Innodata Inc.

Thanks, Sax. 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 question.

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 contract with its content services segment customers and the ability of the customers to reduce, delay or cancel projects, continuing content services segment revenue concentration and eliminate number of customers, continuing content services segment reliant 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, a 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 Exchange Commission.

Actual results may differ significantly.

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

Thank you, Amy. Good morning, everyone.

Thank you for joining us this morning. I will review our first quarter 2012 results and share with you some of our 2012 strategic priorities.

Revenue in the first quarter was a record $25.1 million, which was a sequential increase of 6% over fourth quarter 2011. Our gross margins held at 36% and our pretax earnings increased from $2.2 million in the fourth quarter to $3.7 million in the fourth, so by all measures a good quarter.

2012 promises to be an exciting year. We are -- we see ourselves as very much participating in the digital revolution and we are motivated to help a wide variety of companies harness the power of digital data within their businesses.

The appetite for consuming and analyzing through digital data is just emerging, and I believe that we are proving that today’s Innodata and tomorrow’s Innodata can pay a profound role in this transformation. As this is the first quarter of the year, I will indulge in a bit of table setting.

Let’s first take consumer content, eBooks and content delivered over Kindles, iPads, iPhones, and other dedicated eReaders, multifunctional tablets and smartphones have become part of most of our lives.

Sales of eBooks sold in 2011 and experts predict significant continued growth over the next several years. But we are only at the very beginning of this transformation and we’ve only seen a glimpse of what the future holds in store.

Today, we may read a New York Time bestseller on an iPad, but for the most part what we are reading is little more than a portable version made somewhat a lot like printed book. But tomorrow’s eBooks which we are privilege to be working on will bring immersive multimedia experiences and a high level of interactivity in reader engagement to enable knowledge sharing, search and discoverability that is hard to even imagine today.

Now take business information. Business information publishers, folks like Thomson Reuters, Wolters Kluwer, Reed Elsevier, Bloomberg, these are the companies who provide authoritative information in science, law, business and news, and constitute in fact our largest market segment.

Not ones to be left behind, they are inventing entirely new digital products and retooling their operations in order to advantage of new technologies and to stay relevant in a world shaped by mobile devices and social media.

Last, let’s take businesses outside the publishing and information industry. Businesses in healthcare, finance and insurance for example.

They have an ever-growing torrent of data, much of which is quasi-digital in the form of images, but not yet true searchable digital data.

McKenzie recently concluded that each of these sectors has more data stored per company than the U.S. Library of Congress.

Helping these companies transform data to true digital data and capturing its valuing in business is an enormous opportunity.

For core of our 2012 strategy is geared around engaging with each of these three markets to enable them to better seize the power of true digital content then their products and their operations. So let’s take each of these in order, starting with eBooks.

In the first quarter eBook services accounted for 47% of the revenue in our content services segment. We have some significant advantages in eBook services.

We invested early in building the technologies necessary to perform eBook services economically and the unrivaled quality levels and we’ve seen a significant return on this investment.

Today, we perform eBook services from leading eBook retailers, platform providers and publishers. In 2011, most of our year-over-year growth resulted from high-demand for eBook services, particularly from a major new customer.

The eBook business, while certainly dynamic affords less revenue visibility then the non-eBook portion of the content services segment, and there are several reasons for this. On one side of the equation, we are seeing the platforms establish their budget around dynamic strategic priorities.

On the other side, we are seeing publishers struggle with the time it takes to create digital rights, to locate original master files used for print production and to make decision about pricing.

At a more micro level still battles are waged around the so called agency model, where publishers set the prices on their content versus the so called wholesale model, where platforms like Amazon set the price.

This quarter we substantially exceeded our forecast due to higher than anticipated demand from a key customer and the large pilot engagement. To continue to make the most of our position in this market, in 2012, we will be extending our capabilities to serve our key clients in international markets and in the production of highly interactive, multi-touch eBooks.

We will also be launching new eBook distribution services for publishers. We will also be continuing to evolve our underlying conversion technology to make it progressively easier to scale up and down to cease opportunities without compromising margins.

Now I’ll turn to the non-eBooks portion of our content services segment. In the quarter, we produced approximately $14 million of revenues in non-eBook related business.

