Good morning, everyone, and welcome to the Innodata Fourth Quarter Fiscal Year 2012 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Amy Agress. Please go ahead.

Thanks, Vicki. Good morning, everyone. Thanks for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata; and O'Neil Nalavadi, our CFO. We'll hear from Jack and O'Neil and then take your questions. First, let me qualify the forward-looking statements that are made during the call. These statements are based largely on our current expectations and are subject to a number of risks and uncertainties, including without limitation, that our Innodata Advanced Data Solutions segment is subject to the risks and uncertainties of early-stage companies; the primarily at-will nature of the company’s contracts with its Content Services segment customers and the ability of the customers to reduce, delay or cancel projects; continuing Content Services segment revenue concentration in a limited number of customers; continuing Content Services segment reliance on project-based work; inability to replace projects that are completed, canceled or reduced; depressed market conditions; changes in external market factors; the ability and willingness of our customers and prospective customers to execute business plans, which give rise to requirements for digital content and professional services and knowledge processing; difficulty in integrating and driving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies that we acquire; changes in our business or growth strategy; the emergence of new or growing competitors; various other competitive and technological factors; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission. Actual results may differ significantly. Thank you. I will now turn over the call to Jack.

Thank you, Amy. Good morning, everyone, thank you for joining us. I will review our fourth quarter and fiscal 2012 results and update you on our strategic progress and what we see ahead for 2013. Revenue in the third quarter was $19 million, a sequential 4% decline from our third quarter. This decline reflects an anticipated second half decline in eBook revenue from a major customer. Revenue from this major customer declined by $1.7 million from Q3 levels, partially offset by a $1 million increase in new projects from a combination of existing and new clients. Looking at the year as a whole, we increased revenue by 17% from $74 million in 2011 to $87 million in 2012. The revenue increase is largely attributable to our first half expansion of our eBook services for our largest client. In fact, we close to doubled our business with this client in 2012. As a result of significant operating leverage, this 17% increase in revenue resulted in a 77% increase in operating income within our Content Services segment, going from $7.5 million in 2011 to $13 million in 2012, which was 15% of revenue. Our success here demonstrates the strength of our eBook delivery team who has been able to scale to match customer demand while consistently meeting our key customers' uncompromising quality standards. Now of this $13 million of operating income generated in our Content Services segment in 2012, we chose to invest $6.8 million in pre-operating expenses net of revenues within our new Innodata Advanced Data Solutions business, which we call IADS for short. IADS's mission is to develop new services that we hope will address the chronic problems that have persistently bedeviled our existing business in the eyes of public investors, revenue volatility and lack of visibility, which result from…

Thank you, Jack. Good morning, everyone. Thank you once again for joining us today to review our financial results for the fourth quarter and financial year 2012. Before I get down to reviewing our quarterly performance, I'm going to briefly review our full year 2012 performance and share some financial insights. Our revenues in fiscal 2012 were $87 million, an increase of 17% over revenues of $74 million in 2011. Gross margins expanded from 32% of revenues to 34%, driven by a combination of better pricing discipline, productivity improvements and gains from our operating leverage, which was partially offset by the investments in building up the Advanced Data Solutions business. Our total selling, general and administrative expense was at 26% of revenues in both 2012 and 2011, and were $3.1 million greater in 2012 than in 2011 in dollar terms. Of this increase, $1.8 million was for the Advanced Data Solutions business and $1.3 million was for the Content Services business. Higher revenues and higher gross margins, partially offset by the increase in SG&A expenses and the noncash impairment charge for docGenix, contributed to a 67% increase in net earnings to $7.5 million or $0.28 per diluted share from $4.5 million or $0.18 per diluted share. These higher earnings were after incurring $6.3 million in operating cost net of revenues for building the Advanced Data Solutions business compared to $2.2 million we spent in 2011. Although we've met our financial goals for the financial year 2012, our growth was primarily driven by our eBooks business, which in turn, was concentrated in one key client. Revenues from project-based business are inconsistent and are prone to periodic volume fluctuations. As Jack mentioned, it is for this reason we continue to invest and develop our Advanced Data Solutions business which has the potential…

[Operator Instructions] And we will take our first question today from Vincent Colicchio with Noble Financial.

Jack, let's talk about eBooks a little more. How many clients are you currently working with, and have you lost any share there in the quarter?

Sure, Vincent. The -- we're working with a lot of clients because we've got platforms as clients and then we have publishers with the clients. So at any point in time, we've got a tremendous number of publishers that we're working with. Some have very small volumes of requirements and have larger ones. On the platform side, we're working with the people that we have been working with. Right now, we're in the prospect -- or in the process of probably bringing on another platform client. We have not lost any market share there whatsoever, and we're probably expanding market share. The problem we face is that the platform's requirements come in phases. They come in projects, and we ride the waves of those projects. A good thing is that we see more projects down the road, and we're working hard at ensuring that those projects materialize and to the extent they materialize, we're behind them.

