Amy Agress - Senior VP, General Counsel & Corporate Secretary Jack Abuhoff - Chairman, President & CEO O'Neil Nalavadi - Senior VP & CFO.

Benjamin Klieve - NOBLE Capital Markets Tim Clarkson - Van Clemens Joe Furst - Furst Associates Scott Reid - Vixen Capital Chris Beach - Hawksbill.

Good morning, and welcome to the Innodata Second Quarter 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Agress. Please go ahead, ma'am..

Thank you, Lexie. 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 results for the second quarter 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, that contracts may be terminated by clients; projected or committed volumes of work may not materialize; our Innodata Advanced Data Solutions segment, IADS is a venture that has incurred losses since inception and has recorded impairment charges for all of its fixed assets, we currently intend to continue to invest in IADS.

The primarily at-will nature of contracts with our Digital Data Solutions clients and the ability of these clients to reduce, delay or cancel projects; continuing Digital Data Solutions segment revenue concentration in a limited number of clients; inability to replace projects that are completed canceled or reduced.

Our dependency on content providers in our Media Intelligence Solutions segment, depressed market conditions, changes in external market factors, the ability and willingness of our clients and prospective clients to execute business plans, which give rise to requirements for our services, difficulties in integrating and driving synergies from acquisitions, joint ventures and strategic investments, potential undiscovered liabilities of companies and businesses that we may require, changes in our business or growth strategy, the emergence of newer 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. I will now turn the call over to O'Neil..

Thank you, Amy. Good morning, everyone. Thank you for joining us today to review our financial performance for the second quarter 2017. Total revenues this quarter were $15.3 million compared to $15 million last quarter. And total adjusted EBITDA was $950,000 compared to a loss of $160,000 last quarter, an increase of approximately $1.1 million.

On the last two earnings calls, we had shared that one of our clients was in the process of a financing event. And as a result, we had deferred accounting for revenues from this client until our invoices were settled. This client successfully closed that financing in the second quarter and paid all outstanding amounts.

As a result, we accounted for $1.6 million in revenues from this client during the quarter. This amount included approximately $1.1 million of revenues for services that were performed in the prior quarters. The corresponding costs for these services were also charged to our income statement in the prior quarters.

I will now review key line items and segment performance on a sequential quarterly basis. Digital data solutions revenues were $11.8 million this quarter compared to $11.4 million last quarter. Revenues of $1.6 million from the client that I just referred to was the prime reason for the increase.

And this increase was offset by reduced volumes from other clients. IADS revenues were $1.2 million this quarter compared to $1 million last quarter. The increase was attributable to additional work from existing clients. IADS revenues of $1.2 million this quarter consisted of $900,000 revenues from Synodex and $300,000 from docGenix.

In our Media Intelligence business, revenues were $2.3 million compared to $2.6 million last quarter. The decline was primarily due to lower Agility customer renewal rates and seasonality of the Bulldog Reporter Awards business. Let me provide more details regarding the Agility renewals, a key metric in that business. Our U.K.

team achieved a cumulative renewal rate for the last four quarters of 77% whereas our North American team achieved 63%. We are disappointed that the North American renewal rate was well below our target rate. Jack will talk about the corrective steps that we have taken to achieve our target.

Further after Q3, all the ongoing Agility business that came with the acquisition will have been renewed by us, so we will be targeting an 80% renewal rate.

After factoring in the renewals and 46 new customers that we acquired during the second quarter, we ended the quarter with approximately 1,132 direct customers compared to approximately 1,350 customers at the end of Q1. In addition, at the end of the second quarter, we had another 400 indirect customers through our data API channel partners.

Consolidated gross margins including acquisition related amortization expenses were $4.1 million in this quarter or 27% of revenues compared to $3.5 million or 23% of revenues in the prior quarter.

At the segment level, gross margin in our Digital Data Solutions business was $3 million or 26% of revenues compared to $2.2 million or 19% of revenues in the prior quarter. As already discussed, approximately $1.1 million of this margin increase was a result of accounting for revenues in respect of which costs were charged in the prior quarters.

Moving over to IADS, our gross margin was $200,000 compared to a loss of $100,000 in the prior quarter. Higher revenues of $200,000 and lower cost of $100,000 translated into a $300,000 increase in gross margins.

