INNODATA INC

Previous wording

Innodata was founded more than 35 years ago on the principle that high-quality, well-structured data is essential to leading information-retrieval systems. In 2016-2017, we began building proprietary AI language models based on then-emerging research and frameworks and integrating them into our data production workflows. Through this work, we developed and refined techniques for generating, curating, and validating human-created data used to train probabilistic, learning-based AI systems, and recognized that data quality and structure were critical determinants of model performance. This insight led us to invest in the development of an integrated set of AI lifecycle data solutions, addressing a growing market need for specialized data engineering, evaluation, and refinement capabilities across the full lifecycle of AI systems.

Current wording

Innodata was founded more than 35 years ago on the principle that high-quality, well-structured data is essential to leading information-retrieval systems. In 2016 and 2017, we began building proprietary AI language models based on then-emerging research and frameworks and integrating them into our data production workflows. Through this work, we developed and refined techniques for generating, curating, and validating human-created data used to train probabilistic, learning-based AI systems, and recognized that data quality and structure were critical determinants of model performance. This insight led us to invest in the development of an integrated set of AI lifecycle data solutions, addressing a growing market need for specialized data engineering, evaluation, and refinement capabilities across the full lifecycle of AI systems.

Previous wording

We now operate under one single segment.

Current wording

We operate under one single segment.

Previous wording

Effective for the quarter ended March 31, 2026, the Company revised its segment reporting structure. Previously, we reported three segments; following a change in the CODM’s approach, we now report as a single segment. This change was made to align segment reporting with the CODM’s resource allocation and performance assessment process. For additional information, refer to Note 11 to the financial statements.

Current wording

Effective as of the quarter ended March 31, 2026, the Company revised its segment reporting structure. Previously, we reported three segments; following a change in the CODM’s approach, we now report as a single segment. This change was made to align segment reporting with the CODM’s resource allocation and performance assessment process. For additional information, refer to Note 13 to the financial statements.

Previous wording

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the three-month periods ended March 31, 2026 and 2025 (in thousands).

Current wording

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the three- and six-month periods ended June 30, 2026 and 2025 (in thousands).

Previous wording

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before net interest expense (income), income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

Current wording

We define Adjusted EBITDA as net income attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before net interest expense (income), income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income attributable to non-controlling interests and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

Previous wording

The following table contains a reconciliation of U.S. GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the three-month periods ended March 31, 2026 and 2025 (in thousands).

Current wording

The following table contains a reconciliation of U.S. GAAP net income attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the three- and six-month periods ended June 30, 2026 and 2025 (in thousands).

Previous wording

Total revenues were $90.1 million and $58.3 million for the three months ended March 31, 2026 and 2025, respectively, an increase of $31.8 million or approximately 54%. Revenue increased primarily due to higher volume for AI-related data services, including the expansion of existing customer programs and new client engagements supporting more complex AI workflows.

Current wording

Total revenues were $92.1 million and $58.4 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $33.7 million or approximately 58%. Revenue increased primarily due to higher volume for AI data engineering services from existing customer programs.

Previous wording

One customer generated approximately 56% and 61% of the Company’s total revenues for the three months ended March 31, 2026 and 2025, respectively. Another customer generated approximately 17% of the Company’s total revenues for the three months ended March 31, 2026. No other customer accounted for 10% or more of total revenues during these periods. Foreign revenues from non-U.S. customers accounted for 12% and 16% of the Company’s total revenues for the three months ended March 31, 2026 and 2025, respectively.

Current wording

One customer generated approximately 37% and 58% of the Company’s total revenues for the three months ended June 30, 2026 and 2025, respectively. Another customer generated approximately 34% of the Company’s total revenues for the three months ended June 30, 2026. No other customer accounted for 10% or more of total revenues during these periods. Revenues from non-U.S. customers accounted for 13% and 17% of the Company’s total revenues for the three months ended June 30, 2026 and 2025, respectively.

Previous wording

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Current wording

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, AI technology subscriptions, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Previous wording

Direct operating costs were $50.3 million and $35.1 million for the three months ended March 31, 2026 and 2025, respectively, an increase of $15.2 million or approximately 43%. The cost increase was primarily attributable to an increase in headcount to support higher volumes of AI-related services and expanded customer engagements.

