INNODATA INC (INOD) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Report. In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions based upon management’s current expectations. Our actual results could differ materially from the results referred to in any forward-looking statement. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Report.

Executive Overview

We are a global data engineering company. We operate in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.

The following table sets forth certain financial data for the two years ended December 31, 2024 and 2023:

​

​

For a summary of our Significant Accounting Estimates and Policies, please refer to Note 1 of the Notes to our Consolidated Financial Statements, which are included elsewhere in this Report.

Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with U.S. GAAP (“GAAP”), we provide certain non-GAAP financial information. We believe that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results. In some respects, management believes non-GAAP financial measures are more indicative of our ongoing core operating performance than their GAAP equivalents by making adjustments that management believes are reflective of the ongoing performance of the business.

We believe that the presentation of this non-GAAP financial information provides investors with greater transparency by providing investors a more complete understanding of our financial performance, competitive position, and prospects for the future, particularly by providing the same information that management and our Board of Directors use to evaluate our performance and manage the business. However, the non-GAAP financial measures presented in this Annual Report on Form 10-K have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures that we present may differ from similar non-GAAP financial measures used by other companies.

Adjusted Gross Profit and Adjusted Gross Margin

We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP, plus depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance and other one-time costs.

31

Table of Contents

We define Adjusted Gross Margin by dividing Adjusted Gross Profit over total U.S. GAAP revenues.

We use Adjusted Gross Profit and Adjusted Gross Margin to evaluate results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the years ended December 31, 2024 and 2023 (in thousands).

​

​

​

32

Table of Contents

​

**Represents non-recurring severance incurred for a reduction in headcount in connection with the re-alignment of the Company’s cost structure.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands).

​

​

33

Table of Contents

​

​

* Included in stock-based compensation is an adjustment for the reversal of expense relating to performance based restricted stock units in the current year.

**Represents non-recurring severance incurred for a reduction in headcount in connection with the re-alignment of the Company’s cost structure.

Results of Operations

Amounts in the MD&A below are after elimination of any inter-segment profit and have been rounded. All percentages have been calculated using rounded amounts.

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Revenues

Total revenues were $170.5 million and $86.8 million for the years ended December 31, 2024 and 2023, respectively, an increase of $83.7 million or approximately 96%.

Revenues from the DDS segment were $141.1 million and $61.6 million for the years ended December 31, 2024 and 2023, respectively, an increase of $79.5 million or approximately 129%. The net increase was primarily attributable to higher volume from an existing customer.

Revenues from the Synodex segment were $7.9 million and $7.5 million for the years ended December 31, 2024 and 2023, respectively, an increase of $0.4 million or approximately 5%. The increase was primarily due to higher volume from existing customers.

Revenues from the Agility segment were $21.5 million and $17.7 million for the years ended December 31, 2024 and 2023 respectively, an increase of $3.8 million or approximately 21%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

One customer in the DDS segment generated approximately 48% of the Company’s total revenues in the fiscal year ended December 31, 2024. Another customer in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023. No other customer accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2024 and 2023, revenues from non-U.S. customers accounted for 21% and 37%, respectively, of the Company’s revenues.

34

Table of Contents

Direct Operating Costs

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, and other direct expenses that are incurred in providing services to our customers.

Direct operating costs were $103.4 million and $55.5 million for the years ended December 31, 2024 and 2023, respectively, an increase of $47.9 million or approximately 86%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes a net increase of $42.2 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; higher recruitment fees of $3.5 million; higher depreciation and amortization of capitalized developed software of $1.1 million; higher content costs of $0.8 million; higher cloud service subscriptions of $0.8 million and an increase in other direct operating costs of $0.3 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $0.8 million. Direct operating costs as a percentage of total revenues were approximately 61% and 64% for the years ended December 31, 2024 and 2023, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in all segments and lower direct operating costs in the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments.

