Earnings call transcript: Innodata’s Q2 2025 earnings beat EPS estimates

Innodata Inc. reported its Q2 2025 earnings, revealing a notable beat on earnings per share (EPS) expectations, while revenue fell short of forecasts. The company’s EPS was $0.20, surpassing the forecast of $0.18, representing an 11.11% surprise. Revenue came in at $58.1 million, slightly below the anticipated $59.42 million, marking a 2.22% miss. Despite the revenue shortfall, the stock surged 13.22% to $50.20 in after-hours trading. According to InvestingPro data, the stock has delivered an impressive 183.72% return over the past year, though current valuations suggest the stock is trading above its Fair Value.

Key Takeaways

• EPS of $0.20 exceeded expectations by 11.11%.
• Revenue of $58.1 million missed the forecast by 2.22%.
• Stock price increased by 13.22% in after-hours trading.
• Raised full-year revenue growth guidance to over 45%.
• Strong growth in adjusted EBITDA, up 375% year-over-year.

Company Performance

Innodata’s Q2 2025 performance showcased significant growth, with revenue reaching $58.4 million, a 79% increase year-over-year. The company achieved a net income of $7.2 million, a substantial turnaround from a $14,000 loss in the same period last year. This growth reflects the company’s strategic focus on generative AI data services and its expansion in multi-agent systems and robotics.

Financial Highlights

• Revenue: $58.4 million, up 79% year-over-year.
• Adjusted EBITDA: $13.2 million, representing 23% of revenue.
• Net Income: $7.2 million, compared to a $14,000 loss last year.
• Cash Position: $59.8 million, an increase of $3.2 million sequentially.

Earnings vs. Forecast

Innodata reported an EPS of $0.20, surpassing the forecast of $0.18, resulting in an 11.11% surprise. However, revenue fell short of expectations at $58.1 million, a 2.22% miss from the projected $59.42 million. The EPS beat indicates strong operational efficiency, while the revenue miss suggests challenges in meeting top-line expectations.

Market Reaction

Following the earnings announcement, Innodata’s stock price rose by 13.22% in after-hours trading, reaching $50.20. This positive movement reflects investor optimism despite the revenue miss, likely driven by the company’s strong EPS performance and raised revenue growth guidance.

Outlook & Guidance

Innodata raised its full-year revenue growth guidance to over 45%, highlighting confidence in its strategic initiatives and anticipated customer wins in the second half of 2025. The company projects $10 million in revenue from a major tech customer during this period.

Executive Commentary

CEO Jack Abouhoff emphasized the company’s positioning in the AI market, stating, "We believe we are ideally situated to supply high quality complex training data." Interim CFO Maurice Espinelli highlighted the company’s investment strategy, noting, "We’ve got a tiger by the tail, and we’re investing with the goal of positioning the company to align with what we project the market needs are going to be."

Risks and Challenges

• Market competition, particularly from Scale.ai, could impact market share.
• Dependence on major tech customers presents concentration risk.
• Rapid changes in AI technology may require continuous innovation.
• Economic uncertainties could affect enterprise investment in AI solutions.

Q&A

During the earnings call, analysts inquired about the potential opportunities from Scale.ai’s acquisition and Innodata’s approach to the enterprise AI market. The company detailed its data quality capabilities and investment strategy, reinforcing its competitive positioning.

The article provides a comprehensive overview of Innodata’s Q2 2025 earnings, highlighting key financial metrics, market reaction, and strategic outlook.

Full transcript - Innodata Inc (INOD) Q2 2025:

Sergio, Conference Call Operator: Good day, ladies and gentlemen, and welcome to the InnoData to Report Second Quarter twenty twenty five Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 07/31/2025. I would now like to turn the conference over to Amy Agreste.

Please go ahead.

Amy Agreste, Investor Relations, InnoData: Thank you, Sergio. Good afternoon, everyone. Thank you for joining us today. Our speakers today are Jack Abouhoff, CEO of InnoData and Maurice Espinelli, Interim CFO. Also on the call today is Anish Penderkar, Senior Vice President, Finance and Corporate Development.

