Innodata Inc (INOD) 2010 Q4 法說會逐字稿

Ladies and gentlemen, good morning and welcome to the Innodata Isogen Fourth Quarter and 2010 Earnings Release Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Corey Luskin, Vice President of Corporate Development. Please go ahead, sir.

Thanks, 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. 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. Thank you for joining us today. I'll begin with an overview of our fourth quarter and fiscal year 2010 results and then provide an update on where we stand as we get into 2011.

Let's begin by looking at the fourth quarter. Revenue in the fourth quarter was $14.9 million, which was $900,000 less than third quarter. This drop is primarily attributable to what we believe are temporary volume decreases on a couple of ongoing projects. Recurring revenue constituted 71% of total in the fourth quarter, compared to 72% in the third quarter.

From a strategic perspective, however, we made important progress on several fronts. First, we began an important new relationship with Apple, which we announced on November 22, to provide online ePublishing services for the iBookstore. Working closely with Apple, we have designed a managed service to provide high quality ePublishing services to Apple's customers.

Our managed service connects seamlessly to Apple's iTunes Connect website used by content providers to submit content to Apple. Apple customers on iTunes Connect can click to a new page on Innodata's website that is dedicated to the Apple program and where we provide Apple customers automated web-based tools for uploading content and preflighting input files together with an online services agreement, [tech] support, and automated payment processing.

Using this managed service, publishers can submit content in virtually any format to us for conversion to eBooks and we directly upload the converted eBooks content to the iBookstore. Under our agreement with Apple, we will also be helping to bring our core publishing clients into the Apple program.

We got this service off the ground last month and we're putting the finishing touches on it now. As you might expect, we're excited by the opportunity to work with Apple in such an integrated way and we look forward to cultivating this partnership.

Also, on the strategic front, we experienced significant acceleration of new bookings. Our new bookings in Q4 were 43% higher than Q3. Looking at half-year periods, our new bookings in the second half of the year were more than twice our new bookings in the first half. And most significantly, we expect these bookings to yield significantly higher margins. On a pro forma basis, we're looking at approximately 10% higher margins, which is a significant expansion.

I attribute this bookings acceleration and forecasted margin improvement to a couple of things. First, to the staunch determination that my team has displayed to rebound from the disappointments we experienced early in the year; and second, to the investments we've made in services that align at a higher strategic level with our clients.

Now, I'll turn to the year overall. After enjoying three consecutive years of revenue growth, in 2010 our revenue declined precipitously from $77 million in 2009 to $61.5 million in 2010, a 20% decline. This steep decline was mainly attributable to a large client hitting the brakes hard at the beginning of the year on an ongoing product development and to another customer canceling the work on what was then a large new project win.

This one-two punch dealt a painful blow to our economics, leaving us short on revenue and long on infrastructure costs in a downturned economy. We found ourselves tested as never before. We resolved, however, to continue to focus on new opportunities that would meet our profitability goals rather than going for revenue at any cost and to continue making strategic investments in the business while we conserved cash rather than slashing all new investment.

As a result, notwithstanding this revenue decline, we managed to improve our cash position from $26 million to $28 million while investing approximately $2 million toward new services and another $800,000 toward our share buyback program late in the year. And as a result, we're now seeing accelerated new business bookings that are at a higher forecasted margin to boot.

I'm going to leave to O'Neil to walk you through the gross margin, SG&A, and net income, and to provide additional guidance in terms of balance sheet. But for now, I'm going to skip to where we are now and talk a little bit about how we see things developing in the course of the year.

We're witnessing a level of change within the publishing and information industry that is truly without precedent. New devices, new media, new business models are emerging, and these things present both challenges and opportunities to our customer base.

Now, against this backdrop we have an expanding set of referenceable engagements in which we've helped some of the world's largest media and information companies lower operating cost and create information products designed to appeal to a next generation of information customers.

Here's our progression in a nutshell. Only a few years ago, if you walked into an offshore Innodata production facility, you would have seen massive piles of paper all over the place waiting to be digitized. But no longer.