In our Media Intelligence Solutions business, gross margin excluding $330,000 of acquisition related amortization expenses was $920,000 or 40% of revenues compared to $1.4 million or 55% of revenues last quarter. Our gross margin was lower, as a result of lower revenues and high operating leverage in this business.

I will now drill down to SG&A expenses. This quarter, our SG&A expenses were $4 million compared to $4.6 million last quarter. SG&A costs were lower by $600,000, primarily due to recovery of two previously written off accounts receivables of $250,000 in DDS. And the remaining $350,000 was due to tighter cost management across all three segments.

SG&A expenses after offsetting $250,000 of recoveries in respect of previously written of accounts receivables were $2.5 million in Digital Data Solutions compared to $3 million last quarter. In IADS, expenses were lower by $50,000 at $280,000. And in MIS, they were lower by $100,000 at $1.2 million. Moving over to pre-tax earnings.

Pretax losses were $150,000 this quarter compared to $1.4 million the previous quarter. The $1.1 million decrease in pretax losses was attributable to higher gross margins of $600,000 and lower SG&A expenses of $550,000. Our adjusted EBITDA was $950,000 this quarter compared to a loss of $160,000 last quarter.

Adjusted EBITDA in this quarter was $1.2 million in Digital Data Solutions, offset by losses of $200,000 in Media Intelligence and $80,000 in IADS. Moving to net earnings. Income tax and profits earned by offshore subsidiaries was lower at $90,000 this quarter. This was primarily due to timing and interest income earned on a tax refund.

After deducting tax expenses and minority interests, our net loss was $160,000 compared to $1.7 million in the previous quarter. Our cash and investment balances were $15.3 million this quarter compared to $14.2 million last quarter.

Our cash balances include approximately $2 million in excess payments by a customer and as this is refundable to them, it is reflected as a payable. A significant part of our cash balances continues to be held overseas. So we fund our U.S. cash needs from overseas balances.

In the second quarter, this resulted in a $800,000 deemed dividend income for U.S. tax purposes. Our capital expenditures this quarter were $1.2 million compared to $1 million in the previous quarter. In the third quarter, we expect CapEx to be in the range of $800,000 to $1 million.

I will now turn to our foreign exchange hedging program and other items. At the end of the second quarter, we had approximately $25 million in outstanding forward contracts to hedge our exposure for both foreign currency denominated expenses and revenues.

Based on mark-to-market, our forward contracts have notched losses of $200,000 at the end of second quarter.

In terms of guidance for the third quarter, we expect revenues to be in the range of $14.5 million to $15.5 million, with Digital Data Solutions in the range of $11.3 million to $12 million; IADS between $1 million to $1.2 million, and Media Intelligence between $2.2 million to $2.3 million. Thank you. And now I'll pass the call over to Jack..

Thank you, O'Neil. Good morning, everyone. Thank you for joining us today. I'm going to quickly provide some additional context for where we are and what we're working on to accomplish this year in each of our business segments. As discussed on our last call, our emphasis this year will be to focus on three things.

One, managing costs aggressively, two, driving growth in our new recurring revenue businesses and three, launching new service offerings aimed at our existing markets and new markets. I'll take you through each of our segments with an emphasis on what we're doing to accomplish these 3 strategic priorities. Let me start with our DDS business.

We launched a new website in the quarter, which we see as one of several steps we will be taking to broaden our message and our service offerings. Digital data is behind lots of initiatives these days among companies in a range of vertical markets and we believe that we can be instrumental in terms of helping them along their paths.

One of our large projects right now in fact is for a large financial services institution. Historically, our large customers have been publishers, information providers and digital retailers, companies like Elsevier, Bloomberg, Apple.

But end users of information are starting to see opportunities to build their own repositories of public digital data, third-party data and private data. And then to employ artificial intelligence technologies on these repositories to find new sources of business insight and competitive advantage.

Our core markets of information companies and publishers continue to experience margin pressure. And when they experience that margin pressure, their pain becomes our pain, indeed we are seeing fewer new product builds and increasing pricing pressure on a lot of the ongoing product maintenance work that we do.

