Innodata Inc (INOD) 2010 Q3 法說會逐字稿

Good morning, and welcome to the Innodata Isogen Third Quarter 2010 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Corey Luskin. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thanks for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata Isogen; and, O'Neil Nalavadi, our CFO. We'll hear from Jack and O'Neil, and then take your questions.

Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. And these statements are subject to the risks and uncertainties as described in our earnings release and other filings with the SEC. I would now like to turn the call over to Jack Abuhoff. Please go ahead, Jack.

Thank you, Corey. Good morning, everyone, and thank you for joining us today. I'll begin with a run-through of our third quarter results, and then provide an update on where we stand as we move into the latter part of the fiscal 2010.

Our third quarter results show both top and bottom line improvements over recent periods. Revenue in the third quarter was $15.8 million, up from $15.4 million in the second quarter. Recurring revenue constituted 72% of total in the third quarter, which was roughly even with the second quarter.

We saw growth in several of our largest customers and across our broad base of small to medium-sized accounts. During the quarter, we formally signed 13 new accounts and began relationships with 25 additional publishers who came to us for eBook services under the umbrella of our existing relationships with big eBook device manufacturers.

Our historic top two customers, taken together, were at about the same level as last quarter. But interestingly, a third customer surpassed one of these top two to become our second largest revenue contributor in the quarter. Our success at growing revenues with this customer is, I believe, attributable to our strategy and action. So I'm going to come back to it and talk more about it in just a few minutes. Let's just finish the financial results overview now.

Our cost of sales in the third quarter was $11.3 million, down from $12.2 million in the second quarter. As a result, gross profit expanded from $3.3 million to $4.5 million, which in percentage terms is an improvement from 21% to 28%. We were able to selectively reduce project headcount in a number of areas as AK and O'Neil drove an initiative to look at our spending. At the same time, some good-sized projects ramped up to their maturity points and reached optimal productivity.

As we shift more into growth mode, which we do foresee, we will no doubt see some temporary margin compression from startup projects. But I know that AK and O'Neil will be looking to temper this to the greatest extent possible through their continuing focus on operational excellence and process automation. I'll also reiterate here as I have the past couple of quarters that our cost of sales continues to reflect an ongoing investment of approximately $2 million per year for building out certain strategic capabilities such as consulting, contact technologies, and technical communications, all of which we view as important long-term investments.

SG&A expenses were $4 million in the current quarter, compared to $3.8 million in the second quarter. Most of this increase was due to incremental investments we've made in self-capabilities to pursue revenue growth.

We turned in pre-tax earnings of just over $500,000 in the third quarter, compared to a pre-tax loss of around $500,000 in the second quarter, with the improvement attributable to the gross margin improvement that I just described. We booked tax expense of just over $200,000 in the quarter, representing an effective rate of 40%, which O'Neil will discuss in a few minutes.

Our net income was $313,000 or $0.01 per share in the third quarter, compared to net loss of $874,000 or $0.03 per share in the second quarter. Cash flow from operations in the third quarter was $2.2 million, an increase of 40% from the second quarter. EBITDA grew from $467,000 to $1.4 million. In terms of our balance sheet, cash and equivalents and investments increased to $28.6 million and we continue to operate debt free.

Beginning in the second quarter and clearly continuing into the third quarter, we have seen improved momentum within our customer base for new product development and operations reengineering, the kinds of activities which create pipeline opportunity for us. As evidence of this, in our last call, we discussed to have four clients all over $1 billion in revenue had met with us in our Israel or Asia offices to discuss significant requirements.

If you recall, we discussed how one client had brought a large delegation of senior decision makers and another brought its President and CEO; and how in each of these cases the visits kicked off a series of additional meetings and collaboration, which we said held promise for new engagements. That was the second quarter. I'm pleased to report that in the third quarter, we've succeeded in turning each of these visits into significant new engagements, and in three out of four cases, significant recurring revenue engagements.

In the quarter, we also sought continued validation of the strategic investments we have incurred and continue to incur to build out our capabilities in advanced technology services and consulting services as the strategic complement to our editorial and content development services. For an example, we need look no further than the relatively new customer that I mentioned in the beginning of my remarks today, which has surpassed one of our historically two top customers in revenue contribution in the quarter.

By way of background, this relatively new customer is a global information services leader with around $5 billion in annual revenue, providing complex products that serve legal, financial, and scientific communities. Like other global information services companies, it experienced negative growth in 2009 as a result of the wider economic slowdown.

