Innodata Inc.

Thanks, Jenny. Good morning, everyone.

Thanks, 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 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 in a limited 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 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 filing with the Securities Exchange Commission.

Actual results may differ significantly. Thank you.

I will now turn over the call to Jack Abuhoff.

Thank you, Amy. Good morning, everyone.

Thank you for joining us. I'm calling in from London today where I'm in client meetings this week and O'Neil is with us from our New Jersey offices.

I will review our second quarter 2012 results and update you on our important progress we have made this quarter on our strategic plan.

Revenue in the second quarter was $22.8 million, an increase of 40% year-over-year but a sequential 9% decline from our record first quarter, which as we said in our last call, reflected higher-than-expected eBook volumes. Our gross margin remained at 36%, consistent with our 2 prior quarters.

Our 3-year strategic plan announced first quarter 2011 targeted making Innodata a globally respected $100 million revenue company in the ensuing 3 years. The plan called for us to create a new segment called IADS and to drive some fundamental changes in our Content Services segment.

I'm pleased to report that in the second quarter, we made significant progress in IADS, specifically on Synodex, the medical data analytics part of the IADS business.

We completed our substantial workflow and tools build. We successfully established information security practices in compliance with both HIPAA and the Data Protection Act, which are the respective laws in the U.S.

and the U.K. that govern handling sensitive personal medical data.

We became ISO 27001 certified enterprise-wide, and we passed 2 external audits of our new information security infrastructure, one by Ernst & Young and another by Churchill & Harriman, both leaders in risk assessment. With these now in place, we can begin accepting work from clients.

On the client side, which we've been developing in parallel with our systems, we are now in active discussions with more than 50 major firms in life insurance, health care and pharma in both the U.S. and the U.K.

markets. For 8 of these firms, we have conducted, or now about to be conducting, preliminary pilots.

The feedback we're getting is consistently positive. For example, one established industry leader told us that the Synodex process is truly, and I'm quoting now, innovative and game changing.

On a further positive note, Synodex closed the quarter by signing its first major client in the health care sector with an expected annual revenue potential of $500,000 to $2.5 million, although start-up revenue hasn't been meaningful to date.

We recognize that there are risks, some of which are unknowns, and we'll be managing these carefully. Some of these are unknowns which could no doubt have the effect of delaying revenue, but the reception we are getting in the market has given us confidence that the market potentials for what we've put in place is huge and high-quality potential revenue.

Last week, on the strength of the progress we've made on our systems and the reception we're getting from prospects, we made the decision to double the size of our preoperational production team. On the docGenix side, we're somewhat less advanced than we are on the Synodex side.

We have now completed the first phase of implementation for major bank, and they've given us the good reviews and have expanded engagement. The pilot for another major bank that I spoke of in our last call was also successful by its terms, but unfortunately, our sponsor moved into a different division of the bank and his replacement has decided to stay with a cheaper, more conventional approach to managing legal risk and derivatives documentation.

From a product perspective on docGenix, we're now taking a bit of a step back to retrace some of the product marketing decisions taken by others prior to our acquisition of this business, to be sure that the product is doing what the market requires at the price that the market is willing to pay.

Taken as a whole, we believe that our IADS strategy and its expansion is the right strategy to even out the revenue fluctuations that are characteristic of our Content Services business and to ultimately reduce the concentration of revenues.

On the Content Services side now, I'll talk about general Content Services first, and then I'll talk separately and specifically about eBooks. Over the past year, we've substantially rebuilt our content -- our general Content Services sales team, the pre- and post-sales support teams and the marketing organization, in order to accommodate a shift in selling more strategic services and solutions.

On the sales side, we kept roughly the same sales headcount, now 11 people, but 50% of them are new recruits we brought in within the last 12 months in order to upgrade the team's skills.

On the presales and post-sales side, we brought in 4 new people to take a more active role in developing and managing the day-to-day relationships with customers. And on the marketing side, we brought in a new marketing VP.

