Good day, everyone, and welcome to today's Innodata third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the Star and One on your touch-tone phone. You may withdraw yourself from the queue by pressing Star and Two. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Amy Agress. Please go ahead.
Thank you, Elisa. Good afternoon, everyone. Thank you for joining us today. Our speakers today are Jack Abuhoff, CEO of Innodata, and Marissa Espineli, Interim CFO. We'll hear from Jack first, who will provide perspective about the business, and then Marissa will follow with a review of our results for the third quarter. We'll then take your questions. First, let me qualify the forward-looking statements that are made during the call. These statements are being made pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A of the Securities Act of 1933 as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements.
These statements are based on management's current expectations, assumptions, and estimates and are subject to a number of risks and uncertainties, including, without limitation, the expected or potential effects of the novel coronavirus pandemic and the responses of governments, the general global population, our customers, and the company thereto. Impacts resulting from the rapidly evolving conflict between Russia and Ukraine that contracts may be terminated by customers, projected or committed volumes of work may not materialize, acceptance of our new capabilities, continuing Digital Data Solutions segment reliance on project-based work, and the primarily at-will nature of such contracts, and the ability of these customers to reduce, delay, or cancel projects. The likelihood of continued development of the market, particularly new and emerging markets that our services and solutions support. Continuing Digital Data Solutions segment revenue concentration and the limited number of customers.
Potential inability to replace projects that are completed, canceled, or reduced. Our dependency on content providers in our Agility segment. A continued downturn in our depressed market conditions, whether as a result of the COVID-19 pandemic or otherwise. Changes in external market factors. The ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services and solutions. Difficulty in integrating and deriving synergies from acquisitions, joint ventures, and strategic investments. Potential undiscovered liabilities of companies and businesses that we may acquire. Potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire. Changes in our business or growth strategy. The emergence of new or growth in existing competitors.
Our use of and reliance on information technology systems, including potential security breaches, cyberattacks, privacy breaches, or data breaches that result in the unauthorized disclosure of consumer, customer, employee, or company information or service interruptions. 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, including our most recent reports on Forms 10-K, 10-Q, and 8-K, and any amendments thereto. We undertake no obligation to update forward-looking information or to announce revisions to any forward-looking statements, except as required by the federal securities laws, and actual results could differ materially from our current expectations. Thank you. I will now turn the call over to Jack.
Good afternoon, and thank you for joining our call. Our Q3 revenue was $18.4 million, exceeding the guidance we provided in our last call. We expect that Q4 revenue will show sequential improvement from Q3. Due to our rigorous focus on costs, we expect to be adjusted EBITDA positive in Q4, and our business plan calls for us to achieve greater than $10 million in adjusted EBITDA next year. As you have probably heard, many of the large tech companies have launched major layoffs and cost-cutting measures. Our large social media customer recently significantly reduced its workforce, and as a consequence, we are seeing interruptions in the work we do for them. We believe our work is critical to their ongoing operational goals and anticipate that our work will likely pick up again as responsibilities of the laid-off workers are assigned to other employees.
That said, our business plan conservatively is not dependent upon this occurring. Despite these relatively significant disruptions, we managed to show 6% year-over-year growth, which, while not reflective of our ambitions, supports our belief that our business growth engines remain intact. Although the general economic outlook has resulted in longer sales cycles and more levels of customer sign-off, we believe that our products and services are critical to helping our customers stay competitive and achieve their cost and efficiency goals, and that increased spending on such initiatives is a secular trend. Forrester recently recommended companies maintain spending on AI initiatives despite a potentially deep recession looming in order to increase efficiency and stay competitive.
In a recent survey, more than 75% of technology leaders said that they expect their firms to be spending more on technology this year, notwithstanding economic uncertainty, with investments focused on cloud computing, machine learning, artificial intelligence, and automation. Outside these transitory issues, we believe our business continues to build momentum. We now have 10 large customers for our AI ML lifecycle services, which we believe will increase their spend with us in 2023, some significantly, based on our current line of sight. Many of these companies have revenues in multiple billions of dollars. In the third quarter, we brought on 4 of these customers. The use cases we're landing include facial recognition, retail anomaly detection, automation, chatbots, security monitoring, and voice-to-text. Indeed, we're hoping to be in a position to announce several additional important wins and expansions with these and other customers by year-end.
Our Synodex business, which enjoys a net retention of over 150%, is also rapidly onboarding new customers. Just yesterday, we announced two new customer wins for our Synodex platform that we believe will together yield approximately $1.1 million of annualized recurring revenue. We also expanded the value of the Synodex engagement from an estimated $1.8 million-$2.3 million of anticipated annual recurring revenue as we began ramping up this engagement this month. On the Agility front, we've seen a 107% year-over-year increase in our year-to-date bookings, and we expect this trend to continue through the remainder of the year as a result of strong pipeline. We've also increased our mid-market ASP from a year ago by 49%, with large increases in the number of deals significantly exceeding the average.
