Innodata Inc. Q2 FY2025 earnings call

• Q2 2025 was an outstanding quarter with revenue growing 79% YOY to $58.4 million and adjusted EBITDA growing 375% to $13.2 million.
• Strengthened balance sheet with cash increasing to $59.8 million and $30 million credit facility undrawn.
• Raised full-year 2025 revenue growth guidance to 45% or more organic growth from 40% previously due to new deals and strong pipeline.
• Significant new deals with largest customer and another big tech customer, with pipeline for more opportunities.
• Focus on Agentic AI and robotics, seeing this as a key area with large market potential, and investing in capabilities like custom annotation pipelines, verticalized agent development, etc.
• Incurred approximately $1.4 million of operating expenses in Q2 as investments in new hires and capabilities.

Revenue for Q2 2025 reached $58.4 million, representing a year-over-year increase of 79%. Adjusted EBITDA was $13.2 million, a 375% increase from the same quarter last year. Adjusted gross margin was 43% for the quarter, up from 32% in Q2 of the previous year. Cash at the end of Q2 2025 was $59.8 million, reflecting a sequential increase of about $3.2 million. The $30 million credit facility remains undrawn.

• Raised full-year 2025 revenue growth guidance to 45% or more organic revenue growth from 40% previously.
• Forecast reflects significant new deals finalized and likely closing near term, with robust pipeline positioning for strong second half.
• Anticipate winning major new customers, deepening relationships, and broadening base in second half, with investments in infrastructure, talent, and platforms to support growth.

Q: Nice results. Congratulations. So I wondered if we could talk about during the quarter, your largest competitor, Scale AI was a large majority purchased by Meta. And we've had a few of the large tech companies come out and say they would no longer work with Scale AI. These ostensively would be tech companies that you have statements of work with. So I'm just curious if you can kind of give us the after effect of that acquisition as you've seen it.

A: George, well, thank you for being on the call. So I guess, first, we congratulate Scale for having delivered a great success for their shareholders. And we believe their success and their valuation is a proof point of the key role that data plays [Technical Difficulty]. Before this, we were and continue to very aggressively outreach to market participants and to market our capabilities. We have, in light of this stepped up that effort with certain companies and there are certain conversations that are going on and are now planned to be happening over the next couple of months that I think could be very exciting for us. I don't know that I can get into particulars much beyond that, but I'll reiterate that we do see an opportunity to accelerate our market presence.

Q: So when you reported last quarter, you kind of said that you thought revenue might be down around 5% in the second quarter. Your actual number was flat -- up very slightly sequential. So you outperformed. So I'm kind of curious like where did the variance come from?

A: Sure. I'll start and then, Aneesh, do you want to give any additional color. I think that what we were trying to communicate last quarter is revenue was up -- we were up on a run rate basis from our largest customer, and we were, of course, very happy about that. But we wanted to focus our investors on the guidance that we were giving because there are a lot of pluses, puts and takes that get factored into that guidance. And underlying the work that we're doing, there are dependencies on engineering teams that we're working hand in glove with. So it's entirely possible that a quarter could be up or down, and that isn't necessarily something that should be extrapolated out and considered locked and loaded permanently. We weren't anticipating that it would necessarily be down, though, and we're very happy to see that it wasn't. As I said, looking at the largest customer and as well as several -- quite a number actually of other customers, we see an incredible pipeline of opportunity right now. We're very excited about that. And we're only baking into our guidance and our forecast things that we think are highly likely to close within the next really 30 to 60 days. There's a lot beyond that. I think we're going to be winning as well. So I hope that's helpful. Aneesh, anything you want to add to that?

A: Yes. I think you framed that correctly, Jack. Just to kind of reiterate, Allen, we're not seeing any slowdown with our largest customer. In Q2, we generated approximately $33.9 million of revenue from this account. And as Jack mentioned, we secured several new projects and have additional opportunities in the pipeline that while not yet included in our forecast appear reasonably likely. So again, we feel very bullish and optimistic of our prospects in the back half of the year and remain very excited.

