INNODATA INC

Previous wording

Disclosures in this Quarterly Report on Form 10-Q*(this “Report”)*contain certain forward-looking statements *within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements include, without limitation, statements concerning our operations, economic performance, and financial condition.*Words such as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “should,” “will,” “anticipate,” “indicate,” “predict,” “likely,” “estimate,” “plan,” “potential,” “possible,”or the negatives thereof, and other similar expressions generally identify forward-looking statements.

Current wording

Disclosures in this Quarterly Report on Form 10-Q (this “Report”) contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements include, without limitation, statements concerning our operations, economic performance, financial condition, developmental program expansion and position in the generative AI services market. Words such as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “should,” “will,” “anticipate,” “indicate,” “predict,” “likely,” “estimate,” “plan,” “potential,” “possible,” or the negatives thereof, and other similar expressions generally identify forward-looking statements.

Previous wording

These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, impacts resulting from ongoing geopolitical conflicts, including between Russia and the Ukraine, Hamas’ attack against Israel and the ensuing conflict and increased hostilities between Iran and Israel; investments in large language models; that contracts may be terminated by customers; projected or committed volumes of work may not materialize; pipeline opportunities and customer discussions which may not materialize into work or expected volumes of work; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; the ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services; continuing reliance on project-based work in the Digital Data Solutions (DDS) segment and the primarily at-will nature of such contracts and the ability of these customers to reduce, delay or cancel projects; potential inability to replace projects that are completed, canceled or reduced; continuing DDS segment revenue concentration in a limited number of customers; our dependency on content providers in our Agility segment; the Company’s ability to achieve revenue and growth targets; difficulty in integrating and deriving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; a continued downturn in or depressed market conditions; changes in external market factors; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; our use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time on our filings with the Securities and Exchange Commission.

Current wording

These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, impacts resulting from ongoing geopolitical conflicts, including between Russia and the Ukraine, Hamas’ attack against Israel and the ensuing conflict and increased hostilities between Iran and Israel; investments in large language models; that contracts may be terminated by customers; projected or committed volumes of work may not materialize; pipeline opportunities and customer discussions which may not materialize into work or expected volumes of work; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; the ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services; continuing reliance on project-based work in the Digital Data Solutions (DDS) segment and the primarily at-will nature of such contracts and the ability of these customers to reduce, delay or cancel projects; potential inability to replace projects that are completed, canceled or reduced; continuing DDS segment revenue concentration in a limited number of customers; our dependency on content providers in our Agility segment; the Company’s ability to achieve revenue and growth targets; difficulty in integrating and deriving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; a continued downturn in or depressed market conditions; changes in external market factors; the potential effects of U.S. monetary policy, including the interest rate policies of the Federal Reserve; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; our use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time on our filings with the Securities and Exchange Commission.

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 months ended March 31, 2024 and 2023 (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, 2024 and 2023 (in thousands).

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 (loss) for the three months ended March 31, 2024 and 2023 (in thousands).

Current wording

The following table contains a reconciliation of U.S. GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA (loss) for the three and six-month periods ended June 30, 2024 and 2023 (in thousands).

Previous wording

Revenues from the Agility segment were $4.9 million and $4.2 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $0.7 million or approximately 17%. The increase was principally attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Current wording

Revenues from the Agility segment were $5.2 million and $4.4 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $0.8 million or approximately 18%. The increase was principally attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Previous wording

One customer in the DDS segment generated approximately 24% of the Company’s total revenues for the three months ended March 31, 2024. Two customers in the DDS segment each generated approximately 11% of the Company’s total revenues for the three months ended March 31, 2023. No other customer accounted for 10% or more of total revenues during these periods. Further, for the three months ended March 31, 2024 and 2023, revenues from non-U.S. customers accounted for 33% and 39% respectively, of the Company’s total revenues.

Current wording

One customer in the DDS segment generated approximately 38% of the Company’s total revenues for the three months ended June 30, 2024. Another customer in the DDS segment generated approximately 10% of the Company’s total revenues for the three months ended June 30, 2023. No other customer accounted for 10% or more of total revenues during these periods. Further, for the three months ended June 30, 2024 and 2023, revenues from non-U.S. customers accounted for 27% and 44% respectively, of the Company’s total revenues.