The Innodata of today performs mostly higher-end analytics. The Innodata of today is leading a multi-year, multi-country, multi-business unit transformation program. We're a $5 billion publisher focusing on future content architectures, new business processes, and new content technologies.

The Innodata of today is leading an effort at the United States Government Printing Office to define the requirements for an entire new set of core technologies that enable the agency to publish more information with greater speed across new platforms.

The Innodata of today can boast of having several of the world's leading companies as its largest clients. In short, we've migrated from low level commodity work to progressively more strategic work. These are great achievements.

But today's Innodata also has several serious challenges that we must confront head-on. As our Q4 revenue decline illustrates, we remain susceptible to unexpected quarter-to-quarter volatility.

Margins on some of the engagements that we've had for as much as a decade have deteriorated in the face of increased competition and client pressure. And too many of our customer engagements are one-off, which at an operating level, frustrates our efforts to invest in automation, and at a strategic level, frustrates our efforts to scale.

Therefore, in 2011 we intend to embark on several ambitious programs to address these challenges. First, we will continue to leverage our investment in new, more strategic services to sustain our recent bookings acceleration and capture overall margin improvements.

Reshaping our sales and marketing function to support our expanding set of strategic capabilities, we've reorganized our sales and marketing function under Jim Lewis, a widely recognized solution selling expert and former Berlitz CEO with a strong domain understanding of content and related technology.

Second, we're going to reduce cost through investment and process improvements and by making tough choices about where it makes sense to invest and where it would be wise to scale back.

Third, and perhaps most interesting, we're going to diversify our revenue base by investing in new businesses that are outside our historic market sectors, but nevertheless leverage our core capabilities in content technologies and information analysis. To accomplish this, you'll see us making a series of small but interesting bets and promoting a new level of entrepreneurism within the Company.

Since these efforts are still in their formative stage, I don't want to get too far ahead of myself here, but you can expect that these new offerings will be leveraging our core capabilities, built around differentiating IP, rely on technology at their core, and promote the ability to scale.

One further thing before I turn the call over to O'Neil, I want to share with you that it is our intention to recommence share buybacks once our trading window opens. I believe that Innodata has great people, great customers, and a great future potential.

Now, I'll turn the call over to O'Neil, who will provide additional insight into the Q4 financial results. After that, we'll take your questions and then I'll wrap up with a few comments. O'Neil?

Thank you, Jack. Good morning, everyone. Again, thank you for joining us today to review our fourth quarter and full year 2010 financial results.

Jack just shared with you the operational insight and the longer-term 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.

Looking back, 2010 was a challenging and demanding year for us. On the revenue front, we had to deal with the scaling down of engagements from a couple of customers. One of them, a top two account, which in dollar terms reduced our revenues by over $20 million year-over-year. These engagements were in our [final] value-added [capeU] service offering with relatively higher gross margins.

As the revenues from these engagements declined, it exerted pressure on our operating performance for most of 2010. Specifically, our revenues from these two customers fell to $8.6 million in 2010 from $29.4 million in 2009. [The spawn] of two customers accounted for roughly $2 million in revenues in 2010, and we are forecasting that our work with this client will wind down in 2011. At this point, we do not have visibility to predict the spend by the larger client in the current year.

Jack talked about the bookings accelerations we experienced recently and the margin expansion we are forecasting on new bookings. We have not yet seen the benefit of these bookings reflected in our results, in part due to the timeline between bookings and revenues. But we should benefit once we own the revenues from new bookings and scale-up.

Once more, the expansion of our customer roster in 2010 with logos such as Apple and the Government Printing Office plus over 30 other new customers, this underscores our competitive force in the marketplace for new business and to bring in new revenues.

Let me now review the operating performance. As in the past, 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. Should you have any questions on the year-over-year results, I'll be happy to answer them during the Q&A session.

Now, I will review the various line items in the financial statements. Revenue in Q4 was $14.9 million, compared to $15.8 million in Q3, a decline of $900,000. Revenues declined mainly because we experienced a drop in revenue of $700,000 in recurring business, of which $500,000 was attributable primarily to volume declines in continuing projects. We think these declines are temporary fluctuations.

