Innodata Inc (INOD) 2011 Q1 法說會逐字稿

Good morning and welcome to the Innodata Isogen First Quarter 2011 Earnings Release Conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ms. Amy Agress. Please go ahead, ma'am.

Thanks, Leah. Good morning, everyone. 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.

First, let me qualify the forward-looking statements that are made during the call. These statements are subject to risks that include the primarily at will nature of the company's contracts with its customers and the ability of the customers to reduce, delay, or cancel projects including projects which the company regards as recurring.

Continuing revenue concentration in a limited number of clients, continuing reliance on project-based work, inability to replace projects that are completed, cancelled, or reduced, depressed market conditions, changes and external market factors, the ability and willingness of our customers and prospective customers to execute business plans that comprise requirements for digital content and professional services and knowledge processing.

Difficulty in integrating and deriving synergies from acquisitions, potential undiscovered viabilities of companies that we acquire, changes in our business or growth strategy, and the emergence of new or growing competitors. Our SEC filings also mention other risks. Actual results may differ significantly. Thank you. I will now turn the call over to Jack Abuhoff.

Thank you, Amy.

Good morning, everyone. Thanks for joining us today.

I'll begin with an overview of our first quarter 2011 results and then provide an overview of our three-year strategic plan. Revenue in the first quarter was $14.7 million which was $200,000 less than the fourth quarter. Nonetheless, we were able to improve pre-tax income by $400,000.

This improvement was the result of two factors. First, on a portfolio basis, the new business that we have been booking over the past several months is yielding higher margins than the existing project portfolio.

Therefore, as we finish lower margin projects and replace them with higher margin business, we see an overall margin uplift.

The second contributing factor is process and technology innovations that we're making. Next quarter, as a result of late 2010 improved bookings, we anticipate sequentially improved revenue probably in the range of $14.9 million to $15.2 million.

This quarter, we finalized our 2011 three-year strategy. We designed our strategy with the goal of making Innodata a $100 million revenue company within the next three years. We believe the level of change taking place in the way people consume and utilize digital information, in combination with our proven execution capability, global platform and strong customer franchise, means fertile entrepreneurial ground for us to pursue our financial goals and become a truly, globally respected services company.

I would like to share with you the key constituent objectives of our three-year strategy to that in this and subsequent earnings release calls, I can share with you our progress along the way.

Our strategy has four key financial objectives and three key market and strategic objectives. We'll take the financial objectives first.

Our first strategic objective is to increase bookings, the amount of business we win, by 20% this year over last year and another 20% year-over-year in each of 2012 and 2013.

To accomplish this, late last year, we recruited Jim Lewis to head our sales team. Jim is the former CEO of Berlitz International Services business so he understands content services, global delivery, and technology.

After Berlitz, Jim worked for five years as a coach to high-performing services sales teams, training approximately 1,000 sales executives, many from leading services companies.

In the past few months, Jim has seeded our sales team with three of the highest performers he encountered during his years as a sales coach and he's got some other recruits in process.

Jim and his team will be implementing account management practices that will enable us to work progressively, more closely, and more strategically with our clients.

Now, when I speak of bookings, it is important to note that bookings are not a formal GAAP accounting measure. Moreover, because most of our customer contracts don't have fixed dollar committed spends, we estimate each contract's value.

Therefore, we use bookings as a performance indicator rather than a reporting metric. With that as a caveat, I'm encouraged by our first quarter bookings which were 40% higher than our first quarter bookings last year.

Our second financial objective is to achieve labor margin on new bookings that is 12 to 14 percentage points higher than the overall labor margin we had in 2010. Our market is competitive, so we can't just raise prices to accomplish this. Instead, we have to do three things.

First, we need to automate to a greater extent the work that we do. Second, we need to increase the proportion of higher value strategic services we provide which we're doing by integrating content technology services with our core content KPO services and by continuing to grow our consulting services group who help clients with operations and product strategy.

Third, we need to launch new higher margin services. And I'll come back to this last one in a couple of minutes.

Now, in terms of first-quarter progress towards this objective, I'm encouraged to report that margins on our first-quarter bookings are, indeed, anticipated to be 11 to 13 percentage points higher than the overall labor margin we had in 2010, to reappear to have hit our targets in Q1, both in terms of bookings acceleration and raising the labor margin of bookings.

