First off, Happy New Year - I hope. There’s been a lot of turmoil in the market over the last year. It’s my perception that it was largely driven by extraordinary, never before experienced macro events over which none of has any influence. I really have no idea if any of this will settle down in 2026, or if yet new, unexpected events will stir the economy at large and the markets in particular . . .
But, be that as it may, I remain invested and as of the new year I’ve taken a starter position in Innodata (INOD). Here’s what I find encouraging about this company (BTW, the following is drawn from their investor page and 3Q25 conference call transcript, which is their most recently reported quarter).
Innodata is a global data engineering company. Their stated mission is to help the world’s leading technology companies and enterprises drive AI innovation. Presently INOD has contracts with five of the “Magnificent Seven” as well as additional very large tech firms, one of the world’s largest banks, several of the largest US & global life insurance companies, and several more large enterprises across the globe.
Total head count (Dec, '24): 6,648 full & part time heads. They support: a global presence across all time zones and six continents. Coverage for more than 85 languages/dialects. Over 20 worldwide delivery centers with significant operations in the Philippines, India, Sri Lanka, Germany, Canada and US. Over 3,500 SME in fields such as STEM, linguistics, programming, medicine/healthcare, finance and legal/regulations, engineering, business/finance, retail/eCommerce, etc.
Customers include AI builders as well as AI adopters. Services provided include support for pre/post training for merging agentic systems with business operations. AI integration across products and operations. Re-invention of work flows and processes via LLM integration/augmentation. Launched high profile federal project in 3Q25 with anticipated $25M revenue in 2026. Engaged in advanced discussions for several sovereign AI initiatives.
Estimated TAM: $200B by 2029. Strong financial position, 2025 YoY revenue growth forecast 45%, strong operating leverage, healthy balance sheet. 35+ years legacy of developing large-scale, high quality data. They consider 2024 as an inflection point. 2025 and beyond, expect to expand opportunities for gen enterprise AI capabilities, federal gov’t and sovereign entities. Anticipate revenue growth through 2032 of 45% CAGR .
3Q25 financial highlights: $62.6M revenue representing 20% YoY organic quarterly growth. 90% of revenue derived from services, remaining 10% SaaS provisioning. 44% gross margin. Adjusted EBITDA was 26% of revenue. ~$74M cash and $0 debt on the balance sheet. Available credit facility from WFB - $30M with no drawdowns. YTD as of September, 2025 - $179.3M revenue representing 61% YoY growth.
Of course, I do have some concerns. The most significant are ~56% of 3Q25 revenue came from their largest customer, so concentration is a concern.
I expect that the concentration will be mitigated as they pursue new business opportunties. But, they didn’t actually say this, so it’s just my expectation - it remains to be seen how this plays out.
Also, 6,648 employees is a pretty large headcount. Considering that the company’s operations are spread out across the globe, maybe that large headcount is justified. And obviously, the employees are not all located in the US. I’m confident that the employees receive a competitive pay package with the prevaling rate for their location. We’ll see if new contracts demand headcount increase or if the current headcount is sufficient to service the new business.
In the end, performance is what matters, not headcount, but no matter how you slice it, headcount is generally one of the major contributors to the cost of operations, and it is usually quite inelastic. My former employer (Boeing) migrated to utilization of contract employees in order to mitigate the cycles of hiring and layoffs which is common to the aerospace business. I have no insight on Innodata’s use of contract labor.