On one important measure, we've been successful. On a second important measure, we're starting to show success.

And on a third measure, which is ultimately the most important measure, we have not yet demonstrated success, but I believe that we will be demonstrating success very soon.

The measure where we've seen great success is project margins. We've seen a 13% percentage point improvement in the direct labor margins and projects we're bringing in versus the margins of projects we're replacing.

To date, this is largely due to improved pricing discipline.

Going forward, we anticipate that our margins will be achieved by undertaking engagements which are more strategic to our customer, in combination with pricing discipline.

People pay more for strategic solutions than they do for what they perceive as a commodity. The second important measure where we're now starting to see success is the substantial overall growth in our pipeline opportunities.

And I consider a full 1/3 of the opportunities, with which we are now engaged, to be strategic or transformational in nature. This could be said only for a small handful of content services opportunities in 2011.

In the second quarter, we provided technology innovation seminars for 34 companies, including several of our largest clients, and solution showcases for 7 companies. We will be continuing these sorts of activities as we see them as an effective way of showcasing our more strategic capabilities for our clients.

We are encouraged that these technology innovation seminars and solution showcases have yielded significant discussions around opportunities almost right out of the gate, exceeding our expectations.

The third most important measure, of course, is revenue growth. If you take eBook services revenue out of the picture and look at the past 6 quarters, in general Content Services, the impression you get is that we've hit a glass ceiling at about $14 million in revenue per quarter.

But given the overall increase in pipeline value and the successful marketing programs, Jim Lewis, our SVP of Sales, believes he now has in place both the talent and the pipeline to break through this glass ceiling.

That said, if for some reason non-eBook Content Services growth doesn't begin to materialize near term, we will have a plan in place to reduce spend in this area.

I'll now turn to eBooks. In the second quarter, eBook services accounted for 44% of total revenue.

eBook services, and more particularly, eBook services for a new key customer, accounted for most of our 2011 growth and also resulted in us substantially exceeding our Q1 forecast due to higher than anticipated demand from this key customer. The sequential decline in revenues during the second quarter, in large part, reflected the decline in revenue from this customer and we anticipate a further decline in the second half.

In a general sense, we're seeing our retail eBook platform customers lowering their budgets for subsidizing standard English-language content, which has been responsible for our first wave of revenue growth even though there is still a growing influx of English-language publishers who want their content put on the platforms. But we believe the platforms will increasingly direct their spend in favor of international content and enhanced eBook content.

So looking at it from our perspective, plain vanilla English-language content was the first way for us here, and we anticipate non-English language and enhanced content will form the second and third waves, respectively. To prepare for these upcoming waves, we have expanded our capabilities.

As the result of our development efforts, we are now able to handle books in a wide variety of foreign languages, including ideographic languages such as Korean and Japanese. We have coordinated our development efforts in this regard closely with our major clients.

We see these capabilities as being strategic for them. We have already seen several of the major retail platforms opening eBook stores in different parts of the world, and we believe that this trend will continue in 2013, making eBooks not just an American phenomenon.

The second and third waves are just starting to trickle on to the beach. In the past month, we've started getting in work from several new international markets with more promises.

And we're ramping up production on high-end enhanced media content as well. As you can see, there are several moving parts that will determine revenue for the second half.

On the IADS side, we think that the momentum we achieved in Q2 will begin translating into revenue soon. On the eBooks front, revenues will decline in the second half as platforms constrain their spend on English-language content, what we're calling the first wave, but we are seeing clear evidence of waves 2 and 3 forming up around international content and enhanced eBooks.

But it is tough to predict exactly what the magnitude of these waves will be and when they will hit the beach in force.

We're optimistic that we have the technology, the strategy and the client relationships to capture these waves as they begin heading to shore. In terms of non-eBook Content Services, we're looking to break through the $14 million a quarter glass ceiling, either in Q3 or Q4.

