INNODATA INC

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; 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.

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 Ukraine, Hamas’ attack against Israel and the ensuing conflict and increased hostilities between Hezbollah and Israel and 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; our DDS segment’s 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 in our filings with the Securities and Exchange Commission.

Previous wording

Innodata Inc. (Nasdaq: INOD) (including its subsidiaries, the “Company,” “Innodata,” “we,” “us” or “our”) is a leading data engineering company. Our mission is to help the world’s most prestigious companies deliver the promise of ethical, high-performing artificial intelligence (“AI”), which we believe will contribute to a safer and more prosperous world.

Current wording

Innodata Inc. (Nasdaq: INOD) (including its subsidiaries, the “Company,” “Innodata,” “we,” “us” or “our”) is a global data engineering company. We believe that data and Artificial Intelligence (“AI”) are inextricably linked. Our mission is to help the world’s leading technology companies and enterprises drive Generative AI / AI innovation, which we believe will contribute to a safer and more prosperous world.

Previous wording

AI holds the promise that computers can perceive and understand the world, enabling products and services that would have been previously unimaginable and impossible with traditional coding. AI learns from data, and the highest-performing AI will have learned from the highest-quality data. We believe that we can contribute meaningfully by harnessing our capabilities, honed over 30+ years, in collecting and annotating data at scale with consistency and high accuracy.

Current wording

AI holds the promise that computers can perceive and understand the world, enabling products and services that would have been previously unimaginable and impossible with traditional coding. AI learns from data, and the highest-performing AI will have learned from the highest-quality data. We believe that we can contribute meaningfully by harnessing our capabilities, honed over 35+ years, in collecting and annotating data at scale with consistency and high accuracy.

Previous wording

We developed our capabilities and honed our approaches progressively over the last 30+ years creating high-quality data for many of the world’s most demanding information companies. Approximately eight years ago, we formed Innodata Labs, a research and development center, to research, develop and apply machine learning and emerging AI to our large-scale, human-intensive data operations. In 2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several fast-growing new markets and help companies use AI/ML to drive performance benefits and business insights.

Current wording

We developed our capabilities and honed our approaches progressively over the last 35+ years creating high-quality data for many of the world’s most demanding information companies. Approximately eight years ago, we formed Innodata Labs, a research and development center, to research, develop and apply machine learning and emerging AI to our large-scale, human-intensive data operations. In 2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several fast-growing new markets and help companies use AI and machine learning (“ML”) to drive performance benefits and business insights.

Previous wording

We utilize a variety of leading third-party tools, proprietary tools and customer tools. For text annotation, we use our proprietary data annotation platform that incorporates AI to reduce costs while improving consistency and quality of output. Our proprietary data annotation platform features auto-tagging capabilities that apply to both classical and generative AI tasks. The platform encapsulates many of the innovations we conceived of in the course of its 30+ year history of creating high-quality data.

Current wording

We utilize a variety of leading third-party tools, proprietary tools and customer tools. For text annotation, we use our proprietary data annotation platform that incorporates AI to reduce costs while improving consistency and quality of output. Our proprietary data annotation platform features auto-tagging capabilities that apply to both classical and generative AI tasks. The platform encapsulates many of the innovations we conceived of in the course of its 35+ year history of creating high-quality data.

Previous wording

We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP, plus depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance and other one-time costs.

Current wording

We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP, plus depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance and other one-time costs included within direct operating cost.

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 and six-month periods ended June 30, 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 nine-month periods ended September 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 and six-month periods ended June 30, 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 for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands).

Previous wording

Revenues from the DDS segment were $25.4 million and $13.2 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $12.2 million or approximately 93%. The increase was primarily attributable to higher volume from an existing customer.

Current wording

Revenues from the DDS segment were $44.7 million and $16.1 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $28.6 million or approximately 178%. The increase was primarily attributable to higher volume from an existing customer.

Previous wording

Revenues from the Synodex segment were $2.0 million and $2.1 million for the three months ended June 30, 2024 and 2023, respectively, a decrease of $0.1 million or 6%. The decrease was primarily attributable to lower volume from existing customers.

Current wording

Revenues from the Synodex segment were $1.9 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $0.2 million or 12%. The increase was primarily attributable to higher volume from existing customers.

Previous 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.