Q: You highlighted -- one of the things you highlighted was the enterprise and the opportunity there. There's a lot of enterprises out there. I'm just curious how you think about the go-to-market to attack it?

A: Yes, it's a great question. Well, we're attacking it already. And what we're finding is that the interest in the technology and the opportunities to instantiate it into workflows exist across markets. So naturally, we're looking at the markets where we have the most penetration and the most relationships today. But we're also reaching out to companies in markets where we don't have as much reach and we're finding great receptivity. So I think the highlight there is that Agentic AI, as it's proven is going to be the catalyst that unlocks enterprise opportunity. And I think that among enterprises that I talk to and more broadly, they're no longer just looking at this like a frontier technology that's interesting to monitor. They're seeing it as a new economic infrastructure that they're going to need to be embracing and they're going to need to be adopting. And I think that we can play a very significant role in that. When we have conversations with them about the things that we think they need to do and our consultants are working with them to figure out what's the right order of operations and how they gain control of their data in order to harvest these opportunities. We've got a lot of experience, both from working with the large big techs on the frontier model such that we know where things are going and how they can best utilize them and also on all the work we've done historically, taking apart workflows and thinking about how to integrate new technologies into workflows to make them more efficient. So yes, super excited about the opportunities there.

Q: So my first question was, could you just talk about why you mentioned organic growth and what your intentions are there?

A: Sure, Hamed. I think we mentioned it to draw attention to the fact that this is organic growth. I think if you look across companies that are reporting and reporting growth, a lot of them are growing inorganically, and that can be a great strategy for them, but it's a different strategy. And I think our strategy and the kind of growth that we're reporting is a testament to the product set and the capabilities that we've developed. And from a risk-adjusted basis, I think that's probably a safer bet for investors. So we're very proud of it. We're very proud of what we've been able to accomplish. And looking ahead to how well aligned we are with what we see as today's market opportunities and tomorrow's likely market opportunities, we think that, that organic growth can continue.

Q: And the organic growth that you're seeing in your business, is that coming with any kind of competitive pressures on pricing or you're able to maintain pricing and capture new customers?

A: It's a robust market. I think that we expect -- well, just expect we do experience, of course, a competitive environment. But what we're seeing is that the most important thing to our customers isn't our price. It's the quality of our data and the extent now to which we can work hand in glove with them in order to help understand model performance, understand model deficiencies, understand use cases and make recommendations about the data sets that are required to remediate or to extend those capabilities. So it's a holistic service and the investments that they're making are so extraordinary, and there's such a deep desire to win in this race that when we're contributing as well as we are in so many accounts, they become much less price sensitive. Now that having been said, I don't believe that we're the most expensive among our competitive set, but I do think we're among the best. And that's a position that I think if we can sustain that will significantly inure to our benefits from a competitive perspective and a growth perspective.

Q: I just had a follow-up. I thought it was really interesting how you said that you can make the data smarter for the customers to get better results. Could you go into that a little bit?

A: Sure. So -- there are a lot of different dimensions that we use to look at data and analyze data. Our data science team is rapidly expanding. We end up for engineering teams producing what are the equivalent of -- in many cases, the equivalent of white papers with all sorts of mathematical formula and statistical analysis that correlate what we benchmark as a model's performance or identify as a model's deficiency with what data sets are required in order to remediate that. And what that capability has resulted in is that we're no longer just providing data, but we're -- our status, our role has been elevated to sitting at the table with the data scientists who are building these models and figuring it out with them. The journey is about data. And it's about -- as I said in the prepared remarks, it's about not just scale data, but smart data. So being able to do all that deep technical scientific analysis of data of model performance of correlating the data that's required in order to achieve the level of performance that's required. In just the last, I'd say, several months, that's become a problem space that we're getting to occupy, and that's tremendously exciting for us.