Good morning and welcome to the Innodata First Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Agress. Please, go ahead. .

Thank you, Lisa. Good morning, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata, and O'Neil Nalavadi, our CFO. We'll hear from O'Neil first, who will provide a detailed review of our first quarter results, and then Jack will follow with additional perspective about the business.

We'll then take your questions..

First, let me qualify the forward-looking statements that are made during the call.

These statements are based largely on our current expectations and are subject to a number of risks and uncertainties, including, without limitation, the matters relating to our Innodata Advanced Data Solutions segment that are discussed during the call and the risks and uncertainties of early stage companies generally; that contracts could be terminated by customers; projected or committed volumes of work may not materialize; the primarily at-will nature of our contracts with our customers; and the ability of our customers to reduce, delay or cancel projects; continuing Content Services segment revenue concentration in a limited number of customers; continuing Content Services segment reliance on project-based work; inability to replace projects that are completed, canceled or reduced; depressed market conditions; changes in external market factors; the ability and willingness of our customers and prospective customers to execute business plans, which give rise to requirements for digital content and professional services in knowledge processing; difficulty in integrating and deriving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies we acquire; changes in our business or growth strategy; the emergence of new or growing competitors; various other competitive and technological factors; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

We undertake no obligation to update forward-looking information, and actual results could differ materially. .

Thank you. I will now turn over the call to O'Neil. .

Thank you, Amy. Good morning, everyone. Thank you once again for joining us today to review our financial results for the first quarter 2014. I'll review the results by comparing the performance on a sequential quarter-over-quarter basis. .

Our total revenues in the first quarter were $14.1 million compared to $15.4 million in the fourth quarter 2013. This decrease, which was expected and discussed on the last call, was primarily attributable to a client's budget freeze, which has stalled a couple of projects with approximate annual revenues of $5 million. .

On a segment basis, total revenues and content services were $14 million this quarter compared to $15.2 million in Q4 2013. And total revenues in our Advanced Data Solutions business were $100,000 in this quarter compared to $200,000 in Q4. Revenues from our top 3 clients were 40% of total revenues this quarter compared to 43% last quarter.

Looking ahead, our revenue guidance for Q2 2014 is between $13.5 million and $15 million. .

We have made some important advancements in sales recently in both our Content Services and our IADS segment, which Jack will discuss in a few minutes. And the result of these advancements, we are cautiously optimistic that revenues may trend higher in Q3 of this year.

And subsequently over the next 4 to 6 quarters, we see good prospects of significantly increasing our portfolio of recurring revenues as ramp-up takes place..

Let me now review our gross margins. On a consolidated basis, gross margins in Q1 were $3.8 million, or 27% of revenues, compared to $4.5 million, or 29% of revenues, in Q4, a decrease of $700,000. This decrease in gross margin was primarily a result of lower revenues and the associated impact of operating leverage. .

On a segment basis, gross margin in our Content Services business was $4.8 million, or 34% of revenues, in Q1 compared to $5.6 million, or 37% of revenues, in the fourth quarter. .

In IADS, the gap between our cost of production and revenues was $1 million this quarter compared to $1.1 million last quarter..

Our selling, general and administrative expenses were approximately $3.8 million, or 27% of revenues, in Q1 compared to $4.3 million, or 28% of revenues, in the previous quarter, a decrease of $500,000. These expenses were lower primarily due to seasonal factors between Q4 and Q1..

Moving down to pretax earnings, we incurred a small loss of $5,000 this quarter compared to a pretax profit in Q4 of $170,000. Lower gross margins of $700,000 contributed to this change in pretax earnings, although they were partially offset by lower SG&A expenses of $500,000.

This $5,000 pretax loss is after absorbing $1.4 million of IADS gestational losses. If we were to exclude IADS gestational costs, pretax earnings in our Content business would be $1.4 million, or 10% of revenues, compared to $1.7 million, or 11% of revenues, in the prior quarter..

