INOD 10-K & 10-Q changes, risk factors and insider trading

We have historically relied on a limited number of customers that have accounted for a significant portion of our revenues. One customer in the DDS segment generated approximately 58% and 48% of the Company’s total revenues in the fiscal year ended December 31, 2025 and 2024. Another customer in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023. No other customer accounted for 10% or more of total revenuesrevenue during these periods. Further, in the years ended December 31, 20242025 and 2023,2024, revenues from non-U.S. customers accounted for 21%16%, and 37%,21%, respectively, of the Company’s revenues. We may lose one or more of these customers, or our other major customers, as a result of our failure to meet or satisfy our customer’s requirements, the completion or termination of a project or engagement, or the customer’s selection of another service provider.

In addition, the volume of work performed for our major customers may vary from year to year, and services they require from us may change from year to year. They may also request that we modify certain key terms of our agreements with them as a condition of continuing to do business with us. If the volume of work performed for our major customers varies,vary, if the services they require from us change, or if they require price concessions, our revenues and results of operations could be adversely affected, and we may incur a loss from operations. If certain key terms of our agreements with our major customers are modified, our revenues and results of operations may be adversely affected. Our services are typically subjectprovided under master service agreements which establish general terms and conditions, with individual project-based statements of work, service orders, or purchase orders governing the scope, pricing, and duration of specific engagements. These contractual arrangements are negotiated periodically and generally do not obligate customers to customerpurchase requirements, andservices in manyfuture casesperiods. Our customer agreements are generally terminable by our customer upon 30 to 90 days’ notice. TheA losssubstantial portion of thesethe customersservices we provide is performed on a project or aprogram significantbasis variationand inis thesubject volumeto customer requirements, including scope, timing, and continuation of workfunding, performed for these customersand may havebe aterminable materialwith adverseshorter effectnotice on our business, financial condition and results of operations.periods.

We have made and continue to make significant investments towards building out new capabilities to pursue growth, including, for example, our investments in large language models.growth. These investments increase our costs, and if these new capabilities do not yield the revenues or profit margins we expect, and we are unable to grow our business and revenue proportionately,revenue, our profitability may be reduced, or we may incur losses. If we are not able to compete effectively in the markets we serve or if we are not able to successfully develop new services, platforms and solutions, our revenues and results of operations could be adversely affected.

Our Agility segment relies on third parties to provide certain content and data for our solutions. The cessation by third parties to provide their content and the increase in prices charged by third parties for their content has adversely affected, and could in the future adversely affect, our revenue and results of operations.

Our Agility segment relies on third parties to provide or make available certain data for our information databases and our news and social media monitoring service. These third parties, in the past, have restricted access to certain content andcontent, have ceased providing content, and have increased the prices they charge for their content. They also may not renew agreements to provide content to us or may increase the price they charge for their content.us. Additionally, the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third parties. In the event we are unable to use or have access to such third-party content or are unable to enter into agreements with new third parties, current customers may discontinue their relationship with us, and it may be difficult to acquire new customers.

Our intellectual property rights include certain trademarks, trade secrets, copyrights, domain name registrations, a patent and aunpatented patent.proprietary processes and methods. Although we take precautions to protect our intellectual property rights, these efforts may not be sufficient or effective. If we are unable to protect our intellectual property, we may experience difficulties in achieving and maintaining brand recognition.

Our operating performance is materially dependent on the continuation of theseprojects projects.that we characterize as recurring in nature. However, we are exposed to the risks that these projects may not be renewed by our customers or they could be terminated by our customers and we may not be able to replace these terminated projects with new recurring projects with similar profitability or customers may ask for a price reduction, which could adversely affect our revenue and results of operations.

A large portion of our accounts receivable isare payable by one customer; the inability of this customer to pay its obligations could adversely affect our results of operations.

One customer accounts for a large percentage of our accounts receivable. If this customer was unable, or refused, for any reason, to pay our accounts receivable, our financial condition and results of operations could be materially adversely affected. As of December 31, 2024,2025, 61%63% or $16.6$29.2 million of our accounts receivable waswere due from twoone customers.customer.

