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What changed in INNODATA INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INNODATA INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+273 added−238 removedSource: 10-K (2024-03-04) vs 10-K (2023-02-24)

Top changes in INNODATA INC's 2023 10-K

273 paragraphs added · 238 removed · 201 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

52 edited+13 added−10 removed59 unchanged
Biggest changeThe AI data training market is estimated to have been $8.8 billion in 2022, projected to grow at a CAGR of 24% to reach $74.5 billion by 2032, 2 essentially proxying the enormous growth expected in AI system spending overall ($118 billion in 2022, $301 billion in 2026, a 26.5% CAGR). 3 Similarly, the global data annotation tools market was valued at $1 billion in 2021, projected to reach $10 billion by 2028, which is a CAGR of 30%. 4 AI Model Deployment and Integration We believe that over the next decade, almost all industries will be fundamentally reinvented through the advent of high-performing AI models.
Biggest changeWe are presently working with five of the largest technology companies, and several of the world’s leading brands spanning multiple verticals, to enable, accelerate or enrich the services they deliver to end users around generative AI foundation models and other AI that supports chatbot assistance, facial recognition, social networking, gaming, drones, medical diagnostics and robotics, to name a few. ​ The AI data training market is estimated to be $2.57 billion in 2024, projected to grow at a CAGR of 18% to reach $13.45 billion by 2034, 2 essentially proxying the enormous growth expected in AI system spending overall ($154 billion in 2023, $300 billion in 2026, a 27% CAGR). 3 Similarly, the global data annotation tools market was valued at $1.8 billion in 2022, projected to reach $25 billion by 2032, which is a CAGR of 25%. 4 ​ AI Model Deployment and Integration We believe that over the next decade, almost all industries will be fundamentally reinvented through the advent of high-performing AI models.
Major competitors for our Synodex industry platform are Risk Righter, eNoah, Parameds, Aosta and a few BPO companies, several of which are large firms with established customer bases. We also compete with in-house personnel at existing or prospective customers who may attempt to duplicate our services in-house or use alternative approaches to fulfill their needs.
Major competitors for our Synodex industry platform are Risk Righter, eNoah, Parameds and a few BPO companies, several of which are large firms with established customer bases. We also compete with in-house personnel at existing or prospective customers who may attempt to duplicate our services in-house or use alternative approaches to fulfill their needs.
They also require fine-tuning through supervised learning and reinforcement learning from human feedback (RLHF) to render them suitable for specialized tasks and domains, to control hallucinations (the tendency of these models to make up things on the fly), and to minimize the risk that they generate unsafe or biased results.
They require fine-tuning through supervised learning and reinforcement learning from human feedback (RLHF) to render them suitable for specialized tasks and domains, to control hallucinations (the tendency of these models to make up things on the fly), and to minimize the risk that they generate unsafe or biased results.
Our data operations are linked by multiple redundant network connections. Our Wide Area Network – along with our Local Area Networks, Storage Area Networks, Network Attached Storage and data centers – are configured with industry standard redundancy, often with more than one backup to establish 24x7 availability. In 2022, our Wide Area Network had 99.98% uptime excluding scheduled maintenance.
Our data operations are linked by multiple redundant network connections. Our Wide Area Network – along with our Local Area Networks, Storage Area Networks, Network Attached Storage and data centers – are configured with industry standard redundancy, often with more than one backup to establish 24x7 availability. In 2023, our Wide Area Network had 99.98% uptime excluding scheduled maintenance.
For the past seven years, we have been designing and refining our approach for combining human experts and AI to produce large-scale, highly accurate data. In our approach, AI networks automatically perform much of the required processing and human experts perform processing that the AI cannot perform at a high level of confidence.
For the past eight years, we have been designing and refining our approach for combining human experts and AI to produce large-scale, highly accurate data. In our approach, AI networks automatically perform much of the required processing and human experts perform processing that the AI cannot perform at a high level of confidence.
Our Technology Over the past seven years, we have built a technology infrastructure that automates complex data annotation and other data engineering tasks. Our technology infrastructure combines advanced dataflow, orchestration and cognitive processing, and purpose-built applications used by human experts, which we refer to as “workbenches”.
Our Technology Over the past eight years, we have built a technology infrastructure that automates complex data annotation and other data engineering tasks. Our technology infrastructure combines advanced dataflow, orchestration and cognitive processing, and purpose-built applications used by human experts, which we refer to as “workbenches”.
In 2021 we further AI-enabled Synodex, Agility and our data annotation platform using Goldengate; in 2022, we commercialized it further as both a customer-facing technology and as the engine under other potential industry solutions. 7 Table of Contents To support our Agility industry platform, we have built a fully scalable, cloud-based infrastructure that powers a SaaS experience for global customers on a 24/7 basis.
In 2021 we further AI-enabled Synodex, Agility and our data annotation platform using Goldengate; in 2022, we commercialized it further as both a customer-facing technology and as the engine under other potential industry solutions. To support our Agility industry platform, we have built a fully scalable, cloud-based infrastructure that powers a SaaS experience for global customers on a 24/7 basis.
Competitive Strengths Our Data Quality We believe we achieve industry-leading data quality by leveraging our technology, our large staff of human experts, and the culture we have cultivated over many years of providing high-quality data to the most demanding customers.
Competitive Strengths Our Data Quality We believe we achieve industry-leading data quality by leveraging our technology, our large staff of human experts, and the culture we have built over many years of providing high-quality data to the most demanding customers.
One customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022. Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2021. No other customer accounted for 10% or more of total revenues during these periods.
One customer in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023. Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022. No other customer accounted for 10% or more of total revenues during these periods.
( See “Information Security”, below. ) Our Breadth of Capabilities We are able to address customers at their highest point of need. For example, we may provide data annotation for a data sciences team at a bank that is building an AI application to manage complex loan agreements.
( See “Information Security”, below. ) 8 Table of Contents Our Breadth of Capabilities We are able to address customers at their highest point of need. For example, we may provide data annotation for a data sciences team at a bank that is building an AI application to manage complex loan agreements.
Approximately seven 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.
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.
We comply with the requirements of the United States Health Insurance Portability and 11 Table of Contents Accountability Act of 1996 as amended (including by the Health Information Technology for Economic and Clinical Health Data (HITECH)) (HIPAA), the United Kingdom’s General Data Protection Regulation as tailored by the Data Protection Act 2018, the EU General Data Protection Regulation, and local laws regulating data privacy, as applicable.
We comply with the requirements of the United States Health Insurance Portability and Accountability Act of 1996 as amended (including by the Health Information Technology for Economic and Clinical Health Data (HITECH)) (HIPAA), the United Kingdom’s General Data Protection Regulation as tailored by the Data Protection Act 2018, the EU General Data Protection Regulation, and local laws regulating data privacy, as applicable.
We have well-defined roadmaps for our AI industry platforms to introduce new features and functions that we 9 Table of Contents believe will enable us to generate growth by broadening the appeal of our platforms to potential new customers as well as increasing the opportunities for further expansions with existing customers.
We have well-defined roadmaps for our AI industry platforms to introduce new features and functions that we believe will enable us to generate growth by broadening the appeal of our platforms to potential new customers as well as increasing the opportunities for further expansions with existing customers.
Further, in the years ended December 31, 2022 and 2021, revenues from non-U.S. customers accounted for 38% and 45%, respectively, of the Company's revenues. We have long-standing relationships with many of our customers. Our track record of delivering high-quality services helps us to solidify customer relationships.
Further, in the years ended December 31, 2023 and 2022, revenues from non-U.S. customers accounted for 37% and 38%, respectively, of the Company’s revenues. We have long-standing relationships with many of our customers. Our track record of delivering high-quality services helps us to solidify customer relationships.
It serves up low-code AI with transfer learning, orchestrating generative LLMs we have developed over the past seven years of deploying industrial deep neural networks as well as third-party foundation models. It integrates both with our internal systems and customer environments through application programming interfaces (“APIs”).
It serves up low-code AI with transfer learning, orchestrating generative LLMs and deep learning-based sequence labeling models we have developed over the past eight years of deploying industrial deep neural networks as well as third-party foundation models. It integrates both with our internal systems and customer environments through application programming interfaces (“APIs”).
In mid-2022, we formed an Advisory Board dedicated to helping drive growth through innovation initiatives and advancing dialogue related to ethical AI and the future of AI technologies. The advisory board is currently comprised by a Chief Data Officer for Microsoft and the director of University of Michigan’s Artificial Intelligence Laboratory. We are presently seeking additional members.
In mid-2022, we formed an Advisory Board dedicated to helping drive growth through innovation initiatives and advancing dialogue related to ethical AI and the future of AI technologies. The advisory board is currently comprised by a Chief Data Officer for Microsoft and the director of University of Michigan’s Artificial Intelligence Laboratory.
We also help businesses fine-tune their own custom versions of our proprietary models and third-party foundation models (including LLMs) to address domain-specific and customer-specific use cases. 2 Data Labeling Solution and Services Market , FactMR (Feb. 2022) 3 Worldwide Artificial Intelligence Systems Spending Guide, IDC (Aug. 2022) 4 Data Annotation Tools Market, Global Market Insights , (Feb. 2022) ​ 5 Table of Contents The current pace of AI innovation is accelerating.
We also help businesses fine-tune their own custom versions of our proprietary models and third-party foundation models (including LLMs) to address domain-specific and customer-specific use cases. 2 Data Labeling Solution and Services Market , FactMR (Nov. 2023) 3 Worldwide Artificial Intelligence Systems Spending Guide, IDC (Mar. 2023) 4 Data Annotation Tools Market, Global Market Insights , (Apr. 2023) ​ 5 Table of Contents The current pace of AI innovation is accelerating.
Our Global Delivery Framework We have over 4,000 employees and associates across 23 countries. Many of them have data domain expertise in various fields, including law, sciences, health, finance, and technology and hold advanced degrees. We also have access to a large population of “crowdsourced” workers that we maintain in our databases.
Our Global Delivery Framework We have over 4,000 employees and associates across 31 countries. Many of them have data domain expertise in various fields, including law, sciences, health, finance, and technology and hold advanced degrees. We also have access to a large population of remote staff and freelancers that we maintain in our databases.
Agility is now ranked by software review site G2 Crowd as meeting the requirements of customers better than its two largest competitors that have combined revenues of over $1 billion. 8 Agility operates in the $5.5 billion media intelligence solutions market. 9 5 Document Analytics Global Market Report, Reportlinker Analytics (Sept. 2022) 6 Enterprise Artificial Intelligence (AI) Market, Precedence Research (Nov. 2022) 7 Artificial Intelligence In Healthcare Market, Markets and Markets Research Private Ltd.
Agility is now ranked by software review site G2 Crowd as meeting the requirements of customers better than its two largest competitors that have combined revenues of over $1 billion. 8 Agility operates in the $9.2 billion media intelligence and PR software market. 9 5 Document Analytics Global Market Report 2024, Research and Markets (Dec. 2023) 6 Enterprise Artificial Intelligence (AI) Market, Precedence Research (Aug. 2023) 7 Artificial Intelligence In Healthcare Market, Markets and Markets Research Private Ltd.
Moreover, developing high-quality data takes up 80% of the time for most AI and ML projects. 1 Data sciences teams seek partners that can perform these data preparation functions for them at large-scale and at high quality, while using automated tools to minimize cost.
Moreover, developing high-quality data takes up 80% of the time for most AI and ML projects. 1 1 Data Preparation & Labeling for AI 2020 , Cognilytica Research (Jan. 31, 2020) ​ 4 Table of Contents Data sciences teams seek partners that can perform these data preparation functions for them at large-scale and at high quality, while using automated tools to minimize cost.
The global artificial intelligence (AI) in healthcare market is forecast to reach a market size of $102.7 billion by 2028, up from $14.6 billion in 2023, with a CAGR of 47.6%. 7 Our Agility industry platform provides marketing communications and public relations professionals with the ability to target and distribute content to journalists and social media influencers world-wide and to monitor and analyze global news (print, web, radio and TV) and social media.
The global artificial intelligence (AI) in healthcare market is forecast to reach a market size of $148.4 billion by 2029, up from $20.9 billion in 2024, with a CAGR of 48.1%. 7 Our Agility industry platform provides marketing communications and public relations professionals with the ability to target and distribute content to journalists and social media influencers world-wide and to monitor and analyze global news (print, web, radio and TV) and social media.
We utilize a variety of leading third-party image and video annotation tools. For text, we use our proprietary data annotation platform that incorporates AI to reduce cost 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.
For text annotation, we use our proprietary data annotation platform that incorporates AI to reduce cost 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.
Many of our customers are recurring customers, meaning that they have continued to provide additional projects to us after our initial engagement with them. Our agreements with our customers are in many cases terminable on 30 to 90 days’ notice. A substantial portion of the services we provide to our customers is subject to their requirements.
Many of our customers are recurring customers, meaning that they have continued to provide additional projects to us after our initial engagement with them. Our agreements with our customers are in many cases terminable on 30 to 90 days’ notice.