Previous wording

Direct operating costs were $16.9 million and $12.9 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $4.0 million or 31%. The cost increase was primarily due to higher headcount to support revenues from two new customers, offset in part by the effect of our cost optimization initiatives in 2023 which resulted in cost efficiencies in all segments. The increase in direct operating costs includes a net increase of $4.1 million from direct and indirect labor related costs primarily on account of labor costs for new hires and salary increases; higher depreciation and amortization of capitalized developed software of $0.2 million; higher content costs of $0.1 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $0.4 million. Direct operating costs as a percentage of total revenues were 64% and 69% for the three months ended March 31, 2024 and 2023, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in the DDS and Agility segments, lower direct operating costs in the Synodex and Agility segments, offset in part by higher direct operating costs in the DDS segment.

Current wording

Direct operating costs were $23.2 million and $12.7 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $10.5 million or 83%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes $6.7 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; higher recruitment fees of $3.6 million; higher depreciation and amortization of capitalized developed software of $0.3 million; higher subscription costs of $0.2 million; higher content costs of $0.2 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $0.5 million. Direct operating costs as a percentage of total revenues were 71% and 64% for the three months ended June 30, 2024 and 2023, respectively. The increase in direct operating cost as a percentage of total revenues was primarily due to higher revenues in the DDS and Agility segments and lower direct operating costs in the Synodex segment; offset in part by higher direct operating costs in the DDS and Agility segments.

Previous wording

Direct operating costs for the Synodex segment were $1.5 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $0.2 million or 12%. The cost decrease was primarily due to the effect of our cost optimization initiatives in 2023 which resulted in cost efficiencies for the Synodex segment. The reduction was primarily due to lower direct labor costs of $0.1 million and a decrease in other direct operating costs of $0.1 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were 79% and 89% for the three months ended March 31, 2024 and 2023, respectively. The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to a decrease in direct operating costs.

Current wording

Direct operating costs for the Synodex segment were $1.5 million and $1.8 million for the three months ended June 30, 2024 and 2023, respectively, a decrease of $0.3 million or 17%. The decrease in direct operating costs was primarily due to the effect of the cost optimization initiatives completed in 2023 which resulted in cost efficiencies for the Synodex segment. The reduction was primarily due to lower direct labor costs of $0.3 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were 75% and 86% for the three months ended June 30, 2024 and 2023, respectively. The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to a decrease in direct operating costs, offset in part by lower revenues.

Previous wording

Adjusted gross profit for the DDS segment was $7.0 million and $4.4 million for the three months ended March 31, 2024 and 2023, respectively. The $2.6 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 35% for each of the three-month periods ended March 31, 2024 and 2023.

Current wording

Gross profit for the DDS segment was $6.1 million and $4.4 million for the three months ended June 30, 2024 and 2023, respectively. The $1.7 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 24% and 33% for the three months ended June 30, 2024 and 2023, respectively. The decrease in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Selling and administrative expenses for the DDS segment were $5.8 million and $4.5 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $1.3 million or 29%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $0.7 million, primarily on account of salary increases and incentives awarded due to higher revenues, higher professional fees of $0.4 million; and an increase in other selling and administrative expenses of $0.2 million. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were 29% and 35% for each of the three-month periods ended March 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher selling and administrative expenses.

Current wording

Selling and administrative expenses for the DDS segment were $6.2 million and $4.8 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $1.4 million or 29%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $1.0 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; higher professional fees of $0.3 million and an increase in other selling and administrative expenses of $0.2 million; offset in part by lower provisions for credit losses of $0.1 million. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were 24% and 36% for the three months ended June 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher selling and administrative expenses.

Previous wording

Selling and administrative expenses for the Synodex segment were $0.1 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $0.1 million or 50%. The decrease in selling and administrative expenses was primarily attributable to lower professional fees of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 5% and 11% for the three months ended March 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable to lower selling and administrative expenses.

Current wording

Selling and administrative expenses for the Synodex segment were $0.1 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively, a decrease of $0.1 million or 50%. The decrease in selling and administrative expenses was primarily attributable to lower labor costs of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 5% and 9% for the three months ended June 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable to lower selling and administrative expenses, offset in part by lower revenues.