This is essentially run flat through 2011 and now into Q1. In order to grow this portion of the business, in 2012 we began making several changes to our go-to-market strategy and our operations strategy.

We will be de-emphasizing task based services like digitization and content enhancement, and favored transformational services that will help our customers for the critical business issues that they face in shifting from print to digital and publishing over new platforms like the iPad.

We began formalizing these transformational services in 2011 into highly defined product type solutions and now we have several highly successful referenceable engagements under our belt.

For example, we helped the world largest publisher create its first ever multi-platform delivery system to sent content to the web, print and iPad, simultaneously. For another leading publisher, we helped create entirely new product from our print legacy product.

In each of these engagements we integrate our core services of digitization, content enhancement, systems and application development, and consulting, but with the unified focus and within a defined framework, set of tools that enable product or operations transformation.

In the first quarter, our marketing team began messaging around these capabilities and generating interest, so far the results have been encouraging. I will look forward to sharing with you our successes in this regard as we proceed through 2012.

I’ll now turn to our digital enterprise strategy, which embedded in our IADS business segment. We formed IADS short for Innodata Advanced Data Solutions in 2011.

The idea behind this is that we could mobilize our capabilities in digitizing, content analysis and content management to help companies in other sectors make better use of true digital data within their businesses.

To date, we've invested approximately $4.3 million of operating costs and another $2.7 million of capital costs in our IADS business. In essence, investing part of the cash flow we were making from our content services segment.

We used this investment to develop new high potential offerings in the areas of healthcare information and complex financial information.

We saw this business lines is having a couple of things in common with our eBook services, as well as a couple of notable differences. Like our eBook services, we saw the potential for meeting our profitability objectives and opportunities to create highly repeatable, standardize offerings.

In contrast with our eBook services business, we saw the opportunity to create substantially better revenue predictability with lesser revenue concentration. I’m very enthusiastic about these new business lines.

I’m pleased to report that in the first quarter, we had $600,000 of revenue from one of our new IADS business lines performing what was essentially a proof-of-concept from one of the largest banks of Wall Street.

I'm also pleased to report that we have developed the pipeline of interested perspective customers. I believe that IADS will contribute importantly over the next several years to growth, to earnings and to revenue visibility as well.

In 2012, we will have a couple other strategic objectives that I like to also share with you. First, much the way we did in 2011, we will be focusing our engineering efforts on increasing process automation, focused both on our existing portfolio of engagements, as well as processes that are implicated by the kinds of engagement we are selling today.

We will also be continuing efforts. We began in 2011 to cultivate a more unified company culture.

As you may recall, in 2011 we began simplifying our branding, preferring to present ourselves in our corporate inventories, simply as Innodata as oppose to Innodata Isogen.

I in this year's proxy, we will be asking for your support to officially change our name from Innodata Isogen to Innodata. Assuming we obtain shareholder consent, we will be doing business officially as Innodata starting in June of this year.

Through the year we will be engaging in other initiatives to further our entrepreneurism and our ability to innovate. I look forward to sharing some of this as we progress through the year.

We are optimistic about our prospects for 2012. In the first quarter, we substantially exceeded our revenue forecast of $21 million as result of stronger than forecasted demand from the key -- key client for eBook services and as a result of our pilot program with a large bank.

Based on current visibility, we anticipate revenue in the second quarter of 2012 is again likely to exceed $21 million but not to the extent our first quarter. We will be targeting overall growth in revenue and earnings for the year.

A couple of cautionary points that I have mentioned on our last couple of calls, and I will again reiterate here today. In the past, Innodata has had periods of revenue growth, followed by periods of revenue decline as large projects waxed and waned and we sought to reduce the concentration of our revenues in the small number of customers.

Concentration increased further in 2011, with the ramp of our eBook services. We believe that our IADS strategy and its expansion is the right strategy to even have these swings and ultimately reduce the concentration of our revenues.

Until this strategy proves out however, we remain susceptible to these kinds of fluctuations.

I’ll now turn the call over to O'Neil who will provide additional insight into our Q1 financial results, after that we’ll take your questions and then I’ll wrap up with some final comments. O'Neil?

Thank you, Jack. Good morning, everyone.

Thank you once again for joining us today to review our financial results for the first quarter 2012. We had another great quarter with revenue surpassing $25 million and net earnings of $3.4 million or 14% of revenues.