From 2016 to 2022, our employees contributed over 2,300 person days to the program, building 17 fully-functional computer labs and smart classrooms across India, the Philippines, and Sri Lanka. As a result, we believe approximately 10,300 children in these communities are now more technology proficient and better prepared to participate in opportunities that AI presents. Our efforts have been well-recognized.
From 2016 to 2023, our employees contributed over 2,900 person days to the program, building 22 fully-functional computer labs and smart classrooms across India, the Philippines, and Sri Lanka. As a result of i-Hope, we believe approximately 40,400 children in these communities are now more technology proficient and better prepared to participate in opportunities that AI presents.
Our proprietary, state-of-the-art Goldengate platform is our core AI technology stack. Goldengate ingests unstructured data and performs a series of cognitive tasks to extract intelligence and create analytical data that people can use for generating inferences and powering analytical applications.
Goldengate ingests unstructured data and performs a series of cognitive tasks to extract intelligence and create analytical data that people can use for generating inferences and powering analytical applications.
Competition Major competitors across industry verticals include Amazon Sagemaker Ground Truth, Appen, CloudFactory, Defined Crowd, Deepen.ai, Telus, Samasource, and Scale AI, several of which are large firms with established customer bases, as well as technology service providers such as Cognizant Technology Solutions, ExlService Holdings, Inc., Genpact Limited, Infosys, and Tata Consultancy Services.
Competition Major competitors across industry verticals include Amazon Sagemaker Ground Truth, Appen, CloudFactory, Defined Crowd, Deepen.ai, Telus, Samasource, and Scale AI, several of which are large firms with established customer bases, as well as technology service providers such as Cognizant Technology Solutions, ExlService Holdings, Inc., Genpact Limited, Infosys, and Tata Consultancy Services. 11 Table of Contents We compete by offering high-quality, competitively-priced solutions that leverage our technical platforms, IT infrastructure, offshore domain experts and economies of scale.
Personnel from our solutions analysis group, our customer services group and our engineering services group closely support our direct sales effort. These individuals assist the sales force in understanding the technical needs of customers and providing responses to these needs, including demonstrations, prototypes, pricing quotations and time estimates.
These individuals assist the sales force in understanding the technical needs of customers and providing responses to these needs, including demonstrations, prototypes, pricing quotations and time estimates. In addition, account managers from our customer service group support our direct sales effort by providing ongoing project-level support to our customers.
The document analytics market - a subset of the overall AI market - is expected to grow at a CAGR of 49.6% from $1.1 billion in 2021 to $8.15 billion by 2026. 5 Meanwhile, overall enterprise AI spend is projected to reach $102.9 billion by 2030, up from $16.8 billion in 2021, registering a CAGR of 47.2%. 6 AI-Enabled Industry Platforms Our AI-enabled industry platforms address specific, niche market requirements that we believe we can innovate with AI/ML technologies.
The document analytics market - a subset of the overall AI market - is expected to grow at a CAGR of 48.9% from $2.38 billion in 2023 to $17.4 billion by 2028. 5 Meanwhile, overall enterprise AI spend is projected to reach $270.06 billion by 2032, up from $7.02 billion in 2022, registering a CAGR of 44.1%. 6 AI-Enabled Industry Platforms Our AI-enabled industry platforms address specific, niche market requirements that we believe we can innovate with AI/ML technologies.
(Jan. 2023) 8 https://www.agilitypr.com/wp-content/uploads/2023/02/G2-Comparison.pdf 9 Strong Growth in Spending on Media Intelligence Software & Information – Burton-Taylor Report, Burton-Taylor International Consulting, (Apr 2022) ​ 6 Table of Contents The Company’s operations are presently classified and reported in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.
(Jan. 2024) 8 https://www.agilitypr.com/wp-content/uploads/2024/02/G2-Comparison-Agility-2024.pdf 9 Media Intelligence and PR Software Market Size, Global Research Market, (Jan. 2024) ​ 6 Table of Contents The Company’s operations are presently classified and reported in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.
Our customers span a diverse range of industries and a wide range of AI use cases, benefiting from the short time-to-value and high economic returns our AI solutions and platforms offer.
We provide these services discretely and in conjunction with business process management (BPM) engagements. Our customers span a diverse range of industries and a wide range of AI use cases, benefiting from the short time-to-value and high economic returns our AI solutions and platforms offer.
Sales and Marketing We market and sell our solutions and platforms directly through our professional staff, senior management and direct sales personnel operating primarily from various locations in the U.S., Canada, the United Kingdom and Europe.
A substantial portion of the services we provide to our customers is subject to their requirements. 10 Table of Contents Sales and Marketing We market and sell our solutions and platforms directly through our professional staff, senior management and direct sales personnel operating primarily from various locations in the U.S., Canada, the United Kingdom and Europe.
We compete by offering high-quality, competitively-priced solutions that leverage our technical platforms, IT infrastructure, offshore domain experts and economies of scale. Our competitive advantages are especially attractive to customers for undertakings that are complex, mission-critical, sizable in scope or scale, or that require high levels of information security. Each of our industry platforms has its discrete set of competitors.
Our competitive advantages are especially attractive to customers for undertakings that are complex, mission-critical, sizable in scope or scale, or that require high levels of information security. Each of our industry platforms has its discrete set of competitors.
Our Synodex industry platform transforms medical records into useable digital data organized in accordance with our proprietary data models or customer data models.
Our Synodex industry platform transforms medical records into useable digital data organized in accordance with our proprietary data models or customer data models. At the end of 2023, we had 13 customers utilizing our Synodex platform.
As AI projects become more specialized and mission-critical and data preparation becomes increasingly complex, data science teams seek partners with deep domain knowledge and an infrastructure in which data security is assured. ​ We believe that Innodata is ideally situated to partner with data science teams. ​ We collect or create training data, annotate training data, and train AI algorithms for social media companies, robotics companies, financial services companies, and many others, working with images, text, video and audio.
As AI projects become more specialized and mission-critical and data preparation becomes increasingly complex, data science teams seek partners with deep domain knowledge and an infrastructure in which data security is assured. We believe that Innodata is ideally situated to partner with data science teams.
This infrastructure enables us to perform data annotation and other data engineering tasks at progressively higher levels of efficiency without compromising quality as it continuously learns from human experts. Our workbenches incorporate data verification and validation algorithms to detect human expert inconsistencies and to catch difficult auto-annotation errors such as LLM hallucinations.
This infrastructure enables us to perform data annotation and other data engineering tasks at progressively higher levels of efficiency without compromising quality as it continuously learns from human experts.
We believe that this transparency and reporting has enabled us to improve our sustainability program continuously. We track and share with customers our emissions data for scopes 1, 2, and 3. Across all our global operations, we recycle e-waste and paper.
We track and share with customers our emissions data for scopes 1, 2, and 3. Across all our global operations, we recycle e-waste and paper.
Our platform encapsulates many of the innovations we have conceived of in the course of our 30-year history of creating high-quality data. 1 Data Preparation & Labeling for AI 2020 , Cognilytica Research (Jan. 31, 2020) ​ 4 Table of Contents In addition, because collecting real-world data is often impracticable (due to data privacy regulations or rarity of cohorts and outliers), we create high-quality synthetic data that maintains all of the statistical properties of real-world data, using a combination of domain specialists and machine technologies that leverage LLMs.
In addition, because collecting real-world data is often impracticable (due to data privacy regulations or rarity of cohorts and outliers), we create high-quality synthetic data that maintains all of the statistical properties of real-world data, using a combination of domain specialists and machine technologies that leverage LLMs.
We prize empathy and respect in our relationships with customers and colleagues alike while at the same time honing direct communication that best promotes optimal business outcomes for our customers. We believe our culture helps us best serve our customers and helps us attract and retain top people.
We embrace diversity (and began doing so long before it was in vogue). We prize empathy and respect in our relationships with customers and colleagues alike while at the same time honing direct communication that best promotes optimal business outcomes for our customers.
Our solutions and platforms leverage the technology, human resources, and culture of fanaticism for data quality that we have developed over the past 30 years, as well as the AI/ML research and development we have invested in over the past seven years.
Our solutions and platforms leverage the technology, human resources, and culture of fanaticism for data quality that we have developed over the past 30 years, as well as the AI/ML research and development we have invested in over the past eight years. 9 Table of Contents Key elements of our growth strategy include: Driving New Customer Acquisition We believe we are still in the early stages of penetrating our addressable markets.
Our historical core competency in high-quality data, combined with these R&D efforts in applied AI, created the foundation for the evolution of our offerings, which include AI Data Preparation, AI Model Deployment and Integration, and AI-Enabled Industry Platforms. 8 Table of Contents Our Culture We have developed a strong customer- and quality-centric culture over 30 years serving many of the world’s most successful companies that trust us with their data needs.
Our historical core competency in high-quality data, combined with these R&D efforts in applied AI, created the foundation for the evolution of our offerings, which include AI Data Preparation, AI Model Deployment and Integration, and AI-Enabled Industry Platforms.
Primary marketing outreach activities include content marketing, event marketing (including exhibiting at trade shows, virtual summits, conferences and seminars), direct and database marketing, public and media relations (including speaking engagements), and web marketing (including integrated marketing campaigns, search engine optimization, search engine marketing and the maintenance and continued development of external websites). 10 Table of Contents Sales activities include lead generation, nurturing leads, engaging in discussions with prospective customers to understand their needs, demonstrating our products, designing solutions, responding to requests for proposals, and managing account and customer relationships and activities.
Primary marketing outreach activities include content marketing, event marketing (including exhibiting at trade shows, virtual summits, conferences and seminars), direct and database marketing, public and media relations (including speaking engagements), and web marketing (including integrated marketing campaigns, search engine optimization, search engine marketing and the maintenance and continued development of external websites).
Key elements of our growth strategy include: Driving New Customer Acquisition We believe we are still in the early stages of penetrating our addressable markets. We intend to pursue new long-term, strategic customer relationships, especially with customers with large and growing commitments to AI innovation, where we can deliver a wide range of our capabilities and have meaningful impact.
We intend to pursue new long-term, strategic customer relationships, especially with customers with large and growing commitments to AI innovation, where we can deliver a wide range of our capabilities and have meaningful impact. Beginning in 2021, we substantially scaled our sales organization, most notably the sales organization supporting our Agility PR solutions product.
Research and Development Our Innodata Labs researches and develops AI-based technologies that we utilize in our operations and with our customers. The Innodata Labs team is comprised of data scientists, including data scientists who have published leading papers on discrete topics in data science and have earned PhD degrees in fields such as data entity extraction.
The Innodata Labs team is comprised of data scientists, including data scientists who have published leading papers on discrete topics in data science and have earned PhD degrees in fields such as data entity extraction. 12 Table of Contents Our product engineering teams also engage in research and development efforts focused on enhancing the functionality and utility of our AI industry platforms, addressing new use cases and developing additional innovative technologies.
Expanding Relationships with Existing Customers We believe we have demonstrated a clear ability to “land-and-expand” within customer accounts.
We believe that the current sales organization is operating well and will likely enable us to achieve our near-term growth targets. Expanding Relationships with Existing Customers We believe we have demonstrated a clear ability to “land-and-expand” within customer accounts.
We fulfill this commitment by our efforts to conduct operations in an environmentally-sound manner; to manage our supply chains toward appropriate environmental practices; and sponsor grass-roots efforts designed to preserve the environment in the communities in which we operate. We have set metrics to monitor and target the reduction of greenhouse gas emissions, energy usage, and water usage.
We fulfill this commitment by our efforts to conduct operations in an environmentally-sound manner. ​ 13 Table of Contents We have set metrics to monitor and target the reduction of greenhouse gas emissions, energy usage, and water usage. We believe that this monitoring has enabled us to improve our sustainability program continuously.
Our SEC reports can be obtained through the Investor Relations section of our website or from the Securities and Exchange Commission at www.sec.gov . 10 https://www.forbes.com/sites/glenngow/2021/07/11/google-facebook-and-microsoft-are-working-on-ai-ethics-heres-what-your-company-should-be-doing/ ​ 13 Table of Contents
Our SEC reports can be obtained through the Investor Relations section of our website or from the Securities and Exchange Commission at www.sec.gov . ​ ​ 14 Table of Contents
Environmental, Social, and Governance We have built a robust corporate ESG program focused on social responsibility; improving how we perform as a steward of the environment; and sustainability. Social Responsibility We are driven by the vision of ushering in an era of broadly distributed, sustainable prosperity that can result from ethical AI and broad access to the benefits of AI.
Social Responsibility We are driven by the vision of ushering in an era of broadly distributed, sustainable prosperity that can result from ethical AI and broad access to the benefits of AI. We launched our i-Hope Program in 2016 to help children in marginalized or economically-disadvantaged communities face the challenges of an increasingly AI-driven world.
We have since closed that sales office, have focused on hiring and retaining sales talent in other locations and in building a data-driven sales organization. We believe that the current sales organization is operating well and will likely enable us to achieve our near-term growth targets.