In the current quarter, we had a net tax charge of $100,000 compared to a net tax benefit of $360,000 in Q4. As previously discussed, the net tax benefit in Q4 was primarily a result of year end adjustments for intercompany transactions based on an independent transfer pricing [ph] study.

In the current quarter, our tax charge on earnings of our international subsidiaries was approximately $450,000, but this was offset by a net gain of $350,000 as we adjusted tax accruals for prior years based on the progress we are making in resolving our Indian and Philippine tax disputes..

Net earnings after minority interest was $200,000 this quarter compared to net earnings of $900,000 in the fourth quarter..

Turning now to our cash flow statement, we generated $4.4 million of cash this quarter compared to $1 million of cash we consumed last quarter. This change is primarily attributable to a reduction in the AR balances of $3.4 million and a capital lease financing arrangement we put in place for approximately $900,000. .

We incurred capital expenditures of approximately $900,000 in the first quarter compared to $300,000 in the fourth quarter. This CapEx spend exceeded our last quarterly guidance of $400,000 to $600,000 because we ultimately decided to accelerate some of the CapEx plan for the latter part of the year.

The entire CapEx spend is attributable to our Content Services business as we are continuing to expense through the income statement all capital expenditures we incurred in our IADS business. We expect our Q2 2014 CapEx to be in the range of $1.2 million to $1.5 million..

Our balance sheet remains strong with cash, cash equivalents and investments in term deposits with banks at $29 million at the end of Q1 compared to $25 million at the end of Q4 2013. Of this, approximately $5 million was held in the U.S., and the rest was held overseas by our international subsidiaries. .

Looking at working capital, our accounts receivable was approximately $8.5 million at the end of the first quarter compared to $12 million at the end of the fourth quarter of 2013. .

In terms of DSO, or days sales outstanding, our AR balance was averaging at 65 days this quarter compared to 68 days at Q4 2013. This decrease in the AR balance was primarily on account of collection of balances from the key customer which was delayed in Q4..

Let me now review a couple of key items not reflected in the line items in the financial statements. At the end of the first quarter, the total outstanding foreign currency forward contracts taken to hedge our foreign currency exposures amounted to $15 million. In Q4, the U.S.

dollar lost 1% against the Indian rupee and gained 3% against the Philippine peso. Based on mark-to-market, this resulted in notional unrealized gains of $100,000 as compared to notional losses of $600,000 as of December 31, 2013.

These forward contracts will be maturing over the next 12 months and any losses or gain from these contracts will be recognized upon maturity..

The last point I would like to review is the position of our U.S. tax assets. Our U.S. tax NOLs, which are available for setup against future taxable profits, amounted to $80 million [ph] at the end of Q1. .

Let me now hand over the floor to Jack to provide additional insight of the progress we're making to grow the business, and after that, we will take your questions.

Jack?.

Thank you, O'Neil. Good morning, everyone, and thank you for joining us today. As O'Neil just alluded to, we've got good news to share in terms of significant new business wins both in our IADS segment and in our Content Services segment. .

On the IADS side, our Synodex subsidiary has signed 2 new significant contracts. The first contract is with a financial group that has ranked among the top 25 largest life insurers by individual life insurance issuers, albeit on the low end of this particular ranking.

This contract, which has a 3-year initial term, has the potential to result in approximately $1.3 million of revenue per year. Apparently, the contract still needs to go through one final approval process within the client's organization relating to IT resource allocation.

While we are aiming for a June 1 start date, the client has told us that the last internal approval could delay our start. In any event, we expect to know more within the next couple of weeks..

The second contract is with a major reinsurance company. This second contract, which has an initial term of 2 years, has the potential to result in approximately $2.5 million in revenue per year. We expect that this contract will be off to a slow start, however, as the client needs to obtain several third-party consents.

We expect that we'll have progressively greater visibility on ramp-up in the weeks and months ahead..

We are very pleased with these 2 new contract wins, but we do want to emphasize that the insurance industry is an industry where things move at a deliberate pace, and we need to be prepared for delays, even long delays, in bringing production up to full speed.

Moreover, what we're working on here is innovation, and innovation comes with inherent uncertainties and market acceptance, profitability and technology viability. .

