Good morning, and welcome to the Innodata Fourth Quarter and Fiscal Year 2018 Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Agress. Please go ahead, ma'am.

Thank you, John. Good morning, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata; and A.K. Mishra, our COO. We'll hear from A.K. first, who will provide a detailed review of our results for both the fourth quarter and the 12 months ended December 31, 2018, and then Jack will follow with additional perspective about the business. We'll 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 contracts may be terminated by clients; projected or committed volumes of work may not materialize; the primarily at-will nature of contracts with our Digital Data Solutions clients and the ability of these clients to reduce, delay or cancel projects; continuing Digital Data Solutions segment revenue concentration in a limited number of clients; inability to replace projects that are completed, canceled or reduced; our dependency on content providers in our Agility segment; depressed market conditions; changes in external market factors; the ability and willingness of our clients and prospective clients to execute business plans which give rise to requirements for our services; difficulty in integrating and deriving synergies from acquisition, joint ventures and strategic investments; potential undiscovered liabilities of the companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we may 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. We undertake no obligation to update forward-looking information, and actual results could differ materially. I will now turn the call over to A.K.

Thank you, Amy. Good morning, everyone. Thank you for joining us today to review our financial performance for the fourth quarter and fiscal 2018. I will start with the full-year 2018 performance, and then review the quarterly performance. Jack will later provide additional perspective on the business. Our revenues in 2018 were $57.4 million, compared to $60.9 million in 2017. In both years, we incurred one-time cost and charges. In 2018, we incurred a non-cash goodwill impairment charge of $675,000. In 2017, we incurred one-time cost and charges amounting to $2.4 million, which were allocated $2.2 million to the Digital Data Solutions segment, and $150,000 to the Agility segment. After excluding the impact of one-time cost and charges, our adjusted EBITDA in 2018 was $6.7 million, compared to adjusted EBITDA of, in 2017, of $1.7 million. Our 2018 adjusted EBITDA was comprised of $7 million in the Digital Data Solutions segment, and $450,000 in the Synodex segment, offset in part by an EBITDA loss of $700,000 in the agility segment. I will now review year-over-year performance, excluding the impact of these one-time cost and charges. Revenues in our Digital Data Solutions, or DDS segment were $43.5 million in 2018, compared to $47.8 million in 2017. DDS gross margins were 32% in 2018, versus 25% in 2017. And DDS adjusted EBITDA was $7 million or 16% in 2018 versus $3.7 million or 8% in 2017. The DDS segment margin improvement was the result of reduction in direct operating cost of $6 million. In our Synodex segment, revenues increased to $4.1 million in 2018, up from $3.7 million in 2017. The increase was driven by revenue expansion from existing customers. Net income in the Synodex segment was $400,000 in 2018, compared to a loss of $600,000 in 2017. This improvement is largely…

Thanks A.K, and good morning everybody. I will begin with some brief remarks regarding our 2018 performance after, which I will lay at our key priorities for 2019 for both our venture businesses and our core business. In 2018, we succeeded in executing the turnaround plan that we laid out for you this time last year. As you saw in earnings release this morning, we delivered 12% adjusted EBITDA or $6.7 million, up from an adjusted EBITDA loss in 2017. In fact, our adjusted EBITDA was the highest. It has been as a percentage of revenue since 2014. We accomplish this through technology innovation, using deep learning or branch of AI through cost reductions from consolidating physical plant, and by shifting data storage and data processing increasingly to the cloud. In many respects, we now have a stronger business than we had in 2014. In 2014, we had 11% of our revenues from our single largest project, but in 2018, only 6% of our revenues came from our largest project. In 2014, we had no SaaS platform revenue, but in 2018, 17% of our revenue was from SaaS subscription business. In 2014, we classified just 75% of our revenue as recurring versus 88% in 2018. Well, our focus in 2018 was on cost rationalization, our focus in 2019 will be on growth. In 2019, we're anticipating accelerating topline growth in both our Agility and Synodex venture businesses and we will be making investments in our core business in order to reposition in a way that support sustainable growth. Let's first drill down a bit on the Agility business. In 2018 Agility's annual recurring revenue or ARR which in SaaS businesses is an important point in time measure of backlog grew year-over-year from $9.8 million to $11 million or 12%. In…

Thank you, Sir. [Operator Instructions] And we will now take our first question from Tim Clarkson of Van Clemens Capital. Please go ahead. Your line is open.

Hi, Jack. Hi, guys. Start of the quarter was pretty good actually. Wanted to ask first of all just a couple of book keeping questions, I noticed there was a goodwill write off, where was that from?

We had a goodwill - this is A.K. Mishra, we had a goodwill write-off of $675,000 in DDS segment, and we did that in second quarter I believe.

Okay. And then in terms of the - I saw there was $1 million dollars increase in G&A. What was that mainly?

This is primarily one-time cost and the yearend costs comprised of multiple items which includes things like audit fee, fee for recruitment of product management team personnel which we are going through, onetime yearend commissions and so on. So, it's a yearend onetime activity.

Okay. And then just, Jack, in terms of the - I know this emphasis and all on artificial intelligence, are you to appoint now or have you figured out niches that - niche that Innodata can focus on where there is, hopefully, some relatively low-hanging fruit that where you had some differential skills and you can get some business relatively quickly?

