Innodata Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: Innodata Inc. (INOD)

Innodata (NASDAQ:INOD)

Q4 2012 Earnings Call

February 07, 2013 11:00 am ET


Amy R. Agress - General Counsel, Vice President and Secretary

Jack S. Abuhoff - Chairman, Chief Executive Officer and President

O'Neil Nalavadi - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Timothy Clarkson

George Melas - MKH Management Company, LLC


Good morning, everyone, and welcome to the Innodata Fourth Quarter Fiscal Year 2012 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Amy Agress. Please go ahead.

Amy R. Agress

Thanks, Vicki. Good morning, everyone. Thanks for joining us today. Our speakers today are Jack Abuhoff, Chairman and CEO of Innodata; 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 based largely on our current expectations and are subject to a number of risks and uncertainties, including without limitation, that our Innodata Advanced Data Solutions segment is subject to the risks and uncertainties of early-stage companies; the primarily at-will nature of the company’s contracts with its Content Services segment customers and the ability of the customers to reduce, delay or cancel projects; continuing Content Services segment revenue concentration in a limited number of customers; continuing Content Services segment reliance on project-based work; inability to replace projects that are completed, canceled or reduced; depressed market conditions; changes in external market factors; the ability and willingness of our customers and prospective customers to execute business plans, which give rise to requirements for digital content and professional services and knowledge processing; difficulty in integrating and driving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies that we acquire; changes in our business or growth strategy; the emergence of new or growing competitors; various other competitive and technological factors; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission. Actual results may differ significantly.

Thank you. I will now turn over the call to Jack.

Jack S. Abuhoff

Thank you, Amy. Good morning, everyone, thank you for joining us. I will review our fourth quarter and fiscal 2012 results and update you on our strategic progress and what we see ahead for 2013.

Revenue in the third quarter was $19 million, a sequential 4% decline from our third quarter. This decline reflects an anticipated second half decline in eBook revenue from a major customer. Revenue from this major customer declined by $1.7 million from Q3 levels, partially offset by a $1 million increase in new projects from a combination of existing and new clients.

Looking at the year as a whole, we increased revenue by 17% from $74 million in 2011 to $87 million in 2012. The revenue increase is largely attributable to our first half expansion of our eBook services for our largest client. In fact, we close to doubled our business with this client in 2012. As a result of significant operating leverage, this 17% increase in revenue resulted in a 77% increase in operating income within our Content Services segment, going from $7.5 million in 2011 to $13 million in 2012, which was 15% of revenue. Our success here demonstrates the strength of our eBook delivery team who has been able to scale to match customer demand while consistently meeting our key customers' uncompromising quality standards.

Now of this $13 million of operating income generated in our Content Services segment in 2012, we chose to invest $6.8 million in pre-operating expenses net of revenues within our new Innodata Advanced Data Solutions business, which we call IADS for short. IADS's mission is to develop new services that we hope will address the chronic problems that have persistently bedeviled our existing business in the eyes of public investors, revenue volatility and lack of visibility, which result from an overabundance of project versus recurring revenue and a significant level of customer revenue concentration.

So looking back at the year, we're proud of our dual accomplishments of driving $13 million of operating income in Content Services, which has enabled us to invest $6.2 million of pre-operating costs in IADS net of revenues, and still even after this investment, producing $6.8 million of 2012 company operating income, which was 30% higher than our 2011 company operating income.

So now let's start by drilling down on where we are with the IADS investments. As you may recall, we formed our IADS division in 2011, creating a dedicated team comprised of entrepreneurial talent and product development talent that we recruited externally and technical and delivery talent that we selected in part externally and in part internally.

In our Synodex division of IADS, we now have 2 new technology enabled services that we're actively selling in the life insurance market. The first enables life insurance carriers to more effectively use medical records in their underwriting processes. And the second enables life insurance predictors, by which I mean brokers and agents, to connect and communicate more effectively with insurance carriers to place applications.

At the heart of both of these technology enabled services are our core competencies in digital content management and information extraction. Our value propositions include underwriting efficiency, accuracy and speed and providing data mining opportunities that actuaries can exploit to drive better risk allocation and create more profitable products.

In the fourth quarter, we conducted unpaid pilot runs for 4 large insurance companies and we scheduled another 8 large insurance companies and brokers for unpaid pilots in the first quarter. In addition to these 12 prospects, we have another 7 that are at reasonably advanced stages in the pipeline and another 50 with whom we are having earlier-stage discussions.