Recognizing the value of its immensely valuable content assets, its strategy in a nutshell to evolve from an information publisher to an information solutions provider. In the process, it is carefully examining all aspects of its business, including revenue model, delivery mix, and production and editorial strategy.

In order to help this customer along its strategic path, in the past year, we have deployed a full range of content technology services, consulting services, and outsourced content production services. For example, our consulting organization has worked closely with one of the client's business units on a program to reengineer much of its core editorial and production strategy.

On another front, members of our new content technologies team are combining our editorial subject matter experts to help the client build a new product. Meanwhile, our editorial specialists are building for this client an offshore content development center, which will help the client create content at significantly reduced costs.

These are three notable examples, but the list goes on from here. For this client, we are creating eBooks. We're writing software. We're converting and enriching legacy content. We're offering new content, handling quality assurance, building software applications, and even more than that. So to sum it up, the growth we are seeing with this client is the direct result of our strategically expanded capability set.

Now, let's turn to our eBook business, which continues to build momentum because this is another area where we see further opportunities to deploy our mix of technology, consulting, and outsourced production services. To date, we have manufactured eBooks for more than 200 of the world's leading publishers; built early on relationships with leading eBook device manufacturers; and, have assembled what I believe to be the largest, most dependable, and fully-scaled eBook manufacturing platform in the industry. But I believe we will look back on these achievements simply as a foundational layer upon which our business continues to build.

Our act 2 in this space will again likely draw on our full complement of consulting, technology, and outsourced content services. And here's why. Thanks largely to the significant advances in digital platforms like the iPad over the past year, we are seeing a surge in interest among publishers to distribute mobile digital content.

Traditional publisher segments, beginning with consumer and trade publishers, are aggressively driving digital strategies. But as the devices continue to mature, we are likely to see this drive towards digital, portable platforms extend beyond consumer and trade publishing into professional, educational magazines, newspapers, and even enterprise publishing. Even with all the media attention on eBooks this year, the migration to digital, portable platforms is still in its infancy.

So what does this mean for Innodata? Well, it means several things. In terms of our work with content providers, we will see new requirements for conversion services. But beyond that, we will see new needs for consulting services helping content providers to find and implement digital strategies, for example.

We'll also see new requirements for content technologies helping content providers develop mobile applications, for example. Soon, content providers will likely require not just eBook conversion, but eBook enhancements. We're just at the very beginning of convergence between what we traditionally think of as a book and what we have come to think of as an application. And in recent months in fact, we've begun creating rich media eBooks for several of our clients.

Beyond this likely evolution in how we work with content providers, I predict exciting opportunities to partner with device manufacturers in new fundamentally new and more integrated ways. I think it is likely that you'll see significant progress on this front from us even in the next few weeks. My executive team and I continue to believe that we have what it takes to become a company comparable in size and reputation to some of the world's leading global services companies.

And we continue to believe that our vision is the appropriate path by which to get there, being the category leader helping content-dependent and content-centric customers across media, publishing, information services, educational, and enterprise publishing understand, navigate, and succeed in the emerging digital publishing world.

The opportunities for growth we're seeing with the large information companies such as the one I referred to moments ago and the opportunities we're seeing in the eBook market, which we have just discussed have only served to bolster our confidence. We're going to hold off on specific near-term revenue and earnings guidance as there are lots of moving pieces that make numbers hard to predict in the near term.

Directionally, I can tell you that I'm optimistic about the progress we've made in regaining our footing from earlier in 2010 and about the market opportunities that we're uncovering. We have a pipeline that has strengthened significantly from the beginning of the year. And we're beginning to see an acceleration in bookings as well. I'll now turn the call over to O'Neil who will provide additional insight into the Q3 financial results. And after that, we'll take your questions, and then we'll wrap up with some final comments. O'Neil?

Thanks, Jack. Good morning, everyone. Again, thank you for joining us today to review our third quarter financial results. Jack just shared with you the highlights of our operating performance and the direction of our business. Let me share some thoughts from a financial perspective, and then I will review the key line items of the financial statements.

First, driven by a combination of revenue growth as well as significant improvement in productivity, we expanded our margins and returned to profitability in the current quarter. On the business front, we are encouraged by the pipeline of opportunities and our ability to win new deals. Just this quarter, we added over ten new customers to our franchise. We remain focused on growing our revenues while emphasizing operating excellence. And we believe that this dual focus will bode well for our performance long term as it has in this quarter.