Factoring all of this together, at this point, we are going to forecast third quarter revenue to be in the range of $18 million to $20 million with sequential growth likely following in Q4. We anticipate overall growth in revenue for 2012 taken as a whole.

I'll now turn the call over to O'Neil, who will provide additional insight into our Q2 financial results. After that, we'll take your questions, and then I'll wrap up with a few 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 second quarter ended June 30, 2012. As in the past, I will review our sequential financial results by comparing our second quarter 2012 performance with our performance in the first quarter.

I will also share my perspective along with the financial details. Towards the end of my review, I will spend a few minutes discussing our capital expenditures, working capital, foreign exchange hedges and investments in IADS.

Our total revenues were $22.8 million in the second quarter compared to $25.1 million in Q1, a sequential decrease of 9%. Revenues were lower by $2.4 million, primarily as a result of lower eBook volume from a key client, which reduced revenues by $1.8 million.

And the completion of the $600,000 test project within our IADS business in the first quarter.

Our top 3 clients contributed 54% of revenues in Q2 2012 compared to 56% in Q1. Our eBook services accounted for 44% of our total revenues in the second quarter compared to 47% in the previous quarter.

As Jack mentioned, we expect our eBook revenues to trend lower in the next 2 quarters.

Our gross margins changed in line with the revenues. In absolute terms, gross margins were $8.1 million this quarter compared to $9 million in the first quarter.

But as a percentage of revenues, our gross margin was consistent at 36% in both quarters. This current quarter's amount includes $800,000 of cost net of revenues for maintaining production capacity in our Advanced Data Solutions business compared to $1 million in the prior quarter.

Excluding these costs, the gross margin in our Content Services business was 39% in Q2 compared to 41% in the first quarter, reflecting the impact of operating leverage caused by lower revenues.

Looking ahead, we expect our gross margins as a percentage of revenues to decline over the next 2 quarters. This is primarily as a result of lower revenues and the negative impact of operating leverage.

Our selling, general and administrative expenses were $6.2 million in the current quarter compared to $5.4 million in the previous quarter, an increase of $800,000. SG&A expenses as a percentage of revenues were 27% this quarter compared to 21% in the first quarter.

The increase in SG&A expense was an account of higher spend in sales and marketing of $450,000 and higher expenses of $350,000 in administrative expenses. Of the $450,000 increase in sales and marketing, $300,000 was in Content Services, and this was primarily attributable to cost of new hires of $50,000, expenses on trade fairs of $100,000 and the balance, $150,000, they were accelerated accruals on account of new sales incentive plans.

The $150,000 increase in sales expenses in IADS was due to new hires and travels.

The increase in G&A expenses was primarily due to onetime impact from reclassification of an expense amounting to $250,000 in the IADS business, and the balance, $100,000, was on account of new hires and wage inflation.

On a segment basis, total SG&A expense in IADS was $900,000 in the second quarter compared to $500,000 in the first quarter. And the corresponding figures were $5.3 million and $4.9 million in Content Services.

We expect our SG&A expense to be in the range of $6 million to $6.3 million per quarter for the rest of the year.

Moving down to pre-tax earnings. Our pre-tax earnings in the second quarter was $2 million compared to $3.7 million in the first quarter.

The $1.7 million decline in pre-tax earnings was primarily due to lower gross margins of $900,000 and an increase in SG&A expenses of $800,000. These pre-tax earnings are net of IADS start-up cost of $1.7 million for Q2 and $1.5 million for the first quarter.

Excluding these IADS costs, pre-tax earnings were 16% of revenues for our Content Services business in the second quarter, down from 21% in Q1.

In the current quarter, our tax expense was $400,000 or 19% of pre-tax earnings versus $900,000 or 24% in the first quarter. Getting down to net earnings, our net income for the second quarter was $2.1 million or $0.08 per diluted share compared to $3.4 million or $0.13 per diluted share in the first quarter.