Now here's what we know so far: all 4 of our Q4 pilots have resulted in positive client feedback and have even garnered us some industry recognition and referrals. In fact, several of the companies scheduled to pilot in Q1 are referrals from well-respected insurance companies that have seen our products. What we don't yet know is expected close date or deal size for paid engagements that we hope will result from these pilots. We expect business discussions will begin once the pilot is completed and the pilot customer has had a chance to digest the results, build his business case and assemble necessary internal support. Therefore, in our near-term revenue forecasts, we are not yet including any revenue from these pilots.

That said, I do want to convey in very rough terms what we see as our addressable market. The most useful data point in this regard is the number of policies issued by the industry per year since our services will be applied to insurance policy applications and our billings will be based on the number of applications that we process. According to the U.S. Census Bureau, in 2009, there were 10 million new individual life insurance policies issued in the U.S. Beyond that, there's the U.K. market for life insurance and the U.S. and U.K. markets for disability insurance. Taken together, the addressable market for our services is likely well in excess of $1 billion of potential services in several of the companies in our pipeline and conducting pilots with us are among the largest providers in these markets.

It is our intention to become an integral part of life application and underwriting process.

As I explained in our third quarter call, we decided that we did not have the investment or resource bandwidth right now to make the required investments in docGenix, while at the same time nurturing and expanding Synodex opportunity, which we see as having a likely greater return on investment with nearer-term potential. The existing docGenix product holds appeal to early adopters. But to reach a broader market, we will need to go a different direction than the one represented by the original product, which we had acquired together with incumbent management for about $360,000.

As a result, this quarter, we determined that it was appropriate to write-off the $360,000 investment made to acquire the docGenix platform and another $140,000 of internal development we made to support it. That said, once Synodex is out of the gate, we intend at this point to turn the development team to the task of putting in place the product functionality and supporting technology that is required to meet the needs of what we see as a broader market.

In the meantime, our 3 existing docGenix clients are very satisfied with the service, and our delivery teams are doing a truly great job keeping them that way. In fact, the largest of these 3 clients just recently referred us to 2 additional divisions within its firm that potentially need our service.

I'll now turn to our Content Services segment. As we have discussed, the decline in eBook revenue in the second half of the year reflects our coming down from the crest of the first wave of large scale conversions in support of domestic digital bookstores. We are working with clients on what may likely be the next waves of their requirements, mainly foreign language eBooks, as well as interactive multi-touch digital books. We are not able to forecast revenue from these likely next waves at this point, however, the clients are still formulating their 2013 plans.

Revenues from our Content Services segment net of revenues from its currently largest client has declined from $61 million of revenue to $60 million of revenue in 2012 and it's been stuck in the range of $14 million to $15 million per quarter for the last several quarters. What we have succeeded at doing is shifting to selling services and solutions that are more strategic to our customers and doing a better job protecting our margins. In combination with the automation work done by our delivery teams in Asia, this has driven a 13 percentage point improvement in the margins of projects we're bringing in versus the margins of project we're replacing.

As we discussed in our last call, we have selectively managed our spend around opportunity in Content Services sales and marketing where we see traction. This includes new product creation for key customers, foreign language and interactive multi-touch eBooks, product enhancements for mobile and tablet delivery and technology and workflow automation.

We're likely to be off to a slow start in the first quarter of 2013, with revenue in the range of $16 million to $17.5 million, again reflecting current eBook project volumes. That said, we believe that our Synodex business, as well as likely new requires for foreign language e-books and interactive multi-touch eBooks could be important contributors to 2013 revenue.

We're mindful of the goal we set for ourselves in early 2011 of reaching a $100 million revenue run rate by the end of 2013, and we think that we're doing the right things to have a good shot at achieving our goal.

I'll now turn the call over to O'Neil who'll provide additional insight into our Q4 and financial -- 2012 financial results. After that, we'll take your questions and I'll wrap up with final comments. O'Neil?

Jack S. Abuhoff

Thank you, Jack. Good morning, everyone. Thank you once again for joining us today to review our financial results for the fourth quarter and financial year 2012. Before I get down to reviewing our quarterly performance, I'm going to briefly review our full year 2012 performance and share some financial insights.

Our revenues in fiscal 2012 were $87 million, an increase of 17% over revenues of $74 million in 2011. Gross margins expanded from 32% of revenues to 34%, driven by a combination of better pricing discipline, productivity improvements and gains from our operating leverage, which was partially offset by the investments in building up the Advanced Data Solutions business.