Direct operating costs for the DDS segment were $88.2 million and $40.1 million for the years ended December 31, 2024 and 2023, respectively, an increase of $48.1 million or approximately 120%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes a net increase of $43.3 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; higher recruitment fees of $3.5 million; higher depreciation and amortization of capitalized developed software of $1.0 million; higher cloud service subscriptions of $0.7 million and an increase in other direct operating costs of $0.3 million; offset in part by a favorable impact of foreign exchange rate fluctuations of $0.7 million. Direct operating costs for the DDS segment as a percentage of DDS segment revenues were approximately 63% and 65% for the years ended December 31, 2024 and 2023, respectively. The decrease in direct operating costs of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher direct operating costs.

Direct operating costs for the Synodex segment were approximately $5.8 million and $6.7 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $0.9 million or approximately 13%. The decrease in direct operating costs was primarily due to the effect of our cost optimization initiatives completed in 2023 which resulted in cost efficiencies for the Synodex segment. The reduction was primarily due to lower direct labor costs of $0.9 million and lower depreciation and amortization of capitalized developed software of $0.1 million, offset in part by higher cloud service subscriptions of $0.1 million. Direct operating costs for the Synodex segment as a percentage of segment revenues were approximately 73% and 89% for the years ended December 31, 2024 and 2023, respectively. The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to a decrease in direct operating costs and higher revenues.

Direct operating costs for the Agility segment were approximately $9.4 million and $8.7 million for the years ended December 31, 2024 and 2023, respectively, an increase of $0.7 million or approximately 8%. The increase was primarily due to higher content costs of $0.8 million, higher depreciation and amortization of capitalized developed software of $0.2 million, offset in part by lower direct labor costs of $0.2 million including severance, primarily due to the effect of our cost optimization initiatives completed in 2023 and a favorable impact of foreign exchange rate fluctuations of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were approximately 44% and 49% for the years ended December 31, 2024 and 2023, respectively. The decrease in direct operating costs of the Agility segment as a percentage of Agility segment revenues was due to higher revenues, offset in part by higher direct operating costs.

35

Table of Contents

Gross Profit and Gross Margin

Gross profit is derived from revenues less direct operating costs, while Gross margin as a percentage is derived by dividing gross profit over revenues.

Gross profit was $67.1 million and $31.3 million for the years ended December 31, 2024 and 2023, respectively. The $35.8 million increase in gross profit was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Gross margin was 39% and 36% for the years ended December 31, 2024 and 2023, respectively. The increase in gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments in the current fiscal year.

Gross profit for the DDS segment was $52.9 million and $21.5 million for the years ended December 31, 2024 and 2023, respectively. The $31.4 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 37% and 35% for the years ended December 31, 2024 and 2023, respectively. The increase in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Gross profit for the Synodex segment was $2.1 million and $0.8 million for the years ended December 31, 2024 and 2023, respectively. The $1.3 million increase in gross profit for the Synodex segment was primarily due to lower direct operating costs and higher revenues. Gross margin for the Synodex segment was 27% and 11% for the years ended December 31, 2024 and 2023, respectively. The increase in gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs and higher revenues in the current fiscal year.

Gross profit for the Agility segment was $12.1 million and $9.0 million for the years ended December 31, 2024 and 2023, respectively. The $3.1 million increase in gross profit for the Agility segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the Agility segment was 56% and 51% for the years ended December 31, 2024 and 2023, respectively. The increase in gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Selling and Administrative Expenses

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses, software subscriptions, professional and consultant fees, provision for credit losses and other administrative overhead expenses.

Selling and administrative expenses were approximately $42.7 million and $31.0 million for the years ended December 31, 2024 and 2023, respectively, an increase of $11.7 million or approximately 38%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative payroll and related expenses of $7.3 million, primarily on account of new hires, salary increases, incentives and bonuses and offset in part by lower severance costs; higher professional fees of $3.3 million; higher expenses for marketing related activities of $0.6 million; higher subscriptions of $0.2 million; an unfavorable impact of foreign exchange rate fluctuations of $0.1 million; and an increase in other selling and administrative expenses of $0.2 million. Selling and administrative expenses as a percentage of total revenues were approximately 25% and 36% for the years ended December 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in all segments and lower selling and administrative expenses in the Synodex segment, offset in part by higher selling and administrative expenses in the DDS and Agility segments.

