Good morning and welcome everyone to the Innodata Isogen Fourth Quarter 2006 Earnings Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the program over to the Vice President of Marketing, Mr. Al Girardi. Please go ahead, sir.

Thanks, Melissa. Good morning and thank you for joining us on our fourth quarter 2006 Earnings Call. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata Isogen and Steve Ford, the company's Chief Financial Officer. Statements made during this conference call and answers to your questions are intended to provide abbreviated, unofficial background to assist you in your review of the company's press release and SEC filings. In addition, there may be some forward-looking comments regarding the company's operations, economic performance, and conditions. These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act. The words, “believe,” “expect,” “anticipate,” “indicate,” “point to,” and other similar expressions generally identify forward-looking statements, which speak only as of their dates. These forward-looking statements are based on the company's current expectations and are subject to a number of risks and uncertainties, including without limitation, continuing revenue concentration in a limited number of clients, continuing reliance on project-based work, worsening of market conditions, changes in external market factors, the ability and willingness of the company's clients and prospective clients to execute their business plans which give rise to requirements for our services, difficulty in integrating and deriving synergies from acquisitions, potential undiscovered liabilities of companies that Innodata Isogen acquires, changes in the company's business or growth strategy, the emergence of new or growing competitors, and various other competitive and technological factors, and other risks and uncertainties indicated from time to time in the company's filings with the Securities and Exchange Commission. Actual results could differ materially from the results referred to in these forward-looking statements. Along with these risks and uncertainties, there can be no assurance that the results referred to in these forward-looking statements will occur. We encourage you to read the risks factors described in Innodata Isogen's various SEC filings for an understanding of the factors that may affect the company's businesses and results. And now, Jack Abuhoff.

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Thank you, Al. Good morning everybody. Thank you very much for joining us this morning. First, an outline of our discussion today, we’ll start with the summary of our results. Then we'll discuss our business, including the execution of our action plan and where the numbers indicate that we've made or are starting to make important gains. Finally, we'll lay out for you, in general terms, our expectations for the first half of 2007. Then Steve Ford will drill down into the numbers. When Steve wraps up, we'll take your questions and comments in our Q&A period. Fourth quarter 2006 revenues were down 5% from fourth quarter 2005 revenues of approximately $11.5 million. In comparison to third quarter revenues, revenues in the fourth quarter were essentially flat, moving up slightly from approximately $10.4 million in Q3 to approximately $10.5 million in Q4. We lost about $829,000 or $0.03 per share in the fourth quarter. This, however, is a significant improvement from Q3 when we lost approximately $2.1 million or $0.09 per share. For the year, overall, total revenues were nearly $41 million, about a 3% decline from revenues of $42 million in 2005. And we lost approximately $7.3 million in 2006 or about $0.30 per diluted share compared to a loss of approximately $1.6 million in 2005 or about $0.07 per diluted share. Cash declined by approximately $1.7 million from the third quarter, but still the company's balance sheet is solid. We’ve got more than $13.5 million in cash and no appreciable debt on our books. Finally, I note that these results were in line with the generalized guidance that we gave you in our last conference call. To achieve our results of improved financial performance and growth, we first addressed the short-term and have taken immediate and meaningful action.…

Thanks, Jack. Good morning, thank you all for joining us. Okay now, let's take a closer look at the numbers. As expected, fourth quarter revenues of $10.548 million were essentially flat, up a little more than 1% or $148,000 from $10.4 million in the quarter. The fourth quarter improvement of $148,000 is from an increase in recurring revenue, which grew solidly in 2006. On a year-over-year basis, revenues were down 5% or $558,000 from $11.1 million in Q4 2005. This decrease occurred even though recurring revenues increased approximately $700,000 in Q4 of 2006 versus Q4 2005. However, strong improvement in recurring revenue was not enough to offset the lower revenue from several projects that reached completion in the beginning of Q4 2006. Total gross margin in the fourth quarter improved to 20% from 15% in the prior quarter, primarily because of a favorable revenue mix and lower production costs. In total, our selling and administrative costs or SG&A was at the $3.3 million level for both Q4 and Q3. In comparing Q4 of 2006 to Q4 of 2005, SG&A decreased by $533,000, reflecting the favorable impact of the third quarter 2006 cost reduction. Total restructuring costs for 2006 were $604,000, with $50,000 recorded in the fourth quarter and $554,000 in the third quarter. In the fourth quarter of 2006, we recorded a tax benefit of $278,000, which represents the adjustment of various tax liabilities for several of our foreign subsidiary operating units. This compares to a tax expense of $36,000 in Q3 of 2006 and a tax benefit of $72,000 in Q4 of 2005. After tax, we lost $829,000 or $0.03 per diluted share in the fourth quarter of 2006, compared to a net loss of $2.2 million or $0.09 per diluted share in Q3 2006, and compared to a…

