What Innodata (INOD) Said on Its Q3 Earnings Call

Key Points

• Record Q3 performance: Revenue rose 53% year over year to $95.6 million, beating consensus, while diluted EPS of $0.29 and adjusted EBITDA of $17.7 million also exceeded estimates. Innodata raised its full-year revenue growth outlook to at least 42%.
• Customer mix is shifting: The end of a program with its historically largest customer is expected to reduce Q4 revenue by about $12 million. New programs with other customers are growing, and management expects new work at the departing customer to replace the lost revenue by Q1 2027.
• AI growth opportunities are expanding: Innodata highlighted areas including physical AI, agent safety, enterprise AI and federal work. Several cited opportunities are still prospective, including a potential $6 million safety project and a federal contract awaiting signature.

Innodata NASDAQ: INOD reported record third-quarter revenue and raised its 2026 growth outlook, even as the end of a program with its historically largest customer is expected to reduce fourth-quarter revenue by about $12 million.

Revenue rose 53% year over year to $95.6 million, exceeding analyst consensus of $83.3 million, according to management. The quarter marked the company’s 13th consecutive period of year-over-year revenue growth and the first earnings call for Rahul Singhal as CEO.

Innodata now expects full-year revenue growth of 42% or more, up from its previous forecast of 40% to 42%. Singhal said the increase could have been larger if the customer had not ended a program in mid-October. The company expects new programs at that customer to replace the lost revenue by the first quarter of 2027, though Singhal said on the call that the company was still in late-stage discussions on several opportunities.

New Programs Reshape Customer Mix

Singhal said a customer that was Innodata’s second-largest in the prior quarter became its largest in the third quarter. The company signed a $29 million pre-training data program with that customer during the quarter and an approximately $18 million program so far in the fourth quarter.

That customer represented less than 5% of revenue a year earlier, Singhal said, and the company now has two customers of comparable scale. Innodata did not identify either customer on the call.

The company also won five programs with another large hyperscaler. Innodata generated approximately $3.1 million in revenue from that customer over the trailing 12 months and now expects it to contribute more than $20 million in 2027, Singhal said. Five new customers were added in the third quarter, including model builders and an enterprise data platform.

Asked about the loss of the program at the historically largest customer, Singhal said workers can sometimes be redeployed, depending on the skills required and the timing of other customers’ training cycles. He described the expected first-quarter work as different programs, rather than a continuation of the one that ended.

Profit Rises, Though Tax Rate Was Below Target

Net income increased 24% to $10.3 million from $8.3 million a year earlier. Diluted earnings per share were $0.29, compared with analyst consensus of $0.17, management said. Adjusted EBITDA rose 9% year over year to $17.7 million, or 19% of revenue, exceeding the $15.4 million consensus cited by the company.

Adjusted gross profit was $38.3 million, producing a 40% adjusted gross margin in line with Innodata’s target. Singhal said margins vary with program mix and that the company sometimes accepts lower-margin work to build capabilities or support future growth.

CFO Jayant Chauhan said the year-to-date effective tax rate was approximately 12%, below the company’s long-term target range of 23% to 25%, because of tax benefits recognized in the quarter.

Innodata ended the quarter with approximately $164 million in cash and equivalents, or $153.7 million excluding customer prepayments. On that basis, cash increased $19.3 million from the end of the second quarter. The company had no debt, and its $50 million credit facility remained undrawn.

Management Outlines AI Growth Opportunities

Singhal highlighted six areas for growth over the next 12 months: physical AI, reinforcement-learning environments for agents, trust and safety, end-to-end model training, enterprise AI and federal programs.

In physical AI, the company is collecting and annotating data used to train robotics models. Singhal said Innodata had delivered more than 620,000 robot-executable labeling jobs so far this year and launched a motion-capture lab in September. He said continuous collection and annotation could create recurring demand as robotics models are deployed for specific tasks.

Innodata is also building sandbox environments, known as reinforcement-learning gyms, where AI agents can practice tasks without acting on live systems. Some safety-focused environments are designed to test whether agents cut corners or misrepresent their work.

In trust and safety, Singhal said Innodata was finalizing a statement of work representing approximately $6 million in potential revenue for risk evaluation and agent safety. He also cited a verbal customer commitment for a separate agent-safety program that could generate approximately $2.5 million next year. Neither opportunity was described as a completed contract.

For enterprise AI, Singhal said the company added approximately $5 million of annualized revenue run rate from agentic implementation work for a large customer last quarter. Its federal practice has a verbal win for a contract worth $5 million a year for five years, with signing expected by the end of the fourth quarter, he said.

Chauhan said organic investment remains the company’s capital-allocation priority, with selective acquisitions also under consideration. He said Innodata generally includes revenue from active programs, new awards and smaller opportunities with clear visibility in its guidance, rather than large pipeline opportunities that have not yet been awarded. The company intends to provide 2027 guidance alongside fourth-quarter results.

About Innodata (NASDAQ:INOD)

Innodata Inc NASDAQ: INOD is a global data engineering and technology company that helps organizations prepare, manage and use information for digital transformation and artificial intelligence initiatives. Its services are designed to support the development, training, evaluation and deployment of AI and machine-learning systems.

The company provides data annotation and labeling, data collection and preparation, content transformation, document processing, natural-language services, and generative AI support.

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