36

Table of Contents

Selling and administrative expenses for the DDS segment were approximately $31.6 million and $20.1 million for the years ended December 31, 2024 and 2023 respectively, an increase of $11.5 million or 57%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $7.2 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; higher professional fees of $3.2 million; higher expenses for marketing related activities of $0.3 million; higher subscriptions of $0.2 million; higher provisions for credit losses of $0.2 million and an increase in other selling and administrative expenses of $0.4 million. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were approximately 22% and 33% for the years ended December 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher selling and administrative expenses.

Selling and administrative expenses for the Synodex segment were $0.2 million and $0.6 million for the years ended December 31, 2024 and 2023 respectively, a decrease of $0.4 million or approximately 67%. The decrease in selling and administrative expenses was primarily attributable to lower selling and administrative payroll costs of $0.3 million and lower professional fees of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were approximately 3% and 8% for the years ended December 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable to higher revenues and lower selling and administrative expenses.

Selling and administrative expenses for the Agility segment were $10.9 million and $10.3 million for the years ended December 31, 2024 and 2023, respectively, an increase of $0.6 million or approximately 6%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative payroll and related expenses of $0.4 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; offset in part by lower severance costs; an increase in marketing related activities of $0.3 million; higher professional fees of $0.2 million, and an unfavorable impact of foreign exchange rate fluctuations of $0.1 million, offset in part by lower provision for credit losses of $0.2 million and a decrease in other selling and administrative expenses of $0.2 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were approximately 51% and 58% for the years ended December 31, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher revenues, offset in part by higher selling and administrative expenses.

Goodwill Impairment

As of September 30, 2024, the Company performed its annual goodwill impairment analysis on its reporting unit with goodwill, the Agility segment. It involved a quantitative goodwill impairment test and estimated the fair value based on a combination of the income approach (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3). The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the segment’s fair value. The future cash flows of the segment were projected based on the Company’s estimates of future revenues, operating income, and other factors such as working capital and capital expenditure. As part of the DCF analysis, the Company projected revenue and operating profits and assumed long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization (“EBITDA”) to estimate the segment’s fair value. The market multiples used for the segment were based on a group of comparable companies’ market multiples applied to the Company’s revenue. The Company concluded that there is no impairment of goodwill.

Income Taxes

Income taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations.

37

Table of Contents

We recorded a benefit from income taxes of $4.2 million and provision for income taxes of approximately $1.0 million for the years ended December 31, 2024 and 2023, respectively. In the third and fourth quarters of 2024, the Company determined it was more likely than not that the Company would be able to realize the benefit of the deferred tax assets in the United States and the United Kingdom, resulting in the release of the valuation allowance. In reaching this determination, the Company considered the growing trend of profitability over the last three years in the United States, as well as its expectations regarding the generation of future taxable income.

The effective income tax rates for the year ended December 31, 2024 are disproportionate primarily due to the effect of a stock-based compensation adjustment, the release of the valuation allowance from our U.S. and U.K. deferred tax assets and a decrease in unrecognized tax benefits, offset in part by IRS section 162 (m) adjustments and Global Intangible Low-Taxed Income (GILTI) provisions.

The effective income tax rates for the year ended December 31, 2023 are disproportionate primarily due to the minimal pre-tax income and valuation allowance recorded on the deferred taxes of the U.S., Canadian, German and the U.K. subsidiaries, tax effects of foreign operations, IRS section 162 (m) adjustments, offset in part by the effect of stock-based compensation.

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, 2024 and 2023 are summarized in the table below:

​

​

Despite access to overseas earnings and the resulting toll charge, we intend to indefinitely reinvest earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding taxes that we would have to incur on the actual remittances. Unremitted foreign earnings and profits amounted to approximately $53.9 million at December 31, 2024. If such foreign earnings and profits are repatriated in the future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

We have a remaining valuation allowance on all the deferred tax assets of our Canadian and German subsidiaries. Our Canadian subsidiaries also have research and development credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.