I will now turn to our cash flows and balance sheet. Cash generated from operations was $2.5 million this quarter compared to $8 million in the first quarter.

In the first quarter, our cash flows were higher because of collection of the past new accounts receivable balance from a key client and higher earnings. There was no change in our liquidity position.

Cash, cash equivalents and investments and term deposits with banks were $23 million in both at the end of this quarter and at the end of the first quarter. In addition, our liquidity sources include a $15 million unutilized line of credit.

Let me now review our capital expenditures, working capital and foreign exchange hedging program. We incurred capital expenditures of approximately $2.4 million in the second quarter compared to $2.1 million in the first quarter of 2012.

The capital expenditures in Q2 primarily includes $600,000 for assets that will be utilized by our IADS business, $1.3 million to expand our delivery centers in Asia for both our businesses and $500,000 for routine CapEx.

As we have completed the expansion of our delivery centers in Asia, we expect our CapEx to decline next quarter to between $1 million to $1.5 million of which approximately 50% will be for IADS.

Looking at working capital, there was no significant change in our accounts receivable, which were $19 million at the end of both the first and the second quarter. Our DSO, or days sales outstanding, was 76 days in the second quarter compared to 74 days in Q1.

Let me now review our inventory of foreign exchange hedging contracts. As of the end of the second quarter, we had outstanding foreign currency forward contracts of $19 million to hedge our foreign currency risk for our operating expenses in Asia.

We had notional unrealized losses of $600,000 on these forward contracts as of June 30, 2012, which is primarily as a result of the depreciation in the value of the Indian rupee by approximately 20% against the U.S. dollar.

We recognize the gains or losses on these qualified hedging contracts in our income statement as and when the contracts mature. But on the positive side, these losses are more than offset by the higher margins we made as it takes fewer U.S.

dollars to operate our Asian operations.

I will now conclude with a brief summary of IADS. Total cumulative investment inclusive of start-up operate losses until the end of June 30, 2012, is $8.7 million.

Our investment in IADS is now running at the rate of $2.3 million per quarter, of which $1.7 million is to our income statement and under $600,000 in CapEx. As Jack mentioned, we have made good progress in building our technology platform, and we are in active discussions with more than 50 major firms in the health care sector for business.

With that, I will now open the line for questions.

I'd like to direct a couple of questions. To begin with, I want to get a little bit more clarity on some of the dynamics of what you were referring to in the eBook segment.

You know, in your remarks and on the call, that there was a decline and you're attributing that primarily to a shift from -- into content in other lang, not English language and into enhanced content and that this one particular large client has shifted their spend into those areas. And my question, I suppose is, at this juncture, is this client -- they must be spending money with somebody on this stuff, and they must be doing non-English-language books with some other service providers and enhanced content with other service providers.

Because with the explosion of tablet sales and eBook sales across the world and more and more publishers coming on, it just seems odd that there's been actually a contraction going on here. So are you actually losing business to other eBook service providers?

And is this customer going elsewhere in seeking out this business in non-English-language capabilities and in enhanced content capabilities?

Charlie, thanks for the question. No, I can state emphatically that we're not losing business to competitors in this area.

If you look at what's going on in eBooks, even though there's eBook content in other languages certainly, from a perspective of the large platforms, the Amazon, the Apples, the Kobos, the Sonys of the world, eBooks has been an American phenomenon. It has not been a global phenomenon.

That said, it's -- and I'm not speaking about any single client when I say this, but looking at the platforms, generally, because I won't speak about any single client, it's not my place to, looking at the platforms generally, you do see that there are significant efforts being made at launching e-content stores globally and those efforts started a little bit late earlier this year and we begin -- they're going to pick up in 2013. We think there's a very rich, very important market for us in international content, and we're very excited about it.

As I said in my remarks, we've been building our capabilities in this area. And the fact that we're now in a position to handle an assortment of languages including ideographic languages puts us at a very exciting place and a place that our clients are viewing as big strategic for them.