This strong performance in the first quarter is the result of solid growth in bookings at targeted margins in FY 2011, higher than anticipated volumes of eBook services and the positive impact of operating leverage.

I will review with you the details in our financial statements and compare the performance in the first quarter of 2012 to our performance in the fourth quarter of 2011. I will then spend a few minutes discussing our capital expenditures, working capital and foreign exchange hedging program.

Starting third quarter of 2011, we reported number separately for our 2 segments, content services and our newly formed Innodata Advanced Data Solutions business, which we also refer to as IADS.

Starting this quarter, we will report the numbers after elimination of any internal segment profits. Our total revenues were $25.1 million in Q1, compared to $23.7 million in Q2 2011, a sequential increase of 6%.

Approximately $600,000 of this increase of $1.4 million is attributable to an initial test engagement for a major global bank in our Advanced Data Solutions business and the remainder was in content services, primarily attributable to an increase in demand for our eBook services from a key client which was partially offset by lower revenues from other clients. Our top three clients contributed 56% of revenues in both the quarters.

Our eBook services accounted for 47% of total revenues in the first quarter, of which a significant portion of the revenues from a key customer. The soaring consumer appetite for eBooks has enabled us to build strong business partnerships with leading platform providers who value our capabilities.

But the underlying revenue is dependent on numerous factors not within our control which makes forecasting difficult. For these reasons, we are focused on building our IADS business, which we expect will produce predictable and high quality revenues.

Our gross margins expanding in-line with revenues by 7% this quarter, it increased to $16 million, up from $15 million in the fourth quarter of 2011. As a percentage of revenues, our gross margin was consistent at 36% in both quarters.

This current quarter amount includes $1 million of costs incurred for creating product capacity for our Advanced Data Solutions business net of revenues of $600,000. Excluding these costs, the gross margin in our existing content services business increased to 41% in Q1, up from 37% in Q4 2011.

Looking out over the year, we expect wages in our delivery centers in Asia to grow by $400,000 per quarter from Q2 2012 to year end.

Our SG&A expenses were about $5.4 million in the current quarter, compared to $6.3 million in the previous quarter, a decrease of $900,000. SG&A expenses as a percentage of revenues was 21% this quarter, compared to 27% in Q4 2011.

The reduction in expense was in accordance with our plan as last quarter’s SG&A expenses included an amount of about $700,000 for variable performance based incentives and $300,000 for non-recurring professional fees to build the data security infrastructure for our Advanced Data Solutions business.

Total SG&A expenses in the Advanced Data Solutions segment was $500,000 in the first quarter, compared to $1 million in Q4 2011. Last quarter’s expense in IADS included $200,000 for performance based incentives.

Moving down to pretax earnings, our pretax earnings in Q1 benefited handsomely from operating leverage, a 7% growth in revenues reduced a 65% increase in our pretax earnings rising to $3.7 million or 15% of revenues from $2.2 million or 9% of revenues in Q4. This was primarily due to a $600,000 increase in gross margins and a $900,000 decrease in SG&A expenses.

These pretax earnings are after absorbing startup cost of $1.5 million for our Advanced Data Solutions business. Excluding these investments, pretax earnings were 21% of revenues for our content services business in Q1, up from 15% in Q4.

In the current quarter, our tax expense was $900,000 or 24% of pretax earnings versus 13% or $300,000 in Q4 2011. As discussed in our last earnings call, our tax expense in Q4 was lower because of year-end adjustments.

For the current level of profitability based on constant currency, we expect our tax rate to be in the range of 21% to 25%.

Getting down to net earnings, our net income for the first quarter was $3.4 million, or $0.13 per diluted share compared to $2.3 million or $0.09 per diluted share in the fourth quarter.

I will now turn to our cash flows and balance sheet. Our earnings before interest, taxes, depreciation and allowances or EBITDA increased to $4.6 million this quarter compared to $3 million in the fourth quarter, an increase of 50%.

Last quarter, one of our key customers had delayed payments to us because of a procedural issue which was successfully resolved this quarter. As the result of an increase in collections, and increase in EBITDA, cash generated from operations increased by about $12 million to about $8 million this quarter compared to cash deployed in operations of $4 million in the previous quarter.

