Innodata's 2025 Q3 Earnings Call: Contradictions in Customer Relationships, Revenue Projections, AI Market Potential, and Contract Revenue Timing

Date of Call: November 6, 2025

Financials Results

• Revenue: $62.6M, up 20% YOY, up 7% sequentially from $58.4M
• Gross Margin: 44% adjusted gross margin
• Operating Margin: Adjusted EBITDA $16.2M, 26% of revenue, up 23% quarter-over-quarter

Guidance:

• Reiterate prior guidance of 45%+ year-over-year revenue growth in 2025.
• Anticipate potentially transformative and materially higher growth in 2026.
• Expect the majority of pre-training data program revenue (signed/likely $68M) to flow in 2026.
• Innodata Federal initial project expected to generate ~ $25M, mostly in 2026; additional federal opportunities under discussion.
• Incurring ~ $9.5M of 2025 capability-building investments (including ~$8.2M incremental SG&A and $1.3M CapEx) to support 2026 growth.

Business Commentary:

• Revenue Growth and Strategic Investments:
• Innodata reported record revenue of $62.6 million for Q3 2025, up 20% year-over-year and 7% sequentially.

• Growth was driven by strong business momentum, deepening relationships with big tech customers, and early returns from new investment areas.

• Pre-training Data Expansion:

• Innodata has secured contracts with the potential to generate $68 million in revenue from pre-training data initiatives, with $42 million already signed and $26 million expected to be signed soon.

• This expansion is attributed to the growing recognition of the strategic importance of high-quality pre-training data in enhancing model performance.

• Federal Market Entry and Strategic Wins:

• The launch of Innodata Federal resulted in a $25 million revenue project with a high-profile customer, with expectations for additional large projects.

• The expansion into the federal market is supported by the U.S. government's emphasis on AI adoption and streamlined procurement processes.

• Investment in Agentic AI and Model Safety:

• Innodata is focusing on Agentic AI and model safety as emerging strategic areas, with initial projects involving major chip companies and enterprise customers.
• These investments aim to capitalize on the increasing demand for AI autonomy and the need for model safety and reliability in enterprise environments.

Sentiment Analysis:

Overall Tone: Positive

• Management described a "record" quarter with revenue of $62.6M (+20% YOY, +7% sequential), adjusted EBITDA of $16.2M (26% of revenue, +23% sequential), cash up to $73.9M, reiterated 45%+ growth guidance for 2025 and flagged potentially transformative growth in 2026.

Q&A:

• Question from Alan Klee (Maxim Group): You mentioned potential contract wins that add up to roughly $100M — some may be multi-year. Is there a sense of how much of that could be in 2026?
  Response: Annualized/ARR figures represent a year's value; many of the mentioned deals will primarily ramp and contribute in 2026.

• Question from Alan Klee (Maxim Group): The incremental $8.2M in SG&A you referenced — what time period/base is that versus?
  Response: The ~$8.2M incremental SG&A is year-over-year incremental in 2025 compared with 2024.

• Question from Alan Klee (Maxim Group): Regarding your largest customer, is the existing business stable or should investors expect variability?
  Response: The relationship is strong and business is stable; we also have a verbal on a potentially very large new program not yet baked into guidance.

• Question from George Sutton (Craig-Hallum): Would the verbal expansion with your largest customer run through an existing statement of work so onboarding would be quick?
  Response: Yes — it would run under the existing master services agreement as a new statement of work, enabling seamless and rapid onboarding.

• Question from George Sutton (Craig-Hallum): You highlighted federal wins and GSA changes — how are you navigating FedRAMP/procurement requirements to take on material federal work?
  Response: Timing is ideal: the federal government is prioritizing AI and streamlining procurement, reducing traditional barriers and enabling faster federal engagements.

• Question from George Sutton (Craig-Hallum): You suggested services could be ~10x the model-builder market — can you quantify what you're seeing so far?
  Response: Enterprise GenAI adoption will expand services materially; early deployments already deliver significant cost savings (example: ~$24M saved for a large social media customer) and signal scalable demand.

Contradiction Point 1

Relationship with the Largest Customer and Revenue Growth

It involves the stability of the relationship with the largest customer and expectations for revenue growth, which are crucial for investors and stakeholders.

Can you discuss the stability of your business with your largest customer? - Alan Klee(Maxim Group)

2025Q3: The relationship with the largest customer is strong and stable, with sequential business growth. A large new program is anticipated, but the ramp-up details are not yet known. - Unspecified

How will you approach the enterprise market in your go-to-market strategy? - Allen Robert Klee(Maxim Group LLC)

2025Q2: The relationship with the largest customer is stable and growing, with some new business opportunities under discussion. - Jack S. Abuhoff(CEO)

Contradiction Point 2

Pipeline and Revenue Expectations

It pertains to the expectations surrounding the company's pipeline and revenue, which are critical for financial forecasting and investor confidence.

Are there any updates on changes to growth or revenue guidance expectations? - Michael Baudendistel (Solebury Trout)

2025Q3: We are anticipating Q4 and next year to be at a higher level than Q1 and Q2, and so we're continuing to progress towards our annualized target of $100 million. - Anhushka (CFO)

What caused the difference between your prior revenue guidance and Q2 actual results? - Allen Robert Klee(Maxim Group LLC)

2025Q2: As a reminder, our EPS guidance for the current year includes estimated stock-based compensation expense of approximately $0.70 per diluted share. - Aneesh Pendharkar(SVP)

Contradiction Point 3

AI Enterprise Services Market Potential

It centers around the potential market size and growth opportunities for Innodata's enterprise AI services, which are essential for strategic planning and investment decisions.

What is the potential for 10x growth in the enterprise AI services market? - George Sutton(Craig-Hallum)

2025Q3: The AI enterprise services market is expected to be 10 times larger than the model builder market, with transformative workflows and cost reductions, creating significant opportunities for Innodata. - Rahul Sengal(CRO)

What impact has Meta's acquisition of Scale AI had on your business? - George Frederick Sutton(Craig-Hallum)

2025Q2: In relation to our large language model capabilities, we are working on a number of projects that could translate directly into sequential revenue growth. - Jack S. Abuhoff(CEO)

Contradiction Point 4

Win Rate and Customer Engagement

It involves differing statements on the company's win rate and customer engagement, which are crucial for understanding the company's sales and market position.

Can you discuss the status of business with your largest customer and its stability? - Alan Klee (Maxim Group)

2025Q3: Win rate is challenging to track, but Innodata focuses on getting into customer accounts, executing well, and expanding over time. - Jack Abuhoff(CEO)

What is your win rate when entering customer opportunities? - George Sutton (Craig Hallum)

2025Q1: The company has a high win rate for projects that move forward and is encouraged by the progress made with multiple big tech customers. - Jack Abuhoff(CEO)

Contradiction Point 5

Potential Revenue from Contract Wins

It involves the expected timing and amount of potential revenue from contract wins, which impacts revenue forecasts and investor expectations.

What portion of potential contract wins could be in 2026? - Alan Klee (Maxim Group)

2025Q3: The contracts mentioned that are annualized recurring revenue are considered as a year's value from that. Other contracts, while some may ramp up this quarter, the primary revenue will fall into next year. - Innodata

Can you outline the future plans for the seven other major tech customers, discuss the seven- to eight-figure opportunities, and identify which customers they are? - George Sutton (Craig-Hallum)

2024Q4: We are facing multiple large, multi-year engagements and anticipate over $20 million in new business from these customers in 2025. - Jack Abuhoff(CEO)