Yes, I meant to refer to the platform clients. And so, you're not seeing a share loss there? I think that's very important. Do you think there's an opportunity to gain share with some of those clients as things change?

An opportunity to gain? Yes, I do. Just like I...

With some of the smaller ones for you?

Yes, yes, I think there is. In fact, we've got discussions going on with 2 new platforms. 1 set of discussions is advancing quite nicely. So we do think there's opportunity to expand from there.

And has anything changed in the competitive environment in terms of dealing with these platform clients?

No, not at all. I guess the thing that's changed is the requirements are becoming, in some respects, more interesting, and we're seeing that we've got even greater levels of differentiation we can bring. So for example, I've talked about international. International, we see as a very important market. All of these platforms are rolling out local language digital content stores around the world. Some languages are tougher to process than others, if you think about the challenges that are implicated in Japanese and Chinese and Korean and things like that. The fact that we're being looked at by our platform clients to be able to handle those languages, number one. Number two, that we're rising to the challenge and getting rave reviews by in-country clients who are looking at their books and saying, "This looks great." Yes, that presents a great opportunity. The second opportunity is enhanced eBooks. If you think about the marriage of textual, visual, video, audio content with a device like an iPad, and then you think about a traditional book, what you come to realize is the books are likely to become more app-like, they're going to become more fully functional. If you look at where the technology is going, whether it's EPUB 3 or iBooks Author or Inkling or any of these platforms, they're offering the opportunity for readers to enjoy very inspiring, compelling hands-on interactions with their content. And again, we're rising to the occasion there. As we do that, platforms and publishers will become increasingly dependent upon us because they can't do that themselves in many respects. So we're excited about the market opportunity, and I think we've done a really good job at maintaining the -- and building our importance and relevance to these big clients.

And I realize clients, they're not giving you a timeline in terms of when the next flow of business is going to come. But given how fast technology changes, is it fair to say you'll be surprised if it wasn't -- if it was not a 2013 event?

Yes, I think that's very fair. I think we're going to see opportunities in -- and we already are seeing opportunities, but I think we're going to see more opportunities, a bigger swelling of opportunities in 2013 in both international and multi-touch interactive.

Okay. And then on the IADS side, the 4 pilots that you've -- you delivered this quarter, have any of those clients said no to moving forward as a customer?

No, none of them have said no. At the same time, none of them have said yes yet. But what we've gotten from all 4 is a good response. They've been pleased with what they see. They're enthusiastic about what they see, encouraged by what they see. And now we're in the process of supporting them as they build the business case, as they make their decisions and they think about the implications and opportunities that our capabilities present within their business, and that's really an exciting place to be. The frustration is, we can't give you a revenue forecast, but exciting in terms of what's going on in the business. And what we've got going on there, it doesn't compare to anything we've ever done before.

Could you give us any help with how large one of those clients could be?

Yes, the clients are -- many of the clients are very, very large companies. What we don't yet know is whether they would be looking to us to take over all of their volume, all of their requirements. That's, in the immediate term, unlikely. Much more likely is they'll start us in a particular area and then expand from there. But by virtue of the fact that I don't know which area they'd start with or how big that would be, how they're going to scope it, it's hard to put a dollar number on that. Now if we were to do all of the work for some of these clients, a single client could be $50 million. [indiscernible] be bigger than a breadbox, so I think we're off to something very powerful.

Just one housekeeping question for O'Neil. What was the appreciation and amortization in the quarter?

About $1 million excluding the noncash impairment charge, which was $0.5 million.

And we'll take the next question from Tim Clarkson with Van Clemens Capital.

We're still here. A question on this Synodex. I assume that if the biggest contract could be $20 million or $30 million or $50 million, there's a potentiality to have intermediate contracts of $3 million, $5 million or $10 million, and that's probably the more likely outcome, right?

Yes, I think that's right, Tim. I think these clients will walk before they run. And that works for us in terms of ramping the business up. I think if it works for the clients, that'll be great. They'll have a great experience. And if we're doing that $5 million contract and there's an opportunity to grow it internally to $40 million or $50 million, that's better still. What we know about our business, if we think about our strength is solid execution, high-quality, good value, and we bring that to customers, it earns us lots of great relationships. What we're doing here is we're bringing additionally more IP and differentiation than we might have in other places of the business. And we're vying for recurring revenue that has great visibility to it. So we think from a strategic perspective, it's a really good thing.

Right. And obviously, this businesses would be stickier and less volatile.

Exactly, exactly.