$200,000 was due to the scaling down of engagements discussed earlier. And the remaining $200,000 reflects the completion of nonrecurring projects before we commenced work on new projects.

Recurring revenue as a percentage of total revenue was 71%, compared to 72% in the previous quarter. This quarter, our top three accounts accounted for 40% of revenues, compared to 38% in the previous quarter.

Moving over to gross margins. We felt the pressure from a combination of volume fluctuations and declines, and a fall in the value of dollar versus the Asian currencies. In dollar terms, gross margin was $3.3 million this quarter, compared to $4.5 million in Q3, a decline of $1.2 million.

This quarter, the dollar declined versus the Asian currencies by about 4%, and that impacted our margins by 440 basis points. Volume declines and fluctuations compressed our gross margins by another 500 basis points. On the positive side, these declines were partially offset to the extent of 140 basis points because of our [continued measure of] productivity in margins.

Now let us turn now to selling and administrative expenses. SG&A expenses were $3.7 million in Q4, compared to $4 million in Q3. The sequential decline in expenses was primarily due to a recovery of $400,000 from a previously fully reserved accounts receivable, which was partially offset by an increase in selling, marketing, and other expenses to pursue business development.

Moving now to pre-tax earnings. We sustained a pre-tax loss of $350,000 in the current quarter, compared to a pre-tax profit of $500,000 in Q3. This was primarily due to a drop of $1.2 million in gross margins, which was offset by lower SG&A expenses of $300,000.

Let me now review our tax provisions. In the current quarter, we had a tax benefit of $1.4 million, primarily because of our deferred tax benefit for the US entity, which was partially offset by tax provisions regarded by our foreign subsidiaries. As a result of various tax planning measures, we expect our effective tax rate to be in the range of approximately 22% to 25% starting 2010, compared to 28% to 30% earlier. Getting down to net earnings. Our net profits for the quarter were approximately $1.2 million, or $0.05 per diluted share, compared to $300,000, or $0.01 per diluted share, in the third quarter.

Now, let me give you our cash flows and the balance sheet. We generated cash from operations of $700,000 in Q4, compared to $2.2 million in Q3. Cash generated from operations fell mainly on account of decline in pre-tax earnings of $900,000 and a payment of accrued compensation benefits of $1.5 million, which was offset by an increase in collections of $1.5 million from our account receivable balances.

Now, looking at our liquidity position. We ended the quarter with $28 million in cash, cash equivalents, and investment in term deposits of banks, compared to $28.5 million at the end of last quarter. We anticipate that these cash balances will trend down over the next two quarters as we continue to undertake share purchases under our previously announced buyback plan and meet all our present needs of capital expenditures.

In addition to cash and bank balances and investments of $28 million, our liquidity sources include a $7 million line of credit. We had no borrowings under our line of credit at the end of the year. We believe that our existing cash balances together with operating cash flows and funds available under our credit lines will 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 $400,000 in the current quarter, compared to $250,000 in the previous quarter. Year-to-date capital expenditure was approximately $1.9 million, which was primarily incurred in our global production and delivery centers.

We ended the quarter with accounts receivable of $8.4 million, compared to $9.7 million at the end of last quarter. In terms of efficiency, our days sales outstanding, or DSO, decreased to 61 days in Q4 from 63 days in Q3.

Working capital at the end of the quarter was $26 million, compared to $27.5 million [at commencement]. The decline was primarily attributable to a reduction in account receivable balances of $1.3 million, a reduction in cash balances of $500,000, and an additional $200,000 was because of other working capital changes.

Now, let me share some other relevant financial highlights. First, the share buyback program. In Q4, the Company repurchased 126,000 shares of its common stock under the previously announced buyback plan at a weighted average price of $2.97, representing a total cost of approximately $400,000, thus bringing the total common stock repurchase in 2010 to 264,000 shares at a total cost of about $800,000. At the end of Q4, approximately $1.3 million remain available for repurchase under the buyback plan.

