Good afternoon, ladies and gentlemen, and welcome to the Innodata First Quarter 2025 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, May 08, 2025. I would now like to turn the conference over to Amy Agress, General Counsel at Inodata Inc. Please go ahead.

Thank you, Lovely. 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 Pendharkar, Senior Vice President, Finance and Corporate Development. We'll hear from Jack first, who will provide perspective about the business, and then Marissa will follow with a review of our results for the first quarter. We'll then take questions from analysts. 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. We undertake no obligation to update forward-looking information. In addition, during this call, we may discuss certain non-GAAP financial measures. In our earnings release filed with the SEC today, as well as in our other SEC filings, which are posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. Thank you. I will now turn the call over to Jack.

Thank you, Amy, and good afternoon, everyone. Our Q1 2025 revenue was $58.3 million, a year-over-year increase of 120%. Our adjusted EBITDA for the quarter was $12.7 million or 22% of revenue, a 236% year-over-year increase. We finished the quarter with $56.6 million of cash, which is a $9.7 million increase from last quarter. Our $30 million credit facility remains undrawn. We're pleased with our financial results this quarter, which by the way, came in ahead of analyst revenue estimates. But what's even more exciting is the meaningful progress we've made on our strategic growth initiatives, much of it in just the past few weeks. I'd like to take this opportunity to walk you through the progress we're making across four of our most dynamic solutions areas, highlighting how we're aligning with the evolving customer needs and how these efforts are driving, both new customer wins and meaningful account expansions. Let's first look at the work we do collecting and creating generative AI training data. We are very focused on building progressively more robust capabilities to feed the progressively more complex data requirements of large language models, as they advance toward artificial generalized intelligence or AGI, and eventually, artificial superintelligence or ASI. We have made and we continue to make investments toward expanding the diversity of expert domains like math and chemistry for which we create LLM training data and perform reinforcement learning, while also investing in expanding languages like Arabic and French within these domains and creating the kind of data required to train even more complex reasoning models that can solve difficult multi-step problems within these domains. We're also developing progressively more robust capabilities to collect pre training data at scale. The advancements that we have made and continue to make and the investments we have made and…

Thank you, Jack, and good afternoon, everyone. Revenue for Q1 2025 reached $58.3 million, representing a year-over-year increase of 120% and demonstrating strong momentum to start the year. Adjusted gross margin was 43% for the quarter, up from 41% in Q1 of last year. As we've discussed previously, we target an adjusted gross margin of around 40%. So, we're pleased to have exceeded that benchmark to begin the year. Our adjusted EBITDA for Q1 2025 was $12.7 million or 22% of revenue compared to $3.8 million in the same quarter last year. Net income was $7.8 million in the first quarter, up from $1 million in the same period last year. We were able to utilize the benefits of accumulated net operating losses or no call in Q1 to partially offset our tax provision. Looking ahead, barring any changes in the tax environment, we expect that our tax rate in the coming quarters to be approximately 29%. Our cash position at the end of Q1 2025 was $66.6 million, up from $46.9 million at the end of Q4 2024 and $19 million at the end of Q1 2024, reflecting strong profitability and disciplined cash management. We still have not drawn on our $30 million of Wells Fargo credit facility. The amount drawable under this facility at any point in time doesn't mean based on the borrowing-based formula. We've been actively engaged in investor relation activity over the past year and expect to build on that momentum in the months ahead. We'll be participating in several upcoming investor conferences and non-bill roadshows to continue to increase awareness and deepen relationships with institutional investors. Looking ahead, as Jack mentioned, we're planning targeted investments to expand our capabilities. This includes continued investment in technology to support both current and prospective customers in their AI journey as well as increasing strategic hiring in sales and solutioning to drive long term growth. In Q2, we plan to invest approximately $2 billion to support a new statement of work and related programs with our largest customer, as Jack noted earlier. We expect that this investment will occur ahead of the associated revenue and is expected to temporarily impact margins in that quarter. We review this as a strategic investment that helps position us to meet customers' evolving needs and to build on the land and expand success we've already achieved with them. As always, we'll remain disciplined in managing our cash and expenses, while continuing to invest where we see strong return potential and meaningful long-term value for shareholders. That's all from my end and thanks everyone. Lovely, we're ready to take questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of George Sutton from Craig Hallum. Your line is now open. Please go ahead.