Yes. Tim, I think that's certainly what we have been working on. So in 2018, we were taking what we had developed in 2017 and 2018 and we were deploying it primarily internally. And the benefits to that was really two-fold for us. There were the operational benefit that we got from it in terms of right sizing the business and lowering cost. But beyond that, we were testing our technology, we were improving our technology, and kind of positioning it that we would be ready to deploy it in different ways into the market both in terms of existing markets that we play and as well as new potential markets. We do have ideas there. The ideas continue to be vetted and explored. The good news, of course, is that we are attracting some top talent to work that problem for us. People who very much understand the market for AI-enabled business services and you have well-formed ideas where we can fit into in the world in terms of having a bigger market presence.

Now what would be one of the areas you would look at will be customers you are already doing business and you have relationships with that you could on a relatively small scale test out some of these different schemes using artificial intelligence to reduce cost?

Absolutely, and I think one of the benefits to a lot of the things we are working on now strategically is they provide us the dual possibility of adding a lot of new value to our existing customer relationships and at the same time on expanding our markets. So, if we think back to other venture businesses we have had, those have leveraged our core competencies and some of our core technology, but they took us into areas that were separate from our core business. They didn't add value to our core relationships. The things we are doing now align very well in that regard. So we've got existing customers who are excited about it. And we've got new opportunities to explore in terms of other verticals and other markets that we can serve.

Okay, one last question. When you employ these new technologies internally, how painful and difficult was it to at Innodata to make those changes? I mean was it relatively simple? Or, what was the internal emotional cost and difficulty in making those changes?

Great question. It was difficult. And in the course of making the changes, we learnt a tremendous amount about the technology and about what it would mean to successfully instantiate these technologies in project workflows. And the net of that is that the operational design around implementing and augmenting with AI is completely different. It's not just a new layer; it's a new way at looking at how business is done. And what we're now able to do is take a lot of that learning and bake that fundamentally into our tools and our platforms, and share that with customers.

Right. And when you approach customers with opportunities to do this, what's their initial reaction? Is there a lot of resistance or what's the process from going to them being excited about saving money, obviously, to actually trying this stuff out?

I think it varies. I think there are customers who are very much aligned to this mission, and they see us as being able to help accelerate the path that they are already on. At the other extreme, there's a customer I can think of who just doesn't think AI works, and doesn't even want to talk about it. So, there's a wide spectrum. That's said, I'm finding that most of the customer base is moving in this direction. There are some early adopters, there are some people who were late adopters, but they're moving in these directions. And our ability to add thought leadership in terms of what works and potentially technology that they can be utilizing is being very well received.

All right. One last question, do you have any idea what a conservative estimate of the size of the opportunity is?

You know, I think there are going to be several different opportunities. I don't think it's a single opportunity. So I think there is an opportunity to serve our existing market, perhaps at a higher order in a slightly different way. And then I think there are new vertical market opportunities. And there are potentially kind of horizontal opportunities in data science. So, we're working all of those. It would be premature to start putting numbers around those or to get ahead of our skis. I think for now my - the key message I want to be sure to communicate today is that we worked hard on operational efficiencies, cross rationalization, business transformation last year. This year, it's all about growth. Agility and Synodex we think are well positioned to accelerate growth this year. And in the core business we're making investments in order to fundamentally reposition the business.

Okay, thanks. I'm done.

Good. Thank you.

We will now take our next question from Joe Furst of Furst Associates. Please go ahead, your line is open.

Good morning. I wanted to clarify something that I must have misunderstood about two things you said in your presentation that were inconsistent, and I must have misunderstood one of them. Didn't you say that your recurring business was up to about 88% now of - and, well, much increased from back several years ago, is that correct?

That is, yes.

So then I thought I heard you say something about you needed - wanted to try to get $7 million in new orders to keep revenue consistent. And obviously those two things don't match, so what did I misunderstand there?

Sure. So, without doing the math, I'll just talk conceptually for a moment. First, the way we - what we call recurring revenue is a service that customers require as part of their operations. It's not a one-time build. It's not a one-time project. That said recurring revenue isn't a perpetual motion machine. It's not something that goes on forever necessarily. So we do have within the recurring revenue layer movements. There are customers who end up moving out of a particular product and into other things, or reducing their requirements for one reason or another, or from whom we're driving less revenue than we might have otherwise. So, within that necessary $7 million of bookings, as we said, about 40% of that would end up being revenue in a year. So, if you start with our revenue, take 40%, that would be the revenue that on a pro forma basis we look to replace. A portion of that would be project revenue, and a smaller portion of that would be compression within the recurring revenue layer.

Okay. Okay, I - it's my interpretation where recurring revenue one is - it's not the same as yours. So, thank you.

Okay. And again, Joe, if you want me to do the math with you we can take that offline, I'd be happy to. But what we've doing all along, and I think we've been pretty consistent in this regard, is we've been defining recurring revenue conservatively. So we - our recurring customer revenue, which is what a lot of people talk about, is larger than that. But what we look at is really what are we doing for a particular client. If we're doing something that they should require on an ongoing basis then we call that recurring revenue, when we become part of their operations, part of their cost of goods sold basically. If we're building for them a new system, if we're building for them a new content set and it's a one-time effort, we refer to that as non-recurring revenue.

Sure, I follow that.

Good.

Thank you.

Okay, thank you.

[Operator Instructions] It appears there are no further questions via telephone at this time.

Well, thank you, operator. So, I'll just quickly underscore a couple of key takeaways from the morning's call. Our 2018 turnaround met its objectives, delivering 12% EBITDA, the highest it's been since 2014. In 2019, we're making an investment into DDS that we think will reposition it for growth, and we're anticipating accelerated growth in 2019 in both Agility and in Synodex. Thank you all for joining today, and we look forward to reporting our progress through the year.

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