Please stand by. We are about to begin. Good day, everyone and welcome to the Innodata Isogen First Quarter 2007 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Vice President of Marketing and Communication, Mr. Al Girardi. Please go ahead sir.

Thanks, Felicia. Good morning, everyone. Thank you for joining us on our first quarter 2007 Earnings Call. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata Isogen and Steve Ford, our 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 the 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 risk factors described in Innodata Isogen's various SEC filings for understanding of the factors that may affect the company's businesses and results. Now, Jack Abuhoff.

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Thanks Al. Good morning, everybody. Thanks for joining us on a very good day. We will begin with a summary of our first quarter results. Then we'll update you on the business and how we are performing relative to our plan. And finally, we'll layout in general terms, our expectations for the second quarter and beyond. Then, Steve Ford will break out the numbers in some greater detail. When Steve concludes, I'll take your questions and comments in the Q&A period, of course, along with Steve. Our first quarter 2007 revenues were approximately $12.7 million, up 24% from first quarter 2006 revenues of approximately $10.2 million. Looking across the quarter sequentially, revenues were up for the third straight quarter climbing 21% from $10.5 million in Q4 2006 to $12.7 million in Q1 2007. We lost approximately 643,000 or $0.03 per diluted share in the first quarter, a significant improvement over the $1.3 million or $0.06 per share loss in Q4 2006. The company's balance sheet remained solid with more than $12.5 million in cash and no appreciable debt. PS improved results in fact exceeded the general guidance we gave you in our last conference call. In the first quarter we made continuing progress on our quantum growth strategic plans. First, we made some important new hires in three of our five market practices. Dr. Bob Kidd joined the company as Vice-President and Head of our Professional Publishing practice. Bob reports to Jan Palmen who has overall responsibility for our three publishing and media practices. Bob comes to us from Cadmus Communications, where as Vice-President of Global Content Services, he built Cadmus's $60 million content services practice, having the chief responsibility for sales and for growth. In our commercial and advanced programs practice, we brought up three senior people, including two…

Thanks Jack. Okay now let's take a closer look at the numbers. As Jack mentioned revenues in the first quarter were up approximately 21% from $10.547 million last quarter to $12.729 million this quarter. On a year-over-year basis revenues improved 24% from $10.285 million in Q1 2006. The quarter-over-quarter revenue growth is attributable to a $250,000 increase in recurring revenue, from $6.800 million in Q4 to $7.50 million in the first quarter of 2007. Higher project based revenue accounted for the remainder of the $1.9 million revenue increase in Q1. On a year-over-year basis, the Q1 increase of recurring revenue is $900,000 and the increased project revenue is $1.5 million. And looking at revenue from a segment standpoint, our Content Services Business generated $11.5 million in Q1 2007, up $2 million from $9.5 million in Q4 2006. This increase reflects $1.4 million from the new project announced earlier this year, an increased volume of approximately $600,000 from other ongoing projects and the revenue ramp-up of recently secured business. Professional Services revenue rose 20% from $1 million in Q4 2006 to $1.2 million in Q1 2007. This increase is a result of new projects secured as part of our announcement at the beginning of the first quarter. Our revenue concentration was similar to previous quarters with our top 2 customers accounting for 37% of first quarter 2007 revenues. Direct operating costs increased 20% from approximately $8.4 million both in Q4 and in Q1 of 2006 to $10.44 million in the current quarter. The increase in direct operating cost can be principally attributed to increases in labor cost in support of recently secured business, start-up production cost for the ramp-up of five new major projects and other operating cost in support of a higher revenue volume. As a result of recently secured…

Thank you. The question and answer session will be conducted electronically. (Operator Instructions). We will begin with Joe First at First Associates.

Good morning gentlemen and congratulations on the progress you've been making, I'm sure we all appreciate in here. You've done a good job at it. What I wanted to ask first of all was once your credit increased revenues on to ,is it basically just getting more feet on the street as you had mentioned in previous conference calls or are there other factors involved also?

Joe, I think overseeing here is that our plan is working. We put in place a plan to drive quantum revenue growth. We said to ourselves, it's insufficient for us just to rely on things the way they work. We want to create much the way we created a highly engineered execution platform. We wanted a highly execute engineered sales engine in place. It involved a lot of training, a lot of people, putting a lot of tools in place, getting the right people and managing it properly. And then seeing all of that put together involve doing our pre-sales engineering differently. We have a lot of components to this, we reorganized the entire company to make it more competitive and to bring decision making down to business unit levels in terms of how to grow. And we are seeing it all work. It's all coming together like a good solid plan and we are still implementing, we are still doing stuff. So that's what I am correcting to. Good plan and continuing execution.

There's a little follow up question on that. You have done a really good job, as far as the increasing revenue is concerned. So far, we are not yet at profitability, but I would assume that as we've said before there are a lot of fixed costs. And when you get to a certain level of revenue, much more should come to the bottom line. Quarterly, what is that revenue number? And when do you start increasing earnings?