We’ll hear from Jack first, who will provide perspective about the business, and then Mariz will follow with a review of our results for the second quarter. We’ll then take questions from analysts. Before we get started, I’d like to remind everyone that during this call, we will be making forward looking statements, which are predictions, projections and other statements about future events. These statements are based on current expectations, assumptions and estimates and are subject to risks and uncertainties. Actual results could differ materially from those contemplated by these forward looking statements.

Factors that could cause these results to differ materially are set forth in today’s earnings press release in the Risk Factors section of our Form 10 ks, Form 10 Q and other reports and filings with the Securities and Exchange Commission. We undertake no obligation to update forward looking information. In addition, during this call, we may discuss certain non GAAP financial measures. In our earnings release filed with the SEC today as well as in our other SEC filings, which are posted on our website, you will find additional disclosures regarding these non GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. Thank you.

I’ll now turn the call over to Jack.

Jack Abouhoff, CEO, InnoData: Thank you, Amy, and good afternoon, everyone. Thank you for joining us. We’re very pleased to report that Q2 twenty twenty five was another outstanding quarter for Innodata. We beat analysts’ expectations across the board on key metrics: revenue, adjusted EBITDA, net income and fully diluted EPS. Revenue grew 79% year over year to $58,400,000 and adjusted EBITDA grew 375% to $13,200,000 reflecting the operating leverage that’s inherent in our model.

We also continued to strengthen our balance sheet. Cash increased from $56,600,000 at the end of Q1 to $59,800,000 at the end of Q2. And a few days after quarter close, we collected an additional $8,000,000 that typically would have been received by June 30. Our $30,000,000 credit facility remains undrawn, giving us flexibility to support future growth. Our business momentum continues to accelerate.

As a result, we are raising our full year 2025 revenue growth guidance to 45 or more organic revenue growth, up from the 40% we communicated last quarter. Our forecast reflects significant new deals that have been finalized since our last call as well as several deals that we believe are highly likely to close in the near term. We have a robust pipeline that includes significant dollar values positioning us for strong second half of the year. Many of these deals are not incorporated in our forecast, leaving room for possible further increases. Demand for our services is strong and accelerating, and we are seeing success across a diversity of existing and new customers.

I’ll talk about our largest customer first. We recently won several new projects with our largest customer, and we have others in pipeline that are not yet included in our forecast, but which we think are reasonably likely. Several of these new projects are under the second SOW we reported signing with this customer last quarter. We believe that the second SOW potentially gives us access to an even larger generative AI revenue pool with this customer. With another Big Tech customer, we were recently awarded a number of significant engagements, and we have additional significant engagements in late stage pipeline, enabling us to forecast $10,000,000 of revenue from this customer in the second half of this year.

It is worth noting that we did just $200,000 of revenue with this customer over the entire trailing twelve month period. So this is a very significant upswing that we believe will inure to our benefit significantly next year. These are just two examples. There are more. The traction we are now seeing is exhilarating.

We have built a marquee set of customers whose trust we have worked hard to earn and whose demand for our capabilities is expanding. Our big tech customers are in an all out race towards super intelligence and autonomy, which we believe will be driven to a large degree by high quality complex training data. We believe we are ideally situated to supply them with this high quality complex training data. Moreover, we believe we are ideally situated to help them test models, diagnose performance issues, and prescribe data mixes required to improve performance. This is a frontier area.

We believe that the future of LLM improvements lies not only in scaled data but in smart data, knowing exactly what kinds of post training data are required to achieve specific improvements in factuality, safety, coherence and reasoning. At the same time, we are positioning ourselves to help enterprises build and manage AI that can act autonomously, often referred to as agentic AI. This will require simulation training data to capture how humans process multivariate problems. It will also require sophisticated trust and safety monitoring and management. We believe agent based AI is going to serve as the cornerstone technology that unlocks the full value of large language models and generative AI for enterprises.