We have experienced, and expect to continue to experience, significant fluctuations in our quarterly revenues and results of operations. DuringOver the past eight quarters, our net income (loss) ranged from net income of approximately $17.4 million in the third quarter of 20242024, which included a favorable one-time valuation allowance adjustment of $6.0 million reflecting the release of a reserve related to aaccumulated net loss ofcarry forward (NOLCO), to approximately $2.1 millionbreakeven in the firstsecond quarter of 2023.2024.

WeaknessUncertainty and volatility in the global economy, and in particular in the United States, Canada, Europe and the United Kingdom, could negatively impact our revenue and operating results.

The United States, Europe, the United Kingdom and other economies may suffer from uncertainty, volatility, disruption, and other adverse conditions, such as geopolitical tensions, political uncertainty or inflation, and these conditions have adversely impacted and may continue to adversely impact the business community and the financial markets. Adverse economic and financial market conditions may negatively affect our customers and our markets, thereby negatively impacting our revenue and operating results. For example, weak market conditions have extended, and could continue to extend, the length of our sales cycle and cause potential customers to delay, defer, reprioritize, or decline to make purchases of our services, platforms, and solutions due to uncertainties surrounding the future performance of their businesses, limitations on their expenditures due to internal budget constraints, and the adverse effects of the economy on their business and financial condition. As a result, if economic and financial market conditions weaken or deteriorate, then our revenue and operating results, including our ability to grow and expand our business and operations, could be materially and adversely affected.

Due to the intense competition involved in outsourcing andthe information technology services,and artificial intelligence (AI) industries, we generally face pricing pressures from our customers due to competition from other companies in our markets. Our ability to maintain or increase pricing is restricted as customers generally expect to receive volume discounts or special pricing incentives as we do more business with them; moreover, our large customers may exercise pressure for discounts outside of agreed terms.

In the event that the governments of Indiathe United States, the Philippines, India, Sri Lanka, the United Kingdom, Canada, Germany, or theother Philippinesjurisdictions in which we operate change their tax laws, policies, regulations, or theinterpretations government of another country changes its tax policies, rules and regulations,thereof, our tax expense may increase and adversely affect our effective tax rates.rate.

In addition, changesChanges in thestatutory tax rates, tax lawsincentives, withholding taxes, or the interpretation or enforcement of tax laws in the jurisdictions wherein which we operate,operate could adversely affect our future results of operations.

A significant portion of our operations are conducted outside the U.S. Despite our access to the overseas earnings and the resulting toll charge,earnings, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $53.9$58.8 million at December 31, 2024.2025. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

In February 2024, David D’Agostino filed a putative class action captioned D’Agostino v. Innodata Inc., et al., in the United States District Court for the District of New Jersey against the Company and certain of its current and former officers (the “Securities Class Action”). In October 2024, the presiding judge in the Securities Class Action appointed a lead plaintiff and approved the lead plaintiff’s choice of counsel. In January 2025, an amendedThe Securities Class Action complaintcomplaint, wasas filed in the Securities Class Action. The complaintamended, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and it alleges, among other things, that the defendants made false and misleading statements regarding the Company’s artificial intelligence (“AI”) technology and services. The plaintiff seeks unspecified damages, fees, interest, and costs. The Company intends to defend itself vigorously,vigorously. butOn March 7, 2025, the Company filed a motion to dismiss the Securities Class Action complaint. On April 10, 2025, the plaintiff filed a Second Amended Complaint to the Securities Class Action complaint (the “Second Amended Complaint”) to correct purported typographical errors in the Securities Class Action complaint. On April 11, 2025, the Company filed a motion to dismiss the Second Amended Complaint. The motion to dismiss is fully briefed and pending with the USDC. The Company cannot predict the outcome of the action at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations.

The legal and regulatory landscape applicable to artificial intelligence (AI) is rapidly evolving in the United States and changesinternationally. Changes to existing laws and regulations or new laws and regulations could adversely affect our business, financial condition and results of operations.