Current wording

Revenues from the Agility segment were $5.6 million and $4.4 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $1.2 million or approximately 27%. 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 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.

Current wording

One customer in the DDS segment generated approximately 59% and 11% of the Company’s total revenues for the three months ended September 30, 2024 and 2023, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. customers accounted for 17% and 40% of the Company’s total revenues for the three months ended September 30, 2024 and 2023, respectively.

Previous 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.

Current wording

Direct operating costs were $30.9 million and $13.9 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $17.0 million or 122%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes $15.6 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; an unfavorable impact of foreign exchange rate fluctuations of $0.6 million, higher depreciation and amortization of capitalized developed software of $0.3 million; higher AWS and other cloud subscriptions of $0.3 million; and higher content costs of $0.2 million. Direct operating costs as a percentage of total revenues were 59% and 63% for the three months ended September 30, 2024 and 2023, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in all 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 $1.8 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.

Current wording

Direct operating costs for the Synodex segment were $1.5 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively, a decrease of $0.2 million or 12%. 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 $0.2 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were 79% and 100% for the three months ended September 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 higher revenues and a decrease in direct operating costs.

Previous wording

Selling and administrative expenses were $9.0 million and $7.6 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $1.4 million or 18%. 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 provision for credit losses of $0.1 million. Selling and administrative expenses as a percentage of total revenues were 28% and 39% for the three 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 segment, offset in part by higher selling and administrative expenses in the DDS and Agility segments.

Current wording

Selling and administrative expenses were $9.9 million and $7.4 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $2.5 million or 34%. 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 $1.5 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; higher professional fees of $0.8 million; and an increase in other selling and administrative expenses of $0.3 million; offset in part by lower provision for credit losses of $0.1 million. Selling and administrative expenses as a percentage of total revenues were 19% and 33% for the three months ended September 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 all segments and lower selling and administrative expenses in the Synodex segment, offset in part by higher selling and administrative expenses in the DDS and Agility segments.

Previous 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.

Current wording

Selling and administrative expenses for the Synodex segment were $0.1 million and $0.2 million for the three months ended September 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 12% for the three months ended September 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 due to higher revenues and lower selling and administrative expenses.

Previous 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.

Current wording

We recorded a benefit from income taxes of $5.9 million and provision for income taxes of $0.4 million for the three months ended September 30, 2024 and 2023, respectively. The higher tax benefit recognized is primarily due to the determination made by the Company in the third quarter of 2024 that it was more likely than not that the Company would be able to realize the benefit of a portion of the deferred tax assets in the United States, resulting from the release of the valuation allowance on our U.S. deferred tax assets.

Previous 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.

Current wording

Adjusted gross profit for the Synodex segment was $0.6 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The $0.5 million increase in adjusted gross profit in the Synodex segment was due to higher revenues and lower direct operating costs. Adjusted gross margin for the Synodex segment was 31% and 9% for the three months ended September 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 higher revenues and lower direct operating costs.

Previous wording

Adjusted EBITDA was $2.8 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively. The $1.2 million increase in Adjusted EBITDA was due to the lower net loss in this quarter, a higher income tax provision, and higher depreciation and amortization.

Current wording

Adjusted EBITDA was $13.9 million and $3.2 million for the three months ended September 30, 2024 and 2023, respectively. The $10.7 million increase in Adjusted EBITDA was due to higher net income and higher depreciation and amortization, offset in part by a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets, lower stock-based compensation and interest expense in the current quarter.

Previous wording

Gross profit for the Synodex segment was $0.9 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively. The $0.4 million increase in gross profit for the Synodex segment was primarily due to lower direct operating costs, offset in part by lower revenues. Gross margin for the Synodex segment was 22% and 13% for the six months ended June 30, 2024 and 2023, respectively. The increase in 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.

Current wording

Adjusted EBITDA for the Synodex segment was $0.5 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The $0.4 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income in the current quarter.

Previous wording

Revenues from the DDS segment were $45.1 million and $25.9 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $19.2 million or approximately 74%. The increase was primarily attributable to higher volume from an existing customer.

Current wording

Revenues from the DDS segment were $89.8 million and $42.0 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $47.8 million or approximately 114%. The increase was primarily attributable to higher volume from an existing customer.

Previous wording

Revenues from the Synodex segment were $3.9 million and $4.0 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $0.1 million or approximately 3%. The decrease was primarily attributable to lower volume from existing customers.