Joe, this is Steve Ford. We are looking in a range of about 13.5 to 14 when we start to expect that we will show profitability, because our ramp up right now is very, very steep in terms of revenue increases. We are incurring some production related start up cost. But generally as we approach that 13.5 to 14.25 range, we are going to start to see some profitability. From that point going forward, as I mentioned, we are looking at generally around a 40% incremental pickup on incremental revenue, again subject to some of these start-up costs.

Oh, that's good. And, one more quick question and I'll turn to somebody else. How about acquisitions, are you still considering them, if you see anything or are you just really planning on internal growth?

What we've decided to do Joe is really look at the first half of this year as focusing on our operations, and we announced that late last year, and I think you are seeing some of the results of this organic revenue growth. However, I always have my eye open for good possibilities, and I would say we are going to develop our strategy in that area a lot more aggressively as we look at the second half of this year and beyond.

And that's fine. Thank you very much, gentlemen, and keep up the good work.

Thank you.

(Operator Instruction). We will go to Tim Clarkson of Ben Conning.

Great quarter, gentlemen. This is a question for both Jack and for Steve, in terms of gross margin, are you squeezing on gross margins? Does Innodata have a good enough competitive position that you are able to get the kind of gross margins you want on these deals?

Yeah, I will take a first shot on that from a market perspective, and then Steve can take it from a financial perspective. Now, we are selling at our targeted prices, we are dropping prices to win business, and we've got a good competitive, solid competitive position that enables us to defend our margins.

Great.

And this is Steve Ford. What I would like to add--

Yeah.

That in addition to that, as I am tracking our revenue very closely, I am tracking our business coming in. I am looking at the nature of the deals; I would like to reinforce what Jack said, because we are not in the marketplace competing on price. We are competing on quality; we are competing on our capability and those are the things that get us the deal or not.

Great. I appreciate it, thank you. I am done.

(Operator Instructions) We'll go to Larry Brooks of Maloney Securities.

Yeah. Hi. I see that in your last quarter, you were looking at breakeven in the $11.5 million range. Now it's pumped up closer to $14 million. Is this something we are going to see at each quarter move up or what's the story on that?

Our number for breakeven has always been in the $13.5 million to $14 million. We said that we would start to generate positive cash between $11.5 million and $12 million. So, just to reiterate that, that actually has not changed. And in fact, in this quarter, if you look at our numbers, our loss was 623, our depreciation was 737, so we had a, if you will, a cash profit of 114. So that's how we look at our business, I know if that helps at all on to get a perspective.

Yeah. So, in other words, going forward, even with these additional startup costs, you are hoping that even in the subsequent quarters, you'll still have that breakeven at the same level in that 14 range?

Exactly. We are looking at the 14 range, and what actually happens in our business, we do have to hire up in terms of professional services. We have production startup costs, so essentially you are just looking at the timing difference. It's a matter of months,, but it also can overlap over quarters as we experienced in the first quarter.

Well it seems like that's the difficulty within that industry that you are in, because you ramp-up in anticipation of sales you are building, and then all of a sudden when business retreats, then it's a matter of scampering around from there. What makes this cycle different, or maybe I'm misinterpreting your cycle?

Yeah, I think that what we do is we ramp up for business. We are not generally ramping up in anticipation of business, we're ramping up for one business. The critical thing in companies like this and there are many often that are very-very successful in this scale. We've got a lot going on, we've got a lot in progress, we've got lot in the pipeline and that matters is dependent upon anyone thing and that's a key element of our strategy to have a lot more going on. Factors that we've got a lot more going on and that's what we've seen come to fruition in the last couple of press releases we've done.

Okay thank you.

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

Hey guys good morning. Great quarter and thanks for the progress.

Good morning Gary.

Good morning Gary.

Jack can you drill down a little bit more on the sales force that you put together and I know there is lead time to closing some of these projects and I am sure they have been in the pipeline for six, nine and twelve months. But what's making this all happen now, in addition to just more feet on the street? Can you tell us a little more about specifically internally to Innodata and then externally to the industry?

Yeah, I think internally within Innodata what we're doing chiefly is we are realigning ourselves to support a team based selling model that's very much geared to helping clients at their highest point of need. We don’t just up BPO stuff. We work with technologies to automate processes. We've got a lot of capability, lot of strength that we can bring to bear. We've taken that and we've harnessed the entrepreneurial energies that our people have and the energies that they have got to be effective and competitive and create an organizational structure that both supports and promotes that up within that context. As you said Gary we have hired new sales people, sales people who have rolled the decks, sales people who have contacts, sales people who have a winning history of being highly successful and we're infusing that with lot of other tools and some technologies and capabilities to enable them to be successful. It's a fairly significant strategic change that we are driving within the company, making it a company that doesn’t just execute and deliver real wealth, we've gotten there and we're in a company that you'd look at and say, here's a company that knows how to drive business.