That said, the contracts both underscore that we're significant players with a seat at the innovation table of the insurance industry. Each of these clients participated in vigorous testing and pilot programs with us through which they gained confidence in our ability to help them drive value in their risk-assessment operations.

We're confident that the value propositions which motivated these companies to engage with us will also resonate with other similarly situated companies..

Now on the Content Services side, we've been selected by a large European-based information company to provide end-to-end content creation and management services to 2 of their divisions. We have executed letters of intent with one of these divisions, and we are in the process of finalizing a letter of intent with the other.

The executed LOI and the draft LOI each anticipate signing 5-year definitive agreements. Based on the terms of the LOIs, we expect that the definitive agreements, taken together and once signed, could potentially yield approximately $10 million of revenue per year.

The LOIs provide for us to rebadge [ph] certain key staff, including select executive managers and subject matter experts and for us to open new European offices. The rebadged [ph] executive managers will form the nexus of our new management team responsible both for servicing our clients and for driving additional growth.

We have identified certain growth opportunities in Europe, which our new managers will be responsible to pursue beginning in Year 2 of our operations..

Apart from these notable new engagements, we continue to make other meaningful progress, both in Synodex and in Content Services. In Synodex, we began a paid pilot engagement with another major reinsurance company, and we continue to progress conversations with our client prospects.

We are expecting several go/no-go decisions within the current quarter. .

In about a week, our business development team will be attending the annual conference of the Association of Home Office Underwriters, which is being held this year in Indianapolis, Indiana. This 4-day conference is one of the largest annual gatherings of life insurance underwriters.

Strikingly, the theme of this year's conference is Innovations and Risk Assessment. Over the past few weeks, we've been filling up our dance card with new potential prospects to meet at the conference..

In the quarter, we brought on board a senior sales executive with an impressive track record of success in the life insurance sector. Stephen Talnose, who's appointment we announced in April, brings more than 20 years of experience selling complex services and solutions to life insurance companies.

He was most recently a sales star at Infosys' life insurance systems and BPO arm. .

On the development side, we are continuing to make good strides on our Synodex 3.0 product release, which we believe will enable us to improve our internal processing speed while integrating new codes and data within our reports and making our reports more configurable. We are targeting release of Synodex 3.0 in June..

As O'Neil mentioned, Synodex had a gestational loss of about $1 million in the quarter, which includes production and engineering expenses and SG&A costs of about $450,000. At this rate, we're spending around $5.6 million per year..

In our Content Services segment, we seem to be experiencing an uptick in new business opportunities, even beyond the LOIs that I referred to earlier. Here are a few examples of particularly interesting work awarded to us in the quarter.

In the quarter, we began working with several well-known magazines, helping them design fully indexed and searchable digital archives of -- digital databases of their archives. .

Also in the quarter, we were selected by a leading provider of research and analytics to take over full product production responsibilities in one of their high-profile products. This 3-year contract has a total contract value of $1.5 million [ph]..

A leading professional association chose us to build for them a new content delivery platform. As part of this deal, we will be retaining ownership of the IP and co-marketing the platform to other associations.

We are excited about the prospect of doing more deals like this, where cutting-edge digital information platforms that we build can become part of our product portfolio and our client sponsors can make sure that we properly understand market requirements. .

In addition to Synodex and in addition to the European outsourcing work, we see licensing these products as another potential avenue of opportunity to drive recurring revenue streams..

Beyond awarded work, we began several consulting engagements with new and existing clients on what may become significant opportunities within the next several months. .

I will now open the line for questions, after which I'll wrap up with final comments. Operator, we're ready for questions now. .

[Operator Instructions] Our first question comes from Vincent Colicchio with Noble Financial. .

Jack, does any of your optimism on the Content Services side involve eBooks? If so, can you give us a little more color?.

Sure, Vincent. Thanks for your question. The work that we were -- or that I was referring to in my prepared remarks involves eBook in part but not directly.

