Innodata Inc (INOD) 2009 Q1 法說會逐字稿

Good morning. And welcome to the Innodata Isogen first quarter 2009 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Vice President of Marketing and Communications, Mr. Al Girardi. Mr. Girardi, please go ahead, sir.

Thanks, Donny. Good morning. And thanks for joining us for our first quarter 2009 earnings conference call. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata Isogen, and Jurgen Tanpho, our Interim CFO.

Statements made during this conference call and answers to your questions are intended to provide abbreviated unofficial background to assist you in your review of the Company's press release and SEC filings.

In addition, there may be some forward-looking comments regarding the Company's operations, economic performance, and conditions. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. The words believe, expect, anticipate, indicate, point to, and other similar expressions generally identify forward-looking statements, which speak only as of their dates.

These forward-looking statements are based on the Company's current expectations and are subject to a number of risks and uncertainties, including without limitation continuing revenue concentration and a limited number of clients, continuing reliance on project-based work; worsening of market conditions, changes in external market factors; the ability and willingness of the Company's current clients and prospective clients to execute their business plans. which give rise to requirements for our services; difficulty in integrating and deriving synergies from acquisitions; potential undiscovered liabilities of companies Innodata Isogen acquires; changes in the Company's business or growth strategy; the emergence of new or growing competitors; and various other competitive and technological factors; and other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.

Actual results could differ materially from the results referred to in these forward-looking statements. Along with these risks and uncertainties, there can be no assurance that the results referred to in these forward-looking statements will occur. We encourage you to read the risk factors described in Innodata Isogen's various SEC filings for an understanding of the factors that may affect the Company's businesses and results. And now, Jack Abuhoff. Jack?

Thanks, Al. Good morning, everyone. Thanks for joining us. During today's call, I'll review our first quarter results and provide some context. I'll talk about opportunities we see to grow the business, provide a glimpse into how Q2 seems to be shaping up, and talk about how we're continuing to enhance our executive team. Jurgen Tanpho will then break out the numbers in greater detail. And when Jurgen concludes his remarks, we'll open up the call for your questions.

In Q2 2009, we generated $21.8 million of revenue, our highest quarterly revenue to date, up 19% from Q1 2008. We earned nearly $3.6 million, or $0.15 per share, up from $833,000, or $0.03 per share, earned in Q1 last year and up from $0.11 per share we earned last quarter before taking into account last quarter's one-time adjustments.

We achieved a gross margin of 40%, up from last quarter's 36% and well in excess of the 30% or more that we target thanks to a strong growth in our knowledge process outsourcing, or KPO business, the benefits of cost reductions we instituted last year, and a continued more favorable foreign exchange environment.

We generated about $3.3 million in cash from operations in Q1 this year, significant given that in all of last year we generated $4.5 million. Cash and equivalents rose 20% from about $14 million at the end of Q4 last year to about $16.5 million at the close of Q1 this year. At the same time, receivables increased from about $14 million to about $15 million.

We added ten new clients in Q1, 20% more than Q1 of last year, including the American Chemical Society, Flat World Knowledge, Blackboard, and Dell Computer. Recurring revenue increased 8% to $12.427 million in the first quarter of 2009, up from $11.551 million in the first quarter of 2008. However, due to an even larger increase in project-based work, recurring revenue as a percentage of overall revenue dipped from 63% a year ago to 57% this quarter.

During the quarter, 56% of our revenue came from two clients compared with 52% in the same quarter in 2008. No other client accounted for 10% or more of our total revenues for these periods. Q2 seems to be shaping up well. We're anticipating that revenue will be in line with or slightly higher than our record first quarter revenue, which would translate to 20% or more year-over-year growth. And the quarter promises to be another quarter of strong profitability.

I will, however, continue to caution people not to start thinking of this as a sequential quarter growth business. There will be swings quarter to quarter, sometimes substantial ones, at least until we hit our long-term goal of 80% or more recurring revenue. Looking to the year overall, we continue to expect 2009 to beat 2008 performance, both in revenue and in earnings.