Is the ability to release more data than anytime in the company's history relative to the business wins and identifying the customer? Is that mostly from the external side where people are now or these corporations that are, before they wanted it secretive in the sense that they were maybe first on the curve getting this going and may be competitively edged and not letting anybody know. Now with all the driving to reduce costs and being as efficient as possible, is that why they want to publicize that now, and let their shareholders and make everyone aware of BPO and KPO?

I hope there is definitely some of that and as you are pointing out, there was a time when a manager of the business or large publisher might have to ask for someone's forgiveness for outsourcing certain activities. Now they need to answer some hard questions, in fact they are not doing that. So the pendulum has swung, and it's really not a pendulum, I mean, we the people in the outsourcing industry can’t afford to imagine that there would be a retrenchment from what’s going on because the results are being achieved. Similar is that, that’s part of it. The other part of it is we are trying hard to get the right to publicize things we are doing. But we can now talk about the Joint Strike Fighter Project. I can emphasize that is has enough significance to us. The highest profile project of its kind, we are working in building the information systems for that. It has incredible significance in terms of our ability to use that as a leverage to drive sales, in terms of using our capabilities that we are honing there in other sectors like publishing. So, there is a lot going on; the industry shaping up right, the macro situation is in our favor, and we are doing the things necessary to create a more competitive company.

Is this stuff you are doing with Lockheed, does that allow you, besides on the Lockheed level, to also make trays or work with some of their subcontractors?

It does. Yes.

I don’t think it did, but was there any buyback in the quarter?

No. There wasn’t any. Gary.

And in terms of capacity in the Philippines and other facilities, at this current rate that -- well 12.5 roughly for this quarter and you are projecting, I guess, 14.5 for the next quarter. At what point you mentioned Steve adding people. What is our capacity in all the facilities currently?

Right now, Gary, we are looking at a number of on average in the low 80% range, and we have, because we are planning well for these types of increases, we not only have the opportunity to take advantage of our capacity as it currently exists, as we go from the low 80s up to 90, but also we are very good at what we do in terms of facility management. So it's very easy for us to incrementally add a little bit of capacity here or there as we need to. So, we have good flexibility with that situation right now. We are not running up into any problems; don’t really anticipate that even with the revenue growth we are projecting for this year.

So, I’ll just add to what Steve is saying, you know, if we have an office building where we got five floors and we add a sixth, the cost associated with adding that sixth floor we are not, we don’t necessarily have to -- we don’t have to replicate all of the costs that is necessary to run a facility. It’s a smaller incremental expenditure for that additional capacity.

Got you. Can you guys, and I know you get your hands full with this success you are seeing on the sales side, and then obviously driving profitability, but can you tell us in addition to M&As that you are going to start looking at in the second half? And I am assuming, of course, that it will be only accretive stuff, but can you tell us where you got planned on the IR front now that there aren’t many companies out there showing revenue gains of 25%, let alone 50% for the next quarter?

Yeah. We saw a couple of people just last week, we had some interested new investors coming to meet with us and hear more about our story. And I think the time is going to be ripe to start to work with Al and Stan and others and dial up the effort there.

Great. Thank you, guys.

Thanks, Gary.

We will go to Joe First of First Associates.

My question was just how do you intend to you use storage, since you have a better story to tell now, and that's been impartially answered, anyway?

Joe, this is Steve Ford, and actually Stan and I have been in discussion on that. You know, just like everything else in life, timing is very critical. We feel now we are approaching an area where, as we look to the second quarter of the second half of this year, that the timing is far more favorable for us to start to become more aggressive in that area than we have been in the past.

Sure, thank you.

Welcome.

And at this time I will turn the conference back to Jack Abuhoff for additional remarks.

I guess, I will just thank everybody for your questions and for joining us today. To summarize, we remained focused on revenue growth and financial performance. We've made strategic and organizational changes to achieve this growth. We are exceeding the expectations that we established. We are going to continue to see higher revenue levels in 2007 as compared to 2006, and we anticipate significant improvements in financial performance in Q2 resulting principally from these higher revenue levels. We anticipate that revenues in Q2 2007 will increase approximately 50%, that's 50, 50% from Q2 2006, which equates to 15% from Q1 2007, and we've added recently that we will return to profitability next quarter, subject mainly to how much we decide to spend to keep up with the significant demand that our re-organized sales groups are identifying and working. Again, thanks for joining us and I look forward to talking with you soon.

That concludes today's conference. Thank you for your participation. And as a reminder, this conference will be available for a replay. The replay will begin today and you may access it at 1 o'clock pm Central Time by dialing 1-888-203-1112 or you may call Toll 719-457-0820 and reference confirmation code 3696284. This replay will run through June 8, 2007 at 11:59 pm Central Time. Again, the replay does begin today, May the 10th, at 1:00 pm Central Time by dialing 888-203-1112 or 719-457-0820. Thank you. 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.