The scope of what we're going to be doing for the large LOIs involves everything from acceptance of authored manuscripts through aggregating data feeds and then producing print online and mobile deliveries. So eBooks is wrapped up in that, but it's not exclusively eBooks. .

And then O'Neil, what was the eBook revenue number in the quarter? Do you have that?.

It was approximately 15% of revenues. .

I'm sorry? 15?.

15%, 1-5, that's right. .

Okay.

Now the new -- your new addition on the Synodex side, Jack, is he -- does he have a lot of overlap with prior relationships that will be very helpful facilitating a decision faster than he could have done otherwise?.

Well, it's -- the answer is, so the first part of the question is yes. He's got a lot of relationships in people that we're talking to, and we're finding that those relationships are very helpful, and he's got experience working with these companies. So he understands the rhythm of business. He understands the complexity of decision-making.

And I think those will all be very important to us. Whether it enables us to speed things up, time will tell. But we're confident that we've got a real good hire and that we're going to see some good progress as a result. .

On your Content Services side, going back to that, it's been -- the business has been flat to down for some time.

Why the sudden uptick? Do you think it's just natural cycle here, or have you done anything differently to kind of stimulate that?.

Well, we've been building toward this European strategy now for a little while. We've got some similar engagements that were great reference studies for this. And we see that there's a good market opportunity there. We've been expanding into multiple languages for a while.

We set up a base of operations to service this in Sri Lanka and then also in Israel, and that's been percolating well. And I think now we're at a stage where we are starting to see an opportunity to capitalize on those investments. In terms of other things, I think it's probably a combination. I think that our team is working well.

I think we're hitting on multiple or all cylinders. And at the same time, there's probably some renewed optimism in the markets in some new products and new things being talked about. .

So are we at the beginning of a new multi-quarter growth spurt for you on the Content Services side?.

I think we'll know it once we're there. That kind of thing is best identified historically. Right now, I think what's important is we're optimistic. We see some good things happening, and we're very proud of the wins that we are reporting today. If we were an Indian IT company, we'd be talking about how -- we're reporting $60 million of wins right now.

But we try to be a little bit more understated in that and a little bit more circumspect. But I certainly don't want to downplay the work that's been done here. I think it's tremendous and bodes very well for the future periods. .

Our next question comes from Stan Berenshteyn with Sidoti & Company. .

Looking at the expenses and particularly cost of goods sold and operating expenses, there's been clearly a decline from prior year. It seems like it's at all-time lows.

I was curious if you can comment on how these new contracts on Synodex and Content Services side are going to impact the costs going forward?.

Stan, as we shared with investors in the past, all the new deals that we are working on are all targeted at gross margin levels. We work on a model whereby we target a certain direct labor margin. And essentially, that translates into a certain level of gross margins.

That said, in between the quarters, if there is some element of ramp-up, that can impact, but all the medium term to long term, it will deliver the same level of gross margins that we're targeting for. .

And Stan, this is Jack. I'll just add one thing to what O'Neil said, which, of course, I agree with. Part of the carrying costs or the gestational costs that we're carrying in Synodex are from production resources.

So the contracts that we're describing today, we've got sufficient resources in place in order to absorb these contracts without incurring additional expenses.

On the LOIs that I'm referring to, we will start to incur some costs and set up for those in terms of opening offices in Europe that I described, but I don't think that those will be very big numbers. .

Okay.

Will the new contracts take Synodex to breakeven? Based on your 1.4 burn rate, will the $3.8 million in new contracts offset that?.

It will help. I don't think they'll get us all the way there. There are a few moving pieces in terms of talking about breakeven. One is bookings. Of course, the bookings need to translate into revenue. And then we need to hit the targeted productivities coming out of our Synodex 3.0 product that we're intending to hit.

If those things go well, breakeven it's probably somewhere between $6 million and $7 million of annualized revenue. These bookings aggregate to about $4 million. .

Okay.

And last question, you obviously have a lot of things going on, on the Content Services side, is there a time horizon now for this opportunity to play out, or these opportunities, I should say?.

Can you be more specific about which you're referring to?.