As a result, we're taking various steps to lower our annual operating costs. We expect that these efforts will result in potentially $2 million of annualized cost savings. Some of these steps have been initiated in the past quarter and others will be initiated in the second half of the year.

At the same time, we're accelerating our R&D activities, building new technologies, that are helping our clients reduce information processing costs and creating offerings that we believe will appeal to wider markets.

For example, and this is an accomplishment that we're very proud of, our Innodata Labs group successfully implemented new artificial intelligence technology into one of our large customer workflows, that has what's called the full retroaction loop.

So as we work, our machines get smarter and smarter, progressively increasing automation and enabling us to reduce associated cost. This is a big breakthrough in the quarter.

We successfully deployed the technology and the new work that we're doing for the financial services company, as well as work that we're doing for another Information Services client.

We'll be sharing the innovation with select clients over the course of the remainder of the year to work with them on establishing strategies for how we can enable them through technology innovation to reduce costs.

From a financial perspective, as O'Neil mentioned, we're pleased that we're able to recognize revenue as a result of collecting $1.6 million of accounts receivable from an early stage client with whom we continue to be engaged.

We were confident that they would be able to pass and looks like we made a good decision to continue to support them through a strategic process. Nevertheless, we acknowledge that we need to diversify our revenue to reduce dependence on these one-off large projects, which is a good segue to discuss where we are in our IADS business segment.

As O'Neil mentioned, we saw a 20% increase in revenues in the segment this quarter, which in combination with some cost savings has the effect of significantly reducing our adjusted EBITDA loss from $400,000 in Q1 to $80,000 in Q2.

There are additional cost savings measures that will be taken in the second half of the year that will further increase our margins in the segment. We signed two additional clients since our last call.

And our pipeline has increased from approximately $13.8 million to a little bit more than $16 million, an estimated annual contract value as the result of a large life insurer contacting us to express interest and potentially proceeding with our service.

In addition, we completed a very successful pilot for a Tier 1 reinsurance company, who would be a new client for us. They have verbally committed to a Q4 kickoff and a larger plan for 2018. We also completed the successful pilot for an additional service for one of our existing clients and we began performing this work.

The booking value of this additional service is approximately $800,000 of annual contract value. Lastly, we started pilots for 3 potential new clients. I'll now talk a little bit about the utility business.

Across our product set, this quarter we booked new business with both existing and new customers, valued at approximately $650,000 of annual recurring revenue. Our products set includes our SaaS-based media targeting product, our SaaS-based media monitoring product and our media monitoring managed services.

Our SaaS-based media targeting product consists of proprietary databases of 800,000 traditional and social media contacts and influencers that is contained within an easy to use platform for building lists, distributing press releases and nurturing relationships with influencers.

Our SaaS-based media monitoring product is used by PR professionals to track how their brand is playing in newspapers, TV and radio, as well as in the blogosphere and across social media, including Twitter and Facebook. Our media monitoring managed service includes high-precision monitoring and analytics typically required by large enterprises.

Now in terms of our $650,000 new bookings, approximately 77% were through direct sales and the remaining 23% of bookings were through channel partners. We added 46 new direct clients to our roster in Q2. Our growth in new customers will be driven by the size of the market and the effectiveness of our marketing department.

In terms of market size, our addressable market is well over $1 billion dominated by 2 large competitors Cision and Meltwater. Many of the clients, we won were in [Wyckoffs] where we compare 2 of these products offered by large players and compare it favorably.

We believe that we compete favorably based on our technology base, our data quality and our company culture. We started a new Vice President to Sales this quarter, Sam El-Sayed who will be responsible for driving sales performance. Sam set the ground running.

Sam will be working tightly with Dawn Smeaton, our Director of Marketing, who joined us this past December. Marketing will alternately being a key ingredient to our success on the sales side. Under Dawn's leadership, we've seen steady and significant increases in our leading indicators from web users to one leads to marketing qualified leads.

Our annualized revenue in the business now stands at approximately $9 million. If we can get our renewals to 80% and increase our current booking levels by just 50%, we would be looking at annual organic growth rate in the area of 25%. Based on market comps with this level of growth, this business alone could be valued at as much as 3x to 4 x revenue.