Our third financial objective is to improve labor margins on our existing portfolio of recurring revenue. We intend to do this by investing in further process and technology driven improvements.

And our fourth financial objective is to reduce our current overhead spend by approximately $1 million per year.

The first two of these three financial objectives are the most important. And here's why. Growing our core business bookings by 20% year-over-year, our first financial objective, would translate to a secular revenue growth of approximately 40% over the next three years on our core business.

If we can meet our second financial objective, which is the 12% to 14% higher labor margin, then on these new bookings, we have the growth revenue essentially throwing off about 60% on a marginal basis to the bottom line. And net, of course, of cost increase and some increase in sales spend.

A couple of important points to note, first, foreign exchange fluctuations, and wage inflation in India and in the Philippines will likely be persistent headwinds for the next couple of years, while my numbers are assuming constant currency.

And second, our growth during this period will likely to continue to be non-sequential quarter-to-quarter because of the nature of our business.

So, that covers our four key financial objectives. I'll now turn to our three strategic and market objectives.

The first market objective is to launch new productized service offerings within our existing markets. We're using the term productized service offerings here to distinguish these new kinds of service offerings from our existing service offerings in the following way.

Our existing service offerings tend to be very highly customized to each client. When we finish a highly customized project for a client, there's a lot of learning and even some technology that is not reusable.

Productized of service offerings, on the other hand, will be designed to meet the generic market need as opposed to unique customer need. This greater level of technology and process reuse will support our growth and profitability objectives.

We expect that these new productized service offerings will have a shared core technology components putting to good work the investments we've been making in our constant technology's area.

We've got a few new productized of service offerings in the works that we're excited about, one of which is being showcased as a product concept demo at the Mark Logic User Conference taking place this week in San Francisco.

The second market objective is to launch new information analysis businesses in new markets. Now, when I use the term information analysis, I'm referring to the process of taking raw, unstructured information and organizing the information to be useful for a particular business purpose.

As we've progressed over the years from providing digitization services to providing XML services, to providing information analysis services with doctors, lawyers, and other professionals, we've developed a competency that we think we can take outside the publishing and information sectors.

Over the next three years, expect to see us doing just that. This quarter, for example, we closed a new contract for performing data analysis services to one of the top four global accounting organizations.

In addition this quarter, we started a division called Innodata Advanced Data Solutions or IADS for short which will perform data analysis work for a number of industries outside the publishing sector where the kind of analysis we do can help reduce risk or otherwise help manage key business processes.

Also this quarter, our IADS division is launching a new brand which we are calling Synodex. Synodex will perform a range of data analysis services principally in the medical field to assist insurance company -- insurance companies, legal practices, healthcare providers, and independent medical examiners.

Now, to drive this business, we brought on board a new executive, Sam Jensen who will be CEO of Synodex. Sam's a proven entrepreneur with a 25-year career spanning sales and marketing as well as technology.

He has recent notable success which he started the Company called Cofunds about ten years ago with an initial $15 million investment. Cofunds is now the UK's largest independent investment platform with $45 billion in assets under management, $90 million in revenue, and $12 million in operating profit.

We're excited to have Sam on the Innodata team. And Sam is excited to have the opportunity to leverage Innodata's people, capabilities, and strengths to build a platform-based business providing medical information analysis.

Our third market and strategic objective is internally focused. We're going to step up our efforts promoting a stronger, more unified company culture. Well, it sounds like a clich, it is nonetheless true that our 5,000 global employees are our most important asset.

A progressively stronger, more unified company culture will be the backbone that supports our strategy. So, that's our plan in a nutshell. We're very excited about it. There's a focused, hard working, talented team that has set as its ambition to get to $100 million over the next three years, while becoming a truly, globally respected business services company.

In order to promote retention of this team and their alignment with the interests of our shareholders, the board has made or will be making stock option grants this year to a number of people who will be instrumental in driving the plan, including a number of people that we've hired over the past several quarters who are critical to our plan.

Because option grants have a dilutive effect to shareholders, we have, over the last five years, used this compensation vehicle very sparingly. In fact, seven of our new senior executives and three of our new corporate directors have never received stock options. And the last time we made a wide-ranging grant was in 2005.

