises move things from POCs into development, and we're doing that now.
Jack S. Abuhoff: We think we're going to be there in order to help accomplish that again quality of data that feeds those models in the in the kinds of integrations that become possible.
Jack S. Abuhoff: Especially with large context windows is going to improve the results of those models and what can be achieved through them.
Jack S. Abuhoff: We're very well positioned to help enterprises move things from P. O season to development and we're doing that now today.
Speaker Change: Okay great.
Jack S. Abuhoff: And along those lines, I seem to read or come across articles about how companies are coming up with tools and software to speed up fine-tuning and improve trust and safety. Did you talk a little bit about how that may affect your business, and do you consider that to be a threat?
Jack S. Abuhoff: And along those lines.
Jack S. Abuhoff: I I I seem to read come across articles.
Jack S. Abuhoff: But companies are coming up with the tools and software to speed up.
Speaker Change: Uh huh.
Jack S. Abuhoff: Fine tuning and doing trust and safety.
Jack S. Abuhoff: Could you talk a little bit about how that may affect your business and do you consider that to be a threat.
Jack S. Abuhoff: No, we consider that to be an opportunity. The more success we have and the world has at moving things from POC into development, the more acceleration we will see in the technology and in the opportunities that we have. You know, we are among the companies who are developing capabilities around trust and safety. We're very excited about that. Again, it's a data-driven initiative and a data-driven approach that we're taking that we believe will help companies along on that path.
Speaker Change: No we consider that to be an opportunity.
Jack S. Abuhoff: The more success, we have in the world has it moving things from POC into development. The more acceleration, we will see in the technology.
Jack S. Abuhoff: <unk> and <unk> and the opportunities that we have.
Jack S. Abuhoff: We are among the companies who is developing capabilities around trust and safety, we're very excited about that.
Jack S. Abuhoff: Again, it's a data driven initiative and a data driven approach that we're taking that we believe will will help companies along in that path.
Jack S. Abuhoff: Okay, excellent. That sounds exciting. And when you're looking at hiring these new recruiting costs, 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?
Speaker Change: Okay excellent that's it.
Speaker Change: Sounds exciting and when you're looking at hiring these new.
Speaker Change: Recruiting costs could you talk a little bit about hiring new people could you talk a little bit about what type of positions you're looking to hire.
Jack S. Abuhoff: So we're hiring very broadly. We're hiring people who have the ability to help us build the kinds of data sets that we require to train these models. A lot of the people that we're hiring are language experts or they're domain experts. They're linguists. They're people with backgrounds that enable them to appreciate nuance and language. As we think about these models, it's language that is used to program, and the more fine-tuning we can do around the nuances of those languages, the better performing the models are.
Speaker Change: So we're hiring very broadly we're hiring people who have the ability to help us build the kinds of data sets that we are required to train these models.
Jack S. Abuhoff: A lot of the people that we're hiring are language experts or their domain experts.
Jack S. Abuhoff: They're linguists there are people with backgrounds that enable them to appreciate new ones some language.
Jack S. Abuhoff: As we think about these models. It's language that is used to program them and the more fine tuning we can do around the new one so those language the better performing the models are.
Jack S. Abuhoff: Okay.
Jack S. Abuhoff: 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, or is that a growth rate that you think is sustainable?
Speaker Change: Great and then one question about agility. It looked like it grew about 20% last quarter is that of a growth rate that you are targeting.
Jack S. Abuhoff: For this year or is that growth rate did you think is sustainable.
Jack S. Abuhoff: So I think it was about 15%, if I'm not mistaken.
Speaker Change: So I think it was about 15% if I'm not mistaken.
Marissa Espineli: Dana, it was 17 percent. Yeah, so I think, you know, I think...
Speaker Change: Dana is at 17%, 17%, yes, so I think.
Jack S. Abuhoff: Yeah, so I think, you know, 15 to 20% is certainly what we would aspire to. We could do a lot more with more reinvestment in it. And that's something that we would probably be considering at some point. But right now, we're very focused on capital allocation relative to the service opportunities we have with large tech companies.
Speaker Change: Thank you.
Jack S. Abuhoff: 15% to 20% is certainly what we would aspire to.