In late 2021 and early 2022, we experienced challenges in retaining sales hires primarily in our Austin, Texas sales office. We have since closed that sales office, have focused on hiring and retaining sales talent in other locations and in building a data-driven sales organization.
Sustainability Our sustainability program is based on the following core elements: health and safety, business continuity management, information security, labor standards, anti-bribery and corruption, and management engagement and social impact. Our sustainability program is backed by ISO 27001:2013 (information security) certification, policies, and employee training for these core areas.
Our program has practices in place to ensure that the saplings will receive proper care and attention during their initial growth phase, which is crucial for their long-term survival. Sustainability Our sustainability program is based on the following core elements: health and safety, business continuity management, information security, labor standards, anti-bribery and corruption, and management engagement and social impact.
Employees As of December 31, 2022, we employed 4,209 employees, 4,205 of which are full-time, with 181 persons in the United States, Canada and the United Kingdom, and 4,028 persons in the Philippines, India, Sri Lanka, Canada, Germany, and Israel . Many of our employees hold advanced degrees in specialized fields such as law, business, technology, medicine, and social sciences.
Our sustainability program is backed by ISO 27001:2013 (information security) certification, policies, and employee training for these core areas. Employees As of December 31, 2023, we employed 4,325 employees, 4,296 of which were full-time. Many of our employees hold advanced degrees in specialized fields such as law, business, technology, medicine, and social sciences.
In 2022, we (through our operating subsidiaries) received the 2022 CSR Company of the Year Excellence Award at the Asia CEO Awards-2022 and the 2021 Salamat Po Award from the Philippines Department of Social Welfare & Development . ​ 12 Table of Contents The second program is our i-Matter Program.
Our contributions have been well-recognized. In 2023 we (through our operating subsidiaries) received, for the third time in four years, the Circle of Excellence Award for CSR Company of the Year at the Asia CEO Awards-2023.
We believe in communicating honestly, transparently and broadly. We are optimistic in the promise of technology to augmenting human initiative and talent. We embrace diversity (and began doing so long before it was in vogue).
Our Culture We have developed a strong customer- and quality-centric culture over 30 years serving many of the world’s most successful companies that trust us with their data needs. We believe in communicating honestly, transparently and broadly. We are optimistic in the promise of technology to augmenting human initiative and talent.
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We are presently working with or in pilots or advanced discussions with four of the five largest technology companies, and several of the world’s leading brands spanning multiple verticals, to enable, accelerate or enrich the services they deliver to end users around chatbot assistance, facial recognition, social networking, gaming, drones, medical diagnostics and robotics, to name a few.
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In 2023, we expanded existing relationships and forged new relationships with several of the world’s large technology companies to support their efforts at building generative AI foundation models. For these companies, we are now providing or are poised to provide a range of scaled data solutions and services.
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At the end of 2022, we had 18 customers utilizing our Synodex platform, including John Hancock Insurance, the insurance operating unit of John Hancock Financial (a division of Manulife) and one of the largest life insurers in the United States.
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Our scaled data solutions include providing instruction data sets for fine-tuning LLMs to understand prompts, to accept instruction, to converse, to apparently reason, and to perform the myriad of incredible feats that many of us have now experienced.
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Beginning in 2021, we substantially scaled our sales organization, most notably the sales organization supporting our Agility PR solutions product. In late 2021 and early 2022, we experienced challenges in retaining sales hires primarily in our Austin, Texas sales office.
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We also provide reinforcement learning and reward modeling, services which are critical to provide the guardrails against toxic, bias and harmful responses, and model evaluation services.
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In addition, account managers from our customer service group support our direct sales effort by providing ongoing project-level support to our customers.
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For social media companies, robotics companies, financial services companies, and many others, we collect or create training data, annotate training data, and train AI algorithms for working with images, text, video, audio, code and sensor data. We utilize a variety of leading third-party tools, proprietary tools and customer tools.
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Our product engineering teams also engage in research and development efforts focused on enhancing the functionality and utility of our AI industry platforms, addressing new use cases and developing additional innovative technologies.
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Our platform encapsulates many of the innovations we have conceived of in the course of our 30-year history of creating high-quality data.
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We have two programs underway designed to help ensure a future level playing field for marginalized or economically-disadvantaged communities that might otherwise be at a disadvantage in an increasingly AI-driven world. The first of these programs is our i-Hope Program. The aim of our i-Hope Program is to provide the gift of computer literacy to 25,000 children by 2025.
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Our workbenches incorporate data verification and validation algorithms to detect human expert inconsistencies and to catch difficult auto-annotation errors such as LLM hallucinations. 7 Table of Contents Our proprietary, state-of-the-art Goldengate platform is our core AI technology stack.
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It involves assisting leading technology companies in their efforts to ensure that facial recognition technologies of the future perform equally well across ethnic and gender identities. As a Forbes article explained, “Suppose the data used to train your AI system doesn’t have sufficient data about specific classes of individuals.
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We believe our culture helps us best serve our customers and helps us attract and retain top people.
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In that case, it may not learn what to do when it encounters those individuals. Would a facial recognition system used for check-in to a hotel recognize a person with freckles? If the system stops working and makes check-in harder for a person with freckles, what should the company do?
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Sales activities include lead generation, nurturing leads, engaging in discussions with prospective customers to understand their needs, demonstrating our products, designing solutions, responding to requests for proposals, and managing account and customer relationships and activities. Personnel from our solutions analysis group, our customer services group and our engineering services group closely support our direct sales effort.
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How does the company address this ethical dilemma?” 10 Our global efforts at AI inclusivity span nations, geographies, gender identities, etc., with a focus on minority communities and identity groups. For example, we recently began working with Native American tribes to ensure that they are in no respect disadvantaged by next generation facial recognition systems.
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Research and Development Our Innodata Labs researches and develops AI-based technologies that we utilize in our operations and with our customers.
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In India, the Philippines, and Sri Lanka, we have planted over 1,100 saplings in nature reserves in 2022 and in Q1 2023 we aim to increase this to 4,400 saplings. Our program has practices in place to ensure that the trees will receive proper care and attention during their initial growth phase, which is crucial for their survival.
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We will likely consider adding additional members to our advisory board from time to time. Environmental, Social, and Governance We have built a robust corporate ESG program focused on social responsibility; improving how we perform as a steward of the environment; and sustainability.
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Our goal was to provide the gift of computer literacy to 25,000 children by 2025.
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We are proud to report that we attained our goal in the third quarter of 2023, with one of our operating subsidiaries handing over a smart classroom, an ideation room, and an open library (with over 80,000 books) to a publicly-funded higher education institution in the Philippines.
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In India, the Philippines, and Sri Lanka, we sponsor grass-roots efforts designed to preserve the environment in the communities in which we operate and we have planted over 3,800 saplings in nature reserves in 2023, for a total of over 6,000 saplings since 2018.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+19 added−9 removed103 unchanged
Biggest changeAs we normally invest in people and technology and incur other costs in anticipation of revenues, any such deviation from our expected plan or anticipated results could impact our margins and earnings. 14 Table of Contents Our success is dependent on our ability to successfully develop new services, platforms and solutions and enhance our existing services, platforms and solutions, and market acceptance of these offerings.
Biggest changeThis could be due to various reasons beyond our or their control, and it could lead to termination of projects or contracts. As we normally invest in people and technology and incur other costs in anticipation of revenues, any such deviation from our expected plan or anticipated results could impact our margins and earnings.
Our operations located in the Philippines, India, Sri Lanka and Israel are in countries that remain vulnerable to disruptions from political uncertainty, political unrest, terrorist acts, and natural calamities.
Our operations located in India, Israel, the Philippines and Sri Lanka are in countries that remain vulnerable to disruptions from political uncertainty, political unrest, terrorist acts, and natural calamities.
Based on the Company’s assessment, in consultation with our tax counsel, the Company has not recorded any tax liability for this case.
Based on the Company’s assessment, in consultation with our tax counsel, the Company has not recorded any tax liability for this case.
The appeal was determined in favor of the Service Tax Department. Management disagrees with the basis of this decision and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently has service tax credits of approximately $0.8 million recorded as a receivable.
The appeal was determined in favor of the Service Tax Department. Management disagrees with the basis of this decision and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently has service tax credits of approximately $0.8 million recorded as receivable.
In particular, customers that are not satisfied might seek to terminate existing contracts, which could mean that we could incur costs for the services performed with no associated revenue upon termination of a contract. This could also direct future business to our competitors.
In particular, customers who are not satisfied might seek to terminate existing contracts, which could mean that we could incur costs for the services performed with no associated revenue upon termination of a contract. This could also direct future business to our competitors.
As a result, we are subject to numerous laws and regulations designed to protect this information. We may also be bound by certain customer agreements to use and disclose the confidential customer information in a manner consistent with the privacy standards under regulations applicable to such customer.
As a result, we are subject to numerous laws and regulations designed to protect this information. We may also be bound by certain customer agreements to use and disclose confidential customer information in a manner consistent with the privacy standards under regulations applicable to such customers.
In the event the Service Tax Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable to pay interest and penalties.
In the event the Service Tax Department appeals this ruling and is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable to pay interest and penalties.
This, in turn, could lead to customer dissatisfaction and an adverse effect on our business, results of operations and financial condition.
This, in turn, could lead to customer dissatisfaction and have an adverse effect on our business, results of operations and financial condition.
An expiration or termination of our preferential tax rate incentives could adversely affect our results of operations. Two of our foreign subsidiaries are subject to preferential tax rates. This tax incentive provides that we pay reduced income taxes with respect to those jurisdictions for a fixed period of time.
The expiration or termination of our preferential tax rate incentives could adversely affect our results of operations. Two of our foreign subsidiaries are subject to preferential tax rates. This tax incentive provides that we pay reduced income taxes with respect to those jurisdictions for a fixed period of time.
The revenue of our Indian subsidiary during this period was approximately $57.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID or BS Services.
The revenue of our Indian subsidiary during this period was approximately $56.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID or BS Services.
We performed an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022 and concluded that our disclosure controls and procedures were effective as of December 31, 2022.
We performed an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023 and concluded that our disclosure controls and procedures were effective as of December 31, 2023.
If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. We may not be able to obtain price or volume increases that are necessary to offset the effect of wage inflation and other government mandated cost increases.
If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. 23 Table of Contents We may not be able to obtain price or volume increases that are necessary to offset the effect of wage inflation and other government mandated cost increases.
A large portion of our accounts receivable is payable by a limited number of customers; the inability of any of these customers to pay its obligations could adversely affect our results of operations. Several significant customers account for a large percentage of our accounts receivable.
A large portion of our accounts receivable are payable by a limited number of customers; the inability of any of these customers to pay its obligations could adversely affect our results of operations. Several significant customers account for a large percentage of our accounts receivable.
The loss of these customers or a significant variation in the volume of work performed for these customers may have a material adverse effect upon our business, financial condition and results of operations.
The loss of these customers or a significant variation in the volume of work performed for these customers may have a material adverse effect on our business, financial condition and results of operations.
In addition, our Company utilizes third party data centers to serve our customers and generate revenue. Any disruption in the provision of services from these data centers could result in loss of revenue, customer dissatisfaction and loss of customers. Our Agility segment relies on third parties to provide certain content and data for our solutions.
In addition, our Company utilizes third party data centers to serve our customers and generate revenue. Any disruption in the provision of services from these data centers could result in loss of revenue, customer dissatisfaction and loss of customers. 16 Table of Contents Our Agility segment relies on third parties to provide certain content and data for our solutions.
Although we are committed to maintaining high standards of corporate governance and public disclosure, and complying with evolving laws, regulations and standards, if we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed. Item 1B. Unresolved Staff Comments. None.
Although we are committed to maintaining high standards of corporate governance and public disclosure, and complying with evolving laws, regulations and standards, if we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed. Item 1B. Unresolved Staff Comments. None. 27 Table of Contents
Other risks associated with our international business activities include: 16 Table of Contents ● difficulties in staffing international projects and managing international operations, including overcoming logistical and communications challenges; ● local competition, particularly in the Philippines, India and Sri Lanka; ● imposition of public sector controls; ● trade and tariff restrictions; ● price or exchange controls; ● currency control regulations; ● foreign tax consequences; ● data privacy laws and regulations; ● labor disputes and related litigation and liability; ● intellectual property laws and enforcement practices; ● limitations on repatriation of earnings; and ● changing laws and regulations, occasionally with retroactive effect.
Other risks associated with our international operations and business activities include: ● difficulties in staffing international projects and managing international operations, including overcoming logistical and communications challenges; ● local competition, particularly in the Philippines, India and Sri Lanka; ● imposition of public sector controls; ● trade and tariff restrictions; ● price or exchange controls; ● currency control regulations; ● foreign tax consequences; ● data privacy laws and regulations; ● evolving regulation of artificial intelligence; ● intellectual property laws and enforcement practices; 18 Table of Contents ● labor disputes and related litigation and liability; ● limitations on repatriation of earnings; and ● changing laws and regulations, occasionally with retroactive effect.