38

Table of Contents

Net Income (Loss)

We had a net income of $28.7 million and a net loss of $0.9 million during the years ended December 31, 2024 and 2023, respectively. The $29.6 million change was a result of higher revenues in all segments and lower direct operating costs and selling and administrative expenses in the Synodex segment, offset in part by higher direct operating costs and selling and administrative expenses in the DDS and Agility segments of $24.1 million; a change in income tax provision resulting from the release of the valuation allowance on our U.S. and U.K. deferred tax assets of $5.4 million and interest income of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case for the current fiscal year.

Net income for the DDS segment was $25.4 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively. The $25.2 million increase was primarily attributable to higher revenues, offset in part by higher direct operating costs and selling and administrative expenses of $19.8 million; a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets of $5.3 million and interest income of $0.1 million from the refund of a court fee deposit for our Indian subsidiary’s service tax case for the current fiscal year.

Net income for the Synodex segment was $1.9 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively. The $1.7 million increase was primarily due to lower direct operating costs and selling and administrative expenses and higher revenues in the current fiscal year.

Net income for the Agility segment was $1.3 million and a net loss of $1.3 million for the years ended December 31, 2024 and 2023, respectively. The $2.6 million change was due to higher revenues offset in part by higher direct operating costs and selling and administrative expenses of $2.5 million and a change in income tax provision resulting from the release of the valuation allowance on our United Kingdom subsidiary’s deferred tax assets of $0.1 million in the current fiscal year.

Adjusted Gross Profit and Margin

Adjusted Gross Profit and Adjusted Gross Margin are non-GAAP financial measures. For a reconciliation of Adjusted Gross Profit and Adjusted Gross Margin to the most directly comparable GAAP measure, please see the description of “Non-GAAP Financial Measures – Adjusted Gross Profit and Adjusted Gross Margin” above.

Adjusted gross profit was $73.1 million and $36.5 million for the years ended December 31, 2024 and 2023, respectively. The $36.6 million increase in adjusted gross profit was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Adjusted gross margin was 43% and 42% for the years ended December 31, 2024 and 2023, respectively. The increase in adjusted gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments in the current fiscal year.

Adjusted gross profit for the DDS segment was $55.3 million and $22.9 million for the years ended December 31, 2024 and 2023, respectively. The $32.4 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 39% and 37% for the years ended December 31, 2024 and 2023, respectively. The increase in the adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Adjusted gross profit for the Synodex segment was $2.6 million and $1.4 million for the years ended December 31, 2024 and 2023, respectively. The $1.2 million increase in adjusted gross profit in the Synodex segment was due to lower direct operating costs and higher revenues. Adjusted gross margin for the Synodex segment was 33% and 19% for the years ended December 31, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs and higher revenues in the current fiscal year.

39

Table of Contents

Adjusted gross profit for the Agility segment was $15.2 million and $12.2 million for the years ended December 31, 2024 and 2023, respectively. The $3.0 million increase in adjusted gross profit for the Agility segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the Agility segment was 71% and 69% for the years ended December 31, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please see the description of “Non-GAAP Financial Measures – Adjusted EBITDA” above.

Adjusted EBITDA was $34.6 million and $9.9 million for the years ended December 31, 2024 and 2023, respectively. The $24.7 million increase in Adjusted EBITDA was due to higher net income, higher depreciation and amortization, offset in part by a change in income tax provision resulting from the release of the valuation allowance on our U.S. and United Kingdom deferred tax assets, and lower non-recurring severance in the current fiscal year.

Adjusted EBITDA for the DDS segment was $27.8 million and $6.4 million for the years ended December 31, 2024 and 2023, respectively. The $21.4 million increase in Adjusted EBITDA in the DDS Segment was due to higher net income, higher depreciation and amortization, offset in part by a change in income tax provision for the period resulting from the release of the valuation allowance on our U.S. deferred tax assets in the current fiscal year.