We use machine learning and artificial intelligence (AI) technologies in our services, platforms and solutions, and we are making investments in expanding our artificial intelligence capabilities, including ongoing deployment and improvement of existing machine learning and AI technologies, as well as developing new product features using AI technologies, including, for example, generative AI. The lawsEmerging and proposed regulations applicableand toguidance addressing AI continuegovernance, tomodel developtransparency, accountability, safety, data provenance, and evolve.human Theoversight - particularly in connection with high-impact or regulated use cases - may impose additional compliance obligations, increase costs, limit certain business practices, or affect the scope or timing of AIcustomer technologiesprograms. Compliance with these requirements requires ongoing investment in ourpolicies, services,technical platformscontrols, and solutionsoperational mayprocesses, resultand inthere newcan governmentalbe orno assurance that future regulatory scrutiny,developments ethicalwill concerns,not legal liability, or other complications that couldmaterially adversely affect our ability to serve customers across jurisdictions, or our business, financial condition, or results of operations.

The following table sets forth certain financial data for the two years ended December 31, 20242025 and 20232024:

We believe that the presentation of this non-GAAP financial information provides investors with greater transparency by providing investors a more complete understanding of our financial performance, competitive position, and prospects for the future, particularly by providing the same information that management and our Board of Directors use to evaluate our performance and manage the business. However, the non-GAAP financial measures presented in this Annual Report on Form 10-K have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures that we present may differ from similar non-GAAP financial measures used by other companies.

We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP, plus depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance and other one-time costs.

We define Adjusted Gross Margin by dividing Adjusted Gross Profit over total U.S. GAAP revenues.

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the years ended December 31, 20242025 and 20232024 (in thousands).

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

Revenues from the SynodexDDS segment were $7.9$220.9 million and $7.5$141.1 million for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $0.4$79.8 million or approximately 5%.57%. TheRevenues increase wasincreased primarily due to higher volume fromof existingour customers.data engineering and AI systems services.

Revenues from the AgilitySynodex segment were $21.5$7.3 million and $17.7$7.9 million for the years ended December 31, 20242025 and 20232024, respectively, ana increasedecrease of $3.8$0.6 million or approximately 21%.8%. The increasedecrease was primarily attributable to highertermination volumesof froma subscriptionscustomer to our Agility AI-enabled industry platform.contract.

One customer in the DDS segment generated approximately 58% and 48% of the Company’s total revenues in the fiscal yearyears ended December 31, 2024.2025 Anotherand customer2024, in the DDS segment generated approximately 10% of the Company’s total revenues in the fiscal year ended December 31, 2023.respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 20242025 and 2023,2024, revenues from non-U.S. customers accounted for 21%16% and 37%,21%, respectively, of the Company’s revenues.

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Direct operating costs for the DDS segment were $88.2 million and $40.1 million for the years ended December 31, 2024 and 2023, respectively, an increase of $48.1 million or approximately 120%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes a net increase of $43.3$42.5 million from direct and indirect laborlabor-related related costscosts, primarily ondriven accountby new hires, incentive compensation, and salary increases. Additional increases included cloud service subscriptions of new$3.3 hiresmillion, driven by increased cloud usage and higherdata incentives;processing requirements in support of higher recruitmentrevenues feesfrom ofexpanded $3.5delivery million;and highersupport activities, depreciation and amortization of capitalized developed software of $1.0$1.1 million;million, highercontent-related cloud service subscriptionscosts of $0.7$1.0 millionmillion, shipping costs of $0.6 million, travel and an increase in other direct operatingrelated costs of $0.3 million;million, offsetoccupancy-related incosts partof by$0.3 amillion, favorablethe unfavorable impact of foreign exchange rate fluctuations of $0.7$0.3 million, and other direct operating costs of $0.3 million, offset in part by a reduction in recruitment fees of $0.9 million. Direct operating costs for the DDS segment as a percentage of DDS segmenttotal revenues were approximately 63%60% and 65%61% for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease in direct operating costs of the DDS segment as a percentage of DDS segmenttotal revenues was primarily attributable to higher revenues,revenues in the DDS and Agility segments, offset in part by higherincreased direct operating costs.costs across all segments.