In terms of share buybacks, once our trading window opens, we intend to resume buying back shares. On the investor relations front, a couple of things, O'Neil and I are going to be stepping up outreach to some of our existing as well as prospective institutional investors over the remainder to Q2.

In terms of date-to-date interface, Raj Jain, our finance director, will be available to investors who have specific questions taking over for Corey Luskin whom we wish well in his future endeavors. I will now turn the call over to O'Neil who will provide additional insight into the Q1 financial results. After that, we'll take your questions and then I'll wrap up with final comments. O'Neil?

Thanks, Jack. Good morning, everyone. Again, thank you for joining us today to review our first quarter of 2011 financial results. Jack just shared with you the operational insights, how are business is evolving, and our strategy. I will share my insight on this quarter's financial performance and then review the key line items of the financial statements.

Though our first quarter of 2011 revenue was slightly lower than in the previous quarter, our operating performance was significantly better. Our performance has improved because of our dual focus on enhancing the quality of revenues and productivity which we set out to achieve after confronting a challenging 2010 when we had to deal with some large engagements being scaled down by a couple of customers.

Considering that one of these customers has scaled down from being the top customer, to just one of the top five customers within less than 12 months underscores how we managed to enhance our performance to offset the loss and establish a new foundation for growth. Driven by the booking acceleration within the past couple of quarters, we feel reasonably confident of achieving revenue growth in the next quarter.

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 as it provides a more meaningful analysis on the run rate of our business.

Should you have any questions of the year-over-year results, I'll be happy to answer them during the Q&A session. Now, I'll review the latest line items in the financial statements. Revenue in Q1 was $14.7 million compared to $14.9 million in the last quarter, a decline of $200,000. The revenue has declined mainly because of completion of a few one time projects and the termination of an engagement which we are expected and mentioned in our last call.

These project completions reduced revenues by $800,000 and were offset by net growth in recurring business of $600,000. The top three clients contributed 42% of revenues this quarter compared to 40% in the previous quarter, an increase of 200 basis points.

Moving over to gross margins, it increased by 500 basis points to 27% of revenues in the current quarter from 22% in the previous quarter. In dollar terms, gross margin was $4 million this quarter compared to $3.3 million in the last quarter, an increase of $800,000.

Approximately 50% or $400,000 of the growth in gross margins was attributable to our dual focus on improving the quality of revenues and productivity through process and technology innovation.

The balance was due to optimizing their cost structure in technology and facilities. Now, let us drill down to selling and administrative expenses. SG&A expenses were $4.1 million this quarter compared to $3.7 million in the previous quarter. The sequential increase in expenses was primarily due a one time benefit we had in the last quarter from a recovery of $400,000 from a previously fully reserved account receivable.

In the current quarter, we accrued for severance cost of about $300,000, which was offset partially by an additional recording of $250,000 from a previously fully reserved account receivable and the balance $50,000 from lower expenses. The severance cost of $300,000 is expected to result in cost savings of $600,000 per annum.

Moving down to pre-tax earnings, we made a pre-tax profit of $100,000 in the current quarter, compared to a pre-tax loss of $350,000 in the last quarter. This was primarily due to an increase in gross margins of $800,000 which was offset by higher SG&A expenses of $400,000.

Let me now review our tax provisions. In the current quarter, our tax expense was $70,000 versus a tax benefit of $1.4 million in the previous quarter. As shared with you in the last call, the tax benefit in the last quarter was primarily due to a deferred tax benefit for the US entity, which was partially offset by tax provisions in our foreign subsidiaries.

Looking ahead, on a return to 10% pre-tax profitability, we would expect our effective tax rate to be in the range of approximately 22% to 25% compared to 28% to 30% earlier. Getting down the net earnings, our net profits for the quarter was a breakeven compared to $1.2 million or $0.05 per diluted share in the previous quarter.

Now, let me review our cash flows and the balance sheet. We generated cash from operations of $1.2 million in the current quarter compared to $700,000 in the previous quarter. The cash generated from operations increased mainly on account of an increase in pre-tax earnings of $450,000.

Now, looking at our liquidity position, we ended the quarter with $28.6 million in cash, cash equivalents and investments in term deposits with banks compared to $28 million at the end of last quarter.

