Innodata Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report; the supplied filing does not provide a clear standalone fourth-quarter income statement. Innodata provides data engineering services and AI-enabled platforms through Digital Data Solutions (DDS), Synodex and Agility.
Financial performance
| Metric | FY2019 | FY2018 restated |
|---|---|---|
| Revenue | $55.9 million | $57.4 million |
| Direct operating costs | $37.3 million | $39.3 million |
| Gross profit and margin | $18.5 million; 33.2% | $18.1 million; 31.5% |
| Selling and administrative expenses | $19.0 million | $15.8 million |
| Operating income (loss) and margin | ($0.4 million); (0.7%) | $1.5 million; 2.6% |
| Net loss attributable to Innodata; diluted loss per share | ($1.6 million); ($0.06) | ($0.3 million); ($0.01) |
| Adjusted EBITDA | $3.3 million | $6.4 million |
| Cash from operating activities | $4.9 million | $3.6 million |
| Capital expenditures | $1.8 million | $2.0 million |
Revenue declined about 3%. DDS revenue fell 5% to $41.2 million, Synodex fell 3% to $3.9 million, and Agility rose 10% to $10.7 million. The two largest customers together contributed 26% of revenue, down from 30% in 2018. Selling and administrative expense rose 20%, chiefly reflecting investment in growth initiatives; cost reductions helped lower direct costs.
Cash and cash equivalents were $10.9 million at year-end, and working capital was $8.8 million, down from $12.3 million. Long-term obligations were $5.4 million, including $4.6 million of accrued pension liabilities; the company also reported $7.8 million of operating lease liabilities. It reported no bank facilities or line of credit. Operating cash flow included working-capital sources, notably lower receivables and prepaid assets.
Material changes, outlook and risks
- In 2019, Innodata repurchased 1.50 million shares for approximately $1.8 million under a $2.0 million authorization.
- The company restated 2018 financial statements after identifying errors in foreign-currency remeasurement of refundable taxes and long-standing accruals. Management judged the prior-period errors immaterial, but disclosed a material weakness in financial reporting controls relating to those matters. Disclosure controls were deemed ineffective as of year-end; management said it added quarterly review controls.
- Management expected cash and internally generated funds to meet needs for the next 12 months. Planned 2020 capital expenditures were approximately $2.0–$2.3 million. The company also intended to invest in technology, products, marketing and operations; it provided no revenue or earnings guidance.
- Management identified COVID-19 as a developing uncertainty and said it could not reliably predict its effects. Other material risks include short-term or terminable client contracts, customer and receivables concentration, project volatility, price and wage pressures, foreign-exchange exposure, reliance on third-party content for Agility, cybersecurity and international operating risks.
- Contingencies include a Philippine former-employee judgment with a stated potential principal of approximately $6.4 million plus interest; U.S. enforcement was enjoined while the matter remained subject to the court’s jurisdiction. The company also faces an Indian service-tax dispute concerning approximately $66 million of historical subsidiary revenue, potentially subject to 12.36%–15% tax plus interest and penalties. Management recorded no liability for these matters based on counsel’s assessment. A separate dispute concerns about $160,000 of prior refunds; approximately $1.0 million of service-tax credits remained recorded as a receivable.
Important facts for investors to verify
- Whether customer concentration, project renewals and new business offset continued revenue pressure in DDS and Synodex.
- Progress in remediating the material weakness and the reliability of subsequent financial reporting.
- Cash generation, working-capital needs, pension and lease obligations, and liquidity without credit facilities.
- Developments in the Philippine litigation and Indian tax matters, including any change in recorded reserves or receivables.
- Whether growth investments and Agility’s subscription expansion can improve profitability, given the 2019 decline in Adjusted EBITDA.