Yes.

The last things that you mentioned with the magazines, the research analytics, the delivery platform, is there a time horizon for those?.

Yes. Those are things that we're working on actively now. So they'll be playing out over the next weeks and months. .

We'll take our next question from Joseph Furst with Furst Associates. .

Congratulations on getting these new contracts. When you add up these numbers, it comes to basically almost a 25% potential increase in quarterly revenues.

My question is, in the last conference call, I believe you had said that in the Synodex here that you were working on about 20 different companies that were on sort of the last stages of negotiations, and I see you've finished 2 of them.

I wonder, what's the status basically of the other 18? Did they go away, or are they still in the process? What's going on with the other 18?.

Sure. For the most part, they're still in process, and what we're doing is we're very hyper focused on the ones that we think are near in and the ones that will help get the business not just viable but to break even and then to beyond that. So we're continuing to make progress on most all of them.

There are a couple that have fallen off or slowed down to the point that we're not paying that much attention to them anymore. But what we are very focused on are the ones that have near impossibilities. And as I mentioned in my prepared remarks, there's some go/no-go decisions that we're expecting even this quarter. .

We'll take our next question from Tim Clarkson with Van Clemens Capital. .

Just a technical question. I know this is for O'Neil that there is an issue with JPMorgan as to your credit line.

Has that issue had been resolved, or are you still negotiating a new credit line?.

Yes, right now, we are in a good position with regard to our cash balances. Like I said in my prepared remarks, we have 25 -- $29 million of cash, of which $5 million is in the U.S. So right now, there is no immediate need to rely on any lines of credit.

That said, we intend to establish a line of credit to have access to finance for future working capital needs. We had a good working relationship with JPMorgan, and they've been our bankers for several years. So we are engaged in talking with them regarding how they can support us.

That said, we will also be entertaining other banks, which are courting us to establish a relationship. And we will do what is best for the business and the company. .

Okay. I was just talking with Shirley [ph] on trying to model profitability levels at higher revenue, and I was suggesting that Innodata would make if you get back into that $17 million, $18 million revenue that you would probably be at a $0.30 annual pace.

Is that kind of the model assuming you hit your gross margins? Or is that just too far to look out?.

Tim, it did not come across clearly. Can you... .

Yes. Assuming, let's say -- just looking at it on a quarterly basis, right now you're at about $14 million in revenue. Let's assume that some of these wins come to pass and you add $3 million, $4 million in revenue.

So instead of doing $14 million in revenue where you're at about a breakeven, you're doing $17 million, $18 million, and I was suggesting at that level that you'd be making about 10% net.

Is that reasonable? Is that the kind of modeling you're looking at, at higher revenues?.

Good question. Tim, the best way to understand is that the Content business is currently producing about 10% margins.

So any growth in the Content business will only be incrementally helpful in terms of the margin, though -- and please don't run too far ahead in terms of expecting that the margins will significantly improve because we will also have to make some investments.

With regard to the IADS business, like the way Jack discussed, the breakeven for that business is somewhere between $6 million to $7 million in annualized revenues. And right now, we are -- it is difficult to put exact number in terms of what we will reach, but this would be the way to model and see what it will reflect in a combined basis.

Does that kind of answer your question, or... .

Well, not really, but we'll talk more about it. And just parenthetically, I still feel like especially -- well, let me ask you this first.

Is there any change in the status of your making acquisitions?.

In terms of the acquisitions, the build pipeline has improved quite a bit compared to last quarter. There are some targets that meet the characteristics that we are looking at. The characteristics, obviously, which we've shared in the past or tried to share with investors is, essentially, it has to be a platform playing digital content.

It has to have recurring revenue streams with high gross margins. It should be reasonably scalable in terms of and have an impact on our EPS. And it should have a good product market fit, which is supported by a strong customer franchise. So -- and obviously, the last point is it should have a good complementary management team.

We see a couple of deals in the pipeline that fit those characteristics, and in the case of one of them, we are making progress and are actively engaged in discussions. That said, one needs to be cautious that these deals, until they are signed, sealed and delivered, should not be taken for granted. .