Our total selling, general and administrative expense was at 26% of revenues in both 2012 and 2011, and were $3.1 million greater in 2012 than in 2011 in dollar terms. Of this increase, $1.8 million was for the Advanced Data Solutions business and $1.3 million was for the Content Services business.

Higher revenues and higher gross margins, partially offset by the increase in SG&A expenses and the noncash impairment charge for docGenix, contributed to a 67% increase in net earnings to $7.5 million or $0.28 per diluted share from $4.5 million or $0.18 per diluted share. These higher earnings were after incurring $6.3 million in operating cost net of revenues for building the Advanced Data Solutions business compared to $2.2 million we spent in 2011.

Although we've met our financial goals for the financial year 2012, our growth was primarily driven by our eBooks business, which in turn, was concentrated in one key client.

Revenues from project-based business are inconsistent and are prone to periodic volume fluctuations. As Jack mentioned, it is for this reason we continue to invest and develop our Advanced Data Solutions business which has the potential to produce more stable recurring type revenues.

Jack discussed the progress we're making in Synodex and our need to change direction in docGenix. However, what this means from a financial perspective is that our transformation into a business with a greater percentage of recurring revenues remains a work in progress. Until we have crossed the hurdle of achieving substantial and consistent revenues from our Advanced Data Solutions business, we will have to manage our Content business with ups and downs from large projects.

Looking at the near term, we will likely be challenged by lower eBook revenues and continuing investments in developing our Advanced Data Solutions business, and investors should assess our long-term prospects against our near-term challenges.

Now let me review the fourth quarter for you, which I will do by comparing to the third quarter on a sequential basis instead of year-over-year. Our total revenues were $19 million in Q4 compared to $19.7 million in Q3. The decrease was attributable to a $1.7 million decline in revenues from a key client in our eBooks business, which was partially offset by higher revenues of $1 million from other clients in both Content Services and Advanced Data Solutions. Revenues in our Advanced Data Solutions business increased from $50,000 in Q3 to $450,000 in the fourth quarter. These changes reduced the concentration of revenues from top 3 clients to 40% of total revenues in the fourth quarter compared to 46% in Q3.

Our gross margin was consistent at 31% of revenues in both the fourth and the third quarter. In dollar terms, our total gross margin was $5.9 million this quarter compared to $6.2 million in the last quarter, a decline of 5%, which essentially reflects the impact of lower revenues. This gross margin is after taking into account $450,000 of expenses net of revenues incurred for our Advanced Data Solutions business. The gross margin in our Content Services business was maintained at 34% of revenues in both Q4 and Q3.

Our selling, general and administrative expenses were about $5.3 million in Q4 compared to $5.2 million in the previous quarter, an increase of $100,000 due to seasonal factors and expenses incurred in pursuing eBooks business in new international markets. SG&A expenses as a percentage of revenues was 28% this quarter compared to 27% in the last quarter. In absolute terms, SG&A expenses were tightly managed and contained at the level of $700,000 in IADS and $4.5 million in Content Services in both the quarters.

As Jack discussed, we took a $500,000 impairment charge for completely writing down the assets and the acquisition cost of docGenix.

Moving down to pre-tax earnings. Our pre-tax earnings in Q4 were $100,000 compared to $1 million or 5% of revenues in Q3. Excluding the impairment charge, pre-tax earnings were $600,000 in the fourth quarter, a decline of $400,000 over the third quarter. This was primarily due to a $300,000 decrease in gross margin and an increase in SG&A expenses of $100,000. These pre-tax earnings are after absorbing costs of $1.2 million for building the IADS business. If we exclude these costs, pre-tax earnings were $1.8 million or 10% of revenues for our Content Services business in Q4, down from 11% in Q3.

In the current quarter, we had a net tax benefit of $260,000 compared to a net tax expense of $140,000 in Q3. The tax benefit is the result of a true-up in tax accruals for the full year 2012 after considering total accruals we had in the books until the end of Q3. Our effective tax rate would be in the range of 20% to 25% of pre-tax earnings on the assumption that our pre-tax profits are 10% of revenues.

Net earnings after minority interest was $700,000 or $0.03 per diluted share compared to a net income of $1.3 million or $0.05 per diluted share in the third quarter.

I will now turn to our cash flows and balance sheet. Cash generated from operations was $4.1 million this quarter compared to $2.9 million in the third quarter. Our liquidity position continues to be healthy, with cash, cash equivalents and investments and term deposits with banks at $28 million at the end of Q4 compared to $25 million at the end of the third quarter. In addition, our liquidity sources include a $15 million unutilized line of credit.