The key to accomplishing this level of growth will be combining an effective marketing and sales operation with effective account management that produces high renewal rates. Historically, our Media Intelligence division had industry-leading renewal rates of over 90% for our media monitoring managed services.

In addition to driving sales, Sam's job will be to drive those renewal rates. As mentioned by O'Neil, our trailing 12-month renewal rates were 77% for U.K. and 63% for North America.

Our North America renewal rate was well behind the 80% rate that were aspiring for in part due to lower customer renewal rates when renewing certain contracts that were signed prior to our July 2016 acquisition of the Agility product. The good news is that we're almost done cycling through the renewals of contracts that came with the acquisition.

Now substantially all of the ongoing Agility business we have either was renewed by us or was won by us. So that from that point forward, we think we'll be on solid footing to be targeting an 80% renewal rate. Now the business of course is only as good as its products and I'm pleased to say that we've made great progress in improving our product set.

As a result of hard work from our data teams in the Philippines, under the auspices of resident data expert Paul Chessman, when we're now hearing from our customers that our data quality is absolutely second to none.

In terms of our software, we're excited about our upcoming Q3 release that will have some great new functionality around mobility and social media and we'll fill some feature gaps that our customers were identified. With that, I'll now open the line for questions, after which I'll wrap up with some final comments. Operator, we're ready for questions..

[Operator Instructions] We will take our first question from Ben Klieve. Please go ahead..

I got a few questions. First is, a clarification, did I hear you right Jack, you said the kind of targeted renewal rate for Agility business is 80% and the U.K. renewals were 77%. So that the U.K.

renewal rate was then roughly in line with your target, is that accurate?.

Yes, that's right..

And a couple of other questions.

Curious about the business climate in Europe, are you seeing the business climate that pick up following the kind of the dust now beginning to settle from the Brexit board, how are your customers - are they loosening their purse strings a little bit, what are you seeing in there?.

We are not. I do talk to other people who - our feeling that a bit in other businesses, but we feel that our space is pretty compelling and Brexit issues aren't affecting us..

And then one last question.

I'm just curious if you could kind of elaborate a little bit on the overall level of recurring revenues and kind of discuss the evolution of those numbers, say over the past - 12 months to 18 months? Where do you stand today versus where you've been historically?.

That's really are our strategic imperative. I mean we historically have been in the business that is project based largely and we do great when we win a very large new projects which could be tens of millions of dollars over several years.

But then is that wrapped up, we would come down and we won't be disappointed and scrambling looking for the next new projects. So what we've been trying to do is take our technology core and our base core competencies and move those into other areas where we can create compelling new services and we're also doing that even within our core business.

So today, we stand at 80% thereabouts, O'Neil might have a more precise number than that. And that's directionally absolutely where we want to go, but there's a lot of work left to be done. We're still vulnerable to large clients. We're still - within our core business, we're still vulnerable in terms of working on large projects.

But work that's getting done to meliorate that and mitigate that is very important and we're seeing some success there..

And we will take our next question from Tim Clarkson of Van Clemens. Please go ahead..

Jack and O'Neil, much improved results obviously. Just one question, do you have a goal in terms of revenue per quarter in terms of breakeven. I mean it sounds like you're moving that down pretty sharply.

What would be the goal, say by the end the year where your breakeven would be in terms of revenue?.

O'Neil do you want to take that?.

Sure, so Tim, right now, if you look in terms of where we are in the digital data solutions business, typically about 50% of any revenue increase goes down to be the bottom line, it's somewhere in that range depending on the profitability of the project and in the IADS businesses closer to 60% to 65% and in the Agility business, it is North of 80%.

So when you look at where we are in terms of EBITDA breakeven, typically - we obviously, made money this quarter. And we will needed an additional $2 million to breakeven at total pre-tax level that is including writing of amortization expenses.

But the right way to measure our performance is at this point of time because of acquisition-related amortization expenses is to look at EBITDA performance..

And let's just dream a little bit, what would be a realistic target in terms of earnings or EBITDA if you guys did $16 million or $17 million revenue, with the same kind of metric you have right now?.