Well, trust me, we know that. But -- and then just parenthetically, I still think at this level, especially now that the cash balance improved that the company should be more aggressive or become aggressive on the stock buyback. .

Right. It was something that we discussed, Tim, quite a bit internally as well and is a point that is not being overlooked.

I think we are going to give it -- see the start considering, obviously, the prospects that we have for both acquisitions and for growing the business organically and the working capital needs, and more importantly, to improve the shareholder value. .

[Operator Instructions] And we'll take our next question from Brad Hathaway with Far View Capital Management. .

One quick question on the Synodex side.

So just to confirm, neither of these 2 revenue-producing contracts are RGA, correct?.

For reasons of NDAs that we've got in place, we're not putting a name to either of the customers. But on the reinsurance side, I think it's important to state, we're working now with several reinsurers, and it's our goal that we will have strategic relationships in place with several reinsurers. .

Okay.

So I guess you can't confirm that it's not, I guess, would be a way to say that?.

That's right. As I said, we're just not going to go there. We are not going to put names on these clients right now. We are -- NDAs preclude... .

Understood. Great. And I guess permit me a last question or comments on profitability. Previously, in presentations, you've provided sensitivities that would suggest significant profitability at not too much kind of incremental revenue on the Content Services side.

Is there something specific about this move to Europe that's causing incremental expenses that will make those previous sensitivities less valid, or is there something else we should think about?.

Yes. I think that what we will probably do at some point is provide some additional guidance around these contracts. Right now, by virtue of the magnitude, there's nothing else. Right now, I think it's important to underscore that they're LOIs, they're subject to definitive agreements, and there's still some discussion points that we need to nail down.

Once we get there, again, given the magnitude, I think we will probably be providing some more information that will enable you to model those sensitivities more granularly. .

Okay.

So I guess if we are looking back at the numbers out of the March presentation, we should be a little cautious about applying kind of the incremental revenue in those scenarios because, obviously, now with these big new contracts, the situation might be a little bit different?.

Yes, I think that's fair. Well, I think for one thing, we are going to incur some startup costs on these. I don't think they'll be huge, but I do anticipate that. Beyond that, as I stated, we're using these contracts as a lever point to grow our businesses in Europe where we do see some good opportunity that will involve some cost.

Beyond that, we're talking about 5-year deals. And Innodata as you were probably aware, doesn't typically do 5-year deals; 5-year deals often are more backloaded from a profit perspective than front-loaded. So I think some level of caution there is important. .

We'll take our next question from George Melas with MKH Management. .

A quick question on the Content Services in Europe.

What's the business that you have there right now? And if you get these contracts, or these 2 contracts with this 1 large company, does that meaningfully change your business in Europe? Would you have already a strong base, or is it really sort of your entry into the continent?.

Ask -- O'Neil can share with you numbers and where the percentage of revenue that's generated from Europe, and while he's looking those numbers up, what I would say is there are 2 flavors of revenue, and from strategic perspective, it's important to differentiate them. One is Europe-originated revenue that's still English-language based.

So there are some very large publishers who are based in Holland. They publish information worldwide. They're multimillion dollar players. And they publish a lot of English-language materials. Most of the work that we've had until now has been English language.

We started about a year ago to make forays into non-English language, both on the eBook side, but then also on the -- within the larger context of published information. And we're seeing some good traction there as evidenced by these LOIs. So I think the non-English language opportunity could open Europe up in a more significant way for us.

O'Neil, do you want to share any data points around that?.

Yes. The revenues from Europe are approximately about 33% to 35%. That's what we've been averaging for the last several quarters. .

Okay. So very meaningful.

So in a way, I think, Jack, what you're saying is that these new contracts would be primarily in non-English language work?.

That's correct. These new contracts are entirely in non-English language. .

And most of that work then would be done partly locally and partly in Sri Lanka and Israel, is that correct?.

That's correct also. .

Okay. Great. And then one quick question on the Synodex side. I think right now you have signed, I think, 4 clients on the platform.