What about in regards to your reference to this client shift though to enhanced content? I mean, are they spending money on more eBook work and enhanced content?

And if so, are they doing that with you? Or who are they doing it with?

Sure. And again, it's our policy not to talk about any client specifically, so what I'm -- in my remarks, I'm looking at the market as a whole and sharing my perspectives on the market.

Most of what's being sold on the platforms today is not enhanced content. There's a tremendous interest in enhanced content, but for the most part what's being sold today is English-language, plain vanilla content.

The work that we're doing now, I believe, is going to grow. We've clearly established our capabilities in this regard and we think as a strategic matter, producing what are essentially print layouts of print books on a platform that can do a whole lot more from a multimedia and integrated media perspective.

It's clearly going to change. So I think we're in a good position in order to accommodate that change and to grow with our clients.

Okay. And on following that, I guess I'm just a little bit -- I guess possibly I'm not quite understanding of the reference that this particular large eBook client shifted their budget priority out of standard English-language content to international and enhanced content, and the inference there is that they're spending money in other areas besides English-language content.

I mean, does that mean they're spending it with you or are they spending it with somebody else?

I think I've already answered that to the best of my ability, Charlie. As I said, we have not lost market share in any of our eBook platform clients.

And as I've been saying consistently, the spend, I believe, will come in waves. It will not be a consistently rising spend.

That's the nature of the spend tracing or tracking somewhat dynamic strategic priorities. So I hope that's helpful.

Somewhat. Let me follow up with a question on the IADS area, in particular, I guess, your docGenix, some of the docGenix comments.

What in particular are you grappling with? Last time around on the call, you had more specificity regarding docGenix and almost nothing whatsoever about Synodex and now it sort of -- it's seems to have flipped.

You -- sounds like almost all the pilots that you got and all the prospects that you have going right now are firmly in the Synodex area. Can you try to give us a little bit more color and clarity as to where things are playing out with docGenix and what it is specifically that you're trying to do as far as changing your -- the solution and the pricing?

Sure, I'll be happy to. We're further along on the sales side in Synodex because we've had a conservative effort over the last several months in parallel with our systems development in broadening our market.

We believe that there's a very significant opportunity there for us, and we believe very much in the platform that we've put in place. On the docGenix side, we've had a couple of pilots.

We have a couple of other smaller customers going, but we have not put the push behind it in terms of the sales side yet because we wanted to learn a little bit more about the market. We wanted to have a couple of pilots under our belts.

And I talked about there being 2 pilots. One was for -- or one is with a major bank.

We're largely completing its first phase. We're getting good reviews there.

On the second one where our -- and I was disappointed on this because when our sponsor moved out and some of the more conventional-thinking people came in, I think they may have been scared off by our approach. And what I mean by that is we need to make sure that the product isn't too oriented to what would be called innovators or early adapters -- adopters rather.

And we need to check and see whether we need to tweak the offering a bit to ensure that the early majority, the larger part of the customer spectrum would also view the product favorably, that it's not too complicated for them. So on the docGenix side, we're going to do some of that revalidation, make sure that we're targeting the right segment of the market, the early majority, if you will, and go from there.

I've got 2 quick follow-ups in this area. First of all, are you seeing, in the docGenix area right now in the derivatives tagging and legal document sort of metadata work that you want to do, how would you characterize the competition that you're seeing in that area?

I think there are a couple of types of competition. The one competition is internal, law -- legal departments of large financial services institutions, to decide to do it themselves or to do -- or not to do what we do themselves but to do something themselves that they believe is adequate to address the legal risk in these instruments.

The other thing that we see is them taking a traditional approach of pulling out select data points, either themselves or using an LPO provider, and putting those points in basically a spreadsheet or a simple database. Our product is a lot more than that.

It's much richer. It enables a level of downstream reporting to collateral systems in an automated way that those other solutions do not.