So, if you take another $2 million per quarter in revenue, you can reasonably assume that more than $1 million of that will go down to the bottom line..

One other question for you Jack. I just wanted to get a sense, I know that you talked a lot about some of the new services that you're offering in the DDS side.

Can you comment a little bit about what kind of success you've had with those new ventures?.

Sure. So we're working on a few different things now. We've had some good successes and I can't mention company names unfortunately, but we just started doing some new services in rights management there, for example, and we signed up a client, it's probably a little - in the range of about $0.5 million here maybe a little bit less.

During all of their rights management activities, and really running that operation for them, they are very well regarded national association and magazine, that's going very, very well. We've created a new platform based on a lot of the customers' work that we've done over the years for standards organizations.

And we're calling it in the data pro for standards. We're taking that around to people showing them what they can accomplish and getting very good reception on that.

So we're looking for things that we do and we're thinking about in terms of how do we craft into a platform, how do we take something that's one-off, and make that into something that's repeatable.

The other thing I just want to emphasize again was, really a great technology breakthrough we had in the quarter in terms of implementing AI technologies into the work that we do and getting a true retro action loop and what that means is, as we work on these one-off projects, our machines are getting better and better and better and they're automating more and more.

So good stuff there too..

And we will take our next question from Joe Furst of Furst Associates. Please go ahead..

First of all, I'm going to clean on your idea of IADS business. It finally looks like you've signed a couple of new clients. It's been a long and a slow process, but congratulations on doing that because that's what's your - one of the biggest goals has been to get this continuing business.

Can you extract a little more on the prospects of other new clients in that area?.

Sure, happy to. I mean, one of things I talked about was the pipeline going from about 8 in last quarter to 16 this quarter, that was a result of one very large client we talk to 1.5 years or 2 years ago, calling us and saying what we think the time is right. So, we're seeing things like that.

Another very large client is doing a PayPal with us comparing us to couple other alternatives. We think we're going to come out of that looking pretty good.

We had a successful pilot with very large kind of top tier international reinsurer who said to us we're going to start off this year in Q4, but really make a bigger commit to you guys operationally in 2018. So there's good stuff coming there, it's low. That shows well but we are expressing some promise there..

Because you are so close to profitability and I think that’s what you need like you said, 50% of this additional revenue at certain point goes to the bottom line. So you’re almost good increase nicely - actually get to that point. So keep up the good work. Thank you..

[Operator Instructions] We will take our next question from Scott Reid of Vixen Capital. Please go ahead..

So, I guess my biggest question is around what you sort of mentioned about the cost cutting that you see going forward about $2 million on annualized basis is - will clearly contributes essentially to your bottom line here, I know the company has gone through some cost cutting in the past and I was wondering if at this point, if you're cutting muscle as well as even to the bone.

And what sort of impact we might see going forward, whether that's just adjusting to the current market conditions and lower margin rates as you say or if you really expect to maintain the level of growth we've seen these last couple quarters despite the cost cutting?.

Yes, I think that we're going to try to be judicious in terms of the cost cutting. And priorities change, so for example, one of the things that we feel requires absolutely continued vigorous investment right now is - the stuff we're doing with AI technologies, we intend to double that up not down.

But there are other things where we feel we can do a better job.

We're looking a lot of infrastructure kind of expenses and things that - kind of grow up, end up being kind of bureaucratic in nature and costly nature, we're looking for efficiencies there, also looking at efficiencies in technology as the great benefit to doing some of the very focused work that we're doing in Synodex for example is, we are always able to reinvent how do we do the work and continue to innovate around that.

So, we're seeing opportunities for greater automation and process there. So, in answer to your question, we're not going to get anywhere near muscle or bone, we're still working on layers of fat and increasing investment in areas that we think can propel the business forward..

Just as a follow-up question, maybe you could help us better understand the difference between the total available contract value that you say was a little over $13 million now and heading toward 2016, it sounds like versus the revenue that we actually realized per quarter in the Synodex business, it would seem that you're guiding rather flat, at least looking out to next quarter here, and that would suggest to me that maybe the usage rate among those clients is trending a little bit downward, but at the same time the opportunity set is growing, if you can just get these insurance companies to use your product more, you could trend more towards - I mean clearly $16 million would be a dream.

