Amy Agress – Senior Vice President and General Counsel A.K. Mishra – Chief Operating Officer Jack Abuhoff – Chairman and Chief Executive Officer.

Joe Furst – Furst Associates Tim Clarkson – Van Clemens.

Please standby. Good morning, and welcome to today's Innodata Third Quarter 2018 Earnings Call. Just as a reminder, today's conference is being recorded. At this time, I'd like to turn the call over to your host for today, Amy Agress. Please go ahead, ma'am..

Thank you, Sarah. Good morning, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata; and A.K. Mishra, our COO. We'll hear from A.K. first, who will provide a detailed review of our results for the third 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 that may be terminated by clients; projected or committed volumes of work may not materialize; 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 Agility 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; difficulty in integrating and deriving synergies from acquisition, joint ventures and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we may 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 the call over to A.K..

consisting of DDS revenues in the range of $10.5 million to $10.8 million; Synodex revenue in the range of $1.1 million to $1.3 million; and Agility revenue in the range of $2.3 million to $2.5 million. Thank you, and now I will pass the call over to Jack..

inscription-based SaaS platform that public relations professionals use to identify and target journalists and bloggers and distribute press releases to them; and a platform-based media monitoring and analysis-managed service that companies use to monitor their brands and key business topics across social and traditional media.

The market we're competing in is estimated to be in excess of $1.5 billion, making this arguably the largest and best defined of our markets. Even though we compete principally with companies that are many times our size, analysts and customers now rank our products in the top quadrant of Media Intelligence Solutions in the marketplace today.

Achieving strong double-digit growth in our SaaS business will require that we drive progressively higher customer retention and that we consistently win new business. In a year, we have demonstrated quarter-to-quarter improvements in customer retention.

In terms of marketing, our marketing team is delivering increased numbers of leads in each sequential quarter, and our pipeline has grown. In September, our website, which is the source for many warm leads, has a record number of visitors, up 66% from January. That said, they're still working on these to do on the sales side.

Our direct sales bookings increased in Q2, but slowed in Q3, although there were still an improvement on Q1. We are now focused on direct sales, and we're cautiously optimistic that we will start to see acceleration in new business signings beginning next quarter.

In the past six months, we have actually hired 15 new salespeople, who now comprise 70% of our current sales team. We've also hired new sales managers for each of the U.K. and North America as well as a new sales – a new manager for our lead generation team.

On top of this, we have redefined various key processes and are working to implement a new sales training program. With that, operator, I'll now turn the call over to questions..

Thank you. [Operator Instructions] Up first, from Van Clemens, we'll hear from Tim Clarkson..

Hi, Jack. Hi, Mishra. This is good to see profitability. I just wanted to do a shout-out to Chris Beach for bringing in an adviser and for the management and the board listening to him. And for lowering costs, and obviously, you've done some other things beyond that with innovative technology. So it's good to see Innodata profitable again.

It's, obviously, a much better and more solid base in which you guys can start to grow..

Good morning, Tim. Thank you..

Yes. Anyhow, so in terms of growth potential, I mean what kind size of markets, what kinds of potentials do we have? You talked a little bit about the new stuff you're doing in the DDS.

Give us some additional color on what the size of these markets are and why you think Innodata can grow in these markets?.

Sure. I think there – it's a great question, Tim. It's a complex one. There are several markets that were planning to be interesting and very attractive. As I mentioned in my remarks, there are a couple of things that we're working with.

First, we're using fundamentally the AI and machine learning technologies that we developed, that we primarily use internally in order to generate the improved operating results. We're now fashioning those into service offerings and products that we can bring to markets.

There are several different markets that we're in the process of choosing from, and I'll look forward to updating you more on that as we proceed into next year. In terms of the Synodex market, we're primarily focused on life and disability insurance, but we've also opened up a couple of loosely connected markets that are showing promise.

We're not prepared to go into a lot of detail about that right now for competitive reasons, but we are seeing some good opportunity there. And in Agility, Agility is the David and Goliath story. I estimate the market at $1.5 billion. Other estimates go a little bit broader than that and call it a $3 billion market.

But in any sense, the fact remains, that we're a small player with a great product, with great customer success. We've done a tremendous amount of work on the product side. We've done a tremendous amount of work on the technology side that's been well received by our markets and by analysts. We're showing improved retention.

There were some issues when we made one of the acquisitions last year. Marketing is performing strongly, and now we're working on sales. I think that those would need to be done in order to start to make hay in that market..

Now you mentioned kind of, just seriously, last time about how you thought you could have, say, 3x the amount of business by the end of the year.

What do you mean by that?.

I'm sorry. Could you....

Yes, you mentioned, I think in the – I guess, it was in the second quarter, that you thought that you'd be going into next year with a lot more bookings for the – I guess it would be 2019 than you did at the end of 2017, behind 2018, yes..

I got it. Yes. Certainly, so what we – our primary focus in terms of the year was rightsizing. We're using the technologies that we developed in order to simplify the business, in order to reduce our unit costs at a production level and to drive profits and cash flow in that regard.

At the same time we were doing that, we made some changes in terms of our – how we were organizing our sales and marketing position. We streamlined a little bit there. We brought in some new people, internal people, who we thought could help drive that performance. And that has succeeded.

So we will go into next year with a higher level of backlog than we had going into this year. As of the end of the third quarter, we had exceeded our bookings significantly from all of 2017. And the changes that we made were very much provisional. They were nipping and tucking, but the focus has been on rightsizing.