Let me now review our capital expenditures, working capital and our foreign exchange hedging program. We incurred capital expenditures of approximately $1.2 million in both the fourth and the third quarter of 2012. The capital expenditures in Q4 primarily include $300,000 for assets that will be utilized by our Advanced Data Solutions business and $900,000 for routine CapEx in our Content Services business. We expect CapEx to be in the range of $1.4 million to $1.6 million in the first quarter of 2013, of which approximately $500,000 will be for IADS.

Looking at working capital. Our accounts receivable declined to $14 million at the end of the fourth quarter from $17.5 million at the end of the third quarter. Our DSO, or day sales outstanding, was 78 days in the fourth quarter compared to 86 days in the third quarter. These numbers primarily improved because we received payments on past due balances from a key client in the fourth quarter.

Let me now review our inventory of foreign exchange hedging contracts. As of the end of the fourth quarter, we had outstanding foreign currency forward contracts of $32 million to hedge our foreign currency risks for our operating expenses in Asia. We have notional unrealized gains of $200,000 on these forward contracts as of 31st December 2012. These gains are a result of the appreciation of the Philippine peso versus the U.S. dollar, which was partially offset by the depreciation of the Indian rupee against the U.S. dollar. We recognized gains and losses on these qualified contracts in our income statement upon the maturity of the contracts.

I will now conclude with a brief summary of the Advanced Data Solutions business. During the quarter, we diluted the minority ownership interest in docGenix and increased our ownership interest from 80% to 94%. Total investment inclusive of operating losses during the fourth quarter was $2.1 million, of which $1.8 million was through the income statement inclusive of the impairment charge of $500,000 and $300,000 was in CapEx. In the fourth quarter, we earned revenues of $450,000 in our Advanced Data Solutions business. For the full year 2012, the total investment was $9.5 million, consisting of $7.5 million in operating expenses and $2 million in CapEx, and the revenues were $1.2 million. Our current run rate of investment is approximately $1.5 million to $2 million per quarter, of which 75% will be through the income statement and the balance 25% in CapEx.

I will now open the line for questions.

Question-and-Answer Session


[Operator Instructions] And we will take our first question today from Vincent Colicchio with Noble Financial.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Jack, let's talk about eBooks a little more. How many clients are you currently working with, and have you lost any share there in the quarter?

Jack S. Abuhoff

Sure, Vincent. The -- we're working with a lot of clients because we've got platforms as clients and then we have publishers with the clients. So at any point in time, we've got a tremendous number of publishers that we're working with. Some have very small volumes of requirements and have larger ones. On the platform side, we're working with the people that we have been working with. Right now, we're in the prospect -- or in the process of probably bringing on another platform client. We have not lost any market share there whatsoever, and we're probably expanding market share. The problem we face is that the platform's requirements come in phases. They come in projects, and we ride the waves of those projects. A good thing is that we see more projects down the road, and we're working hard at ensuring that those projects materialize and to the extent they materialize, we're behind them.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Yes, I meant to refer to the platform clients. And so, you're not seeing a share loss there? I think that's very important. Do you think there's an opportunity to gain share with some of those clients as things change?

Jack S. Abuhoff

An opportunity to gain? Yes, I do. Just like I...

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

With some of the smaller ones for you?

Jack S. Abuhoff

Yes, yes, I think there is. In fact, we've got discussions going on with 2 new platforms. 1 set of discussions is advancing quite nicely. So we do think there's opportunity to expand from there.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

And has anything changed in the competitive environment in terms of dealing with these platform clients?

Jack S. Abuhoff

No, not at all. I guess the thing that's changed is the requirements are becoming, in some respects, more interesting, and we're seeing that we've got even greater levels of differentiation we can bring. So for example, I've talked about international. International, we see as a very important market. All of these platforms are rolling out local language digital content stores around the world. Some languages are tougher to process than others, if you think about the challenges that are implicated in Japanese and Chinese and Korean and things like that. The fact that we're being looked at by our platform clients to be able to handle those languages, number one. Number two, that we're rising to the challenge and getting rave reviews by in-country clients who are looking at their books and saying, "This looks great." Yes, that presents a great opportunity. The second opportunity is enhanced eBooks. If you think about the marriage of textual, visual, video, audio content with a device like an iPad, and then you think about a traditional book, what you come to realize is the books are likely to become more app-like, they're going to become more fully functional. If you look at where the technology is going, whether it's EPUB 3 or iBooks Author or Inkling or any of these platforms, they're offering the opportunity for readers to enjoy very inspiring, compelling hands-on interactions with their content. And again, we're rising to the occasion there. As we do that, platforms and publishers will become increasingly dependent upon us because they can't do that themselves in many respects. So we're excited about the market opportunity, and I think we've done a really good job at maintaining the -- and building our importance and relevance to these big clients.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

And I realize clients, they're not giving you a timeline in terms of when the next flow of business is going to come. But given how fast technology changes, is it fair to say you'll be surprised if it wasn't -- if it was not a 2013 event?