Moreover, we believe that progress on AgenTeq AI is likely to soon result in a ChatGPT moment for robotics. Within the next several years, we believe AgenTeq AI will be served at the edge in hardware devices with which we will commonly interact in many respects in our lives. We believe the market for simulation data services and evaluation services to drive AgenTic AI and robotics is likely to dwarf the market for Frontier model post training data. Our growth opportunities are significant and multidimensional. We intend to invest in ways that we believe will enable us to continue our growth path over the next several years.

These include short cycle high return growth initiatives like custom annotation pipelines, verticalized agent development and expanded global delivery strategic platform development, especially for LLM testing, safety and real world deployment also advisory and integration services for enterprises building AI native systems expansion into new domains such as multi agent systems and robotics, and expansion into new markets. We believe now is the time to lean in, investing in capabilities that can compound value over the next decade. This year, we intend to substantially increase investments, most of which will be expensed, while at the same time beating 2024 adjusted EBITDA. In the second quarter, we incurred approximately $1,400,000 of operating expenses that we think of as investments. This largely consisted of new hires in delivery, product innovation, go to market expansion and talent acquisition.

At the heart of this performance is a simple truth. We are deeply aligned with the most significant technological invention of our era, generative AI. Across the entire life cycle of generative AI model training, from pre training to post training to evaluation to safety, we’re delivering the services that unlock the performance of Gen AI models. I’ll now turn the call over to Mariz to go over the financial results, after which Mariz, Anish and I will be available to take questions from analysts.

Maurice Espinelli, Interim CFO, InnoData: Thank you, Jack, and good afternoon, everyone. Revenue for Q2 twenty twenty five reached $58,400,000 representing a year over year increase of 79% and demonstrating strong continuing momentum. Adjusted gross margin was 43% for the quarter, up 33% in Q2 of last year. Our adjusted EBITDA for Q2 twenty twenty five was $13,200,000 or 23% of revenue compared to $2,800,000 or 9% of revenue in the same quarter last year. Net income was $7,200,000 in the second quarter, up from loss of $14,000 in the same period last year.

In Q2, we were able to utilize the benefit of accumulated net operating losses or NOLCO to partially offset our tax liability. Looking ahead to the coming quarters, barring any changes in the tax environment, we expect our tax rate to be approximately 27% to 28%. Our cash position at the end of Q2 twenty twenty five was 59,800,000.0 reflecting a sequential increase of about $3,200,000 shaped by strong profitability and disciplined cash management. As Jack mentioned, we collected an additional $8,000,000 in early July that in ordinary course would have likely been collected in Q2. We still have not drawn down on our $30,000,000 Wells Fargo credit facility.

The amount drawable under this facility at any point in time is determined based on borrowing base formula. I’ll reiterate what Jack said. The momentum in our business is nothing short of amazing. We believe we’ve got a tiger by the tail, and we’re investing with the goal of positioning the company to align with what we project the market needs are going to be over the next few years. In Q2, we incurred approximately $1,400,000 of operating costs to build out a variety of technical capabilities to expand our go to market as investment towards a future that we believe is truly exciting.

Thank you everyone. Zorio, we’re ready for questions.

Sergio, Conference Call Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You. Your first question comes from George Stanton from Craig Hallum. Please go ahead.

George Stanton, Analyst, Craig Hallum: Thank you, team. Nice results. Congratulations. So I wondered if we could talk about during the quarter, your largest competitor, Scale dot ai, was a large majority purchased by Meta. And we’ve had a few of the large tech companies come out and say they would no longer work with Scale AI.

These ostensibly would be tech companies that you have statements of work with. So I’m just curious if you can kind of give us the after effect of that acquisition as you’ve seen it.

Jack Abouhoff, CEO, InnoData: Hi, George. Well, thank you. Thank you for bringing on the call. So I guess, you know, first, you know, we we congratulate Scale for, you know, having delivered a great success for their shareholders. And, you know, we believe their success and and their valuation is a proof point of, you know, the key role that data plays in model performance and the path towards superintelligence, you know, we compete with them successfully.

And, you know, we believe that their shift in focus is likely to accelerate market opportunity for us.