We continue to be excited by the market opportunities we're seeing. First, we anticipate continued growth in our recurring revenue base driven by demand for our KPO services from clients seeking to cut ongoing operating expenses that are associated with information processing and content creation.

We're able to take on complex analytical and editorial processes that our clients have been performing for themselves. We essentially reinvent how this work gets done, applying sophisticated technologies and a global assembly line process. This provides our clients substantial cost savings.

As global sourcing and process reengineering increasingly become key strategies that companies embrace to reduce expenses and to increase competitiveness, we've seen the pace and scope of our engagements in areas like editorial services, authoring, and content origination continue to increase. Given our recent wins together with our pipeline of opportunities and the general economic climate, we believe that this growth should continue.

Two other areas we're excited about are content product development and ebook production. And I'll talk briefly about each. First, let's talk about new product development work. We conceived of our KPO business chiefly as a way to help our clients take cost out of existing operations. But what we found is that our clients are embracing our capabilities for new product development as well.

A key driver for our clients is the overall pace of change in their competitive landscape. The continuing emergence of new technologies, competitors, and business models, Google the one the most prominent, is compelling information industry companies to invest in new and upgraded products. Even in this challenging economy, they are not standing still. And in some quarters, innovation even appears to be accelerating.

And it's interesting to observe that there are companies that are adopting an outsourcing strategy for new product development activities, even ahead of adopting outsourcing as a strategy for addressing legacy production spend. By working with us, they're able to produce these new products more quickly and at a substantially lower cost. We anticipate increased opportunities to help clients with new product development challenges.

Now let's touch on ebooks, a market in which we have the central position. In recent weeks, it's been hard not to be aware of the clamor around ebooks. It seems that lately you can't pick up a newspaper or a magazine without reading about some new and exciting development relating to ebooks. Case in point, just a couple of weeks ago, the Wall Street Journal featured a full front-page story in its technology supplement entitled How the Ebook Will Change the Way We Read and Write.

Perhaps this started really heating up in February when Amazon released its Kindle 2.0 with improved features and new functionality that it hopes will enable it to become the iPod of the literary world. Then Amazon added to the ebook buzz with the launch of its Apple iPhone and iPod Touch applications, enabling Amazon to reach not just the 0.5 million Kindle users but about 13 million iPhone users as well.

Just this past Tuesday, two days ago, the Wall Street Journal reported that Amazon is unveiling a new widescreen Kindle, enabling eperiodicals and etextbooks. In a separate article, the Wall Street Journal reported that the market is anticipating new innovative hardware devices from a number of other companies within the next few months as well.

Industry experts believe that this is just the beginning of the mass market era for ebooks. In anticipation of this, a little over a year ago, we set up an ebook business unit consisting largely of engineers and developers. We tasked them with building best-in-class ebook production technologies and developing specialized workflows and tool setups.

As a result of our timely investment, both of the leading ebook players, Amazon and Sony, are today our clients. And in this quarter alone, we brought in six new ebook clients. And our ebook pipeline in terms of clients and deal size is rapidly growing. My marketing and sales teams report that we are widely seen in this market as being the company best able to produce that scale of wide variety of ebook applications.

When we're speaking to our clients and potential clients, conversations now are about how to make their content available digitally rather than whether to make it available digitally. And their interest goes beyond trade books to research and professional works, newspapers, magazines, journals, and even mixed media content.

It's our intention to pursue these product development opportunities and these ebook opportunities largely without regard to quarterly ups and downs that will no doubt result from this large-scale project-based work. Rather, we'll evaluate opportunities in terms of their cash generation potential and their strategic value. At the same time, we'll continue to drive operational outsourcing in parallel so that over time these quarterly swings even out.