It enables very detailed, very complex querying to be done so a bank can understand the risk that it takes in any number of different disruption scenarios or market scenarios, that enables people to understand their counterparty exposures very, very well. And again, we think the product is very interesting, but we have to be very careful that we're targeting a sufficiently broad aspect of the market that we can get the traction that we need to meet our objectives.

We're looking through Synodex and docGenix, that these things should themselves be $100 million companies. If it can't -- if we think that it can't get there, we're going to lose interest, we're going to shift investment.

Okay. Follow-up, last question.

You put -- you spent a lot on CapEx in bulking up a couple of your offshore centers over the last several quarters and you apparently have hired a lot of people and reinforced the capabilities for a lot of these new business. In light that some of this isn't coming on stream, what are all these people doing right now?

Well, everybody is -- a lot of the CapEx work that we do is not the hiring of people. When we hire people, that's operating expense.

The people that we've hired into these efforts are very, very busy. Developing the capabilities that we're putting in place don't happen by themselves.

We're taking some risk there, but we think the reward is very substantial.

Just a couple of questions. What kind of volume would you have to do in the IADS to break even?

Dollar volume of the business?

Yes.

O'Neil, do you want to pick that up?

Yes, in terms of -- the current operating expense is running at about approximately $1.7 million per quarter. And to break even, we currently need approximately about $500 million of revenues.

Keep in mind the way the business will look as we -- and to continue to build this business out is, obviously, we will look at the prospects in the pipeline. We will make judicious decision.

If some of them are coming at us faster, then we will have to build up production capacity. So what you will see in terms of the P&L going forward will be a combination of other factors that could impact the P&L as it lays out.

Okay. Just on a -- to understand, there's obviously been a little bit of a shift towards -- excitement towards Synodex.

What's the value added on the services that you got a contract? What's the value added for doing that service?

Why are people excited about your product?

I think what they're seeing, and these are firms, as I said, life insurance, health care, pharma, they're seeing that the ways that they need to -- or that the process with which they are currently interacting with health records are less than effective or efficient. And what we're able to do is give them a vision of how they could operate in a much more effective and efficient process using our product set.

I'm not going to go into a lot more detail right now for competitive reasons. All of the firms that we're in discussions with, we've got MDAs with in order to preserve that competitive advantage at this point.

What was the potential size of the markets?

I think it's very huge. I think, for us, it could be very, very significant.

And again, like I said, for -- in response to Charlie's question a few minutes ago, we're really not interested in investing in anything that is product-oriented that couldn't be a $100 million business soon. On the Synodex side, I think that we believe that we easily achieved that threshold.

And what kind of margins would you have in that kind of a business?

I think from a margin perspective, we should be thinking that it meets our margin thresholds very clearly. And what we're targeting is, of course, an approximate 40% gross margin on an ongoing basis.

And this business, obviously, will be more repeatable?

Well, yes, I think that one of the most important aspect of it is exactly that. It's the repeatability.

The works that we bring in through the Synodex portfolio, we believe, would be largely, if not exclusively, recurring.

Jack, a couple of questions. Would you say your sales pipeline, a potential business, increased sequentially versus where you were last quarter?

Yes, it did. And I have to qualify what I'm about to say with the obvious.

The pipeline is only a pipeline, right? But if I look at the pipeline from an opportunity, aggregate opportunity, aggregate value perspective, it actually increased by 50% beginning of the quarter to the end of the quarter.

That's a pretty big number for us and that's giving us confidence that this glass ceiling that I talked about in general Content Services can and will be busted through.

And last year, when you set strategic goals, 2 of the goals were bookings growth of 20% per year and also to hit $100 million of revenue by 2013. Are those goals still current to your thinking?

They are. I think they are the right goals for us to have.

And again, we've got a number of different irons in the fire that are contributing to us achieving those goals. We've got the development efforts in Synodex and docGenix, the ideas efforts.