George Stanton, Analyst, Craig Hallum: Let’s think about it a little more holistically. So they obviously, were working with major tech companies. How quickly should we start to see that business shift? So if, for example, OpenAI comes out and says we are no longer going to be working with them, does that shift very quickly, and how do you go to market differently or more aggressively given the opportunities that will get created?

Jack Abouhoff, CEO, InnoData: So I think even before this, we were and continue to very aggressively outreach to market participants and to market our capabilities. We have, in light of this, stepped up that effort with certain companies. And there are certain conversations that are going on and are now planned to be happening over the next couple of months that I think, you know, could be very exciting for us. I don’t know that I can get into particulars much beyond that, but, you know, I’ll reiterate that we do see an opportunity to accelerate our market presence.

George Stanton, Analyst, Craig Hallum: Okay. And lastly for me, you throw out an interesting nugget about robotics and the attachment to hardware, creating significant even even more significant opportunities than the large language model training. So can you just walk through how you envision that would work for you and and just lay out that opportunity?

Jack Abouhoff, CEO, InnoData: Sure. So I think that we tend to read about these technologies somewhat as if they exist in isolation. But the reality is that as large language models become more and more competent and able to interpret ambiguous language and have capabilities to to plan and articulate, you know, multistep responses to problems. You know, there are technologies that will be added to that capability, you know, enabling those models to invoke external APIs or other tools, enabling for a multistep tasks using either greater memory and and planning capabilities. But when you take that and then you think about deploying that at the edge within devices, what you have is a very capable robot.

So I think what this means for us is there’s a whole new set of activities both to, you know, train these devices, to fine tune models, and to evaluate their performance that together constitutes a market that I believe will exceed that of post creating post training data and evaluating models for frontier model builders. So it’s something we’re hugely excited about and intend to be investing very significantly in.

George Stanton, Analyst, Craig Hallum: Perfect. Thank you.

Alan Klee, Analyst, Maxim Group LLC: Thank you, George.

Sergio, Conference Call Operator: Your next question comes from Allen Klee from Maxim Group LLC. Please go ahead.

Alan Klee, Analyst, Maxim Group LLC: Yes. Good afternoon. So when you reported last quarter, you kind of said that you thought revenue might be down around 5% in the second quarter. Your actual number was was was flat sequent up up very slightly sequential. So you outperformed.

So I’m kinda curious, like, where did the variance come from?

Jack Abouhoff, CEO, InnoData: Sure. I’ll I’ll start, then, Manish, you wanna give any additional color. I think I think that, you know, what we were trying to communicate last quarter is, you know, revenue was up we were up on a run rate basis from our largest customer, we were, of course, very happy about that. But we wanted to focus our investors on the guidance that we were giving because there are a lot of pluses, puts and takes that get factored into that guidance. And underlying the work that we’re doing, there are dependencies on engineering teams that we’re working hand in glove with.

So it’s entirely possible that a quarter could be up or down and that isn’t necessarily something that should be extrapolated out and considered locked and loaded permanently. We weren’t anticipating that it would necessarily be down, though, and we’re very happy to see that it wasn’t. As I said, looking at the largest customer and well as well as

Alan Klee, Analyst, Maxim Group LLC: several quite a

Jack Abouhoff, CEO, InnoData: number actually of of other customers, we see, you know, an incredible pipeline of opportunity right now. We’re very excited about that. And we’re only baking into our guidance and our forecast things that we think are highly likely to close within the next really thirty to sixty days. There’s a lot beyond that. I think we’re going to be winning as well.

So hope that’s helpful. Anish, anything you want to add Yes. To

Anish Penderkar, Senior VP, Finance and Corporate Development, InnoData: I think you framed that correctly, Jack. Just to kind of reiterate, Alan, we’re not seeing any slowdown with our largest customer. In Q2, we generated approximately $33,900,000 of revenue from this account. You know, and as Jack mentioned, you know, we secured several new projects and have additional opportunities in the pipeline that, you know, while not yet included in our forecast a few, you know, reasonably likely. So again, we feel very bullish and optimistic of our prospects in the back half of the year, and we remain very excited.