As we've said in our last few conference calls, the confluence of a bad general economy and our good company performance is presenting an opportunity to bootstrap ourselves by hiring some top notch new talent. We're going to look to aggressively exploit this opportunity to the Company's advantage, bringing on people who can team up with our existing talented staff to help propel the Company to the next level.

We announced last week that Steve Ford will be leaving at the end of June. We wish Steve the very best in future pursuits and thank him sincerely for his contributions to the Company. Steve has been supported by a terrific team, including [Mariz Espineli], our veteran Corporate Controller and in-house socks expert, and [Raj Jane], our Director of Finance.

Mariz, an accredited CPA, launched her 20-year career at a public accounting firm where she rose to Senior Audit Manager. She has served as our Corporate Controller for nearly a decade, managing the daily global operations of the Finance Department. Raj, also a CPA, began his 15-year career at Deloitte & Touche, then went on to head audit teams at J.H. Cohn and then PWC in New York.

Jurgen Tanpho, who has been a senior executive of various financial and operational duties at the Company for more than 15 years will serve as Interim CFO while we work with Korn/Ferry on completing our search that began earlier this year for a permanent replacement. I'll be introducing Jurgen to you in just a few minutes.

Last month, we announced the addition of three senior executives to the team. Stephen Ryden-Lloyd, Michael Abell, and Stephen Casbeer are each veteran business and technology strategists with distinguished careers of leadership at industry giants, such as Thomson Reuters, Pearson, and Reed Elsevier.

Stephen Ryden-Lloyd has more than two decades of experience helping media, information services, and publishing companies improve profitability and achieve sustainable competitive advantage. As a Senior Vice President at Innodata Isogen, he will head the Company's consulting practice, spearheading efforts to further develop and promote its capabilities and grow its revenue base.

Michael is a technology services specialist with more than a decade of experience serving media, information services, and publishing companies. He brings skills in new business development, global account management, and project delivery to his leadership role as Senior Vice President.

Stephen Casbeer, who joins us as a Vice President, is a business process transformation and technology expert with particular depth in organizational design, business and work process reengineering, and a full range of content technologies. Before joining us, Steve served as Senior Director of Product Technology at Reed Elsevier as well as a number of key positions at LexisNexis, including Senior Director of Content Creation, Senior Director of Editorial Publishing Systems, Senior Director of Systems Strategy, and Senior Director of Editorial Applications.

As we look out over the horizon, we see that our relationships with clients will become increasingly integrated and strategic in nature. The executives who are now joining us will help us fulfill the need for additional services in the areas of business process transformation, technology architecture and systems integration, value enhancement, and content supply chain reengineering, as well as a range of outsourced services. I'm looking forward to taking your questions in our Q&A session. But now I'll turn the call over to Jurgen for a closer look at the numbers. Jurgen?

Thanks, Jack. Good morning, everyone. Again, thanks for joining us. We'll first discuss revenue and income trends as well as the impacts of our cost management strategy. Then we'll look at cash flow and the balance sheet.

Revenue in the first quarter of 2009 was $21.815 million, a 19% increase on revenue of $18.4 million in the first quarter of 2008 and a 7% increase on revenues of $20.398 million in the fourth quarter of 2008. Recurring revenue -- that is, revenue from services that we anticipate the client will require for an indefinite period -- rose 8% from $11.6 million in the first quarter of 2008 to $12.4 million in the first quarter of 2009. In the same period, however, nonrecurring revenues increased 37% from $6.8 million to $9.4 million.

Direct operating expenses in the first quarter of 2009 were $13.11 million, down 2% from $13.329 million in the first quarter of 2008. As a percentage of revenue, direct operating costs in Q1 this year were 60% of revenue compared to 72% in Q1 of last year, an improvement of 12 percentage point.

This decrease in direct operating costs, both in absolute and percentage terms, translates into an improved gross margin. We model our business using target gross margins in excess of 30%. In the fourth quarter of last year, we achieved a gross margin of 36%. In the first quarter of this year, we achieved a gross margin of 40%, a significant improvement of the gross margin of 27% achieved in the first quarter of last year.