Second, this emphasis on operating excellence resulted in over 10% productivity gains in the current quarter, which contributed to a surge in gross margin from 21% of revenues in Q2 to 28% in the current quarter. The incremental gross margin helped us return to profitability and increase our cash generated from operations in the current quarter. Operating profits were $500,000 in Q3, compared to a loss of $500,000 in Q2. And cash generated from operations was $2.2 million in the current quarter, compared to $1.5 million in the previous quarter.

Finally, in reviewing our financial statements, I will focus on the sequential changes from the last quarter because it provides a more meaningful analysis on the run rate of our business. Since my remarks are focused on these sequential changes, I will be happy to answer any questions you may have on year-over-year results during the Q&A session.

Now, I will review the various line items in the financial items. Revenue in Q3 was $15.8 million, compared to $15.4 million in Q2. Revenue from our top two customers was roughly steady at $4.4 million or about 28% of total revenue in both the quarters. Similarly, recurring revenues which our services we anticipate customers would require on ongoing basis was steady at around 72% in both the quarters.

Moving over to gross margin, we are very pleased with gross margin growth from 21% last quarter to 28% this quarter. In dollar terms, total gross margin was $4.5 million this quarter, compared to $3.3 million in Q2, a jump of $1.2 million. The primary reasons for the boost in gross margins were improvements in productivity and higher revenues.

Now, let us grill down to selling and administrative overheads. SG&A expenses were $4 million in Q3, compared to $3.8 million in Q2. The sequential increase in Q3 of approximately $200,000 was primarily due to incremental investments in sales to pursue revenue growth.

Moving down to pre-tax earnings, we made pre-tax profits of $500,000 in the current quarter, compared to a pre-tax loss of $500,000 in Q2. This was primarily due to an increase in gross margin of $1.2 million offset by an increase in SG&A expenses of $200,000.

Let me now review our tax provisions. We estimate our effective tax rate to be in the range of approximately 28% to 30%. In the current quarter, we accrued $200,000 or 40% of pre-tax earnings before taxes, compared to approximately $400,000 in Q1. The reason for this higher accrual as a percentage of profits was because the US parent entity and some of our international subsidiaries made profits while others sustained losses. So we had to accrue for tax expense of each subsidiary in accordance with the respective tax laws of each jurisdiction without getting the benefit of offsetting losses from subsidiaries that were not profitable.

Getting down to net earnings, our earnings for the quarter were approximately $310,000 or $0.01 per diluted share, compared to a loss of $875,000 or $0.03 per diluted share in the second quarter. Now, let me review our cash flows and the balance sheet. We generated cash from operations of $2.2 million in Q3. This primarily came from earnings of $500,000, an add back of depreciation and amortization expense of $900,000, and the balance from changes in working capital. This is a significant sequential improvement, compared to cash generated from operations of $1.5 million in Q2 and $400,000 in Q1.

Now, looking at our liquidity position, we ended the quarter with $28.5 million in cash, cash equivalents, and investments, compared to $27 million at the beginning of the quarter, an increase of $1.5 million. We anticipate that these cash balances and investments will trend down over the next two quarters as we undertake share purchases under our previously announced buyback plan and payout accrued payroll liabilities that traditionally become due in Q4 and Q1.

In addition to cash and bank balances and investments of $28.5 million, our liquidity sources include a $7 million line of credit under which we had no borrowings at the end of the third quarter. We believe that our existing cash balances, together with operating cash flows and funds available in our credit lines would provide sufficient sources of liquidity to satisfy our financial requirements for the next 12 months.

Now, let me review our capital expenditures and changes in account receivables. We incurred capital expenditures of approximately $250,000 in the current quarter compared to $300,000 in the previous quarter. Year-to-date capital expenditure was approximately $1.4 million and these investments are primarily in our global production and delivery centers. We entered the quarter with accounts receivables of $9.7 million compared to $10.1 million at the end of last quarter. Our day sales outstanding or DSO decreased to 63 days in Q3 from 64 days in Q2. Working capital at the end of the quarter was $28 million compared to $29 million at commencement.

Now, let me share some relevant financial -- other relevant financial highlights. First is the share buyback program. The Company repurchased 138 public shares of its common stock and of the previously announced buyback plan at a weighted average price of $2.82, representing a total cost of approximately $400,000. At the end of Q3, approximately $1.7 million remains available for repurchase under the buyback plan. Second is the tax NOLs. We have approximately $3 million of federal tax NOL carry forward in the US and $1 million in India. We anticipate that these NOLs will give us a cash tax shield in future years.