DirectThe increase in direct operating costs forincludes the Agility segment were approximately $9.4$42.6 million andfrom $8.7 million for the years ended December 31, 2024direct and 2023,indirect respectively,labor-related ancosts, increaseprimarily driven by new hires, incentive compensation, and salary increases. Additional increases included cloud service subscriptions of $0.7$2.9 millionmillion, ordriven approximatelyby 8%.increased Thecloud increaseusage wasand primarilydata dueprocessing torequirements in support of higher contentrevenues costsfrom ofexpanded $0.8delivery million,and highersupport activities, depreciation and amortization of capitalized developed software of $0.2$1.0 million, offset in part by lower direct laborshipping costs of $0.2$0.6 millionmillion, includingtravel severance,and primarilyrelated duecosts toof $0.3 million, occupancy-related costs of $0.3 million, the effect of our cost optimization initiatives completed in 2023 and a favorableunfavorable impact of foreign exchange rate fluctuations of $0.1$0.2 million, and other direct operating costs of $0.3 million, offset in part by a reduction in recruitment fees of $1.0 million. Direct operating costs for the AgilityDDS segment as a percentage of AgilityDDS segment revenues were approximately 44%61% and 49%63% for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease in direct operating costs of the Agility segment as a percentage of AgilityDDS segment revenues was dueprimarily attributable to higher revenues, offset in part by higherincreased direct operating costs.

Gross profit was $67.1$99.5 million and $31.3$67.1 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $35.8$32.4 million increase in gross profit was primarily due to higher revenues in allthe segmentsDDS and lowerAgility direct operating costs for the Synodex segment,segments, offset in part by higher direct operating costs in the DDS and Agilityall segments. Gross margin was 39%40% and 36%39% for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in gross margin was primarily due to higher revenues in allthe segmentsDDS and lowerAgility direct operating costs for the Synodex segment,segments, offset in part by higher direct operating costs in theall DDS and Agility segments in the current fiscal year.segments.

Gross profit for the DDS segment was $52.9$85.5 million and $21.5$52.9 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $31.4$32.6 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 37%39% and 35%37% for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.costs.

Gross profit for the Synodex segment was $2.1$1.3 million and $0.8$2.1 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $1.3$0.8 million increasedecrease in gross profit for the Synodex segment was primarily due to lower direct operating costsrevenues and higher revenues.direct operating costs. Gross margin for the Synodex segment was 27%18% and 11%27% for the years ended December 31, 20242025 and 2023,2024, respectively. The increasedecrease in gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costsrevenues and higher revenuesdirect inoperating the current fiscal year.costs.

Gross profit for the Agility segment was $12.1$12.7 million and $9.0$12.1 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $3.1$0.6 million increase in gross profit for the Agility segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the Agility segment was 56%54% and 51%56% for the years ended December 31, 20242025 and 2023,2024, respectively. The increasedecrease in gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs inoffset theby currenthigher fiscal year.revenues.

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses,expenses; software subscriptions,and cloud service subscriptions; professional and consultant fees,fees; provision for credit losses; and other administrative overhead expenses.

Selling and administrative expenses were approximately $42.7 million and $31.0 million for the years ended December 31, 2024 and 2023, respectively, an increase of $11.7 million or approximately 38%. The increase in selling and administrative expenses was primarily dueattributable to higherincreased expensesselling, associated with the increase in revenues. The increase in selling and administrative expenses includes higher sellingmarketing, and administrative payroll and related expenses of $7.3$13.0 million, primarilydriven on account ofby new hires, salary increases, incentivesincentives, and bonusesbonuses. Additional increases included professional and recruitment fees of $2.4 million, business software subscriptions of $0.8 million, travel and entertainment costs of $0.8 million, marketing-related expenses of $0.3 million, offset in part by lowera severancedecrease costs;in higherthe professionalprovision feesfor credit losses of $3.3 million; higher expenses for marketing related activities of $0.6 million; higher subscriptions of $0.2 million; an unfavorable impact of foreign exchange rate fluctuations of $0.1 million; and an increase in other selling and administrative expenses of $0.2$0.4 million. Selling and administrative expenses as a percentage of total revenues were approximately 25%24% and 36%25% for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in allthe segmentsDDS and lowerAgility segments, offset in part by increased selling and administrative expenses inacross the Synodex segment, offset in part by higher selling and administrative expenses in the DDS and Agilityall segments.