Thank you. (Operator Instructions). Our first question will come from [Joe First] with First Associates.

Good morning gentlemen.

Good morning Joe.

I wanted to check with you on one other thing. Back last year when your stock was under two, we suggested that it would be a very good time to buy back some of your own stock. And I wondered how much of it you were able to buy back last year?

Joe, this is Steve Ford. We actually had purchases in the third quarter of last year of 170,962 shares and that represented about $298,000. In the fourth quarter of last year, we had repurchases of 11,300 shares, representing approximately $21,000. We had $1 million authorized, and to-date third and fourth quarter of last year, we spent about $319,000. So we still have an additional authorization, and we're still keeping our eye open as to when and to what extent we'll continue to make purchases.

I was curious you had opportunity to buy a lot more than that last year under two, why didn't you?

We have certain restrictions, Joe that we must follow. And those are restrictions based on preceding volume for the prior six weeks etcetera. So we must do the repurchase according to those requirements. And we did follow them as we went through the year and purchased accordingly.

Alright. Thank you. And it seems like you are starting to make some reasonable progress anyway. So keep up the good work.

Thank you, Joe.

Our next question comes from the Bill Sutherland with Boenning & Scattergood. Bill Sutherland - Boenning & Scattergood: Thank you. Good morning Jack and Steve. I am interested in what kind of visibility you guys have at this point on how the revenue could trend this year; nothing specific, just directional? Should we be looking for sequential improvements as the year goes on?

Well, I think, what we should be looking for is improvements. We've got a building of pipeline as you are aware. We talked about the sales that we announced, very strong bookings and wins in the fourth quarter. We secured a lot of business. We're going into the year with essentially having secured as much business as we did in last year. And a lot of selling effort is going on, more sales people than we've ever had before, fully deployed and trained. So we are looking at solid growth, looking at anticipating 10% growth in Q1 alone and to continue that into Q2. Bill Sutherland - Boenning & Scattergood: Okay. Just one number question Steve, depreciation and amortization in the quarter?

Yeah that number is approximately $800,000. Bill Sutherland - Boenning & Scattergood: Okay. And that's the neighborhood going forward?

That's a reasonable neighborhood to look at on a go-forward basis. Yes. Bill Sutherland - Boenning & Scattergood: Okay. And recurring revenue, just so I understand. We used to talk about content versus professional services, is that analogous? Is recurring analogous to professional?

No. it's not. You could have recurring revenue in either content or professional services. When we talk about recurring revenue, it means that we are performing processes for customers that they continue to have an ongoing need for. And what we compare that to is a project; the most obvious example is the systems integration project. Once you've done building the system, you're done. Bill Sutherland - Boenning & Scattergood: And do you all report the offshore component of the revenue?

Yeah, the offshore component, it runs around 38% to 39% per quarter. Bill Sutherland - Boenning & Scattergood: Do you expect that to increase or is it something that you want to match up?

You're talking in terms of revenue that is from an offshore source? Is that what you're saying?

Well, let's just make this clear or you're referring to the revenues that we perform offshore? Bill Sutherland - Boenning & Scattergood: Well, let me see if I understand the distinction. I just mean, if you do an assignment for a US customer in an offshore location, the revenue of that assignment is as a percent of your total revenue?

