INNODATA INC Q4 FY2024 earnings call

• Strong Q4 and full year 2024 results with revenue and adjusted EBITDA growth.
• Accelerating business momentum across key strategic imperatives, with winning additional programs and expansions with largest customer, and 159% sequential growth from other seven big tech customers.
• Focus on big tech and enterprise markets, with services and platforms strategy.
• Hardware optimization impacting AI adoption, and work on trust and safety and automated trust and safety platform.
• Plan to reinvest in people across technology, product development, operations, and sales to drive future growth.

In Q4 '24, revenue totaled $59.2 million, a year-over-year increase of 127%. Adjusted EBITDA for the quarter was $14.1 million, or 23.9% of revenue. For the full year 2024, revenue was $170.5 million, up 96% over 2023, and adjusted EBITDA was $34.6 million, or 20.3% of revenue. Adjusted gross margin for Q4 was 48%, a 4% sequential increase from Q3 2024, and full year adjusted gross margin was 43% (would have been 45% without $3.6 million recruiting costs in Q2).

• Forecasting 40% or more revenue growth for 2025, with initial guidance to be updated as new business is won, similar to 2024 where initial guidance was revised upward.
• Plan to reinvest in the business while aiming to exceed 2024's adjusted EBITDA.

• Forward-looking statements are subject to risks and uncertainties, as actual results could differ materially from forward-looking statements. Factors are set forth in earnings press release, risk factors section of SEC filings.

Q: Could you lay out the future for the seven other big tech customers and how it dovetails with the number of pilots, including seven to eight-figure opportunities?

A: Pilots are from a combination of additional big techs and some enterprise deals in pilot stage. Focus is on big techs for growth but also working on enterprise side with key partnerships and capabilities.

Q: Address the football-dime analogy in relation to the largest customer's duration?

A: The analogy compares the bounds of human knowledge as data to a football and current LLM training data to a dime, indicating there's a huge amount of additional data needed for future models to approach AGI, and we're still in early innings.

Q: Talk about opportunity differing between open and closed models?

A: Have opportunities on both open and closed source models. Open source has huge opportunities with declines in inferencing and training costs, enabling enterprise adoption and agent development. Closed source models also present opportunities.

Q: Discuss gross margin potential in 2025?

A: Holistically, gross margin will have ups and downs with specific programs. Targeting around 40% adjusted gross margin for net new opportunities, with hope to get higher as new customers are won.

Q: Qualitatively what drives EBITDA to be up year over year?

A: Plan to invest primarily in people across various areas, with careful investment to get near-term returns. Investments in people who are impactful and aligned with the company's vision.

Q: Are you at capacity with client base and why invest in headcount?

A: Distinguish between cost of goods and SG&A. On cost of goods, prepare for growth phases. On SG&A, driven by ambition to seize opportunities. Hiring people with deep technology skills well-received by customers.

Q: Are pilot trials taking business from competitors or new projects?

A: Probably some from competitors, but mostly focused on expanding the rapidly growing pie and getting disproportionate share of expansion.

Q: Do you feel less stress due to cash position and need for liquidity?

A: Well-positioned with cash on balance sheet, haven't tapped credit facility, forecasting strong free cash flow generation. Ambitious but disciplined in investments to seize opportunities.