Looking at our liquidity positions, we ended the quarter with $23 million in cash, cash equivalents and investments and term deposits with banks compared to $17 million at the end of Q4 2011. In addition to cash and bank balances and investments of $23 million, our liquidity sources include an unutilized line of credit.

We are in advance stages to increase our line of credit to $15 million from $7 million in the last quarter.

Now for our capital expenditures. We incurred capital expenditures of approximately $2.1 million in the first quarter compared to $3 million in the fourth quarter of 2011.

The capital expenditures in Q1 primarily include $600,000 for assets that could be utilized by our advanced data solutions business, $1 million to expand our delivery centers in Asia for both our business and $500,000 for routine CapEx.

In Q2, 2012, we are expecting to spend between $2.5 million to $3 million in CapEx, which includes the balance amounts needed to complete the buildout of 50,000 square feet of office space we have leased in Q4 primarily in anticipation of our future IADS businesses.

I will now review our working capital. We ended the quarter with accounts receivable of $19 million compared to $21.7 million at the end of Q4 2011, a decrease of approximately $2.6 million.

Our DSO, or days sales outstanding, increased by 8 days to 74 days in Q1, primarily on account of larger percentage of revenues from some key clients who tend to take longer time to pay than expected due to internal administrative procedures.

I will now conclude with a few comments on our hedging programs for managing foreign exchange risk. At the end of Q4, we had outstanding foreign currency contracts worth approximately $29 million as a hedge against foreign currency risks associated with our operating expenses in Asia.

As a result of the increase in the value of U.S. dollar compared to our forward contracted rates, we had notional unrealized losses of $700,000 on these forward contracts as of March 31, 2012.

But on the positive side, any losses are compensated by higher margins when the dollar appreciates in value versus nation currencies.

As these are followed by emerging contracts, we recognize gains or losses in our income statements as of when the contracts mature.

I will now open the line for questions.

Just 2 quick questions, one on income statement, you have this line it says loss attributable to non-controlling interest, which in this case is a gain. Can you explain exactly what that is?

The losses relating to the minority interest of the IADS business as we have discussed previously, the Innodata’s interest in the advance data solutions business is approximately 77%. So to the extent that the IADS had losses, the portion that relates to the minority interest is shown in the income statement.

Got you. Okay.

And the second question was, you talked about getting $600,000 of revenue from IADS segment on basically a pilot program. And my question would be, what’s -- how is that pilot program going?

Is it proving that it works? What’s the status of that?

It’s going very well. I think we’re ultimately able to show this institution and others like it, that by being able to manipulate digital data in a different way than they’ve been able to in the past and to be able to capture information from services of quasi-digital data like images and two, to utilize that data in their businesses.

They can reduce risk and they could better manage portfolio. So we’re very encouraged by the work that’s being done there.

How long do you think, it will take, if you can tell me whether this will be an ongoing program or a source of new business?

It’s hard to say. I’m confident in that it will.

And as I said we’re seeing a significantly developed in the pipeline for IADS business generally. What we lack at this point is historical data to help us predict sale cycle.

So that makes it very hard to put a number on the quarter or even a number on the year for IADS. But based upon the interest we’re getting and the amount of business that’s pipelining and then further being able to factor that by some referenceable engagements where we’re making real difference for companies.

We think there is a significant opportunity there for us.

Okay. I was talking about this one specific program.

That is pilot program that you’re talking about. I assume that’s to see if this really worked.

And if it does work than they would follow-on with the contract I would think. And that’s what specifically I’ll just talk about.

Sure, Joe. I appreciate that.

I think it’s our policy to always talk at little bit higher level than any single client engagement for the combination of competitive reasons but also being sensitive to individual client references. So again, everything I said about the environment, the opportunity generally is also consistent with the opportunity that we see within the client, based on the pilot.

I would like to follow up just a little bit on some of the activity in the IADS segment. The additional referenced opportunities that you refer to in the pipeline, I think, is it docGenix or does that have to do with the other segments, Synodex and I noticed you didn’t really reference anything specifically regarding Synodex area.

So just I’d like to get a little bit more color on that. And then I have a follow-up?

Sure. We’re seeing opportunities on the Synodex side as well and if you take a step back from Synodex which is geared to digital healthcare information and docGenix which is more focused on financial services information and using the power of digital data in the context of helping financial services from this managed risk.