As a percent of our total revenue? Bill Sutherland - Boenning & Scattergood: Yeah.

The PS component of what we do pretty much represents the onshore efforts that we do, although there is a component of that also that’s performed offshore. So, the bulk of the revenues that we do are produced offshore. Bill Sutherland - Boenning & Scattergood: Oh, [the console], that whole content category?

That’s correct with some exceptions, but basically, yes. Bill Sutherland - Boenning & Scattergood: Okay. So that’s much higher than I thought. And how has utilization been over there?

Well, there are two utilizations that we look at. One is utilization of productive people. And we're able to manage that, so utilization is very high. Second, is utilization of physical assets and infrastructure, and that’s been low because our revenues have been low, and that’s where our fixed costs have been high. The great benefit though is that, as we cut costs, we basically took costs out of G&A and left those productive, that infrastructure in place to accommodate our growth. And as we move over our fixed cost number, we’ll see some very significant operating leverage from them. Bill Sutherland - Boenning & Scattergood: And at the same time, you decreased G&A, you also increased the sales effort, I guess mostly with quota-bearing sales people. Is that right?

Yeah, that's the foundation, of course. It's the sales people, but around that we also did a lot in terms of technical sales support and overall readiness and competitiveness. Bill Sutherland - Boenning & Scattergood: Okay. That's great. And I'll get off and let someone in. Thanks.

And we'll take our next question from [Tim Clarkson with Ben Conning]

It's good to see the results moving forward, obviously. I see on this Simon & Schuster announcement, could you, Jack, explain to us what's the logic of Simon & Schuster digitizing their books? Why are they doing that? How do they make money by doing that?

Sure. What they are looking to do is create new revenue sources. And they are seeing that there's an increasingly significant market for digital content. And it's not just Simon & Schuster, it's happening across a wide market, including the book publishing market.

Okay. So, it's just an add-on. I know you can't comment on specific deals, but I know that you have close relationship with the Amazon. And Amazon last year talked about creating their own relationship with publishers to make sure that these book publishers get paid vis-à-vis the Google option. Is this real, is this going to accelerate, or is this still at an early stage?

I think it's both. I think, it's early stage, but I think it's very much real and will continue to grow. And what we're seeing now is quite a number of traditional publishers, book publishers, even people who aren’t traditional publishers are embracing digital information in a very significant way.

One last question on this, just so that I get this right. When you digitize a book, is it the big deal that you can buy a whole book in a digital format? Or is it more that by XML-ing the words you can find the information maybe by page-by-page, and even find books that haven’t been in print, and therefore, from the publisher’s point of view, sell content that they control, but they haven’t been able to get any money for?

Okay. Tim, we've been doing the research. It's all of the above. I think you nailed it. It's that they are finding new ways to monetize content. They are finding new ways to sell content, new markets for it. There are new devices that are coming to the market that will enable the content to be consumed in different ways, to be marketed and distributed in different ways. It's very exciting.

Okay, one last question. Vis-à-vis if that’s true, does Innodata still have a leadership position in doing that kind of work?

Very much so. Simon & Schuster is just one example that we're fortunate to be able to talk about. In fact, it was important to Simon & Schuster that we do this press release. They looked long and hard at the market, at competitors, at who could perform the services that they need to be done, and they chose us. They are proud of that choice. They are proud of the way that they are aggressively going to approach this market and asked us to do the press release.

Okay. I am done. Thanks.

(Operator Instructions). We will now go to Joe First with First Associates.

The new business that you expect to get, is most of it in this area that you were just talking about, or is it divided among that and other types of business? What's the general nature of the type of contracts that you are getting?

There are few different flavors of contracts that we are getting. There is work that we are getting in terms of digitizing content, creating new online content, helping companies expand their abilities to publish digitally. Other work that we are getting is helping customers lower their operating costs. Taking operations that were previously done in-house and having us perform those operations on their behalf. That's probably the bulk of where we see our growth coming from. Other areas where we also see growth are customers who are looking to re-engineer their processes and their technology platforms in order to be more competitive and lower their costs. We see opportunities there too.