Jack S. Abuhoff: Could do a lot more with more reinvestment in it and that's something that we would probably be considering at some point, but right now we're very focused on.
Jack S. Abuhoff: On capital allocation relative to the surface opportunities, we have room to large tech companies.
Jack S. Abuhoff: Okay.
Dana Buska: Excellent, that sounds very exciting, and thank you for taking my questions.
Speaker Change: Excellent that sounds it sounds very exciting.
Dana Buska: Thank you for taking my questions.
Speaker Change: Thank you.
Operator: Thank you. The next question is coming from Bruce Galloway from Galloway Capital. Bruce, your line is live.
Dana Buska: Thank you. The next question is coming from Bruce Galloway from Galloway Capital Bruce Your line is life Hey, Jack.
Bruce Galloway: Hey, Jack. Congratulations. It seems like you're getting a lot of traction.
Bruce Galloway: Gratulation it seems like you're getting a lot of traction.
Jack S. Abuhoff: 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 and that it was extended 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?
Bruce Galloway: Just to quantify the size of these contracts and some of the new additions you mentioned that $23 $5 million add on to the $20 million of Hyperscale or that you announced in April I.
Jack S. Abuhoff: I guess that was the one that was doing $23 million a year that extended it for three years. So that that alone is 43, and a half million dollars add on from the $23 million, which on a base of $86 million last year, that's over 50% growth rate just from one.
Jack S. Abuhoff: Customer.
Jack S. Abuhoff: Can you give us some quantification on some of these other contracts how big they could be and how much they can scale too.
Jack S. Abuhoff: Sure, so, as I mentioned, we're now working with seven big tech companies. And we believe, when we look across that portfolio, that they are all spending, you know, significantly, as significantly as the company that, you know, you referred to, on these technologies. And, you know, we believe we have an opportunity to scale with all of them. But will all of them become as big as this one? That would be wonderful if it were to happen, but I don't know that it will.
Speaker Change: Sure so.
Jack S. Abuhoff: As I mentioned, we're now working with.
Jack S. Abuhoff: Seven Big Tech companies.
Jack S. Abuhoff: And we believe when we look across that portfolio that they they are all spending significantly as significantly as the company that you referred to.
Jack S. Abuhoff: These.
Jack S. Abuhoff: On these technologies and we believe we have an opportunity to scale with all of them now will all of them become as big as this one that would be wonderful if it were to happen I don't know that it will.
Jack S. Abuhoff: But we believe we're certainly very well positioned. We brought in another two customers this quarter, which are very significant players and appear to be very eager to work with us. And in terms of when you start adding up the numbers and adding up what's possible, we believe that the 40% growth target, which doubles what we provided last quarter, is still a reasonably conservative target. We have lots of opportunity in flight. We're taking a conservative view of our pipeline in order to support our growth guidance, and it's a very exciting time in our business right now.
Jack S. Abuhoff: But we believe we're certainly very well positioned we brought another two customers this quarter, which are very significant players and appear to be very eager to work with us.
Jack S. Abuhoff: And in terms of when you start adding up the numbers and adding up what's possible. We believe that the 40% growth target, which doubles, what we provided last quarter is still a reasonably conservative target we have lots of opportunity in flight, we're taking conservative view of our pipeline in order to support.
Jack S. Abuhoff: Our our growth guidance and it's a very exciting time in our business right now so so looking at your current infrastructure. Your personnel in Europe installed base. I mean, do you have the capability I mean, adding $3 million in personnel and $3 million.
Jack S. Abuhoff: So looking at your current infrastructure, your personnel, and your installed base, I mean, do you have the capability? I mean, adding three million in personnel and three million in CapEx seems a very modest amount for the scalability and the upside that you have with all these huge contrasts coming through.
Jack S. Abuhoff: Capex seems a very modest amount for the.
Jack S. Abuhoff: Scalability and the upside that you have with all of these huge contracts coming through.
Jack S. Abuhoff: So the investments that I spoke about were investments in the recruiting costs associated with adding the headcount that is required for the near-term contracts to get to that 40% growth, and other investments that we're making in sales, marketing, and product development. I'm not including in those numbers the costs that we would be incurring as cost of goods. But again, from a cost of goods perspective, I think you should look at it as an opportunity to drive, you know, in the services area, probably about 37% adjusted gross margin, and that would subsume the costs of producing the revenue.