Both of these are very similar plays in essence. From a pipeline perspective, we’re seeing significant opportunity in Synodex as well.

And we’re very excited about that. We also have pilot programs that are going on there.

And early reports from these pilot programs are equally encouraging.

Regarding those pilot program, are they -- are you getting any sort of reference dollars from them or are they still in very much -- to the point, we are not getting -- you're not billing any numbers from those yet?

That’s correct. The pilots that we are doing right now for the most part are not paid pilots.

And then my follow-up is, you also announced this morning, an intent to file $70 million shelf. What do you need $70 million for?

The SEC rules seriously limit what we can say about our intended shelf registration until we actually file it. Pretty much all we can say is already in the brief press release that we issued today.

And we’ll be happy to read it aloud on this call if you’d like us to. But until we file, there is very little that we can say.

Do you have any time frame as far as when you anticipate actually filing it?

We expect to do it within the next one month or so.

Yes. Just getting back to this shelf offering, without getting into the specifics of it, Jack.

I mean, obviously if you sell stock and there is dilution that’s a negative, what’s the potential upside of -- you got a company with $25 million or $23 million in cash. What would be the logic of needing more cash.

I assume there is some opportunities there that would open up, that would more than justify the additional dilution?

Sure. I guess, again mindful of the rules that are imposed upon us by SEC, we can’t talk in detail about the shelf for reasons that -- I mean I just said.

What we can do this is, kind of, take step back from the shelf and talk about how we view opportunity and how we view the importance of being ready to act opportunistically and strategically to make the most of where we are. We’re doing several things.

And I think the very important and that could be very influential and very remunerative to our shareholders. The role that we’ve got in the world of eBooks is -- I think enviable.

We’ve worked hard to earn the trust of several very large players in that world who are going to be very influential in helping create what it is tomorrow. We see significant opportunities there to continue to be helpful.

We just talked a little bit about -- in answer to Charlie’s question about IADS. We see some very significant opportunities there.

What we lack is the ability to very accurately predict timing on things. That said, what we’re wanting to ensure is that we have adequate access to capital and access to resources in order to mobilize resources to make most of the opportunities that come our way.

We’re very mindful that we are accumulating cash. We’re doing that very intentionally in order to be able to fund opportunities, in order to be able to show a strong balance sheet, which is very important to some of the new kinds of clients that we’re prospecting for.

We’re also looking into other kinds of financing which we would probably tap significantly, prior to looking to do anything that would dilute equity. That said, we do believe that there is a best practice relative to being resource enabled and we believe that it’s important for us to try to emulate that best practice.

Right. I assume when you’re talking about on the context on Innodata, it’s a $100 million company with $23 million in cash.

If you’re talking about raising potentially $30 million, $50 million more dollars or $70 million more dollars, I mean, that is obviously on the other end pretty large revenue opportunities that would justify needing that kind of capital?

That’s right. We’re seeing some very significant revenue opportunities, and we want to be poised to be able to react very quickly and with a great level of commitment to those opportunities as they emerge.

Right. I assume that you’re not looking at typically at acquisitions.

I know, you’ve always been careful -- been careful about acquisitions?

Yes. We’ve been careful and there is one list of things that we passed on, even recently.

But we are continuing to look and we do even today have a list of things that we’re interested in. It could be additive to and supportive of our strategy in the different areas that I’ve mentioned and we’re going to continue to look at this.

Few questions from me here. Was the significant eBook client this quarter the same as the previous quarter?

Yes. We’ve got a couple of significant clients.

I think the answer to that is yes. I’ll have to go back and see exactly what you’re referencing from the past.

I think the answer is yes.

Okay. My question refers to the -- what was the client that was a key growth driver on the eBook side, the same as the client that was a key growth driver last quarter?

Yes.

Okay. And then, in your prepared remarks, it sounds like, you’ve got an improving pipeline for content services with other clients outside of your top 2 or 3 clients.

Is that correct?

Yes, it is.

Okay. And back to your IADS business.

This $600,000, that was a pilot. So what was that fee -- how does that fee relate to the pilot?

Is that some fee that you can get on other pilots? How does that work?