In the event we are unable to use or have access to such third-party content or are unable to enter into agreements with new third parties, current customers may discontinue their relationship with us, and it may be difficult to acquire new customers. 15 Table of Contents Our businesses are reliant on key employees, and we may face high attrition in our talent.
In the event we are unable to use or have access to such third-party content or are unable to enter into agreements with new third parties, current customers may discontinue their relationship with us, and it may be difficult to acquire new customers. Our businesses are reliant on key employees, and we may face high attrition in our talent.
We operate from multiple locations and our employees are very diverse, so we have significant coordination risks. We are headquartered in Ridgefield Park, New Jersey, just outside New York City. We have delivery centers in the Philippines, India, Sri Lanka, Canada, the United Kingdom, Israel, and Germany. Our employees are geographically dispersed, as well as culturally diverse.
We operate from multiple locations and our employees are very diverse, so we have significant coordination risks. We are headquartered in Ridgefield Park, New Jersey, just outside New York City. We primarily operate from the Philippines, India, Sri Lanka, Canada, the United Kingdom, Israel, the United States, and Germany. Our employees are geographically dispersed, as well as culturally diverse.
Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2021. No other customer accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2022 and 2021, revenues from non-U.S. customers accounted for 38% and 45%, respectively, of the Company’s revenues.
Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022. No other customer accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2023 and 2022, revenues from non-U.S. customers accounted for 37% and 38%, respectively, of the Company’s revenues.
These and other factors may contribute to fluctuations in our results of operations from quarter to quarter. A high percentage of our operating expenses, particularly personnel and rent, are relatively fixed in advance of any particular quarter.
These and other factors may contribute to fluctuations in our results of operations from quarter to quarter. 22 Table of Contents A high percentage of our operating expenses, particularly personnel and rent, are relatively fixed in advance of any particular quarter.
If we determine again in the future that we have ineffective disclosure controls and procedures, this could restrict our ability to access the capital markets, require significant resources to correct, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor confidence and cause a decline in the market price of our common stock.
If in the future we determine that our disclosure controls and procedures are ineffective, it could restrict our ability to access the capital markets, require significant resources to correct, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor confidence and cause a decline in the market price of our common stock.
We have historically relied on a limited number of customers that have accounted for a significant portion of our revenues. One customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022.
We have historically relied on a limited number of customers that have accounted for a significant portion of our revenues. One customer in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023.
In addition, our estimate of potential impact on our consolidated financial position or overall consolidated results of operations for the above referenced legal proceedings could change in the future.
In addition, our estimate of the potential impact on our consolidated financial position or overall consolidated results of operations for the above - referenced legal proceedings could change in the future. See “Legal Proceedings”.
Our North American workforce provides services from the U.S. and Canada, and the balance of our workforce provides services from the Philippines, India, Sri Lanka, the United Kingdom, Israel and Germany. Our global facilities are linked with a telecommunications network that uses multiple service providers.
We use a distributed global resource model. Our North American workforce provides services from the U.S. and Canada, and the balance of our workforce provides services from the Philippines, India, Sri Lanka, the United Kingdom, Israel and Germany. Our global facilities are linked with a telecommunications network that uses multiple service providers.
We also compete with in-house personnel at current and prospective customers who may attempt to duplicate our offerings using their own personnel. We have made and continue to make significant investments towards building-out new capabilities to pursue growth.
We also compete with in-house personnel at current and prospective customers who may attempt to duplicate our offerings using their own personnel. We have made and continue to make significant investments towards building out new capabilities to pursue growth, including, for example, our investments in large language models.
Our international operations subject us to risks inherent in doing business on an international level, any of which could increase our costs and hinder our growth.
The international nature of our operations subjects us to risks inherent in doing business on an international level, any of which could increase our costs and hinder our growth.
See “Legal Proceedings”. 18 Table of Contents Our reputation could be damaged, or our profitability could suffer if we do not meet the controls and procedures in respect of the services, platforms and solutions we provide to our customers, or if we contribute to our customers’ internal control deficiencies.
Our reputation could be damaged, or our profitability could suffer if we do not meet the controls and procedures in respect of the services, platforms and solutions we provide to our customers, or if we contribute to our customers’ internal control deficiencies.
If any of these customers were unable, or refused, for any reason, to pay our accounts receivable, our financial condition and results of operations could be materially adversely affected. As of December 31, 2022, 50% or $4.7 million, of our accounts receivable was due from five customers.
If any of these customers were unable, or refused, for any reason, to pay our accounts receivable, our financial condition and results of operations could be materially adversely affected. As of December 31, 2023, 53% or $7.5 million of our accounts receivable was due from three customers.
Additionally, our profitability could suffer if our controls and procedures were to fail or to impair our customer’s ability to comply with its own internal control requirements. In the past, we have determined that our disclosure controls and procedures were not effective.
Additionally, our profitability could suffer if our controls and procedures were to fail or impair our customers’ ability to comply with their own internal control requirements. 20 Table of Contents In the past we have determined that our disclosure controls and procedures were not effective.
Our success is also dependent on our ability to compete with new vendors with lean cost and flexible cost models. The information technology and artificial intelligence (AI) industries are characterized by rapid technological change, evolving industry standards, changing customer preferences, new product and service introductions and the emergence of new vendors with lean cost and flexible cost models.
The information technology and artificial intelligence (AI) industries are characterized by rapid technological change, evolving industry standards, changing customer preferences, new product and service introductions and the emergence of new vendors with lean cost and flexible cost models.
Our intellectual property rights are valuable and if we are unable to protect them or are subject to intellectual property rights claims, our business may be harmed. Our intellectual property rights include certain trademarks, trade secrets, domain name registrations, a patent and patent applications.
Our intellectual property rights are valuable and if we are unable to protect them or are subject to intellectual property rights claims, our business may be harmed. Our intellectual property rights include certain trademarks, trade secrets, domain name registrations, and a patent. Although we take precautions to protect our intellectual property rights, these efforts may not be sufficient or effective.
Unremitted earnings of foreign subsidiaries amounted to approximately $50.9 million at December 31, 2022. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes associated with such remittances. It is unlikely that we will pay dividends.
If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes associated with such remittances. 25 Table of Contents It is unlikely that we will pay dividends.
During the past eight quarters, our net income (loss) ranged from income of approximately $0.4 million in the first quarter of 2021 to a loss of approximately $3.8 million in the second quarter of 2022.
During the past eight quarters, our net income (loss) ranged from net income of approximately $1.7 million in the fourth quarter of 2023 to a loss of approximately $3.8 million in the second quarter of 2022.
In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Department in India regarding the classification of services provided by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services (“OID Services”), and not under the category of business support services (“BS Services”) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings.
In addition, changes in the tax rates, tax laws or the interpretation of tax laws in the jurisdictions where we operate, could affect our future results of operations. 24 Table of Contents In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Department in India regarding the classification of services provided by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services (“OID Services”), and not under the category of business support services (“BS Services”) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings.
As a result, unanticipated variations in the number and timing of our projects, or in employee wage levels and utilization rates, may cause us to significantly underutilize our production capacity and employees, resulting in significant variations in our operating results in any particular quarter, and have resulted in losses. 20 Table of Contents Weakness in the global economy, and in particular in the United States, Europe and the United Kingdom, could negatively impact our revenue and operating results.
As a result, unanticipated variations in the number and timing of our projects, or in employee wage levels and utilization rates, may cause us to significantly underutilize our production capacity and employees, resulting in significant variations in our operating results in any particular quarter, and have resulted in losses.
The ineffective disclosure controls and procedures could cause investors to lose confidence in our reported financial information and have a negative effect on the market prices for our common stock.
If in the future we again determine that our disclosure controls and procedures are not effective, this could cause investors to lose confidence in our reported financial information and have a negative effect on the market prices for our common stock.
There is no assurance that we will not be subject to shareholder activism or demands. Such activities could interfere with our ability to execute our strategic plan, be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. We are the subject of continuing litigation, including litigation by certain of our former employees.
Such activities could interfere with our ability to execute our strategic plan, be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. 19 Table of Contents We are the subject of continuing litigation, including litigation by certain of our former employees.
Our business model depends in large part on our ability to attract additional work from our base of existing customers. Our business model also depends on relationships our account teams develop with our customers so that we can understand our customers’ needs and deliver solutions and services that are tailored to those needs.
Our business model also depends on the relationships our account teams develop with our customers so that we can understand our customers’ needs and deliver solutions and services that are tailored to those needs.
The Philippines, India and Sri Lanka have, at times, experienced high rates of inflation, as well as major fluctuations in the exchange rate between such foreign currencies and the U.S. dollar.
The Philippines, India and Sri Lanka have, at times, experienced high rates of inflation, as well as major fluctuations in the exchange rate between such foreign currencies and the U.S. dollar. We are also subject to fluctuations in exchange rates that affect the value of funds held by our foreign subsidiaries.
Our management disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax Department’s position. The Company is contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal.
Our management disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax Department’s position.
In addition, acts of violence or war may make travel more difficult and may effectively curtail our ability to serve our customers’ needs, any of which could adversely affect our results of operations. We may face various risks associated with shareholder activists or shareholder demands for better performance .
In addition, acts of violence or war may make travel more difficult and may effectively curtail our ability to serve our customers’ needs, any of which could adversely affect our results of operations. Our global operations expose us to risks associated with public health crises.
If large numbers of existing subscription customers do not renew these agreements or renew these agreements on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new subscription agreements generating the same or greater levels of revenue, our revenues and results of operations will be adversely affected. 19 Table of Contents If our customers are not satisfied with our services, they may terminate our contracts with them or our services and we may suffer reputational damage, which could have an adverse impact on our business.
If large numbers of existing subscription customers do not renew these agreements or renew these agreements on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new subscription agreements generating the same or greater levels of revenue, our revenues and results of operations will be adversely affected.
Further, political tensions and escalation of hostilities in any of these countries could adversely affect our operations in these countries and therefore adversely affect our revenues and results of operations. Our global operations expose us to risks associated with public health crises.
Further, political tensions and escalation of hostilities in any of these countries could adversely affect our operations in these countries and therefore adversely affect our revenues and results of operations.
These third parties, in the past, have restricted access to certain content and may not renew agreements to provide content to us or may increase the price they charge for their content. Additionally, the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third parties.
These third parties, in the past, have restricted access to certain content and have ceased providing content, and they may not renew agreements to provide content to us or may increase the price they charge for their content.
We use a distributed global resource model, which exposes us to risks associated with public health crises, such as pandemics and epidemics. A public health crisis in one or more of the geographic areas in which we operate could affect our ability to provide services to our customers and adversely affect our results of operations.
Public health crises or outbreaks of pandemics could disrupt our operations and materially and adversely affect our results of operations and financial condition. We use a distributed global resource model, which exposes us to risks associated with public health crises, such as pandemics and epidemics.
The major part of our operations is carried on in the Philippines, India, Sri Lanka, Canada, the United Kingdom, Israel, and Germany, while our headquarters are in the U.S., and our customers are primarily located in North America and Europe.
We do business on an international level, with a major portion of our operations carried on in India, the Philippines, and Sri Lanka, in addition to our operations in Canada, Germany, Israel, the United Kingdom, and the United States, while our headquarters are in the United States and our customers are primarily located in North America and Europe.
Disruptions in telecommunications, system failures, data corruption or virus attacks could harm our ability to execute our global resource model, which could result in customer dissatisfaction and a reduction of our revenues. We use a distributed global resource model.
If we are unable to protect our intellectual property, we may experience difficulties in achieving and maintaining brand recognition. 17 Table of Contents Disruptions in telecommunications, system failures, data corruption or virus attacks could harm our ability to execute our global resource model, which could result in customer dissatisfaction and a reduction of our revenues.
A significant portion of our operations are conducted outside the U.S. Despite our access to the overseas earnings and the resulting toll charge, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company has to incur on the actual remittances.
Despite our access to the overseas earnings and the resulting toll charge, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $50.4 million at December 31, 2023.
We are also subject to fluctuations in exchange rates that affect the value of funds held by our foreign subsidiaries. 21 Table of Contents Although we selectively undertake hedging activities to mitigate certain of these risks, our hedging activities may not be effective and may result in losses. See Note 14, “Derivatives,” to the consolidated financial statements.
Although we selectively undertake hedging activities to mitigate certain of these risks, our hedging activities may not be effective and may result in losses. See Note 16, “Derivatives,” to the consolidated financial statements.
In addition, negative publicity related to our customer services or relationships, regardless of its accuracy, may further damage our business by affecting our reputation and our ability to compete for new contracts with current and prospective customers. Risks Related to Financial Performance or General Economic Conditions We have no bank facilities or line of credit.
In addition, negative publicity related to our customer services or relationships, regardless of its accuracy, may further damage our business by affecting our reputation and our ability to compete for new contracts with current and prospective customers. 21 Table of Contents Risks Related to Financial Performance or General Economic Conditions Debt under our Revolving Credit Facility has a variable rate of interest that is based on SOFR which may have consequences for us that cannot be reasonably predicted and may increase our cost of borrowing in the future.