Adjusted EBITDA for the Synodex segment was $2.3 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively. The $1.3 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income, offset in part by lower stock-based compensation and depreciation and amortization in the current fiscal year.

Adjusted EBITDA for the Agility segment was $4.5 million and $2.5 million for the years ended December 31, 2024 and 2023, respectively. The $2.0 million increase in Adjusted EBITDA in the Agility segment was due to the net income in the current period compared to the net loss in the comparative period, higher depreciation and amortization, offset in part by lower non-recurring severance, lower stock-based compensation and a change in income tax provision for the period resulting from the release of the valuation allowance on our United Kingdom deferred tax assets in the current fiscal year.

Liquidity and Capital Resources

Selected measures of liquidity and capital resources, expressed in thousands, are as follows:

​

​

On December 31, 2024, we had cash and cash equivalents of $46.9 million, of which $17.9 million was held by our foreign subsidiaries and $29.0 million was held in the United States. Despite the passage of the new tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of December 31, 2024, to indefinitely reinvest the overseas funds in our foreign subsidiaries due to the withholding tax that we would have to incur on the actual remittances.

40

Table of Contents

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of December 31, 2024, we had working capital of approximately $41.5 million, as compared to working capital of approximately $9.1 million as of December 31, 2023. The increase in working capital of $32.4 million is primarily due to higher cash balances driven by collections from higher revenues and cash proceeds from stock option exercises of $6.7 million. Accounts receivable increased by $12.9 million compared to the prior year as of the year ended December 31, 2024.

Proceeds from stock option exercises for the year ended December 31, 2024 were $6.7 million.

We did not have any material commitments for capital expenditures as of December 31, 2024.

We believe that our existing cash and cash equivalents and cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for at least 12 months from the date of issuance of these financial statements.

On April 4, 2023, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender, and Innodata Inc., Innodata Synodex, LLC, Innodata docGenix, LLC and Agility PR Solutions LLC as co-borrowers. On July 21, 2023, Innodata Services, LLC signed a Joinder Agreement to join the Credit Agreement as a co-borrower. On August 5, 2024, we entered into a second amendment (to the Credit Agreement (together with the Credit Agreement, the “Amended Credit Agreement”). The Amended Credit Agreement provides for a secured revolving line of credit (the “Revolving Credit Facility”) up to an amount equal to the lesser of the borrowing base and $30.0 million (the “Maximum Credit”) and provides that a Borrower may request an increase to the Revolving Credit Facility’s Maximum Credit of up to, but not to exceed, $50.0 million, subject to the approval of the Lender. The Revolving Credit Facility’s borrowing base is calculated on the basis of (i) 85% of eligible accounts (other than eligible foreign accounts and unbilled accounts), plus (ii) the lesser of (a) 80% of eligible accounts that are unbilled accounts and (b) 30% of all eligible accounts, plus (iii) the lesser of (a) 85% of eligible foreign accounts, (b) 20% of all eligible accounts and (c) $4.0 million, minus (iv) certain other reserves and adjustments. As of December 31, 2024, such borrowing base calculation equaled approximately $22.3 million. The Credit Agreement contains a financial covenant that requires the Borrowers, on a consolidated basis, to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00. Except as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to the daily simple secured overnight financing rate (“SOFR”) plus 2.25%. We did not utilize the Revolving Credit Facility during the year ended December 31, 2024 or during the subsequent period through the filing date of this Report.

On August 8, 2024, we filed a Registration Statement on Form S-3 (Registration No. 333-281379) (the “Form S-3”) with the SEC. The Form S-3, which includes a base prospectus, allows us to offer and sell, from time to time, in one or more offerings, common stock, preferred stock, debt securities, warrants or units up to an aggregate public offering price of $50.0 million. On September 16, 2024 we filed Amendment No. 1 to the Form S-3. The Form S-3 was declared effective by the SEC on October 10, 2024. The Form S-3 is intended to preserve our flexibility to raise capital from time to time, if and when needed.