Previous wording

We recorded a provision for income taxes of $0.4 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We recorded a provision for income taxes of $0.3 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Net income for the Synodex segment was $0.3 million and breakeven for the three months ended March 31, 2024 and 2023, respectively. The $0.3 million change was due to lower direct operating costs and selling and administrative expenses in the current quarter.

Current wording

Net income for the Synodex segment was $0.3 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively. The $0.2 million increase was due to lower direct operating costs and selling and administrative expenses, offset in part by lower revenues in the current quarter.

Previous wording

Gross profit for the DDS segment was $6.6 million and $4.2 million for the three months ended March 31, 2024 and 2023, respectively. The $2.4 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 33% for each of the three-month periods ended March 31, 2024 and 2023.

Current wording

Adjusted gross profit for the DDS segment was $6.6 million and $4.7 million for the three months ended June 30, 2024 and 2023, respectively. The $1.9 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 26% and 36% for the three months ended June 30, 2024 and 2023, respectively. The decrease in the adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Adjusted gross profit for the Synodex segment was $0.5 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. The $0.1 million increase in adjusted gross profit in the Synodex segment was due to lower direct operating costs. Adjusted gross margin for the Synodex segment was 29% and 20% for the three months ended March 31, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs.

Current wording

Adjusted gross profit for the Synodex segment was $0.6 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively. The $0.1 million increase in adjusted gross profit in the Synodex segment was due to lower direct operating costs, offset in part by lower revenues. Adjusted gross margin for the Synodex segment was 31% and 22% for the three months ended June 30, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs, offset in part by lower revenues.

Previous wording

Adjusted EBITDA for the Synodex segment was $0.5 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. The $0.3 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income.

Current wording

Adjusted EBITDA for the Synodex segment was $0.5 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively. The $0.2 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income in this quarter.

Previous wording

Direct operating costs for the Agility segment were $2.2 million and $2.6 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $0.4 million or 15%. The cost decrease was primarily due to the effect of our cost optimization initiatives in 2023 which resulted in cost efficiencies for the Agility segment. The reduction was primarily due to lower direct labor costs of $0.5 million including severance and a decrease in other direct operating costs of $0.1 million; offset in part by higher depreciation and amortization of capitalized developed software of $0.1 million and higher content costs of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were 45% and 62% for the three months ended March 31, 2024 and 2023, respectively. The decrease in direct operating costs of the Agility segment as a percentage of Agility segment revenues was due to higher revenues, and lower direct operating costs.

Current wording

Direct operating costs for the Agility segment were $4.6 million and $4.7 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $0.1 million or 2%. The decrease in direct operating costs was primarily due to the effect of our cost optimization initiatives completed in 2023 which resulted in cost efficiencies for the Agility segment. The reduction was primarily due to lower direct labor costs of $0.6 million including severance and a favorable impact of foreign exchange rate fluctuations of $0.1 million; offset in part by higher content costs of $0.4 million and higher depreciation and amortization of capitalized developed software of $0.1 million and an increase in other direct operating costs of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were 46% and 55% for the six months ended June 30, 2024 and 2023, respectively. The decrease in direct operating costs of the Agility segment as a percentage of Agility segment revenues was due to higher revenues and lower direct operating costs.

Previous wording

Gross profit for the Agility segment was $2.7 million and $1.6 million for the three months ended March 31, 2024 and 2023, respectively. The $1.1 million increase in gross profit for the Agility segment was primarily due to higher revenues and lower direct operating costs. Gross margin for the Agility segment was 54% and 38% for the three months ended March 31, 2024 and 2023, respectively. The increase in gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues and lower direct operating costs.

Current wording

Gross profit for the Agility segment was $5.5 million and $3.9 million for the six months ended June 30, 2024 and 2023, respectively. The $1.6 million increase in gross profit for the Agility segment was primarily due to higher revenues and lower direct operating costs. Gross margin for the Agility segment was 54% and 45% for the six months ended June 30, 2024 and 2023, respectively. The increase in gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues and lower direct operating costs.