Alan Klee, Analyst, Maxim Group LLC: Thank you. You you highlighted one of the things you highlighted was enterprise and the opportunity there. There’s a lot of enterprises out there. I’m just curious how you think about the go to market to to to to attack it.

Jack Abouhoff, CEO, InnoData: Yeah. It’s a great question. Well, we’re we’re attacking it already. And, you know, what we’re finding is that the interest in the technology and the opportunities to, you know, instantiated into, you know, workflows exist across markets. So, you know, naturally, we’re we’re looking at the markets where we have the most penetration and the most relationships today.

But we’re also reaching out to companies in in markets where we don’t have as much reach, and we’re finding great, receptivity. So I think the highlight there is AgenTik AI, as it’s proven, is going to be the catalyst that unlocks enterprise opportunity. And I think that among enterprises that I talk to and more broadly, they’re no longer just looking at this like a frontier technology that’s interesting to monitor. They’re seeing it as new economic infrastructure that they’re going to need to be embracing, and they’re going to, you know, need to be adopting. And I think that we can play a very significant role in that.

You know, when we have conversations with them about the things that we think they need to do and our consultants are working with them to to figure out what’s the right order of operations and how they gain control of their data in order to, you know, harvest these opportunities, We’ve got a lot of experience both from working with the large, you know, big techs on the frontier model such that we know where things are going and and how they can best utilize them. And and, also on all the work we’ve done historically, taking apart workflows and and thinking about how to integrate new technologies into workflows to make them more efficient. So, yep, super super excited about the opportunities there.

Alan Klee, Analyst, Maxim Group LLC: That’s great. I’ll ask one more, and then I’ll jump back in the queue. You you highlighted a certain amount of money this quarter spent that you operating expenses that you viewed as, investment. Is is there any reason to think that the scale of how much you’re gonna be investing for growth in the second half is is gonna change meaningfully from where it’s been?

Anish Penderkar, Senior VP, Finance and Corporate Development, InnoData: Yeah. That that great question, Alan. So we as you as you rightly pointed out, we we said we invested about $1,300,000 in q two across several functional areas, including sales, delivery and product solution capabilities. We anticipate that stepping that up from Q2 to Q3 by approximately another $1,500,000,000. And the reason for for doing that is we see tremendous opportunity in in the space, and we wanna be able to capitalize on that.

So we will be making some incremental investments in sales, delivery, you know, solutioning and product to be able to, you know, capitalize on what we think is a very significant opportunity right now.

Alan Klee, Analyst, Maxim Group LLC: Great. Congrats. Thank you.

Sergio, Conference Call Operator: Thank you. Your next question comes from Hamed Khorsand from PWS Financial. Please go ahead.

Jack Abouhoff, CEO, InnoData: Hi. So my first question was, could you

Hamed Khorsand, Analyst, PWS Financial: just talk about why you mentioned organic growth and what your intentions are there?

Jack Abouhoff, CEO, InnoData: Sure, Hamid. I think we mentioned it to draw attention to the fact that this is organic growth. I think if you look across companies who are reporting and reporting growth, a lot of them are growing inorganically, and and that can be a great strategy for them, but it’s a different strategy. And I think our strategy, and and the kind of growth that we’re reporting is testament to, you know, the product set and the capabilities that we’ve developed. And from a risk adjusted basis, I think that’s probably a safer bet for investors.

So we’re very proud of it. We’re very proud of what we’ve been able to accomplish. And looking ahead to how well aligned we are with what we see as today’s market opportunities and tomorrow’s likely market opportunities, we think that, that organic growth can continue.

Hamed Khorsand, Analyst, PWS Financial: And the organic growth that you’re seeing in your business, is that coming with any kind of competitive pressures on pricing? Or you’re able to maintain pricing and capture new customers?