Net Cash Provided by Operating Activities

Cash provided by our operating activities for the year ended December 31, 2024 was $35.0 million resulting from our net income of $28.7 million, adjusted for non-cash expenses of $6.2 million and an increase in working capital of $0.1 million. Refer to the Consolidated Statements of Cash Flows for further details.

Cash provided by our operating activities for the year ended December 31, 2023 was $5.9 million resulting from our net loss of $0.9 million, adjusted for non-cash expenses of $9.9 million and a decrease in working capital of $3.1 million. Refer to the Consolidated Statements of Cash Flows for further details.

41

Table of Contents

Our days’ sales outstanding were 45 days and 50 days for the years ended December 31, 2024 and 2023, respectively. We calculate DSO by first dividing the total revenues for the period by average net accounts receivable, which is the average of net accounts receivable at the beginning of the period and net accounts receivable at the end of the period, to yield an amount we refer to as the “accounts receivable turnover”. Then we divide the total number of days within the period reported by the accounts receivable turnover to yield DSO expressed in number of days.

Net Cash Used in Investing Activities

Cash used in our investing activities for the year ended December 31, 2024 was $7.7 million. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the year ended December 31, 2024 consisted of $4.6 million for the DDS segment, $2.1 million for the Agility segment and $1.0 million for the Synodex segment.

Cash used in our investing activities for the year ended December 31, 2023 was $5.1 million consisting of capital expenditures of $5.6 million offset in part by proceeds from sale of investments of $0.5 million. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the year ended December 31, 2024 amounting to $5.6 million consisted of $2.9 million for the DDS segment, $1.8 million for the Agility segment and $0.9 million for the Synodex segment.

For calendar year 2025, we anticipate that capital expenditures for ongoing technology, equipment, new platform development, and infrastructure upgrades will approximate to $11.0 million, a portion of which we may finance.

Net Cash Used in Financing Activities

Cash provided by financing activities for the year ended December 31, 2024 was $6.1 million, primarily from proceeds of stock option exercises of $6.7 million, offset in part by payment of long-term obligations of $0.5 million and withholding taxes on net settlement of restricted stock awards of $0.1 million.

Cash provided by financing activities for the year ended December 31, 2023 was $2.9 million primarily from proceeds of stock option exercises of $3.3 million, offset in part by payment of long-term obligations of $0.4 million.

Inflation, Seasonality and Prevailing Economic Conditions

Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenue is denominated in Canadian dollars, Pound Sterling and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, are incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated transactions into U.S. dollars in accordance with U.S. GAAP. Thus, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.

The Philippines and India have at times experienced high rates of inflation as well as major fluctuations in the exchange rate between the Philippine peso and the U.S. dollar and the Indian rupee and the U.S. dollar. Canada has also experienced fluctuations in the exchange rate between the Canadian dollar and U.S. dollar. As of December 31, 2024, the aggregate notional amount of our hedges was $22.5 million consisting of approximately $10.7 million against the Canadian dollar, $6.7 million against the Philippine peso and $5.1 million against the Indian rupee.

Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not currently intend to hedge these assets.

42

Table of Contents

Our most significant costs are the salaries and related benefits of our employees. We are exposed to high inflation in wage rates in the countries in which we operate. We generally perform work for our customers under project-specific contracts, requirements-based contracts or long-term contracts. We must adequately anticipate wage increases, particularly on our fixed-price contracts. There can be no assurance that we will be able to recover cost increases through increases in the prices that we charge for our services to our customers.

Our quarterly operating results are subject to certain fluctuations. We experience fluctuations in our revenues and earnings as we replace and begin new projects, which may have some normal start-up delays, or we may be unable to replace a project entirely. These and other factors may contribute to fluctuations in our operating results from quarter to quarter. In addition, as some of our Asian facilities are closed during holidays in the fourth quarter, we typically incur higher wages, due to overtime, that reduces our margins.

Our Synodex subsidiary experiences seasonal fluctuations in revenues. Typically, revenue is lowest in the third quarter of the calendar year and highest in the fourth quarter of the calendar year. The seasonality is directly linked to the number of life insurance applications received by the insurance companies.