And if we add all the potential revenue from these clients as they ramp up, would we be at the $6 million to $7 million breakeven level?.

When we look at it from a bookings perspective, we think we are still shy of where we need to be in order to have enough backlog to get to breakeven. We had announced a contract, the first large contract, which continues to experience delays there. They brought in a new chief underwriter just as we were starting up.

And even though that new chief underwriter told me personally that this is an important project for her and she's anxious to get going, there still have been delays. But I think related to that appointment and her coming in. So when we look at breakeven and we think about our challenge, we're not looking at a revenue projection there.

We are preferring to look at other things that are in our pipeline. So on this business and then the things that we've got, we've got aggregate bookings of say around $4 million, I'm still targeting another couple of million dollars, $2 million to $3 million, in order to get us fully to have enough backlog to achieve breakeven. .

Okay. Great.

And then on the docGenix side, is there any development regarding either new customers or sort of a product release?.

Yes. The one large customer that we've got today, I actually met with them last week, and we've got some really nice feedback.

One thing they've told me that I think is important and notable is they said that within their institution, this has gone from being kind of a lawyer's tool to a real enterprise risk management and compliance tool, which is huge, really.

And we've added bits and pieces on, and we've kind of built hooks from our product into other aspects of their system, which is enabling them to make this comment. In terms of developments, we've talked about how at that same institution there's another large requirement. That was experiencing some delays for a while.

We think that the reasons for those delays is starting to resolve, although we are not in our internal forecasts, forecasting revenue off that. I do think that, that could start in the second half of the year.

We're on track to release our docGenix 2 prototypes in June, and it's our intention to, at that point, start reaching out into market again with that prototype that resolves some of the issues that we were hearing from the market when we were more broadly marketing docGenix.

And then also it plays on what's been built and what's been accomplished with this one large institution. .

Okay. Can you give us just a little flavor of some of these issues that docGenix 2 resolves. .

Sure. I'd be happy to. Two of the main issues were, first, that we didn't cover enough document types. The using institutions have 25 or so important document types that they need to manage risk around, and we were really only doing 2 of them.

So in docGenix 2, we will have expanded to probably of the 24 or 25, we'll be covering probably 20 out of the gate, and then we will look to cover the remaining 5. That was one thing. The second thing was user interface. The user interface was, to be kind, not an elegant one.

And in docGenix 2, we're putting a lot of emphasis on that being a user interface that has a very negligible learning curve. It fits within very comfortably within the kinds of tools and syntaxes and interactions that we expect to have with a web-based product.

And then the third opportunity there is around information security, which, as you can imagine for these kinds of derivatives agreements is very important. DocGenix 3 is built on the back of the Synodex infrastructure, which is very highly rated in terms of information security. So we hit on all 3 of those market concerns and market objections.

And for that reason, I think we're optimistic about where we might be able to go with it. .

Okay.

And do you still have the sales capability for docGenix? Or would you have to actually ramp that up?.

We've got a limited sales capability. We probably would be looking at making a hire some time this summer. .

[Operator Instructions] And we'll take our next question from Edwin Power [ph] with the Small Cap Report [ph]. .

Could you tell us a little bit more about this large eBook client who put you on hold last quarter? Are you still on hold?.

Yes. I think that the client you're referring to actually was not an eBook client, but there was a sort of a budgetary freeze. In part, there's been a sign, but not a complete sign. So that's the status there. .

Okay.

And with RGA, have you seen any -- you mentioned this also in your transcript last quarter that you were looking for some co-marketing relationships with RGA, and are you seeing any of that?.

We are. I think one of the good things that RGA as well as other reinsurers are identifying is the opportunity that our product brings to the ecosystem as a whole. So they're very anxious to, and very willing to, refer us in to their clients and to see the entire environment with digital data. So we're continuing to see that.

We also said in the context of the RGA strategic relationship that they would be looking to integrate our data, or they said they'd be looking to integrate their data into several of their product offerings and those discussions are continuing. .

Just one other question on your large European content type client.