Third is the forex hedging program. At the end of Q3, we had foreign currency forward contracts worth approximately $33 million. These contracts are taken to mitigate foreign currency risks associated with our future low key currency expenses in our production centers in Asia. On these forward contracts, we have approximately [$1.1 billion] of gains based on conversion rates as of September 30, 2010. As these are qualified hedging contracts, we do not recognize gains based on mark-to-market. Instead, gains are recognized on the income statements as and when the contracts mature. Now, let me open the line for questions.

Thank you.

(Operator Instructions)

And we'll pause just a moment for questions to queue. We'll take our first question from Joe Furst with Furst Associates. Please go ahead.

Good morning, gentlemen, and congratulations on the improvement in the -- glad to see that. I have two questions. One, did I hear you say that the cash is around $28 million?

Hi, Joe. Hi. Good morning. Yes, the total cash, cash equivalents, and investments were $28.5 million.

Okay. I'm just curious because when I opened your balance sheet that you had in the press release, I see cash equivalents and short-term investments, it looks like it's about $24,000. I'm trying to find where the other -- [million dollars], rather. I'm trying to find where the other $4 million is. Is that the long-term investment?

Yes.

That's what that is. Okay. And my second question would be I'm curious. Why did you buy so little bit of stock in the quarter after you announced you'd buy the back -- buy stocks when you could have bought a whole lot more at around similar prices?

Hi, Joe. We're subject to volume restrictions in terms of buybacks we can take. Those are regulatory restrictions imposed on us. We were pretty much buying all we could get subject to those restrictions.

All right. I'm surprised to hear that because I don't know -- I know you are restricted in times of the day you can buy in percentage of volume. But knowing all those things, it seems to me that you could have bought a lot more stock, but anyway, if that's your answer that's your answer.

And the other question is I'm curious, you talk about the increased business from this one new customer, which is great. But in total -- and then I see your sales are only up about 2.5% of this quarter over the last quarter, which must mean what? You had a lot of terminated contracts or are you losing business in other places? What's the story on that? You just can't seem to grow the total revenue very much.

Yes. I think what we're trying to illustrate in terms of highlighting this particular customer is several things. First of all that there's -- there are other customers that we've been working with over the last year or two years, who have the potential and are becoming among our largest customers, first thing.

The second thing is we're trying to draw some attention to some of the dynamics taking place from the business, which we think bode very well for perspective growth. So we're highlighting that. In terms of second and third quarter, the results, revenue-wise for that, were largely baked in the much earlier part of the year, where there was a slowness.

Okay. Well, thank you. And keep up the progress. And good luck with these potential new accounts.

Thank you, Joe.

Thank you. We'll take our next question from Tim Clarkson with Van Clemens & Company. Please go ahead.

Hi, guys, great quarter. One thing I just wanted to be clear on, when they talk about rich media and digital books, the way I envision that is you take some of these kids' books, for example as one small example, and when someone's reading, say, J.R.R. Tolkien and The Hobbit in addition to obviously reading the text. But you might, at some point, as you're reading the book, if you're reading at an iPod, you could see a dragon jump out. You could hear music accompanying one of the poems. Is that what they're talking about? Or is this -- is adding additional mediums to the simple text?

I think there's a lot that's being talked about. And it's hard to say exactly what order things will flow when we talk about incorporating rich media. But we're talking clearly about the things you have mentioned, interactive graphics, geocentric advertising, gaming and other kinds of simulations, leveraging social media, a wide of variety of things. And the important takeaway there is that those things are going to be requiring manufacturing.

And a lot of the work we're doing now is establishing ourselves such that we're going to be able to essentially bridge the gap between what we think of as a traditional print-based book and what we come to think of as a having text that can have application like functionality. And we think it's an important part of our growth strategy.

Great, all right. Thanks.

We'll take our next question from Jay Harris with Goldsmith & Harris. Please go ahead.

Good morning, Jack.

Hi. Good morning, Jay.

Regarding initial attention to the top two customers -- historically the top two customers, what percentage of the third quarter did they represent?

O'Neil, do you have that number?

28%, Jay.

All right. So they were roughly running the same number dollar revenue per quarter as in the first two quarters of the year, right?

That's right. Those are roughly steady between Q2 and Q3.

All right. This third quarter customer that in the quarter exceeded one of those two, are they likely to become a 10% or greater customer this year or next year?

We're certainly hoping that they do. And based on the way things are going now, we think that's likely.

For this year or for next year, or both?