Another question, when you look out there -- backlog is not right word, but the potential slower business, do you see 50% more potential than you did six months ago or 25%? What do you see out there in contacts with potential customers?

We see a lot more than we did. One of the reasons that we see a lot more than we did is we have got more people out there looking for it. Another reason that we are seeing more than we did is we have got the restructuring that we have put in place, where we created our five market line practices. We’ve got groups of sales people, professional services, consultants, technologists focused on markets, understanding those markets, reaching out to those markets in a much more proactive way. We are doing a better job overall of coverage. And fortunately, that’s intersecting with the groundswell in terms of market appetite for outsourcing and market appetite for creating new digital resources.

Okay. Thank you. I just hope you start getting a higher percentage of it and can increase your sales a little bit more rapidly than you have been able to in the past. Keep it up.

Thank you.

And we will go now to [Perry Highlands with Ann Cummins].

Good morning guys. Just a couple of questions. I just pulled a thing off the Internet, the news from Reuters yesterday that the world of publishing is taking a step into cyberspace as Random House and HarperCollins are letting customers browse books online. So you’ve got Simon & Schuster now. I guess you have been doing stuff for them. And then, it goes on and says that both companies have come late to the online book searches. Amazon has been doing it since '03; Google has been doing it since '05. It seems like the Simon & Schuster deal, I think if you go back and read their press release in January, you can kind of figure that was kind of $1.5 million deal. These are like (inaudible). They really want to get this. And you guys are one of a half dozen heavy lifters that these publishers or whoever wants this work done. There are not a lot of people they can choose from, so you are in a [capital] seat right now.

Well, we've got competition. There are other companies that offer services that are similar to ours. We think we compete aggressively with them. And, we think we compete on the basis of cost and quality. Simon & Schuster agreed. Other people are agreeing as well.

And also it's possible. I mean we tend to think, I guess, just of books and published data, but doing published data also would be things like the BBC, movies, newsreels, all the video clips, isn’t that digital, you guys could do that kind stuff as well on these types of searches?

Well, that’s right. Virtually all content is moving into the digital realm and the fastest area of growth within publishing and information services generally is online and digital. And, we are positioned to provide services that impact digital content, whether it’s books or online or video or audio or movies. It's all ones and zeros. And, it's all housed within systems that we can address and help people with. And, it's all content that we can help people create and manage.

(Operator Instructions). We'll go next to Gary Siperstein with Eliot Rose Asset Management.

Hey, guys, good morning. How are you?

Hi, Gary. Good morning.

Jack, and Steve, I just want to congratulate you, tremendous improvement in Q4 and wonderful guidance going forward. It looks like you are doing everything you said you guys were going to do. My question is a few-fold. First also, I want to thank you guys for that. At the beginning of the year or late last year, when you did announce that bunch of contracts, the improved transparency even though you couldn’t identify every client is really appreciated by the Street. So thank you for that. Steve, you mentioned D&A going $800,000 a quarter and you mentioned CapEx going up in '07. Can you give us a ballpark for what you expect CapEx will be for the year?

Yeah. Certainly can. Last year, we were just slightly under $3 million. And we will probably begin to ramp that up as we go through the year. A lot, Gary, will depend on how we see revenues coming in and our CapEx is primarily purchasing workstations and switches. It's a lot of technology-related equipment. Generally speaking, we will be doing that slightly in advance of revenue coming in, because we'll be [writing] advance of production. But I would think it's reasonable. If you take the $3 million number that we had last year and look to a number that's going to be anywhere along the lines of one to maybe one in the quarter up to one and half higher than that this year, more towards the end of year though too.

And in light of your projection that you will be roughly at breakeven cash flow in the next quarter and with what you just said on the CapEx outgo being back-half weighted, where do you think your cash balance will bottom over this spring and summer?