These improvements result from a combination of factors, including cost reductions and controls instituted last year, increased operating efficiency, strong growth in our KPO and new product development business, and a continued favorable foreign exchange environment.

In the first quarter, we continued to benefit from depreciation of the US dollar against the currencies in the countries in which we operate, chiefly the Philippines and India. We're currently not engaged in hedging activity but continuously monitor currency forecasts. We are prepared to take action if and when we need arises.

SG&A in the first quarter was $3.607 million, a decrease of $710,000 from the first quarter of last year. More significantly, as a percentage of revenue, SG&A dropped from 23% in the first quarter of 2008 to just 17% the first quarter of 2009. The decrease in SG&A costs principally reflects savings realized from the restructuring activity undertaken last December 2008 and to a lesser extent foreign exchange impact.

In the first quarter, we earned $5.111 million pre-tax, an increase of $4.3 million from the first quarter of last year and an increase of $2.092 million from last quarter. Looking for a moment at our tax structure, we've made provisions for taxes for the US entity and certain of our foreign subsidiaries that are not covered by tax holidays. We have several foreign subsidiaries that currently enjoy tax holidays or preferential tax rates.

In terms of EPS, we achieved a net income of $0.15 per diluted share in Q1, a fourfold increase on net income of $0.03 per diluted share in Q1 last year. These increases are attributable principally to improved gross margins and, secondarily, to lower SG&A expenses.

In Q1, cash from operations is $3.297 million, an increase of $1.186 million from the $2.111 million in Q1 last year, attributable mainly to increased earnings. We ended the quarter with $16.63 million in cash, an increase of $577,000 from the prior year and an increase of $2.755 million from the prior quarter. We achieved free cash flow of $2.948 million Q1, which is cash from operations of $3.297 million plus capital spending of $349,000.

We ended the quarter with accounts receivable of $15.136, million, an increase of $1.119 million from the prior quarter. Our days sales outstanding is 60 days, down from 62 days in the prior quarter.

We ended the first quarter with $26.926 million in working capital, $10 million more than in the first quarter of last year. We maintain a $7 million line of credit under which we have no outstanding obligations. During the next 12 months, we anticipate the capital spending for expansion as well as ongoing technology, equipment, and infrastructure upgrades will range from $4 million to $5 million.

We believe that our existing cash balances with funds generating from operating activities and funds available under our current credit facility will provide sufficient sources of liquidity to satisfy our financial requirements for the next 12 months. Okay. That wraps up my review. Again, thank you, everyone, for your time. And looking forward to any questions that you may have.

(Operator Instructions)

We will take our first question from Jay Harris with Goldsmith & Harris.

Good morning, Jack.

Good morning, Jay. How are you?

Very good. I have basically two questions. One, should we anticipate any change in operating expenses going forward this year, given the reduction that has occurred from last year to this year?

In an operating expenses, you're looking most --

Selling and administrative.

Mostly, it's SG&A, yes.

Yes.

No, I think we're going to look to maintain SG&A at approximately the levels they are now.

All right. The second question concerns your ability to forecast revenues. Given the fact that you're giving a dimension of guidance one quarter ahead, looking backwards, have you ever run into problems in terms of completing projects where they get stretched out?

In terms of completing projects, I guess I'd say that's one of a number of challenges that we've got managing the project side of the business. Projects can sometimes elongate and become stretched out. Generally, that's a good thing when that happens because it means the project's getting bigger.

In other words, you're billing on an hourly basis?

No, typically, we're not. Typically, we're building on a unit-produced basis, content-produced basis.

Well, what I'm -- I guess the nature of my question is -- have you run into situations where it has taken longer to reach certain specified goals than you originally anticipated or do anticipate looking ahead 90 days?