Previous wording

Selling and administrative expenses were $8.3 million and $7.8 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $0.5 million or 6%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues, offset in part by the effect of our cost optimization initiatives in 2023 which resulted in cost efficiencies in all segments. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $0.2 million, primarily on account of salary increases and incentives awarded due to higher revenues, offset in part by lower severance; higher professional fees of $0.3 million; an unfavorable impact of foreign exchange rate fluctuations of $0.1 million and an increase in other selling and administrative expenses of $0.1 million; offset in part by lower provisions for credit losses of $0.2 million. Selling and administrative expenses as a percentage of total revenues were 31% and 41% for the three months ended March 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in the DDS and Agility segments and lower selling and administrative expenses in the Synodex and Agility segments, offset in part by higher selling and administrative expenses in the DDS segment.

Current wording

Selling and administrative expenses were $17.3 million and $15.4 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $1.9 million or 12%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $1.0 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; offset in part by lower severance; higher professional fees of $0.6 million; higher expenses for marketing related activities of $0.2 million; an unfavorable impact of foreign exchange rate fluctuations of $0.1 million; and an increase in other selling and administrative expenses of $0.2 million; offset in part by lower provisions for credit losses of $0.2 million. Selling and administrative expenses as a percentage of total revenues were 29% and 40% for the six months ended June 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in the DDS and Agility segments and lower selling and administrative expenses in the Synodex and Agility segments, offset in part by higher selling and administrative expenses in the DDS segment.

Previous wording

Selling and administrative expenses for the Agility segment were $2.4 million and $3.1 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $0.7 million or 23%. The decrease in selling and administrative expenses was primarily due to the effect of our cost optimization initiatives in 2023 which resulted in cost efficiencies for the Agility segment. The decrease in selling and administrative expenses includes lower selling and administrative labor and related expenses of $0.5 million, primarily on account of headcount reduction and severance; lower provision for credit losses of $0.2 million; and a decrease in other selling and administrative expenses of $0.1 million; offset in part by an unfavorable impact of foreign exchange rate fluctuations of $0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were 49% and 74% for the three months ended March 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher revenues and lower selling and administrative expenses.

Current wording

Selling and administrative expenses for the Agility segment were $5.1 million and $5.7 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $0.6 million or 11%. The decrease in selling and administrative expenses was primarily due to the effect of our cost optimization initiatives completed in 2023 which resulted in cost efficiencies for the Agility segment. The decrease in selling and administrative expenses includes lower selling and administrative labor and related expenses of $0.4 million, primarily on account of headcount reduction and severance; lower provision for credit losses of $0.1 million; and a decrease in other selling and administrative expenses of $0.2 million; offset in part by an unfavorable impact of foreign exchange rate fluctuations of $0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were 50% and 66% for the six months ended June 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher revenues and lower selling and administrative expenses.

Previous wording

Tax-related charges primarily consisted of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. The estimated annual effective tax rate applied to the three month period ended March 31, 2024, differs from the US federal statutory rate of 21% principally due to income earned outside the U.S. which is subject to the U.S. tax on global intangible low taxed income (“GILTI”), provision on uncertain tax positions, true up adjustment on prior year tax provision and other net increases, offset in part by a reduction in the valuation allowance and foreign exchange gains and losses.

Current wording

Income taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations. The estimated annual effective tax rate applied to the six-month period ended June 30, 2024, differs from the U.S. federal statutory rate of 21% principally due to income earned outside the United States which is subject to the U.S. tax on global intangible low taxed income (“GILTI”), tax effects of foreign operations, changes in valuation allowance, provision on uncertain tax positions, and other net increases; offset in part by a reduction in foreign exchange gains and losses, deemed interest and true up adjustment on prior year tax provision.

Previous wording

We had a net income of $1.0 million and a net loss of $2.1 million during the three months ended March 31, 2024 and 2023, respectively. The $3.1 million change was a result of higher revenues in the DDS and Agility segments and lower selling and administrative expenses and direct operating costs in the Synodex and Agility segments, offset in part by higher direct operating costs and selling and administrative expenses, a higher income tax provision, and interest income for the DDS segment of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case in the current quarter.