Current wording

Direct operating costs were $49.7 million and $35.4 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $14.3 million or approximately 40%. The cost increase was primarily attributable to an increase in headcount to support higher volumes of AI data engineering services from existing customer programs.

Previous wording

Gross profit was $39.8 million and $23.2 million for the three months ended March 31, 2026 and 2025, respectively. The $16.6 million increase in gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin was 44% and 40% for the three months ended March 31, 2026 and 2025, respectively. The increase in gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Current wording

Gross profit was $42.4 million and $23.0 million for the three months ended June 30, 2026 and 2025, respectively. The $19.4 million increase in gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin was 46% and 39% for the three months ended June 30, 2026 and 2025, respectively. The increase in gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses; software subscriptions; professional and consultant fees; provision for credit losses; and other administrative overhead expenses.

Current wording

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses; software subscriptions; AI technology subscriptions; professional and consultant fees; provision for credit losses; and other administrative overhead expenses.

Previous wording

Selling and administrative expenses were approximately $22.9 million and $15.0 million for the three months ended March 31, 2026 and 2025, respectively, an increase of $7.9 million or approximately 53%. The increase in selling and administrative expenses was primarily due to continued investments in growth-oriented and capability-building functions. In addition, labor costs increased as we continue to invest in sales, account management, and marketing resources to support new customer acquisition, expand relationships with existing customers, and strengthen our market presence through solution design, go-to-market execution, and thought leadership initiatives.

Current wording

Selling and administrative expenses were approximately $26.6 million and $14.1 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $12.5 million or approximately 89%. The increase in selling and administrative expenses was primarily due to continued investments in growth-oriented and capability-building functions. In addition, labor costs increased as we continue to invest in sales, account management, and marketing resources to support new customer acquisition, expand relationships with existing customers, and strengthen our market presence through solution design, go-to-market execution, and thought leadership initiatives.

Previous wording

The increase in selling and administrative expenses was primarily attributable to increased selling, marketing, and administrative payroll and related expenses of $8.5 million, driven by new hires, salary increases, incentives and bonuses. Additional increases included higher business software subscriptions of $0.5 million, travel and entertainment costs of $0.2 million, an increase in the provision for credit losses of $0.1 million and an increase in other selling and administrative expenses of $0.3 million, offset by lower professional and recruitment fees of $1.5 million, marketing-related expenses of $0.1 million and a favorable impact of foreign exchange rate fluctuations of $0.1 million. Selling and administrative expenses as a percentage of total revenues were approximately 25% and 26% for the three months ended March 31, 2026 and 2025, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues, offset in part by increased selling and administrative expenses.

Current wording

The $12.5 million increase in selling and administrative expenses was primarily attributable to increased selling, marketing, and administrative payroll and related expenses of $11.0 million, driven by new hires, salary increases, stock-based compensation expense, incentives and bonuses. Additional increases included higher business software and AI technology subscriptions of $1.3 million, marketing-related expenses of $0.4 million, travel and entertainment costs of $0.3 million, unused line of credit facilitation fees of $0.2 million, an unfavorable impact of foreign exchange rate fluctuations of $0.2 million and an increase in other selling and administrative expenses of $0.3 million, offset in part by credit loss recoveries of $0.8 million and lower professional and recruitment fees of $0.4 million. Selling and administrative expenses as a percentage of total revenues were approximately 29% and 24% for the three months ended June 30, 2026 and 2025, respectively. The increase in selling and administrative expenses as a percentage of total revenues was primarily attributable to increased selling and administrative expenses offset by higher revenues.

Previous wording

We recorded an income tax provision of approximately $2.4 million and $0.6 million for the three months ended March 31, 2026 and 2025, respectively. The effective tax rate was 14.1% and 7.3% for the three months ended March 31, 2026 and 2025, respectively. The difference was primarily attributable to unfavorable U.S. tax implications of Global Intangible Low-Taxed Income (GILTI) in the current quarter.