If introduced, our business, financial condition and results of operations could be adversely affected and our ability to service our customers could be impaired. Our growth could be hindered by visa restrictions. Occasionally, we have employees from our other facilities visit or transfer to the U.S. to meet our customers or work on projects at a customer’s site.
Occasionally, we have employees from our other facilities visit or transfer to the U.S. to meet our customers or work on projects at a customer’s site. Any visa restrictions or new legislation putting a restriction on issuing visas could affect our business.
An expiration or termination of these incentives could increase our worldwide effective tax rate, or increase our tax expense, thereby decreasing our net income and adversely affecting our results of operations. 22 Table of Contents Our earnings may be adversely affected if we change our intent not to repatriate our foreign earnings and profits or if such earnings and profits become subject to U.S. tax on a current basis.
Our earnings may be adversely affected if we change our intent not to repatriate our foreign earnings and profits or if such earnings and profits become subject to U.S. tax on a current basis. A significant portion of our operations are conducted outside the U.S.
COVID-19 has created significant global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant volatility in financial markets. In response to COVID-19, countries and local governments have at times imposed restrictions on the operations of non-essential businesses and services, imposed travel restrictions and implemented societal lockdowns.
Widespread outbreaks of a pandemic, such as the COVID-19 pandemic, have created significant global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant volatility in financial markets.
All of the foregoing could have a material adverse effect on our financial condition and operating results. 23 Table of Contents Anti-outsourcing legislation, if adopted, could adversely affect our business, financial condition and results of operations and impair our ability to service our customers.
Anti-outsourcing legislation, if adopted, could adversely affect our business, financial condition and results of operations and impair our ability to service our customers. The issue of outsourcing of services abroad by U.S. companies is a topic of political discussion in the U.S.
Immigration and visa laws and regulations can be significantly affected by political forces and levels of economic activity.
Immigration and visa laws and regulations in the U.S. and other countries are subject to legislative and administrative changes, as well as changes in the application of standards. Immigration and visa laws and regulations can be significantly affected by political forces and levels of economic activity.
Our new customers may sunset their products because of lack of sufficient revenues or declining revenues, or a change in their business direction, and this may result in termination of our work for these customers.
If we are unable to complete the kind of acquisitions for which we plan, we may not be able to achieve our planned rates of growth, profitability or competitive position in specific markets or services. 15 Table of Contents Our new customers may sunset their products because of a lack of sufficient revenues or declining revenues, or a change in their business direction, and this may result in termination of our services for these customers.
If additional taxes are assessed, it could have an adverse impact on our financial results. In addition, changes in the tax rates, tax laws or the interpretation of tax laws in the jurisdictions where we operate, could affect our future results of operations.
If additional taxes are assessed, it could have an adverse impact on our financial results.
The issue of outsourcing of services abroad by U.S. companies is a topic of political discussion in the U.S. While no substantive anti-outsourcing legislation has been adopted to date, given the ongoing debate over this issue, the introduction of such legislation is possible.
While no substantive anti-outsourcing legislation has been adopted to date, given the ongoing debate over this issue, the introduction of such legislation is possible. If introduced, our business, financial condition and results of operations could be adversely affected and our ability to service our customers could be impaired. Our growth could be hindered by visa restrictions.
Accordingly, we might fail to realize the expected benefits or strategic objectives of any such venture we undertake. If we are unable to complete the kind of acquisitions for which we plan, we may not be able to achieve our planned rates of growth, profitability or competitive position in specific markets or services.
Accordingly, we might fail to realize the expected benefits or strategic objectives of any such venture we undertake.
We have experienced limited operational disruptions and declines in customer demand for services to date as a result of COVID-19; however, depending upon the evolution of the COVID-19 pandemic, including the introduction of new COVID-19 variants or the spread of existing COVID-19 variants, we may experience a material adverse effect on our results of operations and financial condition as a result of the effects of COVID-19.
While we experienced limited operational disruption and decline in customer demand for services as a result of the COVID-19 pandemic, a public health crisis or an outbreak of a pandemic in one or more of the geographic areas in which we operate could affect our ability to provide services to our customers and adversely affect our results of operations and financial condition.
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This could be due to various reasons beyond our or their control, and it could lead to termination of projects or contracts.
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Our success is dependent on our ability to successfully develop new services, platforms and solutions and enhance our existing services, platforms and solutions, and market acceptance of these offerings. Our success is also dependent on our ability to compete with new vendors with lean cost and flexible cost models.
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Although we take precautions to protect our intellectual property rights, these efforts may not be sufficient or effective. If we are unable to protect our intellectual property, we may experience difficulties in achieving and maintaining brand recognition.
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Additionally, the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third parties.
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The continuing effects of the COVID-19 pandemic could materially adversely affect our results of operations and financial condition. 17 Table of Contents The novel coronavirus disease 2019 (“COVID-19”), which the World Health Organization declared a pandemic on March 11, 2020, continues to spread throughout the world.
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While the October 2023 Hamas attack against Israel and the ensuing conflict has not to date negatively impacted our operations in Israel, continued or escalating conflict in the region could disrupt our operations in Israel and could have a broader impact that extends into other markets where we do business.
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Additionally, companies have at times taken precautions, such as requiring employees to work remotely and temporarily closing businesses. All of these factors have had, and may continue to have, an adverse effect on global economic conditions, underemployment and unemployment, consumer spending and reductions in non-essential spending by governments and private companies, as well as uncertainty in financial markets.
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We are unable to predict whether acts of international terrorism, war or other military actions involving the countries in which we do business will result in any long-term commercial disruptions or if such involvement or responses will have any long-term material adverse effect on our business, results of operations, or financial condition.
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If we determine again in the future that our disclosure controls and procedures are not effective, it is possible that our disclosure controls and procedures will not prevent or detect all errors and all instances of fraud.
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We may face various risks associated with shareholder activists or shareholder demands for better performance . There is no assurance that we will not be subject to shareholder activism or demands.
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However, we previously performed this evaluation and concluded that our disclosure controls and procedures were not effective as of December 31, 2021.
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If our customers are not satisfied with our services, they may terminate our contracts with them or our services and we may suffer reputational damage, which could have an adverse impact on our business. Our business model depends in large part on our ability to attract additional work from our base of existing customers.
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We believe that our existing cash and cash equivalents and cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for the next 12 months.
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Debt outstanding under our Revolving Credit Facility has a variable rate of interest that is based on the secured overnight financing rate (“SOFR”) which may have consequences for us that cannot be reasonably predicted and may increase our cost of borrowing in the future.
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However, we have no bank facilities or lines of credit, and reductions in our cash and cash equivalents from operating losses, capital expenditures, adverse legal decisions, acquisitions or other events affecting our access to capital could materially and adversely affect the Company. See “Management Discussion and Analysis - Liquidity and Capital Resources” for additional information.
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The future performance of SOFR cannot be predicted based on historical performance and the future level of SOFR may have little or no relation to historical levels of SOFR. Any patterns in market variable behaviors, such as correlations, may change in the future.
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Any visa restrictions or new legislation putting a restriction on issuing visas could affect our business. Immigration and visa laws and regulations in the U.S. and other countries are subject to legislative and administrative changes, as well as changes in the application of standards.
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Hypothetical or historical performance data are not indicative of, and have no bearing on, the potential performance of SOFR. Our Revolving Credit Facility contains restrictive covenants that may impair our ability to conduct business. Our Revolving Credit Facility contains operating covenants and financial covenants that may in each case limit management’s discretion with respect to certain business matters.
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For example, the Revolving Credit Facility contains a financial covenant that required us, on a consolidated basis, to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00 by December 31, 2023.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our services are primarily performed from our Ridgefield Park, New Jersey headquarters and overseas delivery centers in the Philippines, India, Sri Lanka, Canada, the United Kingdom Israel and Germany all of which are leased. The square footage of all our leased properties totals approximately 179,000.
Biggest changeItem 2. Properties. We maintain leased property in Ridgefield Park, New Jersey, which is our headquarters, and in the Philippines, India, Sri Lanka, Israel and Germany. The square footage of all our leased properties totals approximately 181,000.
Our leased properties in the Philippines, Sri Lanka, Germany and Israel are primarily used by our DDS segment; and our leased property in India is primarily used by our DDS and Synodex segments and our leased property in Canada and the United Kingdom is primarily used by our Agility segment.
Our leased properties in the Philippines, Sri Lanka, Germany and Israel are primarily used by our DDS segment; and our leased property in India is primarily used by our DDS and Synodex segments. Our leased property in the United States is our corporate headquarters and is used by all segments.
Our leased property in the United States is our corporate headquarters and is used by all segments. In addition, we may need to lease additional property in the future. We believe that we will be able to obtain suitable additional facilities on commercially reasonable terms on an “as needed” basis.
In addition, we may need to lease additional property in the future. We believe that we will be able to obtain suitable additional facilities on commercially reasonable terms on an “as needed” basis.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. Reference is made to Note 6, “Commitments and Contingencies - Litigation,” to the consolidated financial statements in Item 8 of this Report, which is incorporated by reference herein. Item 4. Mine Safety Disclosures. Not applicable. 24 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings. Reference is made to Note 8, “Commitments and Contingencies - Litigation,” to the consolidated financial statements in Item 8 of this Report, which is incorporated by reference herein. In addition, On February 21, 2024, a putative class action lawsuit was filed in the U.S.
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District Court for the District of New Jersey against the Company and certain of its current and former officers (D’Agostino v. Innodata Inc., et al., Case Number 2:24-CV-00971 (the “D’Agostino Complaint”).
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The D’Agostino Complaint asserts claims against all defendants for alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. The D’Agostino Complaint alleges that defendants made materially false and misleading statements related to its AI business and development and related financial results, growth, and prospects.
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The D’Agostino Complaint seeks unspecified compensatory and punitive damages, costs, attorneys’ fees, and other unspecified relief. The Company intends to defend against the D’Agostino Complaint vigorously. Item 4. Mine Safety Disclosures. Not applicable. ​ 30 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 24 ​ Part II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item6. [Reserved] 25 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Biggest changeItem 4. Mine Safety Disclosures 30 ​ Part II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item6. [Reserved] 31 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The following table sets forth the aggregate information for the Company’s equity compensation plans in effect as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Securities ​ ​ Number of Securities ​ ​ to be Issued Upon ​ Weighted-Average ​ Remaining Available ​ ​ Exercise of ​ Exercise Price of ​ for Future Issuance ​ ​ Outstanding Options, ​ Outstanding Options, ​ Under Equity Plan Category ​ Warrants and Rights ​ Warrants and Rights (3) ​ Compensation Plans ​ (a) ​ (b) (c) Equity compensation plans ​ ​ ​ ​ ​ ​ ​ approved by security holders (1) 6,890,490 ​ $ 3.09 523,797 ​ ​ ​ ​ ​ ​ ​ ​ Equity compensation plans ​ approved by security holders (2) 1,527,500 ​ $ 3.46 2,972,500 ​ ​ ​ ​ ​ ​ ​ ​ Equity compensation plans ​ not approved by security holders - ​ - - Total 8,417,990 ​ ​ ​ 3,496,297 ​ (1) 2013 Stock Plan, approved by the stockholders, see Note 10, “Stock Options”, to the consolidated financial statements.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The following table sets forth the aggregate information for the Company’s equity compensation plans in effect as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Securities ​ ​ Number of Securities ​ ​ to be Issued Upon ​ Weighted-Average ​ Remaining Available ​ ​ Exercise of ​ Exercise Price of ​ for Future Issuance ​ ​ Outstanding Options, ​ Outstanding Options, ​ Under Equity Plan Category ​ Warrants and Rights ​ Warrants and Rights (3) ​ Compensation Plans ​ (a) ​ (b) (c) Equity compensation plans approved by security holders (1) ​ 5,567,966 ​ $ 3.22 ​ - Equity compensation plans approved by security holders (2) 1,444,523 ​ $ 3.41 1,981,406 Equity compensation plans not approved by security holders - ​ - - Total 7,012,489 ​ ​ ​ 1,981,406 ​ (1) 2013 Stock Plan, approved by the stockholders, see Note 12, “Stock Options”, to the consolidated financial statements.
(2) 2021 Equity Compensation Plan, approved by stockholders, see Note 10, “Stock Options”, to the consolidated financial statements. (3) Restricted stock units were excluded when determining the weighted-average exercise price of outstanding options, warrants and rights. Purchase or Unregistered Sales of Equity Securities We did not repurchase any shares of our common stock during the year ended December 31, 2022.
(2) 2021 Equity Compensation Plan, approved by stockholders, see Note 12, “Stock Options”, to the consolidated financial statements. (3) Restricted stock units were excluded when determining the weighted-average exercise price of outstanding options, warrants and rights. Purchase or Unregistered Sales of Equity Securities We did not purchase any shares of our common stock during the year ended December 31, 2023.