Selling and administrative expenses for the DDS segment were approximately $31.6 million and $20.1 million for the years ended December 31, 2024 and 2023 respectively, an increase of $11.5 million or 57%. The increase in selling and administrative expenses was primarily dueattributable to higherincreased expensesselling, associated with the increase in revenues. The increase in sellingmarketing, and administrative expenses includes higher selling and administrative laborpayroll and related expenses of $7.2$10.7 million, primarilydriven on account ofby new hires, salary increases, incentivesincentives, and bonusesbonuses. awarded;Additional higherincreases included professional and recruitment fees of $3.2$2.2 million;million, higherbusiness expenses for marketing related activities of $0.3 million; highersoftware subscriptions of $0.2$0.7 million;million, highertravel provisionsand entertainment costs of $0.7 million, marketing-related expenses of $0.4 million, offset in part by a decrease in the provision for credit losses of $0.2 million and an increase in other selling and administrative expenses of $0.4$0.3 million. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were approximately 22%21% and 33%22% for the years ended December 31, 20242025 and 2023,2024, respectively. The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher selling and administrative expenses.

Selling and administrative expenses for the Synodex segment were $0.2$0.7 million and $0.6$0.2 million for the years ended December 31, 20242025 and 20232024, respectively, aan decreaseincrease of $0.4$0.5 million or approximately 67%.250%. The decreaseincrease in selling and administrative expenses wasreflects, primarilyin attributablepart, toa lowernon-recurring reversal of previously accrued performance-based stock compensation of approximately $0.3 million in 2024; spend in selling and administrativemarketing payrollrelated costsexpenses in 2025 of $0.3approximately million and lower professional fees of $0.1$0.2 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were approximately 3%10% and 8%3% for the years ended December 31, 20242025 and 2023,2024, respectively. The decreaseincrease in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable to higher revenues and lower selling and administrative expenses.expenses and lower revenues.

Selling and administrative expenses for the Agility segment were $10.9$12.9 million and $10.3$10.9 million for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $0.6$2.0 million or approximately 6%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues.18%. The increase in selling and administrative expenses includes higher selling and administrative payroll and related expenses of $0.4$1.7 million, primarily on account of new hires,hires and salary increases,increases. incentivesAdditional increases included professional and bonuses awarded; offset in part by lower severance costs; an increase in marketing related activities of $0.3 million; higher professionalrecruitment fees of $0.2 million, andbusiness ansoftware unfavorable impactsubscriptions of foreign$0.1 exchangemillion, ratetravel fluctuationsand entertainment costs of $0.1 million, and other selling and administrative expenses of $0.1 million, offset in part by lowera decrease in provision for credit losses of $0.2$0.1 million and a decrease in other selling and administrativemarketing-related expenses of $0.2$0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were approximately 51%55% and 58%51% for the years ended December 31, 20242025 and 2023,2024, respectively. The decreaseincrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher revenues, offset in part by higher selling and administrative expenses.expenses, offset by higher revenues.

As of September 30, 2024,2025, the Company performed its annual goodwill impairment analysis on its reporting unit with goodwill,for the Agility segment. It involved a quantitative goodwill impairment test and estimated the fair value based on a combination of the income approach (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3). The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the segment’s fair value. The future cash flows of the segment were projected based on the Company’s estimates of future revenues, operating income, and other factors such as working capital and capital expenditure.expenditures. As part of the DCF analysis, the Company projected revenue and operating profits and assumed long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization (“EBITDA”) to estimate the segment’s fair value. The market multiples used for the segment were based on a group of comparable companies’ market multiples applied to the Company’s revenue. The Company concluded that there is no impairment of goodwill.