Second, tax and NOLs. We have approximately $9 million of federal tax NOLs carried forward in the US, which we anticipate will give us a tax shield in the future years.

Third is the products hedging program. As of the end of Q4, we had foreign currency forward contracts worth approximately $28 million. These contracts are taken to mitigate foreign currency risks associated with our future local currency expenses in our global production centers in Asia.

On these forward contracts, we have approximately $1.3 million of unrealized gains based on the conversion rates as of 30 December, 2010. As these are qualified hedging contracts, we do not recognize the gains based on mark-to-market. Instead, gains are recognized in the income statement as the vendor contracts mature.

Now, let me open the line for questions.

(Operator Instructions). And a question for us from Joe First with First Associates.

Good morning, gentlemen. First, I want to congratulate you on such a thorough analysis of what went on in the past year. It really looks like things are getting better for the next year.

I was curious on the Apple thing. You've had a little bit of time to analyze the initial reaction to that. What have you seen so far as far as that line of business? Is it beginning to look promising, or what can you extrapolate on that?

Sure, Joe. Thanks for the question. We're very excited about the Apple partnership, as you might imagine. They are driving the world of eMedia and ePublishing in ways that no other company is right now. And for us to have been selected as their ePublishing partner, I think is a wonderful opportunity for us. We're very excited about it.

Have you seen any business come in from it yet?

Yes. We are starting to do business with them and very encouraged by that. We're not going to be reporting on a revenue basis on any particular client in these calls; we don't think that's appropriate. But what we will say is we are doing business, we're excited about the business, and we think it has great potential.

Okay. Thank you. I'll get back in the queue.

Thank you, Joe.

(Operator Instructions). And let's go to Charlie Pine with Van Clemens.

Good morning. I'd like to kind of continue on the eBook theme for a moment. I gather, probably, in the amount of business that you're doing in the eBook space is probably about the same amount as the last couple of quarters, which, if I recall, was maybe somewhere in the range of about 14% or 15% of your gross revenues.

With the absolute explosion that we've seen over the last couple of years for various hardware platforms such as Kindles, such as Nooks, the Sony eReaders, and, of course, iPads, where there's basically just millions and millions of these winding up in the hands of consumers.

And the projections going forward, for instance, just for Kindle alone -- I just read a report from Paris yesterday, that they're anticipating that they're upping their projections for eBook unit sales over the next few years and the total Amazon ecosystem of eBook sales to be greater than -- they're jumping their numbers by like 30%.

So they're saying like for 2011 they're going to be doing like 9.3 million Kindles and about $5.5 billion in total Kindle ecosystem sales in Amazon. That being said, that's just Amazon. The iPad, I think iPad was somewhere like 7 million iPads were sold in Q4.

What I'm curious about is there's just been an explosion in revenue dollars that is coming in this new ePublishing arena. And yet, we look at what's been occurring with Innodata over the last year-and-a-half and it's hard for me to see anything but crumbs falling off the table to this Company.

And I'd like you to digress a little bit on specifically why the Company is not seeing more in the way of revenue growth in the eBusiness space and what you intend to do to rectify that.

Well, thanks for your question, Charlie. I think that -- a couple of things. First, I think that eBooks presents a wonderful opportunity for Innodata to do a number of different things. One is to forge partnerships with some of the companies that are most active in this space and are driving the kinds of results that you are describing.

I think that the Apple partnership that was put in place in the fourth quarter is a great example of that. Beyond that, I think that we're -- notwithstanding the tablet sales and the eReader sales and the projections that you're describing, I think that we're still at the cusp of something more profound in the industry.

I think that the book as a thing is being reconceived around what digital technology can offer. And I think we're going to have an opportunity to use the partnerships that we've put in place with the device manufacturers as a way of helping to facilitate the shift to this reconception of what a book is by doing things like the incorporation of rich media, creating enhanced eBooks, helping to create interactive functionality, and then also helping to bring some of our core information customers into this role.