Thank you and thanks for all the detail on the pipeline. So, Jack, I wonder if you could walk through this statement of work with your largest customer. If I understood correctly, you suggested it could be larger and then you sort of cut off from them. So what would larger than be relative to the statement of work opportunity?

Sure. Well, thank you for the question. The statement of work will enable our customer to start using us in basically what you can think of as another division or another area of their gen AI spend. Up until now, we haven't been supporting that area. With this new SOW in place, we will be and we expect to be. What's notable about that is that this the budget associated with that new area, we believe to be significantly higher than the budget that has been supporting all of our programs to date. So, we're very excited about that.

And obviously what you're suggesting in terms of the sequential revenues from this customer in Q2, which could be down 5%, that is completely separate from the statement of work that would be meaningfully in addition to, correct?

I think it's the requirements of this customer are very dynamic. We learn about things almost multiple times in the course of even a week. So what we're going to do is bake all of that into the guidance that we're providing. I just want to make sure that as people see that we were up in Q1, you don't necessarily take that and assume that, that's like a new threshold. We think in any quarter, there are projects that end, there are new projects that start. So, in terms of the new SOW, there's clearly a greater amount of work that we can do. There's additional share of wallet that we can tap into. And I think that bodes very well for long-term continuing to grow that account.

So, you walked through a number of different customer opportunities and gave a good sense of the size of the opportunities. Can you give us a sense of what you're finding your win rate to be, when you go into these opportunities?

Yes. Win rate is a hard thing to track. For us, the most important thing is to get into a customer, start doing small requirements, build trust, execute very, very well and then expand from there. I think the things that -- how do I put this. The things that we end up piloting that proceed, that move forward with customers, and some things don't, some things are experimental, but the things that move forward, we win a very large percentage of those, I believe. So, we're, what's so exciting about what's going on now in the business is, for a while, we've been talking about these multiple big tech customers and multiple magnificent seven customers that we've got, but some of them have been small. There are a couple of them, only $200,000 of revenue last year, $400,000 of revenue last year. And our plan was to you know, get in there, prove ourselves, build trust and then tap into the, hundreds of millions of dollars that are being spent on data engineering. What we're seeing now and the reason we're just so excited by all of this is our plan is coming together. We're doing exactly what we plan to do and we're super excited about that.

Your next question comes from the line of Allen Klee from Maxim Group. Your line is now open. Please go ahead.

George actually asked my questions, but I'll try to come up with some others. Can you remind us what, you said some stuff last quarter related to the size of the largest customer. I'm just trying to think about the impact of them being down 5%. I think last quarter you said that with a win of $24 million of annual, they're at around $135 million in revenue. I guess that means annually. But that annual run rate grew 5% this quarter, but then will be down 5% next quarter. Is that the way to think of it or am I mixing things up?

Yes. So, I think the way we're encouraging everyone to think about it is to understand how we intend to manage the Company. We believe we have an incredible opportunity to drive growth through many of these broadening customer engagements that I described. We think that will be one source of growth, a very important source, obviously. But at the same time, we don't intend to take our foot off the accelerator with respect to driving considerable growth, hopefully, at our largest customer. That's a choice that we're making. We don't have to do that. We could choose to lower revenue concentration as an alternative and cut back on that. But we're very plugged in with that customer. We've got a great relationship. We're very tied into the things that we're doing and we intend to that's a choice we're making. We intend to grow that as well. We believe there's lots of precedent in the market for embracing customer concentration as a natural part of that evolution. We've seen that at many tech companies over the years and recently at Snowflake and Datadog, even Palantir. We think over time as we execute this plan, it will result in broad based growth. In the interim, there will be quarter to quarter volatility. Specifically, what you're referring to, I think, is last year in Q4, we announced that we had $135 million annualized revenue run rate with that customer. But the fact is, in Q1, we exceeded that. In Q2, we might be lower than that, but we don't really know because of how dynamic the demand signals are and how their needs are changing all of the time. We think that that quarter-to-quarter volatility, some quarters up, some quarters down, is going to be a natural part of what to expect by virtue of the strategic choice we're making to drive growth across the board with our customer base and to respond to the tremendous growth opportunities that we see.