Income taxes primarily consist of a provisionprovisions for U.S. federal, state income taxes and foreign income taxes recorded by the Company’s foreign subsidiaries in accordance with localapplicable tax laws and regulations.

The reconciliation of the U.S. statutory rate withof 21% to the Company’s effective tax rate for the years ended December 31, 2024 andin 2023accordance arewith ASC 740 Income taxes prior to the adoption of ASU No. 2023-09 is summarized inas the table belowfollows:

DespiteThe accessCompany to overseas earnings and the resulting toll charge, we intendintends to indefinitely reinvest earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding taxes that we would have to incur on the actual remittances. Unremitted foreign earnings andof profitsits foreign subsidiaries. Unremitted earnings of foreign subsidiaries amounted to approximately $53.9$58.8 million at December 31, 2024.2025. If such foreign earnings and profits are repatriated in the future,future or are no longer deemed to be indefinitely reinvested, wethe Company would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

We have a remaining valuation allowance on all the deferred tax assets of our Canadian andsubsidiary Germanin subsidiaries.the OurAgility segment. This Canadian subsidiariessubsidiary also havehas research and development credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.

Net Income (Loss)

Net income for the Synodex segment was $1.9$32.2 million and $0.2$28.7 million forduring the years ended December 31, 20242025 and 2023,2024, respectively. The $1.7$3.5 million increase was primarily due to lowerhigher revenues in the DDS and Agility segments and higher interest income, offset in part by higher direct operating costscosts, andhigher selling and administrative expenses in all segments, and higheran revenuesincrease in the income tax provision in the current fiscal year.

Net income for the AgilityDDS segment was $1.3$31.9 million and a net loss of $1.3$25.4 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $2.6$6.5 million changeincrease was dueprimarily attributable to higher revenues and higher interest income, offset in part by higher direct operating costscosts, andhigher selling and administrative expenses of $2.5 millionexpenses, and aan changeincrease in the income tax provision resulting from the release of the valuation allowance on our United Kingdom subsidiary’s deferred tax assets of $0.1 million in the current fiscal year.

Adjusted gross profit was $73.1$108.0 million and $36.5$73.1 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $36.6$34.9 million increase in adjusted gross profit was primarily due to higher revenues in allthe segmentsDDS and lowerAgility direct operating costs for the Synodex segment,segments, offset in part by higher direct operating costs in the DDS and Agilityall segments. Adjusted gross margin was 43% andfor 42%each forof the years ended December 31, 20242025 and 2023, respectively. The increase in adjusted gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments in the current fiscal year.2024.

Adjusted gross profit for the DDS segment was $55.3$90.3 million and $22.9$55.3 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $32.4$35.0 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 39%41% and 37%39% for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in the adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Adjusted gross profit for the Synodex segment was $2.6$1.8 million and $1.4$2.6 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $1.2$0.8 million increasedecrease in adjusted gross profit in the Synodex segment was due to lower direct operating costsrevenues and higher revenues.direct operating costs. Adjusted gross margin for the Synodex segment was 33%24% and 19%33% for the years ended December 31, 20242025 and 2023,2024, respectively. The increasedecrease in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costsrevenues and higher revenuesdirect inoperating the current fiscal year.costs.

Adjusted gross profit for the Agility segment was $15.2$15.9 million and $12.2$15.2 million for the years ended December 31, 20242025 and 2023,2024, respectively. The $3.0$0.7 million increase in adjusted gross profit for the Agility segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the Agility segment was 71%68% and 69%71% for the years ended December 31, 20242025 and 2023,2024, respectively. The increasedecrease in the adjusted gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.costs.