Current wording

We recorded an income tax provision of approximately $3.1 million and $2.3 million for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate was 17.9% and 23.9% for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate was favorably impacted by net windfalls related to stock-based compensation, partially offset by IRS section 162(m) adjustments and the U.S tax implications of Global Intangible Low Taxed Income (GILTI) in the current quarter.

Previous wording

In each quarter, we will update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of income (loss) before provision for income taxes in multiple jurisdictions, the effects of tax law changes, and the U.S. tax implications related to Global Intangible Low-Taxed Income.

Current wording

In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of income (loss) before provision for income taxes in multiple jurisdictions, the effects of tax law changes, and the U.S. tax implications related to Global Intangible Low-Taxed Income.

Previous wording

Net income was $14.9 million and $7.8 million for the three months ended March 31, 2026 and 2025, respectively. The $7.1 million increase was a result of higher revenue, offset in part by higher direct operating costs and higher selling and administrative expenses in the current quarter.

Current wording

Net income was $14.4 million and $7.2 million for the three months ended June 30, 2026 and 2025, respectively. The $7.2 million increase was a result of higher revenue, offset in part by higher direct operating costs and higher selling and administrative expenses in the current quarter.

Previous wording

Basic and diluted earnings per share were $0.46 and $0.42, respectively, compared to $0.25 and $0.22, respectively, for the three months ended March 31, 2026 and 2025, respectively, a per share increase of $0.21 for basic earnings per share and $0.20 for diluted earnings per share. Earnings per share increased for the quarter due to continued improvement in profitability and operating leverage, reflecting higher revenues and cost efficiencies across the business.

Current wording

For the three months ended June 30, 2026, basic and diluted earnings per share were $0.43 and $0.41, respectively, compared to $0.23 and $0.20 for the prior year period. This represents a per share increase of $0.20 for basic EPS and $0.21 for diluted EPS. Earnings per share increased for the quarter due to continued improvement in profitability and operating leverage, reflecting higher revenues and cost efficiencies across the business.

Previous wording

Adjusted gross profit was $42.6 million and $25.2 million for the three months ended March 31, 2026 and 2025, respectively. The $17.4 million increase in adjusted gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin was 47% and 43% for the three months ended March 31, 2026 and 2025, respectively. The increase in adjusted gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Current wording

Adjusted gross profit was $45.4 million and $25.0 million for the three months ended June 30, 2026 and 2025, respectively. The $20.4 million increase in adjusted gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin was 49% and 43% for the three months ended June 30, 2026 and 2025, respectively. The increase in adjusted gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Adjusted EBITDA was $25.0 million and $12.7 million for the three months ended March 31, 2026 and 2025, respectively. The $12.3 million increase in Adjusted EBITDA was due to higher net income, higher stock-based compensation and depreciation and amortization, offset in part by higher interest income in the current quarter.

Current wording

Adjusted EBITDA was $25.4 million and $13.2 million for the three months ended June 30, 2026 and 2025, respectively. The $12.2 million increase in Adjusted EBITDA was due to higher net income, higher stock-based compensation and depreciation and amortization, offset in part by higher interest income in the current quarter.

Previous wording

The increase in direct operating costs includes $14.3 million from direct and indirect labor-related costs, primarily driven by new hires, incentive compensation, salary increases and severance. Additional increases included cloud service subscriptions of $1.0 million, driven by increased cloud usage and data processing requirements in support of higher revenues, AI-related services and expanded customer engagements, depreciation and amortization of capitalized developed software of $0.6 million, shipping costs of $0.6 million, content-related costs of $0.2 million, occupancy-related costs of $0.2 million, offset in part by a reduction in recruitment fees of $0.9 million and a favorable impact of foreign exchange rate fluctuations of $0.8 million. Direct operating costs as a percentage of total revenues were 56% and 60% for the three months ended March 31, 2026 and 2025, respectively. The decrease in direct operating costs as a percentage of total revenues was primarily attributable to higher revenues, offset in part by increased direct operating costs.