Current wording

Revenues from the Synodex segment were $5.8 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $0.1 million or approximately 2%. The increase was primarily attributable to higher volume from existing customers.

Previous wording

Revenues from the Agility segment were $10.1 million and $8.6 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $1.5 million or approximately 17%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Current wording

Revenues from the Agility segment were $15.7 million and $13.0 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $2.7 million or approximately 21%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Previous wording

One customer in the DDS segment generated approximately 31% of the Company’s total revenues for the six months ended June 30, 2024. Another two customers in the DDS segment generated approximately 10.7% and 10.6% of the Company’s total revenues for the six months ended June 30, 2023, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. customers accounted for 29% and 42% of the Company’s total revenues for the six months ended June 30, 2024 and 2023, respectively.

Current wording

One customer in the DDS segment generated approximately 44% of the Company’s total revenues for the nine months ended September 30, 2024. Two other customers in the DDS segment generated approximately 10.2% and 10 % of the Company’s total revenues for the nine months ended September 30, 2023, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. customers accounted for 24% and 42% of the Company’s total revenues for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Direct operating costs were $40.1 million and $25.6 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $14.5 million or 57%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes a net increase of $10.8 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 $0.4 million; higher content costs of $0.4 million; higher subscription costs of $0.3 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $1.0 million. Direct operating costs as a percentage of total revenues were 68% and 66% for the six 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 and Agility segments, offset in part by higher direct operating costs in the DDS segment.

Current wording

Direct operating costs were $71.0 million and $39.5 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $31.5 million or 80%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes a net increase of $26.4 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; higher recruitment fees of $3.5 million; higher depreciation and amortization of capitalized developed software of $0.7 million; higher content costs of $0.6 million; higher AWS and other cloud subscriptions of $0.5 million and an increase in other direct operating costs of $0.1 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $0.3 million. Direct operating costs as a percentage of total revenues were 64% and 65% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in all 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

Gross profit for the Agility segment was $2.8 million and $2.2 million for the three months ended June 30, 2024 and 2023, respectively. The $0.6 million increase in gross profit for the Agility segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the Agility segment was 55% and 52% for the three 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, offset in part by higher direct operating costs.

Current wording

Direct operating costs for the Agility segment were $6.9 million and $6.7 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $0.2 million or 3%. The increase was primarily due to higher content costs of $0.6 million, offset in part by lower direct labor costs of $0.4 million including severance, primarily due to the effect of our cost optimization initiatives completed in 2023. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were 44% and 52% for the nine months ended September 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, offset in part by higher direct operating costs.

Previous wording

Gross profit was $9.3 million and $6.9 million for the three months ended June 30, 2024 and 2023, respectively. The $2.4 million increase in gross profit was primarily due to higher revenues in the DDS and Agility segments and lower direct operating costs for the Synodex segments, offset in part by higher direct operating costs in the DDS and Agility segments. Gross margin was 29% and 35% for the three months ended June 30, 2024 and 2023, respectively. The decrease in gross margin was primarily due to higher revenues in the DDS and Agility segments and lower direct operating costs for the Synodex segment; offset in part by higher direct operating costs in the DDS and Agility segments.

Current wording

Gross profit was $40.3 million and $21.1 million for the nine months ended September 30, 2024 and 2023, respectively. The $19.2 million increase in gross profit was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Gross margin was 36% and 35% for the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments.

Previous wording

Gross profit 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 gross profit for the Synodex segment was primarily due to lower direct operating costs, offset in part by lower revenues. Gross margin for the Synodex segment was 23% and 14% for the three months ended June 30, 2024 and 2023, respectively. The increase in 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.

Current wording

Gross profit for the Synodex segment was $1.3 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively. The $0.8 million increase in gross profit for the Synodex segment was primarily due to lower direct operating costs and higher revenues. Gross margin for the Synodex segment was 23% and 9% for the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs and higher revenues.

Previous 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.

Current wording

Selling and administrative expenses were $27.2 million and $22.8 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $4.4 million or 19%. 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 $2.6 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; offset in part by lower severance; higher professional fees of $1.4 million; higher expenses for marketing related activities 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 $0.3 million; offset in part by lower provisions for credit losses of $0.3 million. Selling and administrative expenses as a percentage of total revenues were 24% and 38% for the nine months ended September 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 all 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 Synodex segment were $0.3 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $0.1 million or 25%. The decrease in selling and administrative expenses was primarily attributable to lower selling and administrative labor costs of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 8% and 10% for the six 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.