How do you see this rolling in over the next 3, 6, 9 months?.

Yes, at this point, there's still some planning to be done. I think that it will be rolling in quite clearly. But we're not, today, going to be forecasting that. We think that would be a little bit premature.

Our next step is to finalize the second of the 2 letters of intent and then to begin work, which we have already on the definitive agreements and we're of course busy at work doing some strategic planning there with the new staff and opening up the Europe office. .

O'Neil, with regard to your accounts receivable of $8.5 million, where is the business? Is that in the U.S., or is that out of the country on the receivables?.

All our revenues are booked through the U.S. company, as you know, and approximately 35% of our revenues comes from Europe. So the account receivable is essentially customers who are based in either U.S. or Europe. .

Well, I get a feeling you're turning the lights on here, which is a good thing. I like to see your cash going up, and you sound more optimistic than you did last quarter. .

We are excited. I think the first important sign always is the bookings. The bookings give a good indicator of where the future business will trend. So we're excited about the prospects if you look forward to the rest of the year and in 2015. .

We'll take our next question from Charlie Pine with Van Clemens & Co. .

Just a couple brief questions. Some of this stuff might have already been touched on. A little confusion. In the last conference call, you said you would not be recognizing any revenue from RGA in Q1.

So does that mean that you are on track to start recognizing revenue from RGA in Q2?.

Charlie, I don't think we ever said that there would be revenues from RGA in Q1. .

Yes, that's what I said. You said you were not expecting revenue in Q1, but you thought that you would probably see revenue in Q2.

Are you still tracking toward that?.

The best way to understand -- like the way Jack said that all these contracts have got in a couple of contingencies. So it is difficult for us right now to exactly predict how these will translate into revenues. .

[indiscernible] switch on for RGA.

Is it going to happen in the first half of the year or the second half of the year?.

We expect it will be in the second half of the year. .

All right. Next thing that hasn't been I don't think anybody's asked.

Your large eBook customer that you had for the last several years, how would you characterize the business pipeline with that company at this stage?.

I think the pipeline is good, and we believe that it will continue -- right now based on the pipeline, it will continue probably at about the levels that we've got now. There are opportunities for that to increase, but right now, in terms of what's clearly visible, we see it continuing at the levels that it's at today. .

Is that a level that will be higher than it was say in 2014?.

2014?.

I meant to say 2013.

Are you tracking towards higher revenues with that customer this year than you did last year I guess is what the question should be?.

Charlie, I don't think we will be expecting growth over the 2013 numbers. But we expect a decent contribution to the top line from that relationship. .

And the final thing in that area, how do you see the broadening with additional prospects in the eBook space? How has that been evolving over the last 90 days?.

We're seeing some new opportunities. We're working with new publishers. Again, I don't see anything on the horizon right now that would be a breakout opportunity and move the needle dramatically on the revenue side. But we are broadening our exposure there. We're getting more referrals in through our retail partners.

We've made progress -- I think I spoke about this on the last call -- with Latin America, as well as Japan opportunities, and we'll continue to incubate those. .

And that does conclude the question-and-answer session for today's conference. I would like to turn the conference back over to Jack Abuhoff for any additional or closing remarks. .

Thank you, operator. So to recap a bit, on the Content Services side, the LOIs that we're announcing today have the potential to increase our $40 million or so of recurring business by a full 25% or more.

Moreover, we believe that they will provide the base on which we can expand our European language work, which we have been working on over the last year and that, that expansion will be able to be something that we grow into over the next several years and drive further recurring revenue.

On the Synodex side, we are excited to be announcing 2 significant contracts, although as I said before, each of these contracts has associated speed bumps that we'll need to navigate before we can accurately forecast their revenue. Nevertheless, they're important validations for our new business.

Thank you, everybody, for joining us today, and thank you for your continued support. .

And that does conclude today's conference. As a reminder, we do have a replay for today's conference available by dialing (888) 203-1112 or (719) 457-0820 and entering the passcode of 5525902. And this does conclude today's conference. You may now disconnect..