We did not have any sales of unregistered equity securities during the year ended December 31, 2022. ​
We did not have any sales of unregistered equity securities during the year ended December 31, 2023. ​
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Innodata Inc. (the “Company”) Common Stock is quoted on The Nasdaq Stock Market LLC under the symbol “INOD”. On February 21, 2023, there were 59 stockholders of record of the Company’s Common Stock based on information provided by the Company’s transfer agent.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Innodata Inc. (the “Company”) Common Stock is quoted on The Nasdaq Stock Market LLC under the symbol “INOD”. On February 7, 2024, there were 54 stockholders of record of the Company’s Common Stock based on information provided by the Company’s transfer agent.
The number of stockholders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories. We did not have any sales of unregistered securities during the year ended December 31, 2022.
The number of stockholders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, corporations, or other entities identified in security position listings maintained by depositories. We do not anticipate paying any dividends in the foreseeable future.
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We do not anticipate paying any dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process. 26 Table of Contents The following table contains a reconciliation of GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA (loss) for the years ended December 31, 2022 and 2021 (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Consolidated ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net loss attributable to Innodata Inc. and Subsidiaries ​ $ (11,935) ​ $ (1,673) Provision for income taxes ​ 1,522 ​ 842 Interest expense (income), net ​ 11 ​ (108) Gain on loan forgiveness ​ - ​ (580) Depreciation and amortization ​ 3,889 ​ 2,869 Stock-based compensation ​ 3,283 ​ 1,750 Non-controlling interests ​ (70) ​ (132) Adjusted EBITDA / (loss) - Consolidated ​ $ (3,300) ​ $ 2,968 ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, DDS Segment 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to DDS Segment ​ $ (711) ​ $ 4,989 Provision for income taxes ​ 1,423 ​ 958 Interest expense (income), net ​ 10 ​ (110) Gain on loan forgiveness ​ - ​ (580) Depreciation and amortization ​ 694 ​ 638 Stock-based compensation ​ 2,690 ​ 1,286 Non-controlling interests ​ 4 ​ - Adjusted EBITDA - DDS Segment ​ $ 4,110 ​ $ 7,181 ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Synodex Segment ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net loss attributable to Synodex Segment ​ $ (2,525) ​ $ (1,394) Depreciation and amortization ​ $ 656 ​ 62 Stock-based compensation ​ 258 ​ 98 Non-controlling interests ​ (74) ​ (132) Adjusted EBITDA (loss) - Synodex Segment ​ $ (1,685) ​ $ (1,366) ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Agility Segment ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net loss attributable to Agility Segment ​ $ (8,699) ​ $ (5,268) Provision for income taxes ​ 99 ​ (116) Interest expense, net ​ 1 ​ 2 Depreciation and amortization ​ 2,539 ​ 2,169 Stock-based compensation ​ 335 ​ 366 Adjusted EBITDA (loss) - Agility Segment ​ $ (5,725) ​ $ (2,847) ​ Results of Operations Amounts in the MD&A below are after elimination of any inter-segment profit and have been rounded.
Biggest changeThe following table contains a reconciliation of GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA (loss) for the years ended December 31, 2023 and 2022 (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Consolidated ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ Net loss attributable to Innodata Inc. and Subsidiaries ​ $ (908) ​ $ (11,935) ​ Provision for income taxes ​ 1,028 ​ 1,522 ​ Interest expense ​ 400 ​ 11 ​ Depreciation and amortization ​ 4,716 ​ 3,889 ​ Severance** ​ ​ 580 ​ ​ - ​ Stock-based compensation ​ 4,027 ​ 3,283 ​ Non-controlling interests ​ 19 ​ (70) ​ Adjusted EBITDA (loss) - Consolidated ​ $ 9,862 ​ $ (3,300) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, DDS Segment 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to DDS Segment ​ $ 223 ​ $ (711) ​ Provision for income taxes ​ 1,018 ​ 1,423 ​ Interest expense ​ 395 ​ 10 ​ Depreciation and amortization ​ 1,161 ​ 694 ​ Severance** ​ ​ 33 ​ ​ - ​ Stock-based compensation ​ 3,511 ​ 2,690 ​ Non-controlling interests ​ 19 ​ 4 ​ Adjusted EBITDA - DDS Segment ​ $ 6,360 ​ $ 4,110 ​ ​ 34 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Synodex Segment ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to Synodex Segment ​ $ 219 ​ $ (2,525) Depreciation and amortization ​ ​ 623 ​ 656 Severance** ​ ​ 6 ​ ​ - Stock-based compensation ​ 167 ​ 258 Non-controlling interests ​ - ​ (74) Adjusted EBITDA (loss) - Synodex Segment ​ $ 1,015 ​ $ (1,685) ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Agility Segment ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ Net loss attributable to Agility Segment ​ $ (1,350) ​ $ (8,699) Provision for income taxes ​ 10 ​ 99 Interest expense ​ 5 ​ 1 Depreciation and amortization ​ 2,932 ​ 2,539 Severance** ​ ​ 541 ​ ​ - Stock-based compensation ​ 349 ​ 335 Adjusted EBITDA (loss) - Agility Segment ​ $ 2,487 ​ $ (5,725) ​ ** Represents non-recurring severance incurred for a reduction in headcount in connection with the re-alignment of the Company’s cost structure.
The appeal was determined in favor of the Service Tax Department. We disagree with the basis of this decision and is contesting it. We expect delays in our Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently have service tax credits of approximately $0.8 million recorded as a receivable.
The appeal was determined in favor of the Service Tax Department. We disagree with the basis of this decision and are contesting it. We expect delays in our Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently have service tax credits of approximately $0.8 million recorded as a receivable.
We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our other operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions.
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.
Net Cash Used in Financing Activities Cash used in financing activities for the year ended December 31, 2022 was primarily for payments of long-term obligation of $0.6 million, reduced in part by proceeds from stock option exercises of $0.3 million.
Cash used in financing activities for the year ended December 31, 2022 was primarily for payments of long-term obligation of $0.6 million, reduced in part by proceeds from stock option exercises of $0.3 million.
In the event the Service Tax Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by our Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and penalties.
In the event the Service Tax Department appeals this ruling and is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by our Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and penalties.
Our actual results could differ materially from the results referred to in any forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Report. Executive Overview We are a global data engineering company. We operate in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.
Our actual results could differ materially from the results referred to in any forward-looking statement. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Report. Executive Overview We are a global data engineering company. We operate in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.
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 December 31, 2022, 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.
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 December 31, 2023, 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.
We experience fluctuations in our revenue and earnings as we replace and begin new projects, which may have some normal start-up delays, or we may be unable to replace a project entirely. These and other factors may contribute to fluctuations in our operating results from quarter to quarter.
We experience fluctuations in our revenues and earnings as we replace and begin new projects, which may have some normal start-up delays, or we may be unable to replace a project entirely. These and other factors may contribute to fluctuations in our operating results from quarter to quarter.
One customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022. Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2021. No other customer accounted for 10% or more of total revenues during these periods.
One customer in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023. Another customer in the DDS segment generated approximately 11% of the Company’s total revenues in the fiscal year ended December 31, 2022. No other customer accounted for 10% or more of total revenues during these periods.
The seasonality is directly linked to the number of life insurance applications received by the insurance companies. Trends We view new customer acquisition as an indicator of our business momentum, sales and marketing efficiency, and competitive market positioning. During the year ended December 31, 2022, we added an average of 126 new customers per year.
The seasonality is directly linked to the number of life insurance applications received by the insurance companies. Trends We view new customer acquisition as an indicator of our business momentum, sales and marketing efficiency, and competitive market positioning. During the year ended December 31, 2023, we added 517 new customers, an average of 129 new customers per quarter.
Direct operating costs as percentage of total revenues were approximately 65% and 62% for the years ended December 31, 2022 and 2021, respectively. The increase in direct operating costs as a percentage of revenues during the year was primarily due to an increase in direct operating costs, offset in part by an increase in revenues.
Direct operating costs as a percentage of total revenues were approximately 64% and 65% for the years ended December 31, 2023 and 2022, respectively. The decrease in direct operating costs as a percentage of revenues during the year was primarily due to an increase in revenues, offset in part by an increase in direct operating costs.
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 year ended December 31, 2022 amounting to $6.5 million consisted of $2.0 million for the Agility segment, $3.1 million for the DDS segment and $1.4 million for the Synodex segment.
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 year ended December 31, 2023 amounting to $5.6 million consisted of $2.9 million for the DDS segment, $1.8 million for the Agility segment and $0.9 million for the Synodex segment.
Direct operating costs for the DDS segment as a percentage of DDS segment revenues were approximately 62% and 60% for the years ended December 31, 2022 and 2021, respectively.
Direct operating costs for the DDS segment as a percentage of DDS segment revenues were approximately 65% and 62% for the years ended December 31, 2023 and 2022, respectively.
Net loss for the Agility segment was $8.7 million and $5.3 million for the years ended December 31, 2022 and 2021, respectively. The $3.4 million change was primarily due to higher Direct operating costs and Selling and administrative expenses, offset in part by higher revenues in the current fiscal year.
Net loss for the Agility segment was $1.3 million and a net loss of $8.7 million for the years ended December 31, 2023 and 2022, respectively. The $7.4 million change was primarily due to lower selling and administrative expenses and higher revenues, offset in part by higher direct operating costs in the current fiscal year.
As of December 31, 2022, the aggregate notional amount of our hedges was $14.2 million consisting of approximately $7.1 million against the Indian rupee, and $7.1 million against the Philippine peso. Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not currently intend to hedge these assets.
As of December 31, 2023, the aggregate notional amount of our hedges was $10.5 million consisting of approximately $4.3 million against the Indian rupee, and $6.2 million against the Philippine peso. Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not currently intend to hedge these assets.
Liquidity and Capital Resources Selected measures of liquidity and capital resources, expressed in thousands, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Cash and cash equivalents ​ $ 9,792 ​ $ 18,902 Short term investments - other ​ ​ 507 ​ ​ - Working capital ​ 2,869 ​ 12,658 ​ On December 31, 2022, we had cash and cash equivalents of $9.8 million and short-term investments of $0.5 million, of which $3.6 million was held by our foreign subsidiaries, and $6.2 million was held in the United States.
Liquidity and Capital Resources Selected measures of liquidity and capital resources, expressed in thousands, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Cash and cash equivalents ​ $ 13,806 ​ $ 9,792 Short term investments - other ​ ​ 14 ​ ​ 507 Working capital ​ 9,142 ​ 2,869 ​ On December 31, 2023, we had cash and cash equivalents of $13.8 million, of which $6.5 million was held by our foreign subsidiaries and $7.3 million was held in the United States.
Net Income (Loss) We had a net loss of $12.0 million and $1.8 million during the years ended December 31, 2022 and 2021, respectively.
Net Income (Loss) We had a net loss of $0.9 million and $12.0 million during the years ended December 31, 2023 and 2022, respectively.
Selling and Administrative Expenses Selling and administrative expenses consist of sales, marketing, new services research and related software development, administrative payroll and related costs including commissions, bonuses, stock-based compensation, marketing costs, third-party software, advertising, trade conferences, professional fees and consultant costs, and other administrative overhead costs.
Selling and Administrative Expenses Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses, software subscriptions, professional and consultant fees, provision for doubtful accounts and other administrative overhead expenses.
The following table sets forth certain financial data for the two years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ ​ Years Ended December 31, ​ 2022 % of revenue 2021 % of revenue Revenues ​ $ 79.0 100.0 % $ 69.7 100.0 % Direct operating costs ​ 51.5 65.1 % 43.5 62.4 % Selling and administrative expenses ​ 38.0 48.2 % 27.9 40.0 % Loss from operations ​ (10.5) (13.3) % (1.7) (2.4) % Interest income (expense) ​ 0.0 ​ 0.1 ​ Gain on loan forgiveness ​ - ​ 0.6 ​ Loss before provision for income taxes ​ (10.5) ​ (1.0) ​ Provision for income taxes ​ 1.5 ​ ​ 0.8 ​ Net Loss ​ $ (12.0) ​ $ (1.8) ​ ​ For a summary of our Critical Accounting Estimates and Policies, please refer to Note 1 of the Notes to our Consolidated Financial Statements, which are included elsewhere in this Report.
The following table sets forth certain financial data for the two years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in millions) ​ ​ Years Ended December 31, ​ 2023 % of revenue 2022 % of revenue Revenues ​ $ 86.8 100.0 % $ 79.0 100.0 % Direct operating costs ​ 55.5 63.9 % 51.5 65.1 % Gross Profit ​ $ 31.3 36.1 % $ 27.5 34.9 % Selling and administrative expenses ​ ​ 31.0 ​ 35.7 % ​ 37.9 ​ 48.2 % Income (loss) from operations ​ 0.3 0.4 % (10.5) (13.3) % Interest expense ​ 0.2 ​ - ​ Income (loss) before provision for income taxes ​ 0.1 ​ (10.5) ​ Provision for income taxes ​ 1.0 ​ ​ 1.5 ​ Net Loss ​ $ (0.9) ​ $ (12.0) ​ ​ For a summary of our Critical Accounting Estimates and Policies, please refer to Note 1 of the Notes to our Consolidated Financial Statements, which are included elsewhere in this Report.
Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenue were approximately 37% and 29% for the years ended December 31, 2022 and 2021, respectively.
Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were approximately 33% and 37% for the years ended December 31, 2023 and 2022, respectively.
Revenues from the Agility segment were $15.4 million and $13.0 million for the year ended December 31, 2022 and 2021 respectively, an increase of $2.4 million or approximately 18%. The increase was attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform and newswire product.
Revenues from the Agility segment were $17.7 million and $15.4 million for the years ended December 31, 2023 and 2022 respectively, an increase of $2.3 million or approximately 15%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform and newswire product.
Revenues from the Synodex segment were $7.1 million and $4.2 million for the years ended December 31, 2022 and 2021, respectively, an increase of $2.9 million or approximately 71%. The increase was primarily due to higher volume from three customers.
Revenues from the Synodex segment were $7.5 million and $7.1 million for the years ended December 31, 2023 and 2022, respectively, an increase of $0.4 million or approximately 6%. The increase was primarily due to higher volume from existing customers.
In a separate action relating to service tax refunds, in October 2016, our Indian subsidiary received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $121,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services.
Based on our assessment in consultation with our tax counsel, we have not recorded any tax liability for this case. 39 Table of Contents In a separate action relating to service tax refunds, in October 2016, our Indian subsidiary received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $121,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services.
Cash used in our investing activities for the year ended December 31, 2021 was $4.4 million for capital expenditures. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software.
Cash used in our investing activities for the year ended December 31, 2022 was $7.0 million consisting of capital expenditures of $6.5 million and the purchase of short-term investments of $0.5 million. 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 year ended December 31, 2021 were $2.1 million for the Agility segment, $1.7 million for the DDS segment and $0.6 million for the Synodex segment. For calendar year 2023, we anticipate that capital expenditures for ongoing technology, equipment, new platform development, and infrastructure upgrades will approximate to $6.0 million, a portion of which we may finance.
Capital expenditures for the year ended December 31, 2022 amounting to $6.5 million consisted of $3.1 million for the DDS segment, $2.0 million for the Agility segment, and $1.4 million for the Synodex segment. 42 Table of Contents For calendar year 2024, we anticipate that capital expenditures for ongoing technology, equipment, new platform development, and infrastructure upgrades will approximate to $6.0 million, a portion of which we may finance.
In addition, we also have a valuation allowance on the deferred tax assets of our Canadian, German and the United Kingdom subsidiaries. Our Canadian subsidiaries also have research and development credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.
Our Canadian subsidiaries also have research and development credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.
We believe that our existing cash and cash equivalents and cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for at least 12 months from the date of issuance of these financial statements.
We did not have any material commitments for capital expenditures as of December 31, 2023. We believe that our existing cash and cash equivalents and cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for at least 12 months from the date of issuance of these financial statements.
Net loss for the Synodex segment was $2.6 million and $1.5 million for the years ended December 31, 2022 and 2021, respectively. The $1.1 million change was primarily due to higher Direct operating costs and Selling and administrative expenses, offset in part by higher revenues in the current fiscal year.
Net income for the Synodex segment was $0.2 million and a loss of $2.6 million for the years ended December 31, 2023 and 2022, respectively. The $2.8 million change was primarily due to lower direct operating costs and selling and administrative expenses, and higher revenues in the current fiscal year.
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, 2022 and 2021 are summarized in the table below: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Federal income tax expense (benefit) at statutory rate (21.0) % (21.0) % Effect of: ​ Change in valuation allowance 36.9 186.1 ​ Tax effects of foreign operations 2.5 2.0 ​ Foreign operations permanent differences - foreign exchange gains and losses 1.1 9.5 ​ Increase in unrecognized tax benefits (ASC 740) 0.7 (22.8) ​ State income tax net of federal benefit 0.2 1.9 ​ Return to provision true up 0.3 (2.3) ​ Effect of Section 162 (m) 0.0 29.90 ​ Change in rates - 12.2 ​ Effect of stock-based compensation (0.3) (72.1) ​ Deemed interest (1.9) (1.4) ​ Foreign rate differential (4.7) (31.8) ​ Other 0.7 (2.8) ​ Effective tax rate 14.5 % 87.4 % ​ Despite access to overseas earnings and the resulting toll charge, we intend to indefinitely reinvest earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding taxes that we would have to incur on the actual remittances.
See Note 6, “Income Taxes” of the notes to the consolidated financial statements for additional information. 38 Table of Contents The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, 2023 and 2022 are summarized in the table below: ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Federal income tax expense (benefit) at statutory rate 21.0 % (21.0) % Effect of: ​ Change in valuation allowance 578.6 36.9 ​ Tax effects of foreign operations 562.6 2.5 ​ Section 162 (m) 452.0 - ​ Return to provision true up 264.4 0.3 ​ Increase in unrecognized tax benefits (ASC 740) 199.6 0.7 ​ Withholding tax ​ 106.6 ​ - ​ Foreign operations permanent differences - foreign exchange gains and losses 76.9 1.1 ​ State income tax net of federal benefit 0.1 0.2 ​ Research and development credit ​ (67.3) ​ - ​ Foreign rate differential (102.5) (4.7) ​ Deemed interest (149.2) (1.9) ​ Tax effect of intercompany settlement ​ (234.0) ​ - ​ Effect of stock-based compensation (961.6) (0.3) ​ Other (7.6) 0.7 ​ Effective tax rate 739.6 % 14.5 % ​ Despite access to overseas earnings and the resulting toll charge, we intend to indefinitely reinvest earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding taxes that we would have to incur on the actual remittances.
We disagree with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax Department’s position. We are contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal.
We disagree with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax Department’s position.
Adjusted EBITDA We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests and other one-time costs.
GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs.
The revenue of our Indian subsidiary during this period was approximately $57.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID or BS Services. Based on our assessment in consultation with our tax counsel, we have not recorded any tax liability for this case.
The revenues of our Indian subsidiary during this period was approximately $56.0 million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016, service tax is no longer applicable to OID or BS Services.
The increase in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues during the year was primarily due to an increase in direct operating costs, offset in part by an increase in revenues. 28 Table of Contents Direct operating costs for the Agility segment were approximately $8.4 million and $7.3 million for the years ended December 31, 2022 and 2021, respectively, an increase of $1.1 million or approximately 15%.
The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to lower direct operating costs and higher revenues. Direct operating costs for the Agility segment were approximately $8.7 million and $8.4 million for the years ended December 31, 2023 and 2022, respectively, an increase of $0.3 million or approximately 4%.
Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were approximately 24% and 31% for the years ended December 31, 2022 and 2021, respectively.
Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were approximately 8% and 24% for the years ended December 31, 2023 and 2022, 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.
Direct Operating Costs Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized gain (loss) on forward contracts, foreign currency revaluation gain (loss), and other direct expenses that are incurred in providing services to our customers.
Further, in the years ended December 31, 2023 and 2022, revenues from non-U.S. customers accounted for 37% and 38%, respectively, of the Company’s revenues. 35 Table of Contents Direct Operating Costs Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, and other direct expenses that are incurred in providing services to our customers.
We also tested the intangible assets of the Agility and Synodex segments for impairment. The impairment test involves estimating the fair value based on a combination of income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3).
It involved a quantitative goodwill impairment test and estimated the fair value based on a combination of the income approach (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3).
The $0.3 million change in Adjusted EBITDA was due to higher operating costs offset in part by higher revenues in the current fiscal year. Adjusted EBITDA for the Agility segment was a loss of $5.7 million and $2.7 million for the years ended December 31, 2022 and 2021, respectively.
Net income for the DDS segment was $0.2 million and a net loss of $0.7 million for the year ended December 31, 2023 and 2022, respectively. The $0.9 million change was due to higher revenues, lower selling and administrative expenses and lower income tax, offset in part by higher direct operating costs in the current fiscal year.
Direct operating costs for the Synodex segment as a percentage of segment revenues were approximately 113% and 105% for the years ended December 31, 2022 and 2021, respectively.
The decrease was due to lower direct labor costs of $1.3 million. Direct operating costs for the Synodex segment as a percentage of segment revenues were approximately 89% and 113% for the years ended December 31, 2023 and 2022, respectively.
Direct operating costs for the Agility segment as a percentage of Agility segment revenues were approximately 55% and 56% for the years ended December 31, 2022 and 2021, respectively.
Direct operating costs for the Agility segment as a percentage of Agility segment revenues were approximately 49% and 55% for the years ended December 31, 2023 and 2022, 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.
Direct operating costs were $51.5 million and $43.5 million for the years ended December 31, 2022 and 2021, respectively, an increase of $8.0 million or approximately 18%. These cost increases primarily supported our growth initiatives.
Direct operating costs were $55.5 million and $51.5 million for the years ended December 31, 2023 and 2022, respectively, an increase of $4.0 million or approximately 8%.
Net Cash Used in Investing Activities Cash used in our investing activities for the year ended December 31, 2022 was $7.0 million consisting of capital expenditures of $6.5 million and the purchase of short-term investments of $0.5 million.
Net Cash Used in Investing Activities Cash used in our investing activities for the year ended December 31, 2023 was $5.1 million consisting of capital expenditures of $5.6 million offset in part by proceeds from sale of investments of $0.5 million.
Refer to the Consolidated Statements of Cash Flows for further details. Cash provided by our operating activities for the year ended December 31, 2021 was $5.1 million and was the result of the net loss of $1.8 million, the effect of adjustments for non-cash items of $4.6 million and sources of working capital of $2.3 million.
Net Cash Provided by Operating Activities Cash provided by our operating activities for the year ended December 31, 2023 was $5.9 million resulting from our net loss of $0.9 million, adjusted for non-cash expenses of $9.9 million and a decrease in working capital of $3.1 million. Refer to the Consolidated Statements of Cash Flows for further details.
The increase in Direct operating costs includes direct and indirect labor related costs primarily on account of higher headcount and salary increases of $5.6 million; depreciation and amortization of capitalized developed software of $1.0 million; cloud services of $0.4 million, content costs of $0.3 million, severance cost of $0.3 million, an unfavorable impact of foreign exchange rate fluctuations of $0.3 million and other direct operating costs of $0.1 million.
The increase in direct operating costs includes a net increase of $2.3 million from direct and indirect labor related costs primarily on account of labor costs for new hires, and higher incentives and salary increases; higher recruitment fees of $0.9 million for new hires; an unfavorable impact of exchange rate fluctuations of $0.8 million; higher depreciation and amortization of capitalized developed software of $0.5 million and other direct operating costs of $0.5 million.
The $3.0 million change in Adjusted EBITDA was due to higher operating costs offset in part by higher revenues in the current fiscal year. Adjusted EBITDA for the Synodex segment was a loss of $1.7 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively.
Gross profit for the Synodex segment was $0.8 million and a loss of $0.9 million for the years ended December 31, 2023 and 2022, respectively. The $1.7 million change in gross profit for the Synodex segment was primarily due to lower direct operating costs and higher revenues.
See Financial Statement Index and Financial Statements commencing on page F-1, which are incorporated by reference herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 34 Table of Contents
Quantitative and Qualitative Disclosures About Market Risk. Not applicable to smaller reporting companies. Item 8. Financial Statements and Supplementary Data. See Financial Statement Index and Financial Statements commencing on page F-1, which are incorporated by reference herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
Payments of long-term obligations were $0.7 million for the year ended December 31, 2021. 33 Table of Contents Inflation, Seasonality and Prevailing Economic Conditions Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues is denominated in Canadian dollars, Pound Sterling and Euros.
Inflation, Seasonality and Prevailing Economic Conditions Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenue is denominated in Canadian dollars, Pound Sterling and Euros.
Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were approximately 101% and 85% for the years ended December 31, 2022 and 2021, respectively.
These lower selling and administrative expenses were offset in part by a higher provision for doubtful accounts of $0.2 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were approximately 58% and 101% for the years ended December 31, 2023 and 2022, respectively.
Selling and administrative expenses as a percentage of total revenues were approximately 48% and 40% for the years ended December 31, 2022 and 2021, respectively. The increase in selling and administrative expenses as a percentage of revenues during the year was primarily due to increased selling and administrative costs, offset in part by an increase in revenues.
Selling and administrative expenses as a percentage of total revenues were approximately 36% and 48% for the years ended December 31, 2023 and 2022, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues and lower selling and administrative expenses in all segments.
Selling and administrative expenses for the Agility segment were $15.6 million and $11.1 million for the years ended December 31, 2022 and 2021, respectively, an increase of $4.5 million or approximately 41%.
Revenues from the DDS segment were $61.6 million and $56.5 million for the years ended December 31, 2023 and 2022, respectively, an increase of $5.1 million or approximately 9%.