Sure. I think that when a project comes into our shop, we're very good at analyzing the resources that are required to do it and that are required to do it profitably. Where we've got less of a crystal ball is when things that are outside our control on the client side. When will projects start? How much content will there eventually be? Those are things that take a little bit more crystal ball.

All right. May I ask another?

Yes, please.

What is the nature of the content that you create for the Kindle?

Jay, on that one, we're subject to NVA restrictions. I really can't go into that.

Well, can you give us an example of one where you're not restricted?

Well, I guess what I can talk about is what we do in the world of ebooks generally and also maybe talk about a little bit about where I see that going because I think that where it's going is almost as important and as interesting as where we are today.

What we do for several providers now is we create the content. We create the ebooks that are available on ebook stores. We create content that is viewable online that enables you to do different things with a book, whether it's search the book or turn its pages.

The clearly interesting thing about where this world is going is we see new devices that are larger and support different types of reading, different types of functionality, is the book is going to fundamentally change. The way we consume the book will change. There will be much more modular component purchases. We'll read a chapter. We'll read an article or a portion of the book. We'll start using the devices for research. And there'll be another social networking component to all of this as well. You'll start to see newspapers and textbooks and multimedia experiences being supported. And without going into a lot of the detail, each one of these areas represents important new work that we can contribute to that process. I hope that's helpful.

We will take our next question from Matt McCormack with Brigantine Advisors.

Yes, hi. Good morning. In terms of the strong project-based work during the quarter, was that mostly related to ebooks? Or what else did you see strengthen?

Hi, Matt. We're seeing a combination of things strengthened. And there's several things that we do on the project side. We've talked about ebooks. We've talked about new product development related activities. And then there's the general publishing services work that we continue to do. And all of that contribute to the project-based component. The ebook activity is mostly a groundswell and opportunity that we see in the next several quarters and then on from there. And so I think that good news is ahead of us.

Okay. Can you break out what percentage ebooks represents in your revenue right now?

I don't have that data point. But again, I think the thing that I would try to emphasize is that by virtue of, as I said, six new clients this year, some with substantial requirements, the relationships that are in place with the main existing ebooks store providers and device manufacturers, the relationships and discussions taking place with new device manufacturers, this is an opportunity that we'll see more prospectively in the quarters that follow than right now.

Okay. And then what opportunity do you see -- and so I believe the ebook work is more project based. How do you transition that relationship to a more recurring relationship?

I think there are a number of opportunities. One is that as we do ebook-related work for the device manufacturers, many of whom are sponsoring this activity, we get introduced to a lot of publishers that we don't now have relationships with. And once we're introduced to a new relationship, there's a whole series of discussions that can take place, including operational outsourcing.

And then turning to the margins, what were the margins, excluding the benefits for currency?

So let me understand what you mean. In other words, are you looking for a year-over-year comparison in terms of what currency contributed to the margin gain or quarter over quarter? What's -- ?

Either is fine. I mean, let's just I guess do year over year. I mean, what I'm trying to understand is what the steady-state margin is for the business. Is it closer to the 36% in the fourth quarter? Or is it actually closer to the 40% that we should look at going forward?

Sure. Jurgen, you want to take that one?

Hi, Matt. This is Jurgen. In other words, if you took the gross margin of 40% and you use the I guess year-over-year -- the forex we had a year ago, that would come down to 33%, 34%, 32%, 33%. So take a couple of percentage points. But it will still be north of 30%.

So I guess stated another way, the swing in year over year EBIT was about $4.3 million. And the forex was somewhere in the mid-40% of that.

We will take our next question from Bill Sutherland with Boenning & Scattergood.

Thank you. Good morning, Jack and Jurgen. I was curious if you could just talk a little bit about what the selling cycle looks like for ebooks and then a little bit on the project duration typical of that.