We're already doing things and we're just starting to do things like helping them build middle-ware systems that enable them to port their content to some of these new devices. So I think we're doing the things that are necessary. I think that we see that in fourth quarter with the Apple program, which I'm very excited about. And I think the best of what this will bring to Innodata lies in front of us in terms of the direction that things will take.

Let me ask a couple of follow-ups. First follow-up -- did you have sequential growth in the eBook space in Q4 over Q3?

Let me correct something you said before. I think you said that you think it's about 15% of our revenue. It's really more in the order of 10% of our revenue right now, just in terms of eBook conversions.

Again, we're covering that space by bringing new publishers into the program and in terms of driving partnerships like Apple and the work we've done with Sony and Amazon. I don't think that we're leaving anything -- any stone unturned in terms of that. I don't have the sequential quarter-to-quarter numbers in eBook, but it's our intention not to leave any stone unturned and to be insinuating ourselves in the value chain wherever we can.

All right. Last follow-up. When I see numbers, for instance, for total Amazon, Amazon is supposedly one of your larger customers in the eBook space. And when I read numbers about projections for their eBook and Kindle ecosystem, somewhere in the neighborhood of north of $5 billion for 2011, and I look at the sort of numbers that Innodata is apparently capturing from Amazon, I can only see somewhat a disconnect.

I'm beginning to wonder if the ship has left the port and you're not on it.

I think it's important to remember what our role is right now in terms of the value chain. When we convert a book, we convert it once and then they get to sell it as many times as they possibly can. We don't convert it once for every sale they make, so you can't expect that the growth that they're enjoying is going to translate linearly into anything that we get to participate in.

That said, directionally where this business is going, and where eReaders and media tablets are going to take us, I think it's something that we will get to participate in. So it's important to understand where we are, what we do for these companies, to recognize the fact that based on the technologies we've put in place and the capabilities we've put in place, they are choosing us almost uniformly to be their ePublishing partner, and I think that that relationship will evolve into the future.

(Operator Instructions)

Let's go next to Jay Harris with Goldsmith & Harris.

Good morning, Jack.

Hi. Good morning, Jay.

Two areas -- one, first for O'Neil. You show up with the short-term investments of $8.875 million and long-term investments of $5 million. What are these?

Hi, Jay. Yes. These are basically bank deposits. To the extent that the deposit matures with the one year, it's classified in the short-term, and the rest is classified in the long-term.

What are we getting, 1%?

No. We are getting --. Keep in mind, our operations are global. So to that extent, we are able to take advantage of higher yields in foreign locations. And the yields are in some cases 8% and in some cases 3%. The global overall yield is about 3%.

So, we will realize substantially higher but not controlling investment income in 2011?

Yes. We are forecasting an increase over 2010. In terms of the overall yield, it will be about 3% is what we anticipate.

Okay. And I presume that's sort of currency balanced in terms of the assets you employ?

Yes.

All right. Your accounts receivable, I guess this is the second or third quarter in which you've pulled significant cash out of accounts receivable. As your quarterly revenues start to rise, what's going to happen to the accounts receivable account?

Jay, good question. Clearly, as the revenue ramps up, because of the last time between the billing and recovery of money from the customers, there will be an increase. If you just want a back-of-the-envelope, quick number, should we go back to $76 million, we'd probably look at an additional investment of $3.5 million to $4 million in accounts receivable.

All right. Okay. Of the $2 million that was referred to as being invested in new services, how much of that was capitalized and how much of that was expensed?

It was all expensed.

All right. So, when I look at your source and application of funds, when I see the 10-K, you replaced on your balance sheet the cash that you used to buy back stock, and more than all of that came out of the accounts receivable. What's going to happen in 2011? Hello?

Yes. You've got two questions there, right?

Maybe more.

Okay. Okay, let me first clarify. It fully -- what Jack [last] said -- the investment are all essentially going to our P&L statement. So when you look at the fund flow -- the funds from operations -- you are absolutely right. The way we increase our cash and cash equivalents during the year was through a combination of cash directed from operations to the extent that EBITDA was in excess of our capital expenditures. And again, we recovered money from our -- our accounts receivable balances went down.