Again, we don’t have a lot of history to rely upon because we’re talking about new businesses. So what we do see is if you think about this, you got big banks and big, big companies that in various ways touch healthcare and the notion that in this day and age, you can run critical processes, on non-digital information is becoming essentially untellable.

There you can’t search, you can’t downstream information to risk systems and a host of things. So there’s a lot of opportunity to help these companies rethink that.

And when you think about the magnitude of the sectors and the magnitude of the large companies that populate those sectors, even a pilot can be a lot of money.

Question about -- a couple of question about capacities. So you’re adding some capacity in Asia for both the lines of business.

You just mentioned a shelf will be helpful if opportunities came your way. What is your capacity utilization so to speak today for your content services business?

How long does it take you to add substantial capacity in terms of timing?

I’ll start that off and then I’ll pass the ball to O’Neill and Amy. I think what we -- the exact dollar revenue capacity is hard to nail down because it depends on the kind of a business we’re doing.

So as the business shifts, the revenue, particularly, the revenue potential of the infrastructure as it exists changes. That said, when we look at expansion, we see that we’ve got a pretty good formula.

We’re able to add new facilities very quickly, in the matter of months. And what we see is that based on the capital that we’ve put it, our new -- India based facility that has roughly the potential to generate about $25 million of annualized revenue.

O’Neill, what would you want to add to that?

I think in terms of the business model and then just add a little bit of color to what Jack said. We try to manage our business between 85% to 90% capacity utilization.

And we’ve pretty much got our business model in terms of growth in a modular fashion. Typically, it takes somewhere between 3 to 6 months for us to get a delivery center up and ready.

And we’re talking that in terms of lease premises. In terms of CapEx, typically for, adding incremental revenues somewhere in the order of about $25 million, we’ll fully need to spend between $2.5 million to $3.5 million on an average.

So that’s the metrics in terms of utilization and cycle time to get it ready.

And question about revenue visibility, you have been providing the number of $21 million for the low end of sort of guidance for -- each sequential quarter going? Is that number based on books business and any kind of excess would be from business that comes in the short-term?

No. The number includes, while it’s book business plus in some cases very late-stage pipeline, where -- we feel very confident in the late-stage pipeline maturing to a booked piece of business within the quarter and that booked piece of business turning to revenue.

Okay. I’ll go back in the pipeline.

Jack, given the fact that you are now going to be reporting on 2 segments, can you say anything about the level of losses or profitability in the IADS business in the next quarter or for the reminder of the year?

Sure, Jay. I think from a modeling perspective, we can expect that the IADS business will be as profitable as other aspects of our business and potentially more profitable.

I think strategically the opportunity that the IADS presents is a larger -- progressively larger marketplace and high quality revenue that gives us much, much greater forward visibility, and as we know, that would have great value in term of our product mix. In terms of being able to put a number on it and forecast it, we’re not going to try to do that, for external purposes at this point, because the swings could be too dramatic.

And again, to reiterate what I said before, we are learning what the -- the sale cycle and win rates associated with this business are likely to be until and until we have a really good handle on sale cycle, it’s virtually impossible to predict what the revenues in any period there.

What can you say at this point that the losses won’t be any greater in the June quarter or could they’ll be greater?

Could they’ll be greater, they are not forecasted to be greater if we were to begin ramping up for very significant revenue opportunities that are booked. Then depending upon timing of billings versus ramp up you could have greater exposure.

So I am not going to say that they won’t be, but I will say is that they, if they are, it’s a good thing.

Are there any other, as you change -- as you have been changing the focus of product line, are there any other new businesses that are likely to ramp up either this year or next year, which could have a short-term negative impact on the P&L statement?

It’s possible, Jay. We see a number of other opportunities that are either similar to the things we are now pursuing in IADS or relate to consumer content, which I’m referring was to eBooks.

And we may the making further investments in those things as well.

Is there a more detail explanation of what your programs or delivery on the IADS business. From what you said on this call, I don’t understand what that bank and the pilot program is receiving nor do I fully understand what the -- what the array of programs can deliver to the perspective customers.

Do you have some written materials on your website that describe this better?

We’d be happy to, we’ll send over a couple of things to you. When we recently – in the past few months we did press release or 2 on docGenix specifically and I think there we described the benefit that our program can have to -- a financial servicing institution.

I’ll look around and see we’ve got other things that we could send you to help, round that understanding.