Jack Abouhoff, CEO, InnoData: Well, it’s a robust market. Think that we expect well, we’re not just we expect we do experience, of course, you know, a competitive environment. But what we’re seeing is that the most important thing to our customers isn’t our price. It’s the quality of our data and the extent now to which we can work hand in glove with them in order to help understand model performance, understand model deficiencies, understand use cases, and make recommendations about the datasets that are required to remediate or to extend those capabilities. So it’s a holistic service, and the investments that they’re making are so extraordinary.

And you know, there’s there’s such a deep desire to win in this race that that when we’re contributing as well as we are in so many accounts, they become much less price sensitive. Now that having been said, I don’t believe that we’re the most expensive among our competitive set, but I do think we’re among the best. And that’s a position that I think if we can sustain, that will, either significantly in order to our benefits from a competitive perspective and a growth perspective.

Hamed Khorsand, Analyst, PWS Financial: And lastly, last quarter you had a series of different customers you were describing and talking about. And this quarter, I think sounds a little less. So I’m just trying to understand where are you in terms of those relationships? Have they started up what you were talking about last quarter? And so where do you sit as far as revenue opportunity goes when you look out into, you know, year end ’26?

Jack Abouhoff, CEO, InnoData: Yeah. No. There’s more opportunity, and and there’s bigger pipeline today than there was, a quarter ago. I just looked at that earnings call and thought that maybe that was a little long and decided stylistically to try to condense it a bit. There’s more opportunity.

There are things that we talked about last time that have closed and that are now in our forecast. There are things that we’re continuing to progress that are real interesting. By memory, I’m thinking about things we talked about. I think there’s only one thing where that kind of went dormant a little bit, but everything else is either closed, moving forward well, advancing significantly in discussions and that we feel very bullish about.

Sergio, Conference Call Operator: Very good. Thank you. Thank you. Thank you. Your next question comes from Mr.

Alan Klee from Maxim Group LLC. Please go ahead.

Alan Klee, Analyst, Maxim Group LLC: Oh, hi. I just had a follow-up. I thought it was really interesting how you said that you you can make the data smarter for the customers to get better results. Could you go into that a little bit? Thank you.

Jack Abouhoff, CEO, InnoData: Sure. So there are a lot of different dimensions that we use to look at data and analyze data. It our data science team is rapidly expanding. We end up, for engineering teams, producing what are the equivalent of in many cases, the equivalent of white papers with all sorts of, you know, mathematical formula and statistical analysis that correlate what we what we benchmark as a model’s performance or, you know, identify as a model’s deficiency with what datasets are required in order to remediate that. And what that capability has resulted in is that we’re no longer just providing data, but we’re you know, our our our status, our our role has been elevated to, you know, sitting at the table with the data scientists who are building these models, and figuring it out with them.

You know, the journey is about data, and it’s about as I, you know, said in the prepared remarks, it’s about not just scale data, but smart data. So being able to do all that, you know, deep technical scientific analysis of data, of model performance, of correlating the data that’s required in order to to achieve the level of performance that’s required. In just the last, you know, I’d say several months, that’s become a problem space that we’re getting to occupy, and that’s tremendously exciting for us.

Alan Klee, Analyst, Maxim Group LLC: Okay. Great. Thank thank you so much.

Sergio, Conference Call Operator: Thank you. There are no further questions at this time. I will now turn the call over to Jak Abelhoff for closing remarks. Please go ahead.

Jack Abouhoff, CEO, InnoData: Thank you, operator. So Q2 was a high performing quarter with 79% year over year growth, and we’re anticipating a strong second half to the year. In the second half, we anticipate potentially winning major new customers, significantly deepening relationships and further broadening our base. We’ll also be continuing to make investments in infrastructure, talent and platforms that we believe are key to continuing our growth trajectory over the years to come. As a result of our successful execution, we’re raising our guidance today from 40% to 45% or more organic revenue growth for the year.

And yeah, I mean, we’re humbled by our good fortunes that scale data, our specialty is, we believe, the sine qua non of the greatest technological innovation of our lifetimes. And, you know, with the runway we see ahead, our goal remains to build Innodata into one of the leading AI services companies for this era. So, you know, thank you all for your continued support, and, you know, we’ll look forward to being with you a quarter from now.

Sergio, Conference Call Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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