We anticipate that these cash balances may trend down this year as we continue to undertake share purchases under our previously announced buyback plan and meet our operating needs and incur capital expenditures. To build delivery capabilities in our new service offerings, we intend to establish a new delivery center in India and invest about $2 million over the next six to eight months.

In addition to cash and bank balances and investments of $28.6 million, our liquidity sources include an unutilized line of credit amounting to $7 million. We believe that our existing cash balances together with operating cash flows and funds available under 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 $500,000 in the current quarter compared to $400,000 in the previous quarter. These expenditures were primarily incurred in our global production and delivery centers.

As mentioned earlier, we expect to invest about $2 million to establish a new delivery center in India this year, in addition to routine capital expenditures and other locations. The new delivery center will accommodate approximately 750 employees.

We ended the quarter with account receivables of $8 million compared to $8.4 million at the end of last quarter. In terms of efficiency, our days sales outstanding or DSO decreased to 52 days in Q1 2011, from 61 days in the last quarter. Working capital at the end of the quarter was $25.5 million compared to $26 million at commencement. The decline was primarily on account of a reduction in account receivable balances of $400,000.

Now, let me share some other relevant financial highlights. First is the share buyback program, this quarter the company did not repurchase any shares of its common stock under the previously announced buyback plan. So, at the end of Q1 2011, the total common stock repurchased remains at 264,000 shares at a total cost of about $800,000 and approximately $1.3 million remains available for repurchase under the buyback plan.

Now, let me review the tax NOLs. We have approximately $9.5 million of federal tax NOL carry forwards in the US, which we anticipate will give us a cash tax shield in the future years. Finally, let me review the forex hedging program. As of the end of Q1, we had foreign currency forward contracts with approximately $26 million. These contracts were -- are taken to mitigate foreign currency risks associated with future local currency expenses in our global production centers in Asia.

On these forward contracts, we have approximately $1.1 million of unrealized gains based on conversion rates as of March 31, 2011. As these are qualified hedging contracts, we do not recognize gains based on mark-to-market, instead gains are recognized in the income statement as and when the contracts mature. Now, let's open the line for questions.

Thank you.

(Operator Instructions)

Take our first question from Tim Clarkson with Van Clemens Capital.

Hi, guys. Could you just comment a little bit more, specifically about your sales and marketing effort. I know you brought in a new guy. Comment a little bit about what he is doing differently. And how many people -- how many salesmen do you have now versus what you had say a year ago? And have you got rid of some of the older salesman that weren't producing or how is that -- how is that playing out?

: Hi, Tim. Sure, would be happy to. And I'll put what we're doing in sales in the context to what we're doing in the rest of the business. You know, we've talked a lot about how we're trying to, you know, migrate progressively more strategic services.

We're using some of our new content consulting capabilities and content technology capabilities to drive that strategy. And that enabling us to expand margins and we see some of the early indicators of that success in the revenues as well as in the bookings that we're doing now.

Now, as we have that more expanded set of capabilities, we need to be having a different -- more strategic conversation with our clients. And that's really what Jim is driving with the changes that he's making in terms of strategic account strategy, driving that a lot more formally and a lot more progressively. And helping us become much less transactional at the edge of the wedge.

And how may -- how many -- is it the same amount of salesmen? Have you -- have you just changed out your salesmen, somewhat?

: Yes. He's made a number of changes, brought in some new people who he is -- swapped out some of the low performers with. And I think we're going to also kick-up head count a little bit. But it's not going to be a numbers gain, it's going to be a quality gain.

Okay. All right, great. Thanks.

Thank you. Our next question comes from Joe First with the First Associates.

Good morning, gentlemen. First, I want to commend you for being able to at list keep your head above water, because evidently, you've been losing a lot of accounts and a lot of -- a lot of -- one project type because this has ended, but you've got new business to at least sort of keep your head above water, so congratulations on that.

And secondly, one thing I want to clarify, because I'm not sure I understood it quite -- quite. When you're talking about getting margins to 11% to 13% better than the margins and the average margin 2010 was that percentage points better or percent better? Obviously, there is a big difference.

: That would be -- Neil, correct me if I'm wrong, percentage points better.

: Yes.