That's a little bit tough to predict right now. But I think that there's -- importantly, they're a significant growth potential. I think we mentioned that they're a $5 billion customer. And for us to do 10% -- let's just call it even $10 million of revenue with a company that large is hardly an out-of-reach target.

I gather you're not quite certain as to whether they will be there for the 10-K for this year.

I'm not going to put a number on -- go ahead, O'Neil. But I'm inclined not to try to predict that for this year.

Okay.

Just to add to what Jack said, for the quarter, they accounted for a little over 10%.

Okay. Do you have any better insights -- the one of the two top customers that was principally responsible for the erosion in revenues of the top two customers last year, do you have any better insights today as to where that customer stands with respect to with moving forward with Innodata?

Yes. We're continuing to have active discussions with them. We're working with them. We're looking at some new possibilities in terms of directionally where they want to go. And I think -- my belief is the prospects are good that we're going to be successful in doing new things with them.

In other words, re-growing the revenue base with them.

That's correct. In other words, there's been an ongoing relationship there that's a solid one. And it's a very large company that has needs. We've been doing business with them since -- I don't even know, probably 2001 or 2002.

Long time.

And it's a long term relationship that we believe will continue for a long time.

Do you understand the reasons why they cut back so? And do you sense that any of those reasons are fading?

I'm going to avoid talking specifically about individual customer's businesses because I know the customers would not appreciate that if we started doing that. I think that the reasons, especially on the project side, are largely having to do with their planning their product plans and their initiatives. Our job is to follow those dynamics as closely as we can and over a sustained period of time grow our business with them. If you look back to 2001, 2002, you'd clearly see an accelerated trend in the right direction. Over that period of time, we've grown the business. And we think we can continue to do that.

And then finally turning over to the balance sheet, if you hadn't bought any stock back, you would have been at $29 million of cash on the balance sheet. A couple of million were generated by a reduction in accounts receivable. When you get into a mode of re-accelerating revenues, is that money going to go back into working capital? Is some of that cash going to be required to go back into working capital?

Jay, traditionally what happens in our business, you are right. When the revenue starts growing at a higher velocity, some of the money gets locked up in accounts receivable. The normal cycle is -- by the time we provide the services, we have invoices. Typically, they're between 60 days out after the services are provided before we get the money.

And I missed the -- some of your financial comments, O'Neil. Is our depreciation and amortization rate higher this year than it was last year? And what is the quarterly rate at this point?

It's $920,000 per quarter right now.

All right. So it's between 3.6% and 3.7% a year at this point in time.

Right.

Okay, very good. Thank you.

Thank you.

(Operator Instructions)

Our next question will come from [Charlie Pine] with Van Clemens & Company. Please go ahead.

Good morning. I have a few questions regarding your efforts in the eBook space, and in particular a little bit more elaboration about some things that are on the iPad area. First of all, I'd like to ask you, what was the percentage of revenues this quarter that came from your contribution -- from the eBook space? And how did that -- how was that in comparison to Q2?

Yes. We were pretty pleased with the growth this quarter. The total revenues -- as a percentage of total revenue was 16%, which was -- I talked about $2.5 million. And that's a little over 13% sequential growth over Q2.

Did you say 13% sequential growth?

Yes, and a little over 100% actually and 120% over the same period last year.

Okay. Currently, I seem to recall in the last quarter, you had said that somewhere in the neighborhood of about five or six publishers -- large publishers were using your services for the iPad. At the end of Q3 or even where you are right now, how many publishers are currently using your services strictly for the iPad?

Charlie, I have to get back to you with that number. I don't know the answer to that. There are publishers that are using us for the iPad as well as other platforms. I'm not sure how many of them are using us exclusively for the iPad at this point.

All right. And in the area of -- of iPad publishing, is there anything new that's going on right now regarding publishers in the education space for the iPad or any discussions that you're having in those areas?

We're having several discussions. There are a number of clients -- several new clients, actually, who have reached out to us and are very interested in how we can help them roadmap the likely evolution of the iPad device and how they should be planning their digital strategies in light of that.

There's likely to be some significant evolution in terms of the technologies and the way they interact with the current EPUB standard on the iPad. And our desire is to help our customers synchronize with that. So I think we're really at the very early stage of the device being applicable to the educational space. But I think we're going to see that start to change and accelerate, even over the next several months.

Are you doing more business currently, right now, conversion business or just the total business right now? Are you still doing more business with the -- with other platforms such as the Kindle or is the iPad beginning to get close to exceeding any of that at this juncture?