Innodata was founded more than 35 years ago on the principle that high-quality, well-structured data is essential to leading information-retrieval systems. In 2016-2017,2016 and 2017, we began building proprietary AI language models based on then-emerging research and frameworks and integrating them into our data production workflows. Through this work, we developed and refined techniques for generating, curating, and validating human-created data used to train probabilistic, learning-based AI systems, and recognized that data quality and structure were critical determinants of model performance. This insight led us to invest in the development of an integrated set of AI lifecycle data solutions, addressing a growing market need for specialized data engineering, evaluation, and refinement capabilities across the full lifecycle of AI systems.

We now operate under one single segment.

Effective foras of the quarter ended March 31, 2026, the Company revised its segment reporting structure. Previously, we reported three segments; following a change in the CODM’s approach, we now report as a single segment. This change was made to align segment reporting with the CODM’s resource allocation and performance assessment process. For additional information, refer to Note 1113 to the financial statements.

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025 (in thousands).

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before net interest expense (income), income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of U.S. GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025 (in thousands).

Three Months Ended MarchJune 31,30, 2026 and 2025

Total revenues were $90.1$92.1 million and $58.3$58.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, an increase of $31.8$33.7 million or approximately 54%.58%. Revenue increased primarily due to higher volume for AI-relatedAI data services,engineering includingservices the expansion offrom existing customer programs and new client engagements supporting more complex AI workflows.programs.

One customer generated approximately 56%37% and 61%58% of the Company’s total revenues for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Another customer generated approximately 17%34% of the Company’s total revenues for the three months ended MarchJune 31,30, 2026. No other customer accounted for 10% or more of total revenues during these periods. Foreign revenuesRevenues from non-U.S. customers accounted for 12%13% and 16%17% of the Company’s total revenues for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, AI technology subscriptions, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Direct operating costs were $50.3$49.7 million and $35.1$35.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, an increase of $15.2$14.3 million or approximately 43%.40%. The cost increase was primarily attributable to an increase in headcount to support higher volumes of AI-relatedAI data engineering services andfrom expandedexisting customer engagements.programs.

The $14.3 million increase in direct operating costs includes $14.3$10.6 million from direct and indirect labor-related costs, primarily driven by new hires, incentive compensation, salary increasesincreases, stock-based compensation expense, and severance.third-party delivery resources. Additional increases primarily included approximately $1.4 million in cloud serviceservices subscriptionsand ofAI $1.0technology-related million,subscription costs driven by increased cloud usage and data processing requirements into support of higher revenues, AI-related servicesrevenue and expanded customer engagements, shipping and related costs of $0.9 million, depreciation and amortization of capitalized developed software of $0.6 million, shipping costs of $0.6$0.7 million, content-related costs of $0.2$0.3 million, occupancy-related costs of $0.2 million, offsetand intravel partand byentertainment a reduction in recruitment feescosts of $0.9 million and a favorable impact of foreign exchange rate fluctuations of $0.8$0.2 million. Direct operating costs as a percentage of total revenues were 56%54% and 60%61% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The decrease in direct operating costs as a percentage of total revenues was primarily attributable to higher revenues, offset in part by increased direct operating costs.

Gross profit was $39.8$42.4 million and $23.2$23.0 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The $16.6$19.4 million increase in gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin was 44%46% and 40%39% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase in gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses; software subscriptions; AI technology subscriptions; professional and consultant fees; provision for credit losses; and other administrative overhead expenses.

Selling and administrative expenses were approximately $22.9$26.6 million and $15.0$14.1 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, an increase of $7.9$12.5 million or approximately 53%.89%. The increase in selling and administrative expenses was primarily due to continued investments in growth-oriented and capability-building functions. In addition, labor costs increased as we continue to invest in sales, account management, and marketing resources to support new customer acquisition, expand relationships with existing customers, and strengthen our market presence through solution design, go-to-market execution, and thought leadership initiatives.