Okay, okay, that's what I've --

: Which is -- which is the better of the two alternatives (inaudible - multiple speakers).

Oh, yes, so a lot better. Okay, thank you for that. And -- and -- where do you stand on -- as far as keep losing business and having these projects, your largest customer, so apparently, has really cut down a lot of the - is this about overhead you think, and maybe the increased business you get now can be more accretive to sales, because I mean, your projections for the next quarter are just slightly higher than this quarter. And I'm sure you would like to do, I mean, obviously, your goals are a lot better than that if you want to get to a $100 million company in three years.

: Absolutely, and, you know, I hate to inspire any kind of bad luck by calling a bottom and saying that we feel everything, you know, is -- that we've got is nailed down. I think it's helpful to understand the disruptions that we've seen in the context of the overall global economy, so, you know, we -- as you know, serve medical publishers, we serve legal publishers, we serve general information providers, financial information providers, a whole host of things.

If you take any one of those sectors, law, for example, you know, over the past couple of years, there's been a great amount of pressure put on the law firm business model. And there have been all sorts of change in terms of consolidation and law firms going out of business and such.

So you can imagine the pressure that that would place on legal information providers, most of whom are our clients. That trickle-down, you know, affects their ideas and their willingness to spend more money on new products and that affects us.

So it's that environment and that trickle-down effect that unfortunately, we've -- we've -- we have felt quite significantly over, you know, over 2010. And thank you for your compliment. We've -- we've certainly tried to work very progressively, very diligently with a great deal of perseverance in terms of not letting that get us down. And we've brought in some new accounts that we're very proud of. We think we'll be able to develop them over the next couple of years significantly. And that'll help us drive to our $100 million goal.

And one other question. You haven't mentioned anything about Apple, the relationship with Apple that you got. Have you seen any better picture on that or what -- where that might lead?

: Well, you know, I think that's clearly one of the relationships that we're very excited about. As, I think anybody would be having a, you know, strategic partnering relationship with a company like that. So, I've got ambitions for the development of that over the next few years and intend to pay a lot of close attention to it.

Have you seen any concrete progress on the first quarter so far in this quarter?

: You know, we're not going to -- we're not going to report on a customer level revenue or specific progress, because I don't think the customers want that. You know, as you could appreciate a lot of the customers that we deal with, have us under NDAs, but in addition to that, they want to manage their own PR.

And I respect that. So I'm going to -- I'm going to keep my remarks to saying that we're very excited about it. We think it will be a very important relationship for us and we'll pay a lot of very close attention to it.

Okay, thank you.

Our next question comes from Benj Gallander with Contra the Heard.

Hi. Yes, I really do appreciate also how you guys managed to keep your head above water. Just thinking though, I mean, I know you have the goal of a $100 million in revenues, but I'm wondering if it might not be better to just look at some sort of strategic alternative in terms of perhaps, selling the company because with the size of the company now, you know, it's difficult to have a wonderful bottom line. So are you thinking at all of possibly putting the company up for sale? And is anybody perhaps kicking the tires at all?

: Thank you for your question. I think that the board of directors in executing is fiduciary duty will always look at alternatives that are presented and strategic options that are presented to the company. That said, the company is not for sale nor do we intend for it to be for sale.

Okay. But -- okay. And so -- but I would think from time to time people do come in with a company like this and take a look. And you said, then you'll just look for what's in the best interest of shareholders.

Absolutely. We'll always do that. And, you know, if and when we have those kinds of indications of interest, we will look very carefully at them with the shareholders' interests clearly in the forefront of our minds.

Thank you very much.

Thank you.

(Operator Instructions)

We'll hear our next question from [Charlie Pine] with Van Clemens.

Good morning, Jack.

Hi, Charlie. Good morning.

I wanted just to follow-up on one of, well, two questions, but I would like to follow-up a little bit more on the Apple relationship. I know apparently you can't get too specific about it, but can you tell us if -- are you beginning to recognize any revenues at this point with -- you know, from that relationship? Have you actually started to see any dollars from that?

Yes, we have.

And could you also touch on a little bit more about what's been going in the e-book space with some of the other providers and platform companies that you've been working with?

Sure. You know, it's a rapidly changing space with lots of different opportunities. You know, the work that we're doing in the e-book space has been, you know, mostly of a particular variety related to large platform providers, for example.