Jack S. Abuhoff

Yes, I think that's very fair. I think we're going to see opportunities in -- and we already are seeing opportunities, but I think we're going to see more opportunities, a bigger swelling of opportunities in 2013 in both international and multi-touch interactive.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Okay. And then on the IADS side, the 4 pilots that you've -- you delivered this quarter, have any of those clients said no to moving forward as a customer?

Jack S. Abuhoff

No, none of them have said no. At the same time, none of them have said yes yet. But what we've gotten from all 4 is a good response. They've been pleased with what they see. They're enthusiastic about what they see, encouraged by what they see. And now we're in the process of supporting them as they build the business case, as they make their decisions and they think about the implications and opportunities that our capabilities present within their business, and that's really an exciting place to be. The frustration is, we can't give you a revenue forecast, but exciting in terms of what's going on in the business. And what we've got going on there, it doesn't compare to anything we've ever done before.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Could you give us any help with how large one of those clients could be?

Jack S. Abuhoff

Yes, the clients are -- many of the clients are very, very large companies. What we don't yet know is whether they would be looking to us to take over all of their volume, all of their requirements. That's, in the immediate term, unlikely. Much more likely is they'll start us in a particular area and then expand from there. But by virtue of the fact that I don't know which area they'd start with or how big that would be, how they're going to scope it, it's hard to put a dollar number on that. Now if we were to do all of the work for some of these clients, a single client could be $50 million.

[indiscernible] be bigger than a breadbox, so I think we're off to something very powerful.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Just one housekeeping question for O'Neil. What was the appreciation and amortization in the quarter?

O'Neil Nalavadi

About $1 million excluding the noncash impairment charge, which was $0.5 million.


And we'll take the next question from Tim Clarkson with Van Clemens Capital.

Timothy Clarkson

We're still here. A question on this Synodex. I assume that if the biggest contract could be $20 million or $30 million or $50 million, there's a potentiality to have intermediate contracts of $3 million, $5 million or $10 million, and that's probably the more likely outcome, right?

Jack S. Abuhoff

Yes, I think that's right, Tim. I think these clients will walk before they run. And that works for us in terms of ramping the business up. I think if it works for the clients, that'll be great. They'll have a great experience. And if we're doing that $5 million contract and there's an opportunity to grow it internally to $40 million or $50 million, that's better still. What we know about our business, if we think about our strength is solid execution, high-quality, good value, and we bring that to customers, it earns us lots of great relationships. What we're doing here is we're bringing additionally more IP and differentiation than we might have in other places of the business. And we're vying for recurring revenue that has great visibility to it. So we think from a strategic perspective, it's a really good thing.

Timothy Clarkson

Right. And obviously, this businesses would be stickier and less volatile.

Jack S. Abuhoff

Exactly, exactly.

Timothy Clarkson

Exactly. Okay, I'm just going to make an editorial comment on this buyback thing. You know what my stance has always been, but as you know, the stock has traded between 1 and 3x sales now for the last 12, 15 years. And even when you guys were -- as I think back in 2002, when you're down to $1, it was about 1x sales and you had about $6 million or $7 million in cash. And I just think that when you bought back some stock back in, I think this is -- if it's -- the stocks stays in these ranges, I think it's an opportunity to not bet the -- obviously, the whole business, but with $28 million in cash, you can buy significant amount of shares here and not endanger the balance sheet at all.

Anyhow, that's my comment publicly to the management. I'm sure I'll be speaking to you guys privately on it. I'm done, exactly.

Jack S. Abuhoff

We appreciate your perspective on that. And we welcome additional conversations about it.


[Operator Instructions] And we'll take a question from George Melas with MKH Management.