Going forward, 2011, to the extent that we have $1.3 million remaining under the buyback plan, so that will be -- we presume that we'll get that completed. The second is that if the fund revenues ramp up we expect that the AR balances will go up.

So at this point of time, we are anticipating, like I said when I was covering the Q, we anticipate that the cash balances will trend down over the next two quarters.

And is it the objective for the year to end the year with flat cash balances or something lower than we see currently on the balance sheet?

The focus is clearly to improve the operating performance, and the cash balances will really be a function of as our operations improve it will -- and it will slow down to the cash balances.

All right. For the next question, I sort of apologize because I was interrupted when you fellows were talking about revenues for 2011. What would you like to say about revenue expectations in the March quarter and for the year?

Jay, I think what we said in the prepared remarks is that we will be ramping up from two quarters of very strong bookings. We talked about how our Q4 bookings were 43% higher than Q3, and that our second half of the year bookings were twice that of the first half. So that's clearly very good news for us, and we're continuing to identify very solid opportunities from existing customers, from new customers.

We also said that the forecasted gross margin on the new business we're bringing in is considerably higher, by about 10%, than our old business. So we're accelerating bookings at higher margins, which is a great combination.

That said, very clearly, some of our existing clients -- even some of the biggest ones -- are very skittish as a result of the downturn. So we're not forecasting next quarter or such. What we're trying to do is drive business hard and look down the road rather than trying to predict every bump in the road, because they seem to come up unexpectedly.

(Operator Instructions)

And it looks like we have a follow-up from Joe First.

I was curious. I think you said that 40% of your revenue in the fourth quarter was from the top three accounts. But did you also say one of the large accounts was down to about $2 million? Is that correct? And if so, I assume then of your top tier clients, one of them is becoming a lot smaller and one of them becoming a lot larger. Is that correct?

Do you want to --?

Okay. Yes, the top three accounts accounted for 40% of the revenues. The $2 million account that we referred to is not in the top three. We kind of brought your attention to the -- that there is a small account which we expect will terminate, and the revenues from them will go down significantly in 2011.

Got you. Okay. Thank you.

And a follow-up from Charlie Pine.

Yes. I was cut off on a couple of follow-ups on the eBooks space. I'd like to ask a little bit about -- how do you perceive right now in the year ahead, in 2011 --? What would you say the size of the target that you're shooting at is right now for eBook conversions and eBook services? What do you think that number could be, for the total aggregate market?

It's a little bit hard to predict right now, Charlie. We clearly believe that that number can grow. There are going to be several components of growth, though, that are going to come somewhat by surprise, we expect. We put in place some new programs. We're -- on a daily basis, we're learning more about the plans that those companies have, and we're going to be reacting to those and we're going to be gearing up toward them. We can't forecast those accurately.

Will it grow? I think very -- we're very optimistic that it will, and we're going to work hard to forge the partnerships such that we get to participate, I believe, in increasingly significant ways as the very definition of what a book is changes and as more services, rather than less, are required from us in order to facilitate that change.

All right. I'm not asking how much necessarily Innodata is going to do in that space by the end of 2011. What I'm trying to get at is what your people and what you perceive as to be the size of -- if nothing else, just give us some kind of a range, how small or how large you think that the eBook services and conversion market is going to be a year from now.

Yes, sure. I think a couple of things are going to feed into that. I don't have a market number precisely, and I don't know any analyst firms that are sizing the eBook conversion market per se.

What I do know, and I think you quoted some of the numbers, is we know what the analysts are saying about the overall market for media tablets and eReaders. And we know that IDC is predicting 45 million media tablets to be shipped in 2011, which is way up from the 17 that they say shipped in 2010. I think that number then doubles again in 2012, according to their predictions.

Now, what we also know is that there's a lack of inventory right now. Readers are demanding more titles. We also know that there's a shift to subscription opportunities and a whole host of things. What we also know is that our traditional clients who have -- many of whom were deploying content through paper for most of their histories and they went to the web for that [CDs], well, now they're interested in these eMedia tablets very aggressively, and there opportunities are for us.