The $12.5 million increase in selling and administrative expenses was primarily attributable to increased selling, marketing, and administrative payroll and related expenses of $8.5$11.0 million, driven by new hires, salary increases, stock-based compensation expense, incentives and bonuses. Additional increases included higher business software and AI technology subscriptions of $0.5$1.3 million, marketing-related expenses of $0.4 million, travel and entertainment costs of $0.3 million, unused line of credit facilitation fees of $0.2 million, an increaseunfavorable in the provision for credit lossesimpact of $0.1foreign exchange rate fluctuations of $0.2 million and an increase in other selling and administrative expenses of $0.3 million, offset in part by credit loss recoveries of $0.8 million and lower professional and recruitment fees of $1.5 million, marketing-related expenses of $0.1 million and a favorable impact of foreign exchange rate fluctuations of $0.1$0.4 million. Selling and administrative expenses as a percentage of total revenues were approximately 25%29% and 26%24% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The decreaseincrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues, offset in part by increased selling and administrative expenses.expenses offset by higher revenues.

We recorded an income tax provision of approximately $2.4$3.1 million and $0.6$2.3 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The effective tax rate was 14.1%17.9% and 7.3%23.9% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The differenceeffective tax rate was primarilyfavorably attributableimpacted by net windfalls related to unfavorablestock-based U.S.compensation, partially offset by IRS section 162(m) adjustments and the U.S tax implications of Global Intangible Low-TaxedLow Taxed Income (GILTI) in the current quarter.

In each quarter, we will update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of income (loss) before provision for income taxes in multiple jurisdictions, the effects of tax law changes, and the U.S. tax implications related to Global Intangible Low-Taxed Income.

(Refer to Note 46 of Notes to Condensed Consolidated Financial Statements for the components of the income tax provision for the three-month periods ended MarchJune 31,30, 2026 and 2025).

Net income was $14.9$14.4 million and $7.8$7.2 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The $7.1$7.2 million increase was a result of higher revenue, offset in part by higher direct operating costs and higher selling and administrative expenses in the current quarter.

BasicFor the three months ended June 30, 2026, basic and diluted earnings per share were $0.46$0.43 and $0.42,$0.41, respectively, compared to $0.25$0.23 and $0.22, respectively,$0.20 for the threeprior monthsyear endedperiod. MarchThis 31, 2026 and 2025, respectively,represents a per share increase of $0.21$0.20 for basic earnings per shareEPS and $0.20$0.21 for diluted earnings per share.EPS. Earnings per share increased for the quarter due to continued improvement in profitability and operating leverage, reflecting higher revenues and cost efficiencies across the business.

Adjusted gross profit was $42.6$45.4 million and $25.2$25.0 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The $17.4$20.4 million increase in adjusted gross profit was primarily due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin was 47%49% and 43% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increase in adjusted gross margin was primarily due to higher revenues, offset in part by higher direct operating costs.

Adjusted EBITDA was $25.0$25.4 million and $12.7$13.2 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The $12.3$12.2 million increase in Adjusted EBITDA was due to higher net income, higher stock-based compensation and depreciation and amortization, offset in part by higher interest income in the current quarter.

OnAs Marchof 31,June 30, 2026, we$31.3 hadmillion of our cash and cash equivalentsequivalent of $117.4 million, of which $16.0 millionbalance was held by our foreign subsidiaries, and $101.4$209.0 million was held in the United States.

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of MarchJune 31,30, 2026, we had working capital of approximately $104.0$135.2 million, as compared to working capital of approximately $84.9 million as of December 31, 2025. The increase in workingWorking capital isgrew primarily due to increasedstrong collectionsrevenue-driven fromcash higherinflows, revenues,which were partially offset in part by higherincreased payroll and other operating expenses associated with increased headcount to support higherexpanding volumesAI ofand AI-related services and expanded customer engagements.

We did not have any material commitments for capital expenditures as of MarchJune 31,30, 2026.

Cash provided by our operating activities for the threesix months ended MarchJune 31,30, 2026 was $37.3$164.4 million resulting from net income of $14.9$29.3 million, adjusted for non-cash expenses of $6.6$17.2 million and an increase in working capital of $15.8$117.9 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.