Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Innodata Inc (NASDAQ:INOD) reported a Q4 2024 revenue of $59.2 million, marking a 127% year-over-year increase, surpassing their projected guidance.
• The company achieved a full-year 2024 revenue of $170.5 million, up 96% from 2023, with an adjusted EBITDA of $34.6 million, a 250% increase year-over-year.
• Innodata Inc (NASDAQ:INOD) ended the year with $46.9 million in cash, significantly up from $13.8 million at the end of 2023, and has an undrawn $30 million credit facility.
• The company forecasts 40% or more revenue growth for 2025, with plans to update guidance as new business is secured.
• Innodata Inc (NASDAQ:INOD) has expanded its annualized run rate revenue with its largest customer to approximately $135 million, with additional programs and expansions valued at $24 million.

Negative Points

• The effective tax rate for 2025 is expected to be in the range of 28% to 31.5%, up from a negative 17.1% in 2024 due to the utilization of accumulated net operating losses.
• The company acknowledges the risks and uncertainties associated with forward-looking statements, which could result in actual results differing materially.
• Innodata Inc (NASDAQ:INOD) plans to reinvest a portion of its cash from operations back into the business, which may impact short-term profitability.
• The company faces challenges in capturing and utilizing the vast amount of data required for training future AI models, as current models use only a fraction of available data.
• There is a potential risk of model collapse with data distillation techniques, which could limit performance and innovation in AI model development.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Sign with INOD.

Q: Can you elaborate on the 159% sequential growth from your seven other big tech customers and the potential for 7 to 8 figure opportunities? A: (Jack Abelhoff, CEO) The growth is driven by a combination of additional big techs and a large-scale enterprise deal currently in the pilot stage. We are focusing on big techs to achieve our growth plans while also working on the enterprise side with key partnerships and capabilities.

Q: Using the football and dime analogy, how long do you expect your largest customer to remain at its current size or larger? A: (Jack Abelhoff, CEO) The analogy illustrates the vast amount of data yet to be captured for future models to achieve AGI. We believe there's a significant opportunity in capturing this data, and given the capital spending on AI technologies, we are still in the early stages.

Q: How does your opportunity differ between open and closed models? A: (Jack Abelhoff, CEO) We see opportunities on both sides. Open source models, combined with declining costs of inferencing and computing cycles, present a significant opportunity for enterprises to train specific agents. We are involved in data engineering to support these developments.

Q: With the market's questions about data distillation and its impact on training, can you elaborate on its implications? A: (Jack Abelhoff, CEO) Data distillation can lead to model collapse due to reduced diversity and increased bias. While it may perform well on benchmarks, it limits true performance. Serious efforts towards AGI will require more investment in diverse data.

Q: Regarding your gross margins, do you see potential for further expansion in 2025? A: (Anish Pendarkar, SVP Finance) We achieved healthy margins in Q4 due to specific projects and automation efforts. For 2025, we target around 40% adjusted gross margin for new opportunities, with potential for higher margins as we win new customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.