But if we could move at least a little bit in that direction, there'd be a lot of profit here.

So, what can we do to sort of increase that usage rate and help me if I'm not understanding that correctly as well, the disparity there?.

Sure. So, there is some seasonality in the business at times of the year when life insurers are signing more applicants or receiving more applications and signing more business. I mean, if you take our revenue level and multiply it by 4 that's kind of our run rate. Again, it would need to be adjusted for seasonality.

Separately, there is our pipeline and we measure the pipeline based on the notion of annual recurring revenue also or annual contract value, potential annual contract value. So, in our pipeline, other things that we're working on actively, but have not closed yet, they're not part of our revenues.

So, our pipeline last quarter was $13.8 million, our pipeline this quarter is a shade over $16 million. And you're right, I mean as we dial up the efficiency level, manage down costs, the operating leverage as soon as you start bringing some of this business, it gets very interesting very quickly. So that's what we're focused on..

[Operator Instructions] We will take our next question Chris Beach of Hawksbill..

I just wanted to make sure, I understood the cadence of the revenue pass in DDS.

So, in the first quarter that segment recorded $11.4-ish million in revenue and this quarter I'm not really clear on what revenue number we back out to get kind of on an apples to apples basis if you exclude one-time recovery from the BC customer and then next quarter you're projecting that you're going to be in the $11.3 million to $12 million range, I'd just like to get the qualitative and quantitative understanding of how that's sort of is playing out?.

Yes, sure Chris. Good morning. So, let me try to help you with that. In Q1, like you said it was $11.4 million, this quarter was $11.8 million, but in that $11.8 million it was $1.6 million of the AR recovery that came with our cost because the cost was booked in prior periods.

If you take you the $11.8 million and back out that $1.6 million, then we would have had $10.2 million. Looking forward to Q3, we are forecasting $11.3 million $12 million and there we will not have the benefit of the one-time $1.6 million that we have this quarter.

So that will be - in effect if you're going apples to apples, you'd say $11.4 million in Q1, $10.2 million in Q2, $11.3 million to $12 million in Q3..

Chris, just to add a little bit color to that, the $1.6 million, the way to understand the impact of $1.6 million is $0.5 million of that is for services provided and for which costs were incurred in the second quarter.

So it's like can be understood more in the context of regular revenues but $1.1 million of that $1.6 million is on account of services, which were delivered in the prior quarters and expenses for - which were also incurred in the prior quarters.

So when you are backing out, you should really only back out $1.1 million from the $10.8 million to get a comparable number..

And just can you help me understand so was it $10.7 million, so how do you get from $10.7 million to $11.3 million to $12 million in the third quarter, is there project revenue in there, is there recurring revenue in there, that seems like a big sequential jump that we haven't seen for a while?.

That will be mostly project revenue. The project that's driving that up will also have recurring revenue in it, but right now we are crescendoing we're building up to the project level..

And if we look at the decline from Q1 to Q2 just in the core business, is that primarily a volume effect or pricing effect or both?.

Volume is projects linked..

I am sorry. I didn't hear you there..

It's volume, Chris, it's primarily one of the projects was higher in Q1, the same project went down in Q2 and the same project is likely to go up in Q3..

And we haven't heard much lately about the big European station that you guys had talked about over time.

I think the revised number was something like $8 million in revenues, has that been delayed sort of indefinitely, has that actually been coming in and then offsetting losses elsewhere, can you help us to get that out?.

O'Neil, do you have those numbers in front of you?.

Chris, we've shared this on the previous calls, the $8 million of business that we had anticipated after taking all the exchange related impact because when we had booked the business, the euro was trading at roughly 1.35 or so to a dollar, but after taking the current exchange rates and all of that, the corresponding annual contract value of that is more closer to the $6 million range now on an annualized basis and we are close to hitting the full potential of that and so far as the margins are concerned, those margins are gradually improving and productivity is improving as well.

That said, the overall profitability of that segment of the business is still below our normal profitability for other recurring revenue projects..

Okay.