Sure. When we think about selling cycles and project duration, I think the selling cycle -- and here, I'm going to make some -- I'm going to speculate a little bit. I think the selling cycle will probably be less than a typical selling cycle because there's a virtual arms race heating up among publishers and device providers in terms of who has the most content. So I would expect that we'd see a shorter selling cycle there. In terms of project duration, again, hard to say. This is a new era.

Okay. And, Jack, you're expecting I guess continued steady growth. Is that the right adjective for KPO going end of the year? It's just that the mix may shift if ebooks takes off potentially?

Well, I think there are a few things that are at work here. And first, let me address your central point. I think the key thing -- we do expect steady growth from the operational outsourcing. That's our primary source of recurring revenue. And we think we're in a good market to be featuring that and selling that. A lot of the new folks that we're talking about having been brought on most recently are going to be primarily involved in that side of the business. On the project side, there are several things. There's the ebook work. There's product development type work. We have several things that contribute to that.

Okay. When you talked about, Jack, bringing on a number of people mostly on the operational outsourcing side, you meant sales as well as the required production people?

That's right. And I think we see the world a little bit less black and white. It's not quite sales versus -- and production people. Increasingly, we're being brought into more I'd use the term strategic relationships with the customers, where we need people that can work with them on strategy, whether that's business transformation, whether it's outsourcing, whether it's content architecture for new products. And that conversation starts early in a relationship. So the people that we're bringing on now all have capabilities to help foster that. And we see that as an area where if we can feed that, then we release what's a bottleneck to even greater growth than we're seeing now.

Our next question is from Tim Clarkson with Van Clemens.

Hi, Jack. Great quarter, guys. Want to just get into if you could -- this is a little technical -- but could you just explain a few of the processes that go into an ebook that would make it difficult for somebody to compete with Innodata if they want to get into the ebook business?

Sure, Tim. I think if I really went technical on that, we'd probably lose however many people we have on the call right now.

Yes.

So maybe we'll take that offline then.

The soft version, the simple version.

The simple -- I'll give you the simple version. And I'll bring in my ebook engineers to talk about the complex version. It's actually a much more complicated set of processes than one would imagine them to be. There's a lot of functionality that goes into an ebook file. And there's a multiplicity of types of ebook files. So going from what's typically available as an input to the types of output and the functionality in the output requires lots of steps and lots of technology, a whole bunch of which we developed over the course of the year when we recognized a year ago that this was going to be coming about.

Right. And I'm guessing that there's some skill sets. I mean, you've been doing this since the Questia stuff way back ten years ago. So there's all kinds of know-how involved in doing ebooks.

I think that's right, Tim. And we've built on that know-how. The investment we made this past year is critical to the position we're now in. The institutional learning is important as well. If we remember what we were able to achieve in a short amount of time in terms of scale back then, we continue to do that. That's one of our strengths as a company. And I think it will be tested potentially in this environment.

Right. Just a couple of things that I remember about that -- one is, I mean, you control some of the proprietary software that's involved in doing this, right? There's actual software that's pertinent just to ebooks.

That's correct. And we've developed proprietary software that's pertinent just to ebooks.

And then there's a fair amount of manual work that still has to be done, too, by fairly skilled college-educated people, not just anybody.

It's not a black box process. So it ends up being a hybrid process with automation, tools that we've developed that are proprietary as well as staff that we can deploy.

(Operator Instructions)

We will now go to Bart Blout with Sawtooth Capital.

Yes, I wonder if you could give us a little color on some of the conversations that you've had with the publishers about ebooks. And also, apparently, if you are going to be a source of what they need, I guess there's no compromise in you dealing with several different -- I know Sony has an ebook and et cetera. And Apple's supposed to have one. Could you comment on those two things, please?

Sure. The conversations that we're having, again, as I said a little bit earlier in my remarks, are not -- the conversation used to be whether we should digitize. Now it's about what to digitize, how quickly we can digitize, and what this world is going to look like. The strategic part of the conversation is how will the new devices that are being announced -- just this week, Wall Street Journal talked about first Paper and Plastic Logic as well as Amazon having new devices that are very flexible, very thin, very portable. People are speculating about what that means.