I think the iPad's still at its very early stages.

Okay.

And that's something that we're very excited about.

All right. Okay. Well, they seem to be flying off the shelves at a much more rapid rate than even the most optimistic pundits were talking about five or six months ago. So I would anticipate that you folks should hopefully be doing a lot of business with this over the next year or two.

It is very much our plan to be doing exactly that. The 3 million iPad devices were sold. And that's an old number. That's as of June 30th. It's, I think, very telling in terms of directionally where the world's going in terms of digital content. And again, I think we're only at the very beginnings of this evolution.

I seem to recall in Apple's call that they did -- just in the last quarter that they did 4.2 million units.

Yes, that's probably a more recent number than my June 30 number.

Sure. I think that they've already -- I think they've already done over 7 million in the first six months. And a lot of people were saying 7 million was the top -- was the top end of the range for the entire year. And they're already blown off that.

So lastly, I'd like to ask you about -- well actually, it seems that you've -- you've certainly made an allusion when you -- in your prepared remarks about -- in the eBook space that you're talking about progress in the next few weeks. Is that a signal that you might have something more to say about it in a public manner about developments around -- along those lines?

Yes, it is.

Okay. And lastly, my last question is, anything new that you have to disclose or that you would like to discuss at all about your efforts in the area of acquisition?

Yes, hi, Charlie. It's Corey here.

Hi, Corey.

Yes, as always, a good question. And I think we have rightfully been extremely thoughtful and somewhat conservative in assessing opportunities for acquisition. And part of that is going through what has been a difficult market environment earlier in the year.

But I think to be sure, we are looking at opportunities frequently and regularly. We still do think that there will be a chance for Innodata to create good value by adding either revenues or customers or skills that are relevant to our customer base. And so, the answer is we're still out there in the hunt and expect it to be part of the mix.

And I think, Charlie, the one thing I would add to what Corey said is it's very much an active program. If I think about just the next two weeks, I think we've got three meetings which are somewhat in the late stages of discussion with prospective candidates. Whether anything comes from any of those, we're being very careful in our consideration. We're not going to make any mistakes there. But it's very much an active part of what we're managing and what we're pursuing.

All right. Well good luck on those efforts. And once again, congratulations on right-sizing and getting the business stabilized and I'm looking forward to seeing the top line start to expand over the next several quarters.

Thanks very much, Charlie.

Okay. Take care.

(Operator Instructions)

Our next question comes from Joe Furst with Furst Associates. Please go ahead,

Just a little follow-up question, we talked earlier about your number two customer and your outlook for business from that customer. Now, your number one customer, which is obviously a big percentage of your sales of the 28%. What's your outlook for that customer? You visualize that at least being stable or declining or increasing also?

Good question. I think that if I had to place a bet now, I'd say I would be betting on expansion over the next several quarters. There are new things in discussion and we're in development phases on other things and the relationship's very much an intact, successful one.

Thank you. And it looks like you're on the verge of being able to increase these sales, which is very good because as you get up toward the $20 million sales number, your profitability increases because of your high number of fixed costs. So keep up the good work. Thank you.

Absolutely. Thank you.

And at this time we have no further questions in queue.

Well, thank you, Operator. I guess I'll recap a bit. We saw improved financial results this quarter. Revenue was $15.8 million. That was up from $15.4 million last quarter. And even more notable was the gross margin improvement, 28% up from 21% last quarter. This resulted in net income of $313,000 or 1% per share and that compares quite favorably to second quarter's loss.

There are a couple of key takeaways from our discussion today that I think are worth reiterating. First, we're seeing definite improvement in business conditions from what we were experiencing in the beginning of the year as clients moved beyond what was, for them, a difficult 2008 and 2009, and once again, seem to be resuming their plans for investment and operation reengineering. And this improvement is translating into both additional pipeline and new bookings for us.

I think the second key takeaway is that we're clearly seeing the benefits of our investments in consulting and in content technology services that we've made during the past year. Both in terms of our ability to assist large information companies execute their strategies, but also to accelerate our growth in new areas such as eBooks where we have an ambitious strategy in what's clearly an accelerating market. So thank you, all, for participating in the call today and we all look forward to seeing you next time.

Thank you. This concludes today's teleconference. A replay will be available from October 26, 2010 at 3 p.m. Eastern through November 25, 2010 at 3 p.m. Eastern by dialing 888-203-1112 and entering pass code 3864874. This does conclude today's program. Thank you, and have a great day.