George Melas - MKH Management Company, LLC

On the traditional Content Services, you've told us the revenue year-over-year was roughly flat and you're sort of in that 14 to 15 per quarter. But you've told us also that you've sort of shifted to more strategic services, that margins have improved, can you tell us a little bit more about that? I think you made some significant or meaningful sales and marketing investments there, and I'm just wondering how you're thinking about those investments at the moment.

Jack S. Abuhoff

Sure. I think we're seeing certain things working well, we're seeing other things not working well. I'll start with what we saw is not working well. And then I'll gain a little credibility and move on to what I think is working well. What wasn't working well was the multi-faceted large scale marketing push to go out and get lots more logos, especially where we were doing that within trade publishing. It wasn't proving effective. I don't think we had the products that were appropriate for marketing. That wasn't working well, and we cut back on those efforts. What has worked well is to move up the value chain within the existing customers and to expand the numbers of relationships we're having, the level of strategic activity. So I'll give you an example of that. In 2012, we helped the world's largest publisher create the first ever multi-platform delivery system to send their content to the web to print in the iPad simultaneously. For another large publisher, one of the top, I guess, 3 largest publishers, we created an entirely new product for them from a legacy print product. That's what I mean by higher value stuff. And what the higher value stuff brings with it is better margins, which is why we've seen a 13 percentage point bump up from where it used to be. The problem in that business, though, that is persistent is these are one-off kind of things. You develop competencies, you bring those competencies with you to other clients, but it isn't entirely repeatable. So when we look at Synodex, and what makes us so excited about that is that the processes we're building are somewhat of a one-size-fits-all with a little configuration around the edges. Same underlying competencies, data extraction, data manipulation, conversion, distribution, but it's served up in a way where it can be consumed by more than a single person and produce recurring revenue.

George Melas - MKH Management Company, LLC

Great. But just to go back to the Content Services, I think you had increased some of your sales and marketing there. I think you said some [indiscernible] did not work, and you've dialed that down. On the whole, are you keeping your sales and marketing resources in 2013 flat or constant there? Or are you sort of thinking of increasing, dialing down, how are you thinking about it?

Jack S. Abuhoff

We've already dialed down a bit, so I talked about the marketing programs that weren't really working. There were some sales resource, ads that we felt weren't bringing the value. At this point, we're thinking that we've got a good team. They're doing the right thing in terms of working with our clients, expanding the relationships, building on the relationships. I think that we're going to continue to do what's been working there. I don't think that doubling the size of the team doubles our revenue there. I think our investments are much better spent on the innovation side like we're doing with IADS.

George Melas - MKH Management Company, LLC

Okay, great. And then just one follow-up question. Can you give us a little bit of color on sort of those 2 sort of product or services in Synodex? And you've mentioned 4 pilots and 8 sort of that are in the process of starting. Are they for as much for 1 product than the other? Are you leading with 1 particular product? Or is anybody looking at both products at the same time? Can you give us a little bit of color there?

Jack S. Abuhoff

Sure. Most of the pilot activity that's going on right now is for the first product that I mentioned, the use of medical records in underwriting. There are a few pilots, some of the more recent ones, the ones that we are booking out for Q1, that are for the insurance producers -- the second product, the insurance producers, insurance carriers communicating more effectively. And yes, there are several companies who would likely be customers for both.

George Melas - MKH Management Company, LLC

Okay. And are they based on the same platform?

Jack S. Abuhoff

And they're based on the largely the same platform, yes.


[Operator Instructions] And there are no further questions. I'll turn the conference back for any additional or closing remarks.

Jack S. Abuhoff

Thank you, operator. So I guess to recap a bit, we had a good year, in fact, a very good year. We had record revenue and record earnings in our Content Services segment, which enabled us to significantly invest in new capabilities that our IADS incubator is just now bringing to the market. We're disappointed that we're seeing several sequentially down quarters, but we believe that our Synodex strategy is the right way to transform the business to grow more predictably and more settling. By the end of March, Synodex will likely have completed pilots for 12 companies, several of whom are among the largest players in the insurance industry. We're very excited about this and working very hard to make the pilot successful. And importantly, early indicators are encouraging. On top of this, we're having interesting conversations about potentially new large requirements for foreign language eBooks and interactive multi-touch eBooks. And as one of the participants on the call today asked and we responded, there are new platforms that we're -- or additional platforms that we're also having conversations with.

So thanks, everybody, for joining us today and for your continuing interest, your continuing support. We look forward to talking with you next time.


Thank you. Today's conference is available for replay by dialing (888) 203-1112 or (719) 457-0820 and entering passcode 1604473. And that concludes today's conference. You may now disconnect.

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