Jack S. Abuhoff: So the investments that I spoke about were investments in the recruiting costs associated with adding the head count that is required for the near term contracts to get to that 40% growth.
Jack S. Abuhoff: And other investments that we're making in sales marketing and product development.
Jack S. Abuhoff: Not including in those numbers the cost that we would be incurring to as cost of goods.
Jack S. Abuhoff: But again from a cost of goods perspective, I think you should look at it as an opportunity to drive in the services area, probably about 37%.
Jack S. Abuhoff: Adjusted gross margin.
Jack S. Abuhoff: And that would consume the costs of of.
Jack S. Abuhoff: Of producing the revenue.
Jack S. Abuhoff: Yes.
Jack S. Abuhoff: Okay, and also as far as cash generation goes, you generated $5.2 million in cash. Is that mostly from receivables, or is it pure cash from operations? Or a combination thereof. Yeah.
Speaker Change: Okay and also as far as the cash generation you generated a five.
Jack S. Abuhoff: $5 2 million in cash is that mostly from receivables or is it pure cash from operations.
Speaker Change: Or a combination thereof.
Jack S. Abuhoff: Yeah, I mean cash from operations that includes receivables. So as we build, you know, we then collect.
Speaker Change: Yes, I mean as cash from operations that include receivables. So as rebuild we then collect.
Bruce Galloway: Okay, great. Thanks. Excellent job. Thanks. Thank you.
Speaker Change: Okay, great. Thanks excellent job. Thanks. Thank.
Speaker Change: Thank you.
Operator: Thank you, and that does conclude today's Q&A session. I will now hand the call back to Jack Abuhoff for his closing remarks.
Bruce Galloway: Thank you and that does conclude today's Q&A session I will now hand, the call back to Jack <unk> for closing remarks.
Jack S. Abuhoff: Thank you.
Jack S. Abuhoff: So yeah, we're off to an exciting start for 2024, and my team and I are tremendously energized by what we believe we can accomplish in 2024.
Jack S. Abuhoff: So yeah, we're off to an exciting start for 'twenty 'twenty four and my team and I are tremendously energized by what we believe we will accomplish in 2024.
Jack S. Abuhoff: We grew revenue by 41% year-over-year in Q1. We anticipate a substantial sequential revenue increase next quarter. And for 2024 overall, we have raised our guidance from 20% to at least 40% year over year expected organic revenue growth. Today, we announced yet another substantial customer win, this one worth approximately $23.5 million in annualized revenue. This is on top of the win with the same customer we announced a couple of weeks ago, valued at approximately $20 million in annualized revenue.
Jack S. Abuhoff: We grew revenue by 41% year over year in Q1.
Jack S. Abuhoff: <unk> a substantial sequential revenue increase next quarter.
Jack S. Abuhoff: And for 2024 overall, we've raised our guidance from 20% to at least 40% year over year expected organic only revenue growth.
Jack S. Abuhoff: Today, we announced yet another substantial customer win this one worth approximately $23 5 million of annualized revenue. This is on top of the win with the same customer we announced couple of weeks ago valued at approximately $20 million of annualized revenue.
Jack S. Abuhoff: We also announced the signing of two additional big tech customers, both of which we believe will contribute to 2024 revenue growth. Longer term, in addition to expected or continued expected growth from our big tech customer base, we expect increased market demand from enterprise customers that we hope will continue to accelerate our growth trajectory. We're super excited about the work that's underway, and we are laser-focused on creating long-term shareholder value. And thank you all for attending today's call. We'll be looking forward to our next call.
Jack S. Abuhoff: We also announced the signing of two additional big Tech customers, both of which we believe will contribute to 2020 for revenue growth.
Jack S. Abuhoff: Longer term in addition to expected or continued expected growth from our big Tech customer base, we expect increased market demand from enterprise customers that we hope will continue to accelerate our growth trajectory.
Jack S. Abuhoff: We're super excited about the work that's underway, we are laser focused on creating long term shareholder value and.
Jack S. Abuhoff: Thank you all for attending today's call will be looking forward to our next call.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Thank you. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Operator: Okay.