Current wording

Selling and administrative expenses for the Synodex segment were $0.3 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $0.2 million or 40%. The decrease in selling and administrative expenses was primarily attributable to lower selling and administrative labor costs of $0.1 million and a decrease in other selling and administrative expenses 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 nine months ended September 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 and higher revenues.

Previous 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.

Current wording

Selling and administrative expenses for the Agility segment were $7.9 million and $8.1 million for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $0.2 million or 2%. 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 $0.2 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 $0.2 million; offset in part by an increase in marketing related activities of $0.2 million; higher professional fees of $0.1 million and 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 62% for the nine months ended September 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

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.

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 nine-month period ended September 30, 2024, differs from the U.S. federal statutory rate of 21% principally due to the release of the U.S. valuation allowance, state income taxes and provision on uncertain tax positions.

Previous 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.

Current wording

We had a net income of $18.4 million and a net loss of $2.6 million during the nine months ended September 30, 2024 and 2023, respectively. The $21.0 million change was a result of higher revenues in all segments and lower selling and administrative expenses and direct operating costs in the Synodex segment, a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets 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 for the period.

Previous 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.

Current wording

The DDS segment had a net income of $16.5 million and a net loss of $0.8 million for the nine months ended September 30, 2024 and 2023, respectively. The $17.3 million change was primarily attributable to higher revenues, a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets 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 for the period.

Previous wording

Adjusted EBITDA for the Synodex segment was $1.0 million and $0.6 million for the six months ended June 30, 2024 and 2023, respectively. The $0.4 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income for the period.

Current wording

Net income for the Synodex segment was $1.0 million and breakeven for the nine months ended September 30, 2024 and 2023, respectively. The $1.0 million change was due to lower direct operating costs and selling and administrative expenses and higher revenues for the period.

Previous 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.

Current wording

Net income for the Agility segment was $0.9 million and a net loss of $1.8 million for the nine months ended September 30, 2024 and 2023. The $2.7 million change was due to higher revenues for the period.

Previous wording

Adjusted gross profit was $10.8 million and $8.1 million for the three months ended June 30, 2024 and 2023, respectively. The $2.7 million increase in adjusted gross profit was primarily due to higher revenues in the DDS and Agility segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Adjusted gross margin was 33% and 41% for the three months ended June 30, 2024 and 2023, respectively. The decrease in adjusted gross margin was primarily due to higher revenues in the DDS and Agility segments and lower direct operating costs for the Synodex segment; offset in part by higher direct operating costs in the DDS and Agility segments.

Current wording

Adjusted gross profit was $44.7 million and $25.1 million for the nine months ended September 30, 2024 and 2023, respectively. The $19.6 million increase in adjusted gross profit was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Adjusted gross margin was 40% and 41% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in adjusted gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments.

Previous wording

Adjusted gross profit for the Synodex segment was $1.1 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively. The $0.3 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 30% and 21% for the six 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.

Current wording

Adjusted gross profit for the Synodex segment was $1.7 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. The $0.7 million increase in adjusted gross profit in the Synodex segment was due to lower direct operating costs and higher revenues. Adjusted gross margin for the Synodex segment was 30% and 17% for the nine months ended September 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 and higher revenues.

Previous wording

Adjusted gross profit for the Agility segment was $3.6 million and $3.0 million for the three months ended June 30, 2024 and 2023, respectively. The $0.6 million increase in adjusted gross profit for the Agility segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the Agility segment was 70% and 68% for the three 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, offset in part by higher direct operating costs.

Current wording

Adjusted gross profit for the Agility segment was $11.1 million and $8.8 million for the nine months ended September 30, 2024 and 2023, respectively. The $2.3 million increase in adjusted gross profit for the Agility segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the Agility segment was 71% and 68% for the nine months ended September 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, offset in part by higher direct operating costs.

Previous 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.

Current wording

Adjusted EBITDA was $20.4 million and $5.6 million for the nine months ended September 30, 2024 and 2023, respectively. The $14.8 million increase in Adjusted EBITDA 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 a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets, lower non-recurring severance, and lower stock-based compensation for the period.