Exactly. Okay, I'm just going to make an editorial comment on this buyback thing. You know what my stance has always been, but as you know, the stock has traded between 1 and 3x sales now for the last 12, 15 years. And even when you guys were -- as I think back in 2002, when you're down to $1, it was about 1x sales and you had about $6 million or $7 million in cash. And I just think that when you bought back some stock back in, I think this is -- if it's -- the stocks stays in these ranges, I think it's an opportunity to not bet the -- obviously, the whole business, but with $28 million in cash, you can buy significant amount of shares here and not endanger the balance sheet at all. Anyhow, that's my comment publicly to the management. I'm sure I'll be speaking to you guys privately on it. I'm done, exactly.

We appreciate your perspective on that. And we welcome additional conversations about it.

[Operator Instructions] And we'll take a question from George Melas with MKH Management.

On the traditional Content Services, you've told us the revenue year-over-year was roughly flat and you're sort of in that 14 to 15 per quarter. But you've told us also that you've sort of shifted to more strategic services, that margins have improved, can you tell us a little bit more about that? I think you made some significant or meaningful sales and marketing investments there, and I'm just wondering how you're thinking about those investments at the moment.

Sure. I think we're seeing certain things working well, we're seeing other things not working well. I'll start with what we saw is not working well. And then I'll gain a little credibility and move on to what I think is working well. What wasn't working well was the multi-faceted large scale marketing push to go out and get lots more logos, especially where we were doing that within trade publishing. It wasn't proving effective. I don't think we had the products that were appropriate for marketing. That wasn't working well, and we cut back on those efforts. What has worked well is to move up the value chain within the existing customers and to expand the numbers of relationships we're having, the level of strategic activity. So I'll give you an example of that. In 2012, we helped the world's largest publisher create the first ever multi-platform delivery system to send their content to the web to print in the iPad simultaneously. For another large publisher, one of the top, I guess, 3 largest publishers, we created an entirely new product for them from a legacy print product. That's what I mean by higher value stuff. And what the higher value stuff brings with it is better margins, which is why we've seen a 13 percentage point bump up from where it used to be. The problem in that business, though, that is persistent is these are one-off kind of things. You develop competencies, you bring those competencies with you to other clients, but it isn't entirely repeatable. So when we look at Synodex, and what makes us so excited about that is that the processes we're building are somewhat of a one-size-fits-all with a little configuration around the edges. Same underlying competencies, data extraction, data manipulation, conversion, distribution, but it's served up in a way where it can be consumed by more than a single person and produce recurring revenue.

Great. But just to go back to the Content Services, I think you had increased some of your sales and marketing there. I think you said some [indiscernible] did not work, and you've dialed that down. On the whole, are you keeping your sales and marketing resources in 2013 flat or constant there? Or are you sort of thinking of increasing, dialing down, how are you thinking about it?

We've already dialed down a bit, so I talked about the marketing programs that weren't really working. There were some sales resource, ads that we felt weren't bringing the value. At this point, we're thinking that we've got a good team. They're doing the right thing in terms of working with our clients, expanding the relationships, building on the relationships. I think that we're going to continue to do what's been working there. I don't think that doubling the size of the team doubles our revenue there. I think our investments are much better spent on the innovation side like we're doing with IADS.

Okay, great. And then just one follow-up question. Can you give us a little bit of color on sort of those 2 sort of product or services in Synodex? And you've mentioned 4 pilots and 8 sort of that are in the process of starting. Are they for as much for 1 product than the other? Are you leading with 1 particular product? Or is anybody looking at both products at the same time? Can you give us a little bit of color there?

Sure. Most of the pilot activity that's going on right now is for the first product that I mentioned, the use of medical records in underwriting. There are a few pilots, some of the more recent ones, the ones that we are booking out for Q1, that are for the insurance producers -- the second product, the insurance producers, insurance carriers communicating more effectively. And yes, there are several companies who would likely be customers for both.

Okay. And are they based on the same platform?

And they're based on the largely the same platform, yes.

[Operator Instructions] And there are no further questions. I'll turn the conference back for any additional or closing remarks.

Thank you, operator. So I guess to recap a bit, we had a good year, in fact, a very good year. We had record revenue and record earnings in our Content Services segment, which enabled us to significantly invest in new capabilities that our IADS incubator is just now bringing to the market. We're disappointed that we're seeing several sequentially down quarters, but we believe that our Synodex strategy is the right way to transform the business to grow more predictably and more settling. By the end of March, Synodex will likely have completed pilots for 12 companies, several of whom are among the largest players in the insurance industry. We're very excited about this and working very hard to make the pilot successful. And importantly, early indicators are encouraging. On top of this, we're having interesting conversations about potentially new large requirements for foreign language eBooks and interactive multi-touch eBooks. And as one of the participants on the call today asked and we responded, there are new platforms that we're -- or additional platforms that we're also having conversations with. So thanks, everybody, for joining us today and for your continuing interest, your continuing support. We look forward to talking with you next time.

Thank you. Today's conference is available for replay by dialing (888) 203-1112 or (719) 457-0820 and entering passcode 1604473. And that concludes today's conference. You may now disconnect.