But we're, you know, we're starting to branch off from that and do new things. For example, I referred to the product concept demo that we're doing at the Mark Logic conference this week.

And, you know, what that relates to is, you know, basically some middleware that we're building to help publishers take their existing content stores, import them to, you know, mobile devices and platform, you know, iPad and Android most specifically.

You know, it's really a mega trend. It's a big shift in the way information is going to be distributed and consumed and one that we think we can, you know, benefit from in lots of different ways. The work that we're doing with the, you know, the e-book stores is just one manifestation of it.

Well, I've been reading a lot recently about the very large increase in the self-publishing arena for e-books. And there was, as a matter of fact, a huge article in the journal a few days ago about just how much self-publishing has taken up percentage-wise in the amount of books that are offered on the Kindle.

I think the figure was something like, you know, 30% of the top 50 titles now are self-published. I would imagine that those are the sort of things that bode pretty well for you down the road with your relationship with Apple.

You know, I think, you know, you're pointing to an important element of what's changing and trending. And it's not similar to the changes that took place in music publishing.

I know Apple hopes that the iBookstore will do for books what the App Store did for mobile and iTunes did for music, you know. So they are predicting a proliferation of books and to make book publishing, you know, much easier for people to do.

You know, importantly, you know, we haven't committed to going into the retail side of that business, but it's something that we're interested in and we've been looking at. Some of the technology that we've built specifically for the Apple program does enable us to accept a retail-like order for e-book and related services. And we tend to do some further development on that platform. So it's certainly an option for us that we'll continue to explore.

Oh, well, that sounds very exciting. Let me follow-up with just two other quick things. First of all, in past calls recently you talked that -- about that you had been actively engaged in tire kicking on areas in the acquisition front. Can you update us on where things stand with any of that?

Well, sure. I guess, you know, a few things going on. The first is we're continuing to, you know, evaluate acquisitions. We've got a couple of things, you know, in active evaluation right now.

We've been evaluating things that are small and things that are large and things that are tuck-in and things that are transformative. It really runs, you know, a full, you know, range of opportunities there.

You know, we're being selective. I know it's trite to say some of the best deals are the ones you don't do. And I know that, you know, we get paid to do deals not to not do deals, but we are being selective.

And, you know, we've had stuff on a lot of things that we just don't think would be very good for our shareholders. We're doing some things that, you know, aren't quite acquisitions, but that we think will provide a much, you know, lower risk, you know, higher return opportunity for shareholders.

So, you know, I refer to the launch this quarter of our IADS division and kind of it tuck in, you know, quasi-acquisition of the business called Synodex, which we've very excited about and will create new opportunities. I think the total return we get on that over time is going to exceed that which we can get on most -- any of the acquisitions that we've looked at.

So I hope that answers the question.

Back up for just a moment. Can you expand a little bit more on this new division Synodex? And you talk about it almost like it's a tuck-in acquisition. Was it -- is it -- was it an acquisition or is it just a, you know, internally organically created entity?

It's a little bit of both. What we're doing is, you know, it's something that we've been working on now for six or seven months with Sam -- I referred to Sam Jensen in my prepared remarks -- you know, working with him, identifying the business opportunities going to talk to customers and seeing, you know, what it is that we can do for them in formulating a plan of action.

And we closed that opportunity now with Sam this quarter. Sam is going to be an equity participant in the Synodex company. The Synodex company, that said, is going to be controlled, you know, majority controlled by us.

And it's something that we're really excited about because it truly leverages the execution capabilities that we've got while, you know, Sam's able to bring some entrepreneurial energy and vision to the picture, and so with very talented salespeople and some domain specialist to understand how to work with some of the new business or new market sectors that we're going to be tapping into there. So it's, I think, a really good thing for our business.

Has Synodex officially been launched now? Is that what you're telling us or is it still in the pre-launch stage?

It's still in the soft launch stage. So, you know, we're putting things in place now, most importantly customers and, you know, some of the artifacts of launch, you know, websites and marketing collateral things. That's in development, but, you know, I'm really encouraged by, you know, Sam knows where the money is, he's running after customers and we're formulating service offering and designing services and technology to support it. And I think those are the fundamentals of business.