Current wording

The $29.5 million increase in direct operating costs includes $24.6 million from direct and indirect labor-related costs, primarily driven by new hires, salary increases, stock-based compensation expense, severance and third-party delivery resources. Additional increases primarily included approximately $2.4 million in cloud services and AI technology-related subscription costs driven by increased cloud usage and data processing requirements to support higher revenue and expanded customer engagements, shipping and related costs of $1.6 million, depreciation and amortization of capitalized developed software of $1.2 million, content-related costs of $0.8 million, occupancy-related costs of $0.4 million, and travel and entertainment costs of $0.2 million, offset in part by a reduction in recruitment fees of $1.0 million and a favorable impact of foreign exchange rate fluctuations of $0.7 million. Direct operating costs as a percentage of total revenues were 55% and 60% for the six months ended June 30, 2026 and 2025, respectively. The decrease in direct operating costs as a percentage of total revenues was primarily attributable to higher revenues, offset in part by increased direct operating costs.

Previous wording

On March 31, 2026, we had cash and cash equivalents of $117.4 million, of which $16.0 million was held by our foreign subsidiaries, and $101.4 million was held in the United States.

Current wording

As of June 30, 2026, $31.3 million of our cash and cash equivalent balance was held by our foreign subsidiaries, and $209.0 million was held in the United States.

Previous wording

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of March 31, 2026, we had working capital of approximately $104.0 million, as compared to working capital of approximately $84.9 million as of December 31, 2025. The increase in working capital is due to increased collections from higher revenues, offset in part by higher operating expenses associated with increased headcount to support higher volumes of AI-related services and expanded customer engagements.

Current wording

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of June 30, 2026, we had working capital of approximately $135.2 million, as compared to working capital of approximately $84.9 million as of December 31, 2025. Working capital grew primarily due to strong revenue-driven cash inflows, which were partially offset by increased payroll and other operating expenses to support expanding AI and AI-related services and customer engagements.

Previous wording

Cash provided by our operating activities for the three months ended March 31, 2026 was $37.3 million resulting from net income of $14.9 million, adjusted for non-cash expenses of $6.6 million and an increase in working capital of $15.8 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Current wording

Cash provided by our operating activities for the six months ended June 30, 2026 was $164.4 million resulting from net income of $29.3 million, adjusted for non-cash expenses of $17.2 million and an increase in working capital of $117.9 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Previous wording

Cash provided by our operating activities for the three months ended March 31, 2025 was $10.8 million resulting from net income of $7.8 million, adjusted for non-cash expenses of $4.9 million and a decrease in working capital of $1.9 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Current wording

Cash provided by our operating activities for the six months ended June 30, 2025 was $15.0 million resulting from net income of $15.0 million, adjusted for non-cash expenses of $10.8 million and a decrease in working capital of $10.8 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Previous wording

For each of the three months ended March 31, 2026 and 2025, cash used in our investing activities was $2.4 million. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software.

Current wording

Cash used in our investing activities was $15.4 million and $4.1 million for the six-month periods ended June 30, 2026 and 2025, respectively. This increase in cash usage was primarily driven by purchases of short-term investments of $10.1 million, reflecting our strategy to optimize yields on surplus cash generated from operations and capital expenditures of $5.3 million principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software.

Previous wording

During the next 12 months, it is anticipated that capital expenditures for capitalized developed software and ongoing technology, equipment and infrastructure upgrades will approximate to $12.1 million, a portion of which we may finance.

Current wording

During the next 12 months, it is anticipated that capital expenditures for capitalized developed software and ongoing technology, equipment and infrastructure upgrades will approximate to $13.1 million, a portion of which we may finance.

Previous wording

Cash provided by financing activities for the three months ended March 31, 2026 was $0.9 million primarily from proceeds of stock option exercises of $1.0 million, offset in part by withholding taxes on net settlement of restricted stock awards of $0.1 million.

Current wording

Cash provided by financing activities for the six months ended June 30, 2026 was $10.0 million primarily from proceeds of stock option exercises of $10.9 million, offset in part by payment for long-term obligations of $0.9 million.

Previous wording

Cash provided by financing activities for the three months ended March 31, 2025 was $0.9 million primarily from proceeds of stock option exercises of $1.0 million, offset in part by payment of long-term obligations of $0.1 million.

Current wording

Cash provided by financing activities for the six months ended June 30, 2025 was $1.4 million primarily from proceeds of stock option exercises of $1.5 million, offset in part by payment of long-term obligations of $0.1 million.