Now that we've launched our new social media listening product, which we announced in September, we're seeing that mid-market deals incorporating this new product are increasing ASP by 200%. To date, we have 20 customers using our new social listening product, and we have 65 prospective customers in our pipeline. Another significant accomplishment is that this year we've continued to expand a new Agility customer that is now our largest ever Agility customer. We now value them at $628,000 of annual recurring subscription revenue. Moreover, we are expecting this ARR to increase further based on additional expansions. For this customer, we developed a new critical awareness capability that we believe could have broader application in the market. Consequently, we believe that the secular growth trends underlying our business remain robust.
Over the past year, we believe that we have proven that we are well-positioned to serve the growing AI market, helping companies that are already deep into AI with large-scale data collection and annotation, helping companies that are now getting into AI with model development and deployment, and building AI-enabled applications and platforms that are blueprints for how to strike the right balance between humans and machines. We believe that the circumstances around our social media customer are unique, neither born out of general market conditions nor out of general economic uncertainty. We remain enthusiastic about our market opportunity and the intrinsic value of our business. I'll now call the turn the call over to Marissa Espineli to go over the numbers, and then we'll open the line for some questions.
Thank you, Jack. Good afternoon, everyone. Let me recap the third quarter 2022 financial results. Revenue for the quarter ended September 30, 2022 was $18.4 million, up 6% year-over-year. Net loss for the quarter ended September 30, 2022 was $2.2 million or $0.12 per basic and diluted share, compared to a net loss of $0.8 million or $0.03 per basic and diluted share in the same period last year. Revenue for the nine months ended September 30, 2022 was $59.6 million, up 18% year-over-year. Net loss for the nine months ended September 30, 2022 was $10 million or $0.37 per basic and diluted share, compared to a net loss of $0.5 million or $0.02 per basic and diluted share in the same period last year.
Adjusted EBITDA loss was $1.2 million in the third quarter of 2022, compared to adjusted EBITDA of $0.7 million in the same period last year. Adjusted EBITDA loss was $3.5 million for the nine months ended September 30, 2022, compared to adjusted EBITDA of $2.7 million in the same period last year. Our cash and cash equivalent were $10.7 million at September 30, 2022, and $18.9 million at December 31, 2021. Again, thanks everyone. Raisa, we are now ready for questions.
At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue by pressing star and two. Once again, to ask a question, please press the star and one. We'll pause a moment to allow questions to queue.
We'll take our first question from PJ Solit with Potomac Capital Management. Your line is open.
Hi there. Hi, Jack.
Hi, good morning. Sorry, we're doing the call in the afternoon now. Good afternoon.
It's morning somewhere. Congrats on putting up some respectable growth in a tough environment. I guess I just wanted to clarify your comment about the plan for $10 million EBITDA next year does not count on seeing the interruptions come back at the large customer. I guess, just to clarify, does that assume the current run rate that we've already seen in this third quarter, or does it assume you know some percentage coming back or just nothing?
Yeah. It assumes nothing. We're being very conservative about that. That said, we don't believe that it's likely that nothing comes back.
Right. Got it. Okay. That's good. That is nice and conservative then. Okay. Maybe could you just give us a little color on the listening product? That sounds pretty exciting with the ASP increase. Maybe a little bit of background on that and what you're seeing there.
Sure. We're seeing very favorable reception. One of the things that's interesting in our competitive set is there are other people that have a product that's similar to the one that we have, but they're all companies that have grown by acquisition, and they've acquired it, and they've integrated in ways that is not particularly user-friendly or helpful. We believe that we're the first company to build this and natively integrate it into our platform, which enables a tremendous amount of functionality that one wouldn't otherwise have.
Increasingly, we've got customers who are, you know, very much focused on being able to go back and forth between traditional media, social media, to combine analytically data that's derived from, you know, all of these channels and to be able to, you know, work with that. We think, you know, we're uniquely able to now provide that, you know, seamlessness in terms of the analytics. It's being received well. We launched it end of September. You know, we've got, you know, 20 people that are working on it. We've got 65 people in the pipeline. From a business perspective, it really goes to, you know, the heart of what we can do to make our business perform better, which is increasing our ASP.
You know, we're closing deals now, you know, at 200% of our ASP a year ago when we're selling with the social media platform. You know, we're very focused on extending that to many of our existing customers, you know, making sure that we're selling it effectively to all of the new logos that we're talking to. We're also looking at extending it further. We've got ideas for, you know, how we can add additional functionality, which again, I think will be functionality that has never been natively integrated into a PR suite. We think we're on the right track there.
As a reminder, to ask a question, press star one. We'll take our next question from Dana Buska with Feltl Advisors. Your line is open.
Hi, Jack.
Hi. I'll get it right this time. Good afternoon, Dana.
One of my first questions I have for you is, foreign currency with the strong dollar and with all your operations that you have around the world, is that something that's impacting your earnings at all right now?
Yeah. It has two chief impacts for us. You know, we've got contracts. You know, most of our contracts are U.S. dollar-denominated, but we do have, you know, contracts that are Canadian dollar-denominated, euro-denominated, pound sterling-denominated. You know, the strong dollar has a negative effect on revenues from those contracts. On the cost side, where we have, you know, offshore costs, then we're, you know, offset. We're benefited by the strong dollar. Although some of that is, we have to kind of give back in the form of salary adjustments and, you know, keeping our employees somewhat protected against, you know, runaway inflation that they're seeing. You know, when you net it all against each other, we're benefited by a strong dollar.