On your more traditional businesses, is the 41% gross margin that you realized in the recent quarter sort of a peak number?

Is it peak number? I think it’s beyond what we would be targeting from a modeling perspective.

That said we’re -- we’re always looking to beat what we are targeting.

Last year you sort of said mid-30s.

And I think from a modeling perspective mid-30s is the way we think about the business right now, the way I encourage you to think about as well.

And Jay, I think the -- we kind of discussed those and maybe 2 or 3 calls ago, in one of the calls last year, this quarter we benefited handsomely from, essentially the operating leverage, when revenue grows beyond what we have planned then we significant percentage of that drops to the bottom line. So from modeling perspective, we should looking at approximately 35% and an EBT of 10% is what we are targeting within that, because we are still aiming for long-term growth.

We should be prepared for the company to make some decisions on a quarter-to-quarter basis for making investments in production capacity particularly for our IADS business.

When you are coming back to the more traditional businesses, when you run gross margins significantly above mid-30s, do you have to add more staff? Do you have to spend money with outside consulting firms to build more substance to your offerings?

How should one look at this?

I think like O'Neil is saying the -- there is a lot of operating leverage in the models. So as revenues grow and we are able to accommodate those revenues within the existing physical infrastructure but also within the existing -- variable or quasi-variable spend in management and things like that, then you see a tremendous amount of contribution margin falling to gross margin line and then -- and to the earnings line.

And that’s really what’s going on -- it doesn’t involve having tap into external consulting or anything like that.

Going back to the IADS business, since it’s -- the basis proprietary software which you developed, should we assume that as that business comes into its own that it’s perspective gross margins are higher than what your traditional businesses are capable of generating?

I think it will depend upon the mix. The software component is indeed we are selling licenses to particular pieces of software, but likely could be higher gross margin.

But when we are selling the software as a component of our overall service, I think the margins will probably be again consistent with the margins that we are targeting on modeling basis.

Actually my questions has been answered.

Just to follow-up on this registration thing. Again, given the amount of cash you already have in your history of not really want to make acquisition, is there reason we’ll assume that one other reason you might want have the shelf offering is because some of these potential customers in IADS would give you large enough contracts that they want to see you have more capital available to able to meet their requirements.

Joe, we haven’t heard, articulate that way by any customers at this point, they -- people that we are working with have looked at who we are -- they’ve looked at the way we’ve manage the balance sheet and they seem happy with what they see. I think what we are thinking about is, less having to create a more substantial balance sheet and more being able to cease opportunities.

Quick question on the non-eBook content business, you said it’s been roughly $14 million per quarter relatively flat. Is there much change within that $14 million or some programs or some particular work that you do growing and others declining would that have been sort of daily consistent revenue from daily consistent costumers?

Sure, George [ph]. It’s a combination.

We have brought in new customers that we’ve substituted for some of the existing customer programs within that $14 million decreasing, so new customers are being brought into that. As we said in our more -- emphasized more in our last call, one of the great accomplishments even within that $14 million has been to substantially improve the margins.

So as we finished projects and we’re bringing new projects in, we were bringing them in, in a way where the margins were much more clearly aligned with our target margins, that was a great accomplishment. Last year, we also did quite a bit, it was a transformative year for us in terms of -- do a lot of work on our sales force and are more general toward the end of the year we’ve got market strategy.

And I think and revitalizing our marketing program as well. So I think this year, I’m very excited and very optimistic that the work has been done transformatively last year is going to start to resulting some good traction there.

And I’m hopeful that we will be able to report to you that we are breaking through that $14 million barrier in the course of the year.

Thank you, operator. So I guess just to recap a bit.

Quarterly revenue gross margin, net margins were all up sequentially and year-over-year. Revenue this quarter was at historical high.

We’ve got a solid strategic plan in place for this year. In terms of eBooks we’ll be substantially extending our capabilities, in the remaining content services segment we’ll be progressively migrating from often commoditize kind of test based services to progressively more transformative services that have in many cases product like attributes.

On the IADS front we will begin to capitalize our investments by driving revenue. So there is, across those markets, there is a lot of good we can do helping companies reinvent their products and their operations for a digital future.

We’re excited by that.

So thanks everybody again for joining us today. I’ll look forward to sharing with you our continued progress as we move further into 2012.