As it relates to idea I'd just like to understand a little bit better, Jack, when you mentioned that your pipeline had increased from $13.8 million to over $16 million and then I think a later caller asked you to clarify exactly what that meant, it sounds like that quantify something that you are actively working on, I'd just like to understand exactly what that means, I mean, you could be actively - I mean, you could make a phone call and be actively working on a contract, I just don't know what qualifies as being inclusive in that pipeline.

I mean, there's got to be some sort of threshold over which it becomes pipeline revenue, I guess..

The customer shares a goal with us that we can address, they acknowledge their budget and then our solution potentially can address the goal that they've got and working with them to improve sales process..

And are there defined levels of the sales funnel, meaning highly likely, not so likely and maybe likely?.

Yes, the way we do it is, we divide it into 5 categories based on its likelihood and then we have different categories within the process. So we use those two different measures..

So 5 categories is a lot, so can you tell us what the most likely category includes of that pipeline, what's the subset most likely of the $16-plus million?.

I don't have that in front of me..

And you mentioned also that the reinsurance company was paying you for a pilot, was that included in Q2?.

It was not..

And as far as MIS is concerned, I'd just like to understand a little bit better, you threw out this idea that that business could ultimately be worth 3 to 4 times revenue.

I'd just like to understand practically what it takes to get there?.

I think the two most important levers are renewal rates, if you can have a high renewal rate in combination, with a marketing effort and a sales effort that's closing enough business, then I think you are there.

Now granted, we are a small player and can we use the comps of very large companies and apply them to us, I'll leave that to people that are more in your business than myself to advise me on, but I think what we are seeing is, you've got a new sales and marketing team on the marketing side.

We're seeing some great upticks in leading indicators, so we look at the demos that we're completing the demos that we're booking. We look at the number of [warm leads] that are coming off of a dramatically reconfigured and invigorated website and marketing program and we're seeing great numbers quarter-to-quarter in terms of those increases.

So that in combination with the sales effort, the new VP that we hired, I have all kind of confidence in that guy, doing all the right things, now as I mentioned in the prepared remarks, all we need to do is increase our level of bookings by 50%.

It's not a huge number, I think he's going to be able to do much more significant increases than that frankly. There is infrastructure, there's work that he needs to do and needs to get his legs under, I think it's doable. I think we're moving in the right direction.

The metrics are hitting the dashboard on the marketing side and that will feed the sell side and we're doing the right things there. So I am excited about the progress that's being made..

And we will take a follow-up question from Joe Furst of Furst Associates. Please go ahead..

Just to clarify [IADS] pipeline of $16 million.

I mean, the bottom line is, if you at some point rather could get a quarter of that or $4 million, that would mean another million dollars per quarter of revenue, correct?.

Correct..

And regarding the last question, if the MIS business and so on was $10 million a year, which it's running at roughly, what you're saying is that might be worth - just the valuation could be worth as much as $30 million, which would be a little bit of $1 a share as far as M &A is concerned?.

Yes, correct also. There is a recent comp in the market again. There are two very large companies that we're competing with in that market. One is called Cision and they just recently did a - went public through a shell company, their enterprise value is 4x revenue. So that's the business we are in there..

Sure and if you can grow what you are talking about, if you could you grow that at 50% a year, that would be a tremendously with good growth rate, which would obviously - people pay more for high growth. Thanks..

At this time, it appears we have no further questions..

Thank you, Operator. So I'll just wrap up with a few closing thoughts. Q2, we were able to reverse our $1.6 million of AR, when we got paid for that work, that helps what we are seeing, otherwise, a tough quarter for the DDS business.

That said, we had an exciting technology breakthrough in the quarter implementing artificial intelligence with the true retroaction loop, that benefited a couple of our clients, enables us to have really interesting strategic conversations I think with other clients, and maybe to align to some wider market opportunities as well.

In our Synodex business, there is some good stuff happening, although it continues to move more slowly than all of us would prefer, two new clients, significant expansion with one of our top tier clients to successful pilots, two large clients coming to us to initiate service discussions, all of those are encouraging.

In the Agility business, we've got a lot of good momentum on the sales and marketing side. And I think we know what it means to take place there, what we need to do to make the venture a real winner, and we are seeing good early indicators, so that's my quick wrap up. Thanks everybody for joining us today..

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