We've got a general core Content Services business that we're working on in terms of our offering and our sales and marketing go-to-market approach. And then we've got the eBook business.

So there are a bunch of irons in the fire. We're carefully managing each of them in order to achieve those goals.

So 20% bookings goals still seem reasonable for the year. Was that -- would you agree with that?

Yes.

Okay. And the DOJ case, do you think it had a slowing impact on the eBooks market at all in the U.S.?

Yes, not at all. Not at all.

The people that I talked to, as you might expect, largely believe the decision was wrong. And we aren't seeing that -- any -- with the platforms or the publishers, we're not seeing anybody slow down in terms of enthusiasm for where eBooks are going.

And what will it take to occur in your business to hit the high end of your guidance for the upcoming quarter versus the low end?

So much is about timing and it's very difficult for us to accurately predict on what we do as we look at what's booked and we revenue project off what's booked. We look at what's late stage and we project off there.

And then things at an earlier stage, we don't even project them. So as I've said in the call, there are several moving parts and -- to the business generally.

When we look very, very narrowly near term, it's a line by line projection. And that's where we try to do our best at projecting them.

Okay. And just 2 more questions related to docGenix.

I think, here, you were saying in your prepared remarks about bank number one on the docGenix side, the one that you're sharing revenue last quarter. Where does that relationship stand now?

Relationship is good. We're doing some very good work there.

The proponent of our service there is, I believe, an early adopter. He is very enthusiastic about what he's receiving.

Our product is turned on and he's using it. We've expanded engagement where we're doing some more documents there as well.

He's referring us to other places within the bank where he feels the need may be even more significant. And we've done some downstream integration.

We've built some systems in order to tie into their collateral management system. So they're really using the product for what it's -- what it was envisioned to be.

Jack, I think Vince is asking about big clients we earned revenues from in the previous quarter which is at this project, I think, which are referred to in your script as well so you may like to go over that.

I'm sorry, if I can clarify that. So there are 2 clients.

I'm referring to the first in our -- as I said just earlier, the pilot from whom we are in substantial revenues in the last quarter, the pilot was viewed as being successful by the sponsors of that pilot where we became unlucky, was that sponsor got a new job basically, moved on to another bank. The successors of that person came in and said, "This is a little too fancy for us.

We're comfortable doing things the old-fashioned way." And again, it was that experience that gave us pause and made us think, well, gee, maybe this is a little too oriented to the early adopters, maybe we need to think about how we'll broaden this so that it has some more general appeal.

Okay. And then IDS revenue, was there any revenue in the quarter, O'Neil?

It's been very marginal, about $100,000 approximately.

I just have one question. I wanted to clarify something.

These 50 potential clients you're talking about in the Synodex area, are you basically saying that all 50 of these clients seem to be pleased with the offering you have for them at all or at some stage considering doing some business? Is that a reasonable statement?

Yes. The 50 are, and as I said, we -- I'm trying to think now, the 50 are -- we've had discussions with more than 50.

Of the discussions we've had, I think there was only one client, who's a very small client, who said, "No, this doesn't really make sense for my business." So the enthusiasm has been very substantial.

And again, to reiterate, yes, all 50 are in the pipeline.

This is good. And you were saying the potential business in this area, that you think it could be as much as $100 million annually?

I think that it could exceed that.

Operator, thank you. To recap a bit, I guess, quarterly revenue was up 40% year-over-year but was down 9% sequentially, albeit from an unexpected Q1 high.

We're feeling good about being able to deliver growth this year, although we're anticipating a likely revenue dip in the second half as we turn the corner from plain vanilla English-language eBook conversion for the platforms to foreign-language eBooks and to enhanced eBooks. Customer interest in our IADS segment, specifically Synodex, is very strong.

We believe this will be an important and a sustainable growth driver going forward. Timing is, of course, something yet to be determined.

I thank everybody for joining today, and I will, of course, look forward to sharing with you more as our progress continues on all these fronts. Thank you.