Refer to the Consolidated Statements of Cash Flows for further details. Our days’ sales outstanding were 48 days and 56 days for the years ended December 31, 2022 and 2021, respectively.
Our days’ sales outstanding were 50 days and 48 days for the years ended December 31, 2023 and 2022, respectively.
All percentages have been calculated using rounded amounts. 27 Table of Contents Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Revenues Total revenues were $79.0 million and $69.7 million for the years ended December 31, 2022 and 2021, respectively, an increase of $9.3 million or approximately 13%.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Revenues Total revenues were $86.8 million and $79.0 million for the years ended December 31, 2023 and 2022, respectively, an increase of $7.8 million or approximately 10%.
Tax-related charges primarily consisted of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate primarily due to the valuation allowance recorded on the deferred taxes of the U.S., and Canadian, German and the United Kingdom subsidiaries.
Tax-related charges primarily consisted of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries.
The increase in Direct operating costs was primarily due to an increase in direct labor costs on account of higher headcount and salary increases of $2.9 million, depreciation and amortization of capitalized developed software of $0.6 million, and cloud services of $0.2 million, offset in part by a decrease in other direct operating costs of $0.1 million.
The increase in direct operating cost includes higher depreciation and amortization of capitalized developed software of $0.4 million and higher content related costs of $0.3 million, offset in part by a decrease in direct labor costs of $0.3 million and other direct operating costs of $0.1 million.
The $10.2 million change was due to higher Direct operating costs and Selling and administrative expenses in all segments in the current fiscal year, offset in part by higher revenues in all segments, and a one-time gain on loan forgiveness amounting to $0.6 million recognized in 2021 for the DDS segment.
The $11.1 million change was due to higher revenues, lower selling and administrative expenses in all segments and lower income tax, offset in part by higher direct operating costs in the DDS and Agility segments in the current fiscal year.
The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the segment’s fair value. The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the segment's fair value.
The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the segment’s fair value. The future cash flows of the segment were projected based on the Company’s estimates of future revenues, operating income, and other factors such as working capital and capital expenditures.
The $6.3 million change in Adjusted EBITDA was due to higher operating costs offset in part by higher revenues in all segments. 31 Table of Contents Adjusted EBITDA for the DDS segment was $4.1 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively.
The $3.8 million increase in gross profit was primarily due to higher revenues in all segments, offset in part by higher direct operating costs in the DDS and Agility segments. Gross margin was 36% and 35% for the years ended December 31, 2023 and 2022, respectively.
If such foreign earnings and profits are repatriated in the future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances. 30 Table of Contents We have a valuation allowance on all of our U.S. deferred tax assets on account of continuing losses incurred by our U.S. entity.
Unremitted foreign earnings and profits amounted to approximately $50.4 million at December 31, 2023. If such foreign earnings and profits are repatriated in the future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.
Cash provided by financing activities for the year ended December 31, 2021 was proceeds from stock option exercises of $2.2 million. Cash paid for withholding taxes on net settlement exercises of stock options for the year ended December 31, 2021 was $0.8 million.
Net Cash Used in Financing Activities Cash provided by financing activities for the year ended December 31, 2023 was $2.9 million primarily from proceeds of stock option exercises of $3.3 million, offset in part by payment of long-term obligations of $0.4 million.
The selling and administrative cost increase includes payroll related costs for new hires, stock-based compensation, commissions, incentives, and bonuses of $2.9 million, marketing activity related costs of $0.9 million, recruitment and professional fees of $0.4 million, provisions for doubtful accounts of $0.3 million, leasehold improvement write-offs from lease terminations of $0.1 million, and other selling and administrative costs of $0.6 million.
The decrease in selling and administrative expenses includes lower recruitment and professional fees of $0.6 million; lower marketing related expenses of $0.5 million and lower provisions for doubtful accounts of $0.2 million. These costs were offset in part by higher stock-based compensation, commissions and incentives of $0.6 million, and an increase in other selling and administrative expenses of $0.1 million.
The increase in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was due to increased selling and administrative expenses, offset in part by an increase in revenues. 29 Table of Contents Goodwill and Intangible Asset Impairment As of September 30, 2022, we performed our annual goodwill impairment analysis on one of our reporting units, the Agility segment.
The decrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to lower selling and administrative expenses and higher revenues. Goodwill Impairment As of September 30, 2023, the Company performed its annual goodwill impairment analysis on the Agility segment.
The $3.0 million change in Adjusted EBITDA was due to higher operating costs offset in part by higher revenues in the current fiscal year. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please see the description of “Non-GAAP Financial Measures - Adjusted EBITDA” above.
For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please see the description of “Non-GAAP Financial Measures – Adjusted EBITDA” above. Adjusted EBITDA was $9.9 million and a loss of $3.3 million for the years ended December 31, 2023 and 2022, respectively.
Revenues from the DDS segment were $56.5 million and $52.6 million for the years ended December 31, 2022 and 2021, respectively, an increase of $3.9 million or approximately 8%. The net increase was due to higher volume from two customers, partially offset by lower volume from several customers.
Direct operating costs for the DDS segment were $40.1 million and $35.1 million for the years ended December 31, 2023 and 2022, respectively, an increase of $5.0 million or approximately 14%. The increase in direct operating costs was primarily due to higher revenues from two existing and one new customer.
The increase in Direct operating costs includes direct and indirect labor related costs primarily on account of higher headcount and salary increases of $2.4 million; severance cost of $0.3 million, cloud services of $0.2 million, an unfavorable impact of foreign exchange rate fluctuations of $0.2 million and other direct operating costs of $0.2 million.
The increase in direct operating costs includes a net increase of $0.7 million from direct and indirect labor related costs primarily on account of labor costs for new hires and salary increases, offset in part by reductions in headcount in line with cost optimization efforts in the first half of 2023; higher recruitment fees of $0.9 million for new hires; higher depreciation and amortization of capitalized developed software of $0.8 million; an unfavorable impact of exchange rate fluctuations of $0.8 million; higher content costs of $0.3 million, and other direct operating costs of $0.5 million.
The decrease in direct operating costs of the Agility segment as a percentage of Agility segment revenues during the year was primarily due to higher volumes from subscriptions to our Agility AI-enabled industry platform and newswire product, offset in part by an increase in direct operating costs.
Gross margin for the Agility segment was 51% and 46% for the years ended December 31, 2023 and 2022, 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.
Net loss for the DDS segment was $0.7 million for the year ended December 31, 2022, compared to a net income of $5.0 million for the year ended December 31, 2021.
The $2.7 million change in Adjusted EBITDA was due to a lower net loss in the Synodex segment. Adjusted EBITDA for the Agility segment was $2.5 million and a loss of $5.7 million for the years ended December 31, 2023 and 2022, respectively.
Selling and administrative expenses for the DDS segment were approximately $20.7 million and $15.5 million for the years ended December 31, 2022 and 2021 respectively, an increase of $5.2 million or approximately 32%. The cost increase primarily supported our growth initiatives.
Selling and administrative expenses for the DDS segment were approximately $20.1 million and $20.7 million for the years ended December 31, 2023 and 2022 respectively, a decrease of $0.6 million or approximately 3%. The decrease in selling and administrative expenses was primarily due to the cost optimization efforts aimed at improving operational efficiency.
The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization (“EBITDA”) to estimate the segment’s fair value. The market multiples used for the segment were based on a group of comparable companies’ market multiples applied to our revenue.
As part of the DCF analysis, the Company projected revenue and operating profit and assumed long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization (“EBITDA”) to estimate the segment’s fair value.
Selling and administrative expenses for the Synodex segment were $1.7 million and $1.3 million for the years ended December 31, 2022 and 2021 respectively, an increase of $0.4 million or approximately 31%. The cost increase was primarily attributable to payroll related costs and recruitment fees for new hires and other professional fees of $0.4 million to support our growth initiatives.
The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues and lower selling and administrative expenses. 37 Table of Contents Selling and administrative expenses for the Synodex segment were $0.6 million and $1.7 million for the years ended December 31, 2023 and 2022 respectively, a decrease of $1.1 million or approximately 65%.
Direct operating costs for the Synodex segment were approximately $8.0 million and $4.4 million for the years ended December 31, 2022 and 2021, respectively, an increase of $3.6 million or approximately 82%. The cost increase primarily supported our growth initiatives combined with the timing of new technology roll-out.
Direct operating costs for the Synodex segment were approximately $6.7 million and $8.0 million for the years ended December 31, 2023 and 2022, respectively, a decrease of $1.3 million or approximately 16%. The decrease in direct operating costs was primarily due to cost optimization efforts aimed at improving operational efficiency.
The increase in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was due to increased selling and administrative expenses, offset in part by an increase in revenues.
Gross margin for the DDS segment was 35% and 38% for the years ended December 31, 2023 and 2022, respectively. The decrease in gross margin for the DDS segment as a percentage of revenues was primarily due to higher direct operating costs offset in part by higher revenues.
However, as we have no bank facilities or lines of credit, reductions in our cash and cash equivalents from operating losses, capital expenditures, adverse legal decisions, acquisitions or otherwise could materially and adversely affect the Company. 32 Table of Contents Net Cash Provided by Operating Activities Cash used in our operating activities for the year ended December 31, 2022 was $1.2 million and was the result of the net loss of $12.0 million, the effect of adjustments for non-cash items of $8.9 million and sources of working capital of $1.9 million.
Cash used by our operating activities for the year ended December 31, 2022 was $1.2 million resulting from our net loss of $12.0 million, adjusted for non-cash expenses of $8.9 million and an increase in working capital of $1.9 million. Refer to the Consolidated Statements of Cash Flows for further details.
Selling and administrative expenses were approximately $38.0 million and $27.9 million for the years ended December 31, 2022 and 2021, respectively, an increase of $10.1 million or approximately 36%. The cost increase primarily supported our growth initiatives across all business segments.
Selling and administrative expenses were approximately $31.0 million and $38.0 million for the years ended December 31, 2023 and 2022, respectively, a decrease of $7.0 million or approximately 18%. The decrease in selling and administrative expenses was primarily due to the cost optimization efforts aimed at improving operational efficiency.
The decrease in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was due to an increase in revenues, offset in part by an increase in selling and administrative expenses.
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. Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure.
On May 21, 2021, our loan forgiveness application was approved for 100% of the amount loaned to the Company by the Small Business Administration (“SBA”). Income Taxes We recorded a provision for income taxes of approximately $1.5 million and $0.8 million for the years ended December 31, 2022 and 2021, respectively.
The market multiples used for the segment were based on a group of comparable companies’ market multiples applied to the Company’s revenue. The Company concluded that there is no impairment of goodwill. Income Taxes We recorded a provision for income taxes of approximately $1.0 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively.
Adjusted EBITDA Adjusted EBITDA for the year ended December 31, 2022 was a loss of $3.3 million compared to an income of $3.0 million for the year ended December 31, 2021.
Adjusted gross profit for the Synodex segment was $1.4 million and a loss of $0.2 million for the years ended December 31, 2023 and 2022, respectively. The $1.6 million change in adjusted gross profit in the Synodex segment was due to higher gross profit.
As of December 31, 2022, we had working capital of approximately $2.9 million, as compared to working capital of approximately $12.7 million as of December 31, 2021. The decrease in working capital is due to cash used to finance capital expenditures, payment of long-term obligations and operating losses incurred in the current fiscal year.
As of December 31, 2023, we had working capital of approximately $9.1 million, as compared to working capital of approximately $2.9 million as of December 31, 2022.
The selling and administrative costs increase includes payroll related costs for new hires, stock-based compensation, commissions, incentives of $3.5 million, marketing activity related costs of $0.7 million, severance costs of $0.3 million, provisions for doubtful accounts of $0.1 million, leasehold improvement write-offs from lease terminations of $0.1 million, and an unfavorable impact of foreign exchange rate fluctuations of $0.1 million; partly offset by decreases in recruitment and professional fees of $0.3 million.
The decrease in selling and administrative expenses includes lower labor and related expenses of $3.5 million primarily on account of headcount reductions offset in part by higher commissions; lower marketing related expenses of $1.3 million; a favorable impact of foreign exchange rate fluctuations of $0.2 million; lease termination expense of $0.2 million; lower professional fees of $0.1 million and a decrease in other selling and administrative expenses of $0.2 million.
Direct operating costs for the DDS segment were $35.1 million and $31.8 million for the years ended December 31, 2022 and 2021, respectively, an increase of $3.3 million or approximately 10%. These cost increases primarily supported our growth initiatives.
Gross profit for the DDS segment was $21.5 million and $21.3 million for the years ended December 31, 2023 and 2022, respectively. The $0.2 million increase in gross profit for the DDS segment was primarily due to higher revenues offset in part by higher direct operating costs.
Removed
Further, in the years ended December 31, 2022 and 2021, revenues from non-U.S. customers accounted for 38% and 45%, respectively, of the Company’s revenues.
Added
Adjusted Gross Profit and Adjusted Gross Margin We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with U.S.

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