I would say that we are feeling reasonably comfortable around a number, say in the 11 to 12 range as a bottom, depending on timing on the end of a particular quarter when we report. It may vary slightly from that, Gary, depending on if we decide to accelerate CapEx. As we look at some of these larger deals, a lot of what we announced at the beginning of the year does require some startup. And we are not going to hesitate when we have the business, and we have the business that we can go after. We are going to make the investments. We will spend a little bit of extra cash upfront when we know we've secured some business. So, you could see the number hit around the 11 mark, maybe slightly lower. But that's what we're projecting right now.

In terms of the sales efforts that you had announced and the different promotions and reassignments et cetera, I know it hasn’t been a lot of time, but can you give us some color on how that’s going? And does it need to be tweaked some more, or is it going up against what you expected?

Sure. Well, I guess, it will continue to be tweaked. And, there are things that we're still working on in terms of implementing some support around it. But the important thing is that we're creating a very different culture within the company. And the culture that we're creating is one of distributed ownership and distributed accountability for growth and results, distributed ownership and accountability for markets and understanding customers, and it's just a different place. It’s a different way of thinking. It’s a different way of approaching the business. And my people are saying it's very exhilarating. More importantly, it's showing results.

Jack, most of those promotions and reassignments came from within the company. Does it make sense to bring some new blood in? I mean Steve Ford came on board. So, he has been the new blood over the last 12 months plus or so. Does it make sense to get any fresh looks from any senior level people out there at this point?

I think it does. We brought in Steve of course, but we also brought in a number of other people. Some of which, we've talked about in press releases, and many of whom we have not. In addition to that, we're continuing to have conversations with a number of people who we feel very positive about.

Super. Okay. And last question, assuming the story goes according to [Al] and as you hit your sales, cash flow breakeven profitability milestone as the year progresses. Do you guys have a game plan to startup again the IR engine?

I think that we certainly would. We want to make sure that we're approaching things in the right order. We want to have the story to publicize, rather than publicizing that the story is coming. But, we think that we're starting to bring the results to the table and I know that Al is going to be very interested in terms of expanding the way that we publicize that.

Thanks, guys. Congratulations again.

And that would conclude our question-and-answer session. At this time, I'd like to turn the program back to Mr. Abuhoff for any closing remarks.

I guess, let me just thank everybody for their questions and for taking their time to join us. So, to summarize our discussion, as anticipated, revenues in Q4 were $10.5 million and 2006 overall was about $41 million, essentially flat quarter-over-quarter and year-over-year. At the same time we saw a continuing improvement in revenue quality, recurring revenues grew from $6.8 million in Q4 2006 or more than $27 million on an annualized basis, as compared to $6.1 million in Q4 2005. We lowered our quarterly cash breakeven point to approximately $11.5 million and our quarterly P&L breakeven to approximately $13.5 million. And as compared with Q3, we slashed our loss from $0.09 per share to $0.03 per share. So, it's cash at roughly $13 million with no appreciable debt. We are anticipating significantly higher revenues on our improved cost structure making it likely that we will achieve cash breakeven in the first quarter, which is sooner than we had expected. So in brief, these things taken together provide mounting evidence that this company is not only headed in the right direction, but also gaining some significant momentum. We anticipate that we will continue to improve performance through the first half and are very confident that our progress will continue throughout 2007. So, again we thank you sincerely for your continued support and your confidence. We very much appreciate it and feel it, and we look forward to being with you again at our next call. Thank you.

Thank you everyone for your participation on today's conference call. You may disconnect at this time. Experience the Green Point difference! At Green Point, all projects are engineered and managed by a dedicated, knowledgeable US-based project manager - your sole point of contact. He or she reviews your deliverables to minimize unpleasant surprises and unnecessary demands on your time. Native English speakers are used for all production tasks that benefit from a mother-tongue knowledge of English. US-educated and certified domain experts, such as legal, business, medical and scientific specialists, are utilized for content development and enhancement.: Join the growing list of satisfied Green Point customers in publishing, legal, financial, transcription and engineering services who have experienced Outsourcing The Way It Was Meant To Be ™ and won't have it any other way! Visit our website, or email, for an instant response by a member of our team!: To sponsor a Seeking Alpha transcript click here.