Okay. Excellent. That's that sounds good. I have a question about one of your announcements that you made. You made an announcement about migrating a language a company with a language model over to your model. Could you talk a little bit about that and what it takes to develop a high-performing language model?
Sure. Just a few things there. First of all, you know, we developed a high-performing language model for this customer to, you know, enable them to integrate it into their operations and to begin to, you know, automate certain tasks that are important to them. We think the work we're doing there is very representative of what businesses are, you know, all going to have to face, which is a world where, you know, AI/UI is folded into their operations and, you know, every professional starts to, you know, regardless of domain, look at AI as something that's constantly running in the background, acting as a copilot, helping them along in whatever it is that they do.
The work that we've done there is very much oriented to figuring out, well, how do we integrate the technology into their environment? You know, once we do that, you know, how do we present that capability to humans? How do we augment the work that humans do in an appropriate way? I think we're, you know, as we do work like this, we're figuring out a lot of things of kind of first impression. We're creating blueprints that are replicable across businesses that we work with, which is, you know, super exciting.
Inevitably, what we have to do when we demonstrate, you know, that we can build a model that works for someone is, well, then the next thing is we've got, you know, legacy client-server applications and legacy databases which are not cloud-enabled, that need to be migrated to benefit from the AI/ML. So that becomes, you know, additional scope that we're able to do. For this particular customer, we see that work ahead of us, along with additional migration work, as well as additional models, 'cause they're getting, you know, very good results with what we've built so far.
Okay, excellent. I would assume that would be recurring revenue then. Is that how you look at that?
It'll be a combination. There'll be recurring revenue in terms of the ongoing management and optimization of the ML. There'll be one-time revenue in terms of, you know, cloud migration. We think that there'll be recurring customer revenue in terms of migrations, 'cause we do believe that that will continue for a while. You know, pure recurring revenue from ML models because there's always the need to be retraining and reoptimizing the models to comport with, you know, heterogeneous data that's coming into the company.
Okay. Okay, great. In your last press release, you typed a little bit about your banking platform that you're developing. Could you talk a little bit about how that's going along?
Yeah. Again, you know, the banking platform is another example of exactly what I was just referring to. It's looking at, you know, how do you integrate, you know, domain-specific tasks with AI? How do you build the copilots that people are going to increasingly be needing to use in their jobs? You know, in that application, what we're doing is we're looking at a large, you know, several hundred people in one of the world's leading banks. We're understanding the work that they do, how they've done it in the past, and we're helping them reimagine how that work can be done in a different way that benefits from our technology. You know, we're able to think about eliminating, you know, all of the rote time-consuming aspects of their jobs.
We're able to, you know, really rethink how the job gets done, assigning the appropriate tasks to the AI and the appropriate parts of those tasks, you know, to humans. It's coming along very, very well. We've got a large number of users there that are working with the product and liking it very much. They didn't ask us to, but we just had like an epiphany. Well, here's even a better UI that you can use, and we showed them that last week, and they just loved it. Very excited about that work.
Okay, wonderful. Is that a product then that you are thinking about taking out to other banks? Is that the correct assumption and so on and so on?
Yeah, we'd love to. We are in discussions with other banks. You know, right now we're very focused on getting it right, here. You know, we think that the fundamental architecture and the way to think about, you know, human and machine will be reproducible and transportable to, you know, other environments, banking and non-banking. You know, the needs that they're applying it to are needs that, you know, many financial institutions and non-financial institutions have. There, there's definitely applicability to other places, both direct and indirect.
Okay, excellent. That does it for me right now. Thank you.
Thanks, Dana.
It appears there are no further questions in the queue. I'll turn the program back to Jack Abuhoff for any additional or closing remarks.
Thank you, operator. You know, the momentum in our business is evident. We have 10 large customers for our AI/ML solutions, four that were just won recently, that we anticipate will grow in 2023, some significantly, despite the economic downturn. We have three recently announced wins in the Synodex business, two of which are ramping up now and one likely to ramp up in the first quarter. In Agility, we're seeing 107% year-to-date increases in bookings, 49% increases in mid-market ASP. We're at 200% increase in mid-market ASP when combined with our new social media platform. Really, you know, across the businesses, we're succeeding at land and expand as well as reaching new logos. We believe that we're, you know, actually well positioned to navigate a challenging economy.
Now, on the other side of the ledger, you know, uniquely standing alone is the unforeseeable circumstances that have affected our large social media customer. Importantly, our business plan, which includes growth as well as a near-term return to positive adjusted EBITDA, is not dependent on business with this customer picking up even though we anticipate that it likely will. Our enthusiasm about our market opportunity and our conviction in the intrinsic value of our business truly remain as strong as ever. Thank you all for joining, and I'll look forward to our next call.
This concludes today's program. Thank you for your participation, and you may disconnect at any time.