Innodata Reports Third Quarter 2016 Results

NEW YORK - November 1, 2016 - INNODATA INC. (NASDAQ: INOD) today reported results for the third quarter and the nine months ended September 30, 2016.

• Total revenue was $16.1 million in the third quarter of 2016, a 3% increase from $15.6 million in the second quarter of 2016. Total revenue was $15.1 million in the third quarter of 2015.
• In the third quarter of 2016 the Company incurred a net loss of $2.8 million, or $(0.11) per diluted share, compared to a net loss of $1.8 million, or $(0.07) per diluted share, in the second quarter of 2016. Net income in the third quarter of 2015 was $0.4 million, or $0.02 per diluted share. The third quarter 2016 results were impacted by $1.6 million in one-time costs and charges, consisting of a $1.0 million charge for an amendment to potential supplemental purchase price payments under the MediaMiser share purchase agreement, $220,000 in costs associated with an internal investigation by the Company's audit committee that was reported by the Company in its Form 10-Q for the second quarter, and $360,000 in costs associated with the reorganization and integration of Agility within the Company's Media Intelligence Solutions segment. Third quarter revenue was benefited by $240,000 of one-time revenue that relates to the acquisition of Agility. 
• For the first nine months of 2016, total revenue was $47.4 million, an increase of 10% from $43.0 million in the first nine months of 2015. Net loss was $4.5 million, or $(0.18) per diluted share, in the first nine months of 2016, compared to a net loss of $2.2 million, or $(0.09) per diluted share, for the same period in 2015.

• Adjusted EBITDA (as defined below) was $(0.4) million in the third quarter of 2016, compared to $(0.7) million in the second quarter of 2016. Adjusted EBITDA was $1.7 million in the third quarter of 2015.
• Cash, cash equivalents and investments were $17.3 million at September 30, 2016 compared to $24.9 million at December 31, 2015. Cash used in the third quarter includes $4.1 million paid for the acquisition of Agility.

Jack Abuhoff, Chairman and CEO, said, "Revenue for our Digital Data Solutions (formerly Content Services) segment was $12.1 million compared to $13.2 million in the second quarter, primarily as a result of a key client for our eBook services reducing its requirements for certain eBook services and pricing concessions extended to another key client. In our IADS Synodex business, we commenced production for an additional insurance company. Revenue for the entire segment was $1 million compared to $1,170,000 last quarter primarily on account of a $160,000 decrease in docGenix revenue. Revenue in our Media Intelligence Solutions (MIS) segment was $3 million in the third quarter, of which $1.8 million is attributable to Agility.

"We achieved our targeted 10% Adjusted EBITDA this quarter in MIS before considering one-time integration and restructuring costs, and are combining the Agility and MediaMiser businesses in order to compete in the estimated $1 billion combined market for media contact management and media monitoring solutions. Except for $240,000 of revenue that relates to the acquisition of Agiity, we regard almost all of the revenue in our MIS business as recurring. In this quarter we regard approximately 80% of our total revenue as recurring."

Abuhoff concluded, "We anticipate third quarter revenue to be in the range of $14.7 - $15.8 million, consisting of DDS revenue in the range of $11.3 - $12.0 million, IADS revenue in the range of $1.0 - $1.2 million and MIS revenue in the range of $2.4 - $2.6 million."

Non-GAAP Financial Measures

This press release and the accompanying tables include references to Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and subsidiaries in accordance with GAAP before income taxes, depreciation, amortization of intangible assets, changes in fair value of contingent consideration, stock-based compensation, loss attributable to non-controlling interests and interest income (expense). We believe Adjusted EBITDA is useful to our management and investors in evaluating our operating performance and for financial and operational decision-making purposes. In particular, it facilitates comparisons of the core operating performance of our company from period to period on a consistent basis and helps us identify underlying trends in our business. We believe it provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key metrics used by management in our financial and operational decision making. We use this measure to establish operational goals for managing our business and evaluating our performance. 

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect tax payments, and such payments reflect a reduction in cash available to us;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or for our cash expenditures or future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA excludes the potential dilutive impact of stock-based compensation expense related to our workforce, interest income (expense) and net loss attributable to non-controlling interests, and these items may represent a reduction or increase in cash available to us;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and
• Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results.

A reconciliation from net loss to Adjusted EBITDA is attached to this release.