Okay. My last thing -- and I'll stop monopolizing this -- has to do with the buyback program. I heard Neil said that there was no stock bought back during the last quarter. I was curious as to why that is. And the follow-up also is do you have any plans to increase the dollar value on your stock buyback program?

Sure. Yes, we were really frustrated by that for, you know, in the quarter for, you know, one reason or another. The closed window restrictions were, you know, affecting us throughout the quarter.

And as you know, there are a number of different reasons why that would be the case. So, you know, unfortunately, as a result of the closed window, we were not able to be in the market, you know, making market buybacks.

That said, we intend to get right back into the market and to proceed with buybacks. You know, we think that repurchasing our shares, you know, particularly when we perceive that our price is undervalued or depressed as we do now, you know, in light of the, you know, our three-year strategy, which when we pro forma, you know, we see very strong intrinsic value in. You know, buying back shares is aggressively, you know, in light of that, makes a lot of sense.

So do you anticipate increasing the ceiling on buyback program then?

Well, I think what we're going to do first is use up the buyback that -- authorization that we've got. You know, we -- if you look at the buybacks that we've done in the programs we've authorized recently when we make -- when we authorize, we try to work as aggressively as we can to effectuate that program.

We're not using it as a signal or manipulative device. We authorize it and then we move forward with it. Again, you know, the buyback mechanism has frustrations associated with it. There are times when, because of the close window restrictions, we, you know, we can't be in the market. We have that in first quarter and then there are other issues in terms of the amount of stock and the, you know, the purchase price, the timing, the volume restrictions that are placed on it.

So, you know, in the future, you know, I think that we're going to, you know, first burn through the authorization that we've got. And then we would, you know, evaluate the increase authorization again consistent with our perspective that buying back aggressively right now makes a lot of sense.

(Operator Instructions)

We'll hear next from Perry Highland with Van Clemens.

Hey, good morning, Jack.

Hi, Perry. Good morning.

And are there any comments (inaudible) the government turning off its (inaudible)?

You know, I'm going to answer that question the same way I answered the Apple one. We're not going to do customer level updates. You know, two really good reasons there, one is the customers think that we're going to do that and they're not controlling their own PR. They're not going to be happy.

Second is, you know, when we're, you know, in, you know, kind of in the process of things, there's just no good reason to be communicating to competitors, you know, where we are and what we're doing. So, you know, I'm not going to provide that level of update.

What I will say, though, is the relationship's strong. We've done really good work. It's been praised, recognized. And, you know, we're really happy with it and we think that it's a relationship that we can continue to develop and cultivate and benefit from.

Okay. That's my only question. Thank you.

Thank you.

We do have a follow-up question from Joe First with First Associates.

What percent of your businesses are recurring business now?

Joe, hi. It's about 76% of this quarter.

You have 76%?

Yes.

All right. Thank you.

There are no additional questions at this time. I will now turn the call back over to our speakers for any additional or closing remarks.

Operator, thank you very much. I guess to recap a bit, we gain some ground on the pre tax income side in the first quarter as a result of our strategy to the replacing relatively lower margin business with higher margin business as well as process and technology innovation that we put in place. Next quarter we're expecting revenues to be in the range of [$14.9 million] to $15.2 million. Our 2011 three-year strategy has seven key objectives associated with it. I'll quickly recap those now.

First is 20% year over year bookings acceleration. Second is 12% to 14% labor margin expansion over 2010 levels on new bookings accomplished by selling more strategic services. Third is an improvement on labor margins and existing business using technology and process improvements. Fourth is reduction in annual overhead costs by about a million a year. Next is launching new product test offerings that promotes scalability, margin improvement and market differentiation. And then, you know, lastly, launching new information analysis businesses that serve markets that are new markets for us.

Toward this end, this quarter, we're enhancing the formation of our Innodata advanced data solutions segment as well the launch of Synodex, a new company that will perform a range of information analysis services principally related to digital information in the medical field.

So we here at Innodata look forward to sharing with you our progress on the strategic objectives as we move into 2011. Our goal is an aggressive one. Our goal is to become $100 million company over the next three years and to develop into a truly globally respected business services company which can create significant shareholder value. So thanks, everybody, for joining us today. We look forward to being with you next time.

Thank you, ladies and gentlemen.

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