Amazon is signing up colleges and universities to really start to move textbooks and learning onto devices. Critically and interestingly, we've got a division within the Company that we've been incubating over the last year producing elearning requirements and elearning output. So the conversation is -- publishers are figuring out what is the new business model. What's the new opportunity? People that were not clearly seeing new opportunity as little as a year ago are now seeing lots of areas that are pretty exciting.

We will now go to Perry Highland with Van Clemens.

Hi, Jack.

Hi, Perry.

Congratulations on an outstanding quarter. And you made some strategic hires. Do you see any acquisitions coming up?

It's a good question, Perry. And what we're seeing is much the same way that we're seeing now in an environment where we can very attractively hire talent. We're also seeing an environment where much more attractive valuations -- we can look at companies that might make sense as acquisitions. We're continuing to do that. But I'll emphasize we're going to be very selective. We're going to be very careful. Acquisitions will need to pass the test of accretiveness, of strategic fit, culture fit. And only then will we proceed. But we're seeing some -- really a return to attractive valuations, which could present an opportunity for us.

Okay. Then also just on the ebook side, I noticed that even the Garmin, the GPS people, they're offering. You can download books on their gizmos.

Yes.

That was interesting.

Well, I'm one of those people who's become very dependent on GPS devices. So I guess --

And then how about -- do you expect any brokerage firms to come out with buy recommendations or reports or analyst reports?

That, as you know, is something that we can't predict. But we're certainly going to be engaged, available, and looking to further relationships in that regard.

And we do have a follow-up question with Bill Sutherland with Boenning & Scattergood.

Hi. Jurgen, I actually was wondering if you were to just take FX where it is today, apply it to second quarter, what would be the comparison to first quarter?

I'm sorry, Bill. If the FX today, the rates would be the same as the next quarter?

No, you said that they should be further beneficial in Q2 versus Q1. And I'm just kind of curious what percentage benefit if you just take rates where they are today.

Yes, I mean, I'll jump in. But, Jurgen, feel free to help round this out. I think what we've seen most important for us is sort of a return to what we consider to be a more normal foreign exchange environment. And when we look out at consensus estimates for what people who truly understand these things think the year ahead has in store, it's generally maintaining that strength.

Okay. So sequentially, FX kind of drops out of the picture as far as moving the numbers.

Again, we rely on consensus estimates. We're monitoring that very closely on the Bloomberg. And we're in conversations with people who contribute to the consensus estimate.

Right. No, I understand that. Thanks, Jack.

That does conclude today's question and answer session. I would now like to turn the call back over to Mr. Jack Abuhoff for any closing remarks.

Well, thanks, everybody. I appreciate your questions today and your participation in our call. I'll just reiterate a couple of things I guess. In Q1, we generated $21.8 million in revenue, our highest quarterly revenue quarter to date. We earned nearly $3.6 million or $0.15 per share. Recurring revenue increased 8% to $12.4 million.

We achieved free cash flow of nearly $3 million. Cash and equivalents rose 20% from about $14 million at the end of Q4 to about $16 million at the close of Q1. And at the same time, receivables increased from $14 million to about $15 million. We added ten new logos in Q1, including the American Chemical Society, Flat World Knowledge, Blackboard, and Dell Computer.

Second quarter will most likely be in line with our slightly higher than our record first quarter revenue, representing an increase of more than 20% year over year with continued strong profitability. And we continue to anticipate strong growth in both revenue and earnings this year over last year.

So again, everybody, thanks for joining us. We're certainly looking forward to being with you next time. Thank you.

This does conclude today's conference. An audio replay of today's conference will be made available starting at 1:00 p.m. central time today. To access the replay, please dial 888-203-1112 or 719-457-0820 and enter passcode 8466200. Thank you for your participation.