Yet what is the size of that opportunity? I think it's a significant one for us and I think can meaningfully impact our revenues, and that's why we're making investments in it.

Okay. Last question, then, because apparently I can't get any kind of answer on that. What is new, if anything, as far as what you're seeing in competition in the eBook conversion and services space? How has that landscape changed over the last couple of quarters, and where do you see that going over the next 12 months?

Sure. I think that it always has been, and I predict that it will continue to be, a competitive landscape. I think, fortunately, we did get somewhat of a head start on it, so we built some better platforms and better technology than some of our competitors. And that fact is continuing to be validated in the marketplace as it was by our fourth quarter selection by Apple to be their ePublishing partner.

So again, I'm projecting that it will continue to be competitive and I'm also anticipating that we're going to continue to stay ahead of the curve.

A question now from Jay Harris.

I'm going to follow-up on where we tailed off when I was last on. On the larger customers that are still feeling squeamish about their business outlook, do you have any insights as to whether their revenues in their businesses have picked up? And if not, what is there about their businesses that seems to be trailing what's happening in the general economy?

Sure. Well, I guess to sort of capture in a nutshell the food chain, I'll just take one small segment of our client base. The general business downturn has affected the world's largest law firms in a very significant way, and we read about that in the newspapers constantly.

Well, the effects that the law firms have had, that gets reflected down to legal publishers. The negative impact that the legal publishers feel gets trickled down to us, who help build new products for legal publishers. So there is a clear impact there.

Now, what can mitigate the effects is as our clients see new opportunities to do new things for new people or to serve the existing client base, albeit an impact to client base in new ways, whereas our clients say, well, we have to reduce operating costs and figure out ways of adjusting our businesses to lower revenue base or lower growth opportunity, and that can present opportunities for us.

But that's kind of how we connect to the general business downturn and the trickle-down effect that ends up happening.

Is there any way of taking your revenue base and associating it with some characterization of the in-use interface with what goes on in the economy, the way you just did in talking about legal publishing?

Great question. I think that there absolutely is, and I think you're going to see some of that coming from us in the course of the year. When I referred to some of the new activities that we're going to be doing where we're going to be leveraging some of our capabilities, clearly, by doing new things in even some new markets, that is exactly what you're going to see.

We get a little bit closer to the end users rather than still low on the food chain. That having been said, we're not going to compete with our customers. We're not going into their markets, but there are other market opportunities or other opportunities in some associated markets where we clearly can get much closer to the end user.

And finally, if one looks back over the last five or six years, it seems to be the volatility in the Company's performance has been associated with larger customers either coming to an end of a string of assignments or cutting back for other reasons.

I'd like to hear from you something about a roadmap that you're following so that your larger customers become a smaller percentage of the total activity level and progress on that roadmap. For instance, I didn't hear on this call any number in terms of the expansion of the number of customers that you do business with.

O'Neil can probably share with you the number of new clients we brought in in the quarter. And while he looks for that number, I'll share with you a little bit more of a roadmap.

When we looked back historically about why we ended up at several points in our history as having very large clients and that level of revenue concentration, what we realized was that the clients where we ended up with significant concentration were ones where we were operating in partnership with them at a much more strategic level as opposed to a transactional level.

So importantly, what we decided to do was to try to emulate the ability to do that or extend the ability to do that into progressively more accounts. That's why we brought and spent some money this year to build out our capabilities in customer-facing content technologies and customer-facing consulting capabilities.

It's enabling us to broaden out in a systematic way our ability to be strategically oriented with more and more clients. We believe that's going to be a critical ingredient in terms of accomplishing what you're saying -- having more growth in more places rather than enjoying growth only in a few places. We see signs that that's beginning to take hold, and we shared with you those encouraging booking numbers a few minutes ago.

On top of that, to go from a -- to become progressively a more strategic-aligned Company and to see that the ability to do that radiates beyond a couple of customers, that only a few of us can work with to most of our customers, through acquiring a new orientation within ourselves in marketing functionality. We've brought in Jim Lewis to drive that change, and I'm very encouraged by what he's accomplishing there.