That's great. I guess, just in general for training, there's no change. It sounds like you have a ton of opportunities and it's expanding. And safety sounded really interesting because that gives you a recurring revenue. Is there just -- is there a way that people are spending money more differently with you now than maybe they had a year ago?

I think what we're seeing across our roster of big tech companies is a willingness and a desire to do more with us. And I think we earned our way and built trust over time. It takes a while to do it, but we're now seeing the fruition of those efforts, which again is super exciting. Trust and safety is, obviously, it's a huge opportunity. It's an opportunity that becomes you know, even richer and more interesting as we think about the complexity and richness of technology ecosystems that are populated by agents potentially. Well, each one of those agents will need to be measured and monitored and assessed. So, it's a huge opportunity for us. And the competitive advantage we think we have is we've been doing trust and safety work now for several of our large customers, and that's expanding. And we've developed techniques that we can take to test models and evaluate models, and we can build those techniques into a platform. And we can build that platform in a way that runs on an automated continuous basis, providing real-time feedback to people. So, yes, we're super excited about that. I think you're right. You point out a very important point. We believe that these opportunities on the services side and hopefully on the platform side as well we’ll be recurring. We think that there'll be an ongoing need for that as the technology becomes more pervasive within the, our company's ecosystems, for sure.

Your next question comes from the line of Hamed Khorsand from Beating Wall Street Financial. Your line is now open. Please go ahead.

Hi. I was just wondering, last quarter, you gave this guidance of 40% growth. How much of these projects that you're talking about today were you expecting within that guidance?

Yes. When we give guidance, we try to take a long view. We look at what's booked. We take a conservative view of what we think expansions can be. On our largest accounts, we estimate based on demand signals from the customer. Those are highly dynamic, as we've said. Of course, our predictions will only be perfect in retrospect. We know that. But we try to do our best, and we try to be reasonably conservative, as we make those predictions because we don't want to be wrong. We'd much rather surprise on the upside. So, some of the accounts that I'm describing, especially the new relationships, they're not baked in at all. There's so much that we don't know about from how long will it take, what will it look like. And so, again, we had an abundance of caution and a desire not to be wrong. We don't as a practice, at least we try not to get ahead of our skis on any of that.

Yes. So, that's where I was getting to is that, you have these, all these projects on all as far as revenue opportunity. Why keep the guidance at 40% growth? What makes you nervous that you can't grow faster?

It's a little bit like this. If we take some of the new customers that we're now onboarding, we don't necessarily know, even though these are exciting customers and we think there's huge opportunities. We don't know necessarily how fast are we going to be able to convert that into opportunity. Are they going to want to work with us for a while before really opening the spigot or is the spigot going to open more quickly? We've seen customers where they move fast. We've seen customers that require getting to know us for a while. With our largest customers, as I said, the demand is very dynamic. It changes very quickly. So, again, what we're looking to do is be conservative. We're looking to not be wrong in our growth estimates. And if we can meaningfully surprise on the upside like we did last year then we prefer to air it in that direction.

There are no further questions at this time. Please continue, Mr. Jack Abuhoff.

Thank you. So, Q1 is a great quarter with 120% year-over-year growth. And while revenue is flat sequentially, we want to be crystal clear. We believe our business right now is on fire. The growth we're seeing year-over-year is just the beginning. What's happening now inside the Company is really like or unlike anything we've seen before. We're winning major new customers. We're expanding existing relationships into entirely new budget categories. We're building a pipeline that's deeper and more advanced than at any point in our history. It feels like the engine is fully lit and we're accelerating down the runway. Our teams are energized. Our customers are leaning in and our conviction in what comes next has never been stronger. So, thanks everyone for joining us today, for being part of our journey. My executive team and I are all in on building Innodata into one of the defining AI solutions companies of the era. And we're excited to keep sharing our progress with you as the year unfolds. We're focused on delivering long term value for shareholders. And with the momentum that we're seeing, we've never been more confident about what lies ahead. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.