As we move into next year, the focus will be on sustainable growth. How do we take our competencies in managing digital data and applying AI and applying machine learning and turning that on in new markets and working with our existing markets at a higher point of need.

And we think that we have every reason to believe we're going to be as successful in that as we've been this year in terms of executing turnaround..

One last question, and I'll open it up. On this AI thing, I know that you've done a nice venture capital deal about 1.5 years ago using some unique skills from some of the people inside the company.

Without getting too complex, what just essentially differentiates Innodata's AI capability from some of the other people out there?.

Sure. So I think there are two things. First, we're focused on a very specific domain, and that domain is the enhancement and transformation of content, number one. Number two, we're applying a best-of-breed technologies asset, and we're building on those technologies.

We've got an extremely talented group of people in our Innodata Labs organization who understands the meaning very well, and they understand the technology very well and they're great at both developing on top of and applying leading-edge technologies to our domain.

I think the other thing that is a great advantage is that we have the technologies that improve over time through feedback under self-learning and we process it, a tremendous amount of technology.

So if you have great engineering, you're building on great technologies and you're validating that and processing the best management technology through those algorithms and platforms, using subject matter experts in law, in finance, in science, in health care.

The tools that you end up with improve dramatically over time, exponentially even, and then they become progressively higher-value..

Sure. Okay, I will open up the queue to other people. Thanks..

Thank you..

[Operator Instructions] And with no additional questions, I would like to turn the conference back over to our presenters – excuse me, I apologize. We do have a question now from Joe Furst of Furst Associates. Please go ahead..

Good morning, gentlemen. Again, I also want to commend you on cutting costs and making yourself profitable at even at these lower levels of revenue. And that's certainly progress.

Could you talk a little bit more about the Agility business and what kind of growth you could see in that area? The company, I know, it's a small part, but that seems to me that you might be able to get some substantial growth there.

Could you expand on that a little bit?.

Sure, Joe. Our aim is clearly sustainable double-digit growth. I'd like to see that business growing at 20% a year. Now we've had to approach it kind of step-by-step in order to have a view on achieving that. The first step was the product side. There was a lot of technology, a lot of integration we had to do, a lot of fixing we had to do.

One of the assets we've got is arguably the best database of journalists and bloggers in the world internationally and globally. And there was – as good as that was when we acquired it, there was a lot of work that we had to do to improve it. That's been done.

There was work that we had to do on our interface, there was work that we had to do on our big data engine and integration. So all of that had to be put under our belts. On top of that, we never had a great marketing function. We had to build that. I think we've succeeded at that.

Beyond that, we ended up inheriting a piece of that business that claimed to have some customers that it really didn't, and that kind of tanked our retention numbers for some time.

Once that was out of the system, we then had to work on our core account management skills and our customer success skills and build some new processes and new ways of working. So when I look at the year, I'm seeing solid success at building that up in the third quarter. On the Agility side, we had 75% retention.

We're aiming for more like 85%, but given that we started the year with much, much lower numbers, directionally, it's moving well. On the enterprise side of the business and the managed service side, we hover around 90%. That's kind of where we're comfortable being. And then the last frontier, the icing on the cake, is the sales side.

And I don't want to diminish the difficulty and the challenges that are there. They're pretty substantial. But I think we're making the right moves, and we're doing the right things. So if we can get that working, and I'm hoping that in Q4 and Q1, we're going to see some good progress there, then I think that kind of growth is squarely within reach..

That's helpful. And how about on the insurance side of the business. I see you finally got a couple of new customers. But you had a tough time getting new customers, but at least, you've turned out profitable.

Can you say a little bit more on the outlook for the insurance area?.

Sure. Right now we're working on a couple of markets that are a bit ancillary to the core life insurance and disability insurance market. And we're seeing some good success there. So I'm hoping, over the next couple of quarters, there's some real solid bookings that we're able to bring in from this new market.

From there, I think, strategically, there are some decisions we have to make. We've got a very good view of where our product fits in, how it's being utilized. Our two largest customers continue to expand with us. In terms of other markets and other things, we've recently put a new account manager on task and replaced our former account manager.

She's making good progress, so I think there's definitely growth there. As we achieve that growth, there is very solid incremental contribution margins that flow out of that business, so we're continuing to be bullish about the possibilities there..

Okay, thank you. Good luck..

And with no further questions, I would like to turn the conference back over to our presenters for any additional or closing remarks..

Thank you, operator. So I'll just reiterate a few key takeaways from the quarter. As we mentioned, our adjusted EBITDA for the nine months of 2018 was over 5x the first nine months of 2017. In DDS, our new business bookings have exceeded the business we booked in all of 2017, so we're moving in the right direction.

We're forecasting top line growth this year in both Synodex and Agility venture businesses. And in 2019, our focus is going to be on sustainable growth.

We intend to leverage the improved operating performance that we're showing this year by redirecting a portion of the cost savings back into the business in the form of product management and strategic marketing and also technology talent. So thank you all for joining us today. We look forward to reporting continued progress next quarter..

And ladies and gentlemen, today's conference is available for replay from 2:00 p.m. Eastern today through December 8, 2018, at 2:00 p.m. Eastern. You may access the recording at any time by dialing (719) 457-0820 or (888) 203-1112, both using passcode 616-7655. This concludes today's conference. You may now disconnect..