Thirdly, as you pointed out, there are opportunities for us to get closer to an end-user base and to put ourselves in businesses where we're doing essentially one thing very, very well for a multitude of end-user customers.

That itself will promote greater scalability because it will be more solutions based or single solutions based for a market as opposed to highly configured services for a particular client. So that, in a nutshell, is the roadmap that we expect to -- that we are following.

Much of that roadmap are things that have been put in place, as I described, over the past several months. Others of it are things that are going to be worked on in 2011, and we're optimistic that we're going to be able to demonstrate to you some significant accomplishments from that.

Do you see on any horizon your achieving a goal of being somewhat more insular from swings of levels of business from large customers? In other words, can you say, gee, we hope in three years or four years or five years that we will have achieved these goals or sooner?

Certainly. I think you're going to start to see the achievement of those goals taking place, clearly within this year. Now, when do we get to a point in time when we raise the flag and declare victory? I don't know that there is a date when that happens. I think you're going to see the building blocks of that happening as we progress in this year.

Our ambitions for the Company are very significant. We are not looking to limp along and periodically bring in a large client. We're looking to institutionalize what we've done well and to expand that and to be growing aggressively within the next several years. Three years from now, I want to look back on today and not even recognize who we were back then. That's the level of ambition that we're driving within the Company right now.

Jay, let me just add a little bit to what Jack said in terms of giving you some data points. During the quarter, we added about approximately 30 new customers and 11% of the revenue came from new customers.

A little bit on the client concentration. Another way to look at the risk of concentration is that within our large client relationship we do a number of engagements. So during -- as things stand now, the level of concentration on a single engagement has significantly come down than what it was in 2009. So, while to some extent there will be a [blind] concentration risk, the risk dependency on a single engagement has come down quite significantly.

And our final question at this time will be a follow-up from Joe First.

Back a year or so ago, you were making a big point about getting new clients in the knowledge management area. Is that still a focus for you? Because you mention that's continuing business; it's not one-shot type deals.

Yes, as I said today. When we said that several years ago, a lot of the work we were doing was digitizing paper. And that's really not the business we're in anymore, so I think we've accomplished some of that.

The progression that I see in some of these new services is to leverage the fact that we are now doing analytical work across a number of different domains, but there are ways that we can take that accomplishment, as Jay said a few minutes ago, take that and get closer to end clients in different markets and to further leverage that. So directionally, I think where you will see us going is progressing that very strategy of driving knowledge analytics.

Thank you. And then, with some of these new initiatives you're talking about, do some of them involve potential small acquisitions?

Yes.

Okay. Well, good luck with it. Thank you.

All right, thank you. So I guess --.

At this time --.

Yes. Please, operator.

We'll turn the conference back over to our presenters for any closing remarks.

Okay. So, I guess to recap a bit, we temporarily lost some ground on the revenue side of the quarter. That's due primarily to what we believe will be one-off volume fluctuations on otherwise recurring business.

But strategically, we saw some important gains. We're very excited about our deal with Apple. Just think about it, to be chosen as the ePublishing partner by the Company who perhaps more than anyone else is reshaping the world of content deliver is a very big thing.

Beyond that, we continue to see acceleration in new business bookings. And on top of that, new business bookings are showing a significant uptick in forecasted gross margin. So our plan for 2011 is going to be to continue bookings acceleration and deal margin expansion.

At the same time, to reduce costs where appropriate, together with process improvements that themselves bring cost reduction, and to diversify our revenue base by making a series of small, but we think very interesting, entrepreneurial bets, all of which have differentiating IP at their core.

So we here at Innodata look forward to sharing with you our progress in these fronts as we move into 2011, and I thank everybody today for joining us on this call.

Ladies and gentlemen, a replay of today's conference call will be available beginning at 2.00 Eastern Time today for a period of 30 days until March 18, 2011 by dialing 1-888-203-1112 and entering access code 8608883. International callers may dial 719-457-0820. Once again, those numbers are 888-203-1112 or 719-457-0820, access code 8608883. Thank you for joining us and have a nice day.