Current wording

We had a net income of $1.0 million and a net loss of $2.9 million during the six months ended June 30, 2024 and 2023, respectively. The $3.9 million change was a result of higher revenues in the DDS and Agility segments and lower selling and administrative expenses and direct operating costs in the Synodex and Agility segments and interest income of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case; offset in part by higher direct operating costs and selling and administrative expenses in the DDS segment, and a higher income tax provision.

Previous wording

Net income for the DDS segment was $0.4 million and a loss of $0.6 million for the three months ended March 31, 2024 and 2023, respectively. The $1.0 million change was primarily attributable to higher revenues, offset in part by higher direct operating costs and selling and administrative expenses, a higher income tax provision, and interest income of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case in the current quarter.

Current wording

The DDS segment was at breakeven and a net loss of $1.2 million for the six months ended June 30, 2024 and 2023, respectively. The $1.2 million change was primarily attributable to higher revenues, and interest income of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case in the period; offset in part by higher direct operating costs and selling and administrative expenses, and a higher income tax provision.

Previous wording

Net income for the Agility segment was $0.3 million and a net loss of $1.5 million for the three months ended March 31, 2024 and 2023. The $1.8 million change was due to higher revenues, lower selling and administrative costs, and lower direct operating costs in the current quarter.

Current wording

Net income for the Agility segment was $0.4 million and a net loss of $1.8 million for the six months ended June 30, 2024 and 2023. The $2.2 million change was due to higher revenues, lower selling and administrative costs, and lower direct operating costs in the period.

Previous wording

Adjusted gross profit for the Agility segment was $3.5 million and $2.6 million for the three months ended March 31, 2024 and 2023, respectively. The $0.9 million increase in adjusted gross profit for the Agility segment was due to higher revenues and lower direct operating costs. Adjusted gross margin for the Agility segment was 70% and 62% for the three months ended March 31, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues and lower direct operating costs.

Current wording

Adjusted gross profit for the Agility segment was $7.1 million and $5.6 million for the six months ended June 30, 2024 and 2023, respectively. The $1.5 million increase in adjusted gross profit for the Agility segment was due to higher revenues and lower direct operating costs. Adjusted gross margin for the Agility segment was 70% and 65% for the six months ended June 30, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues and lower direct operating costs.

Previous wording

Adjusted EBITDA was $3.8 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively. The $3.0 million increase in Adjusted EBITDA was due to the resulting net income in the current quarter compared to the net loss in the comparative quarter, a higher income tax provision, higher depreciation and amortization and stock-based compensation, offset in part by lower non-recurring severance.

Current wording

Adjusted EBITDA was $6.6 million and $2.4 million for the six months ended June 30, 2024 and 2023, respectively. The $4.2 million increase in Adjusted EBITDA was due to the net income in the current period compared to the net loss in the comparative period, a higher income tax provision, higher depreciation and amortization and stock-based compensation, offset in part by lower non-recurring severance.

Previous wording

Adjusted EBITDA for the Agility segment was $1.1 million and a loss of $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The $1.2 million change in Adjusted EBITDA in the Agility segment was due to the resulting net income in the current quarter compared to the net loss in the comparative quarter, offset in part by lower non-recurring severance.

Current wording

Adjusted EBITDA for the Agility segment was $2.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively. The $1.8 million change in Adjusted EBITDA in the Agility segment was due to the net income in the current period compared to the net loss in the comparative period, higher depreciation and amortization, offset in part by lower non-recurring severance.

Previous wording

On March 31, 2024, we had cash and cash equivalents of $19.0 million, of which $8.1 million was held by our foreign subsidiaries, and $10.9 million was held in the United States. Despite the passage of the new tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of March 31, 2024, to indefinitely reinvest the overseas funds in our foreign subsidiaries due to the withholding tax that we would have to incur on the actual remittances.

Current wording

On June 30, 2024, we had cash and cash equivalents of $16.5 million, of which $6.6 million was held by our foreign subsidiaries, and $9.9 million was held in the United States. Despite the passage of the new tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of June 30, 2024, to indefinitely reinvest the overseas funds in our foreign subsidiaries due to the withholding tax that we would have to incur on the actual remittances.

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, 2024, we had working capital of approximately $11.6 million, as compared to working capital of approximately $9.1 million as of December 31, 2023. The increase in working capital is due to increased collections from revenues in the prior quarter, the refund of a court fee deposit for our Indian subsidiary’s service tax case, and an increase in our operating liabilities during the three months ended March 31, 2024.

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, 2024, we had working capital of approximately $12.0 million, as compared to working capital of approximately $9.1 million as of December 31, 2023. The increase in working capital is due to increased collections from higher revenues and proceeds from stock option exercises in the period.

Previous wording

On April 4, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender, and Innodata Inc., Innodata Synodex, LLC, Innodata docGenix, LLC and Agility PR Solutions LLC as co-borrowers. On July 21, 2023, Innodata Services LLC signed a Joinder Agreement to join the Credit Agreement as a co-borrower. The Credit Agreement provides for a secured revolving line of credit (the “Revolving Credit Facility”) up to an amount equal to the lesser of the borrowing base and $10.0 million with a maturity date of April 4, 2026. The Revolving Credit Facility’s borrowing base is calculated in accordance with the terms of the Credit Agreement and on the basis of 85% of eligible accounts, 85% of eligible foreign accounts up to $2.0 million and certain other reserves and adjustments. As of March 31, 2024, such borrowing base calculation equaled approximately $9.2 million. The Credit Agreement contains a financial covenant that requires the Borrowers, on a consolidated basis, to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00 by December 31, 2024. Except as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to the daily simple secured overnight financing rate (“SOFR”) plus 2.25%. We did not utilize the Revolving Credit Facility during the three months ended March 31, 2024 and through the date of filing of this Report.

Current wording

On April 4, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender, and Innodata Inc., Innodata Synodex, LLC, Innodata docGenix, LLC and Agility PR Solutions LLC as co-borrowers. On July 21, 2023, Innodata Services LLC signed a Joinder Agreement to join the Credit Agreement as a co-borrower. The Credit Agreement provides for a secured revolving line of credit (the “Revolving Credit Facility”) up to an amount equal to the lesser of the borrowing base and $10.0 million with a maturity date of April 4, 2026. The Revolving Credit Facility’s borrowing base is calculated in accordance with the terms of the Credit Agreement and on the basis of 85% of eligible accounts, 85% of eligible foreign accounts up to $2.0 million and certain other reserves and adjustments. As of June 30, 2024, such borrowing base calculation equaled approximately $10.0 million. The Credit Agreement contains a financial covenant that requires the Borrowers, on a consolidated basis, to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00 by December 31, 2024. Except as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to the daily simple secured overnight financing rate (“SOFR”) plus 2.25%. We did not utilize the Revolving Credit Facility during the six months ended June 30, 2024 and through the date of filing of this Report.

Previous wording

Cash provided by our operating activities for the three months ended March 31, 2024 was $6.8 million resulting from our net income of $1.0 million, adjusted for non-cash expenses of $2.6 million and an increase in working capital of $3.2 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, 2024 was $6.3 million resulting from net income of $1.0 million, adjusted for non-cash expenses of $5.1 million and an increase in working capital of $0.2 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, 2023 was $1.8 million resulting from our net loss of $2.1 million, adjusted for non-cash expenses of $2.3 million and an increase in working capital of $1.6 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, 2023 was $4.2 million resulting from our net loss of $2.9 million, adjusted for non-cash expenses of $4.6 million and an increase in working capital of $2.5 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Previous wording

For the three months ended March 31, 2024 and 2023, cash used in our investing activities was $1.3 million and $1.7 million, respectively. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the three months ended March 31, 2024 amounting to $1.3 million consisted of $0.5 million for the DDS segment, $0.5 million for the Agility segment and $0.3 million for the Synodex segment.

Current wording

For the six months ended June 30, 2024 and 2023, cash used in our investing activities was $4.1 million and $2.5 million, respectively. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the six months ended June 30, 2024 amounting to $4.1 million consisted of $2.5 million for the DDS segment, $1.0 million for the Agility segment and $0.6 million for the Synodex segment.

Previous wording

Cash provided by financing activities for the three months ended March 31, 2023 was primarily from proceeds of stock option exercises of $0.3 million.

Current wording

Cash provided by financing activities for the six months ended June 30, 2023 was $2.0 million primarily from proceeds of stock option exercises of $2.2 million, offset in part by payment of long-term obligations of $0.2 million.