Summary of Significant Accounting Policies and Estimates (Policies) |
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| Summary of Significant Accounting Policies and Estimates | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation - The condensed consolidated financial statements for the interim periods included herein are unaudited; however, they contain all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position of Innodata Inc. (including its subsidiaries, the “Company”) as of June 30, 2026 and December 31, 2025, the results of its operations and comprehensive income for the three and six months ended June 30, 2026 and 2025, cash flows for the six months ended June 30, 2026 and 2025, and stockholders’ equity for the three and six months ended June 30, 2026 and 2025. The results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Certain information and note disclosures normally included in or with financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the notes to the consolidated financial statements for the year ended December 31, 2025. |
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| Principles of Consolidation | Principles of Consolidation - The condensed consolidated financial statements include the accounts of Innodata Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. |
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| Use of Estimates | Use of Estimates - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from those estimates. Significant estimates include those related to the allowance for credit losses and billing adjustments, useful life of property and equipment, right-of-use-assets, intangible assets, impairment of goodwill and intangible assets, valuation of deferred tax assets and income tax provision, valuation of stock-based compensation, pension benefit plan assumptions, litigation accruals and estimated accruals for various tax exposures. |
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| Cash Equivalents | Cash Equivalents - For financial statement purposes, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include investments in U.S. Treasury money market mutual funds that are highly liquid, readily convertible to cash, and not subject to significant risk of change in value. These funds are redeemable on demand and are used by the Company for short-term liquidity and cash management needs. |
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| Concentration of Credit Risk | Concentration of Credit Risk - The Company maintains its cash with highly rated financial institutions, located in the United States and in foreign locations where the Company has its operations. At June 30, 2026, the Company had cash and cash equivalents of $240.3 million, of which $31.3 million was held by its foreign subsidiaries and $209.0 million was held in the United States. To the extent that such cash exceeds the maximum insurance levels, the Company is uninsured. The Company has not experienced any losses in such accounts. |
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| Accounts Receivable | Accounts Receivable - Accounts receivable is generally recorded at the invoiced amounts, net of an allowance for expected credit losses, allowance for billing adjustments and volume discounts. The Company records billing adjustments relating to quality issues on delivered services, service penalties and price adjustments that may arise in the ordinary course of business. The adjustments for the allowance for billing adjustments and volume discounts are recorded as a reduction in revenues. The Company establishes credit terms for new customers based upon management’s review of their credit information and project terms, and performs ongoing credit evaluations of its customers, adjusting credit terms when management believes appropriate based upon payment history and an assessment of the customer’s current creditworthiness. The Company records an allowance for credit losses for estimated losses resulting from the failure of its customers to make the required payments. The allowance for credit losses is based on a review of specifically identified accounts and an overall aging analysis applied to accounts pooled based on similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool based on historical experience, current payment practices, and current economic trends based on the Company’s expectations over the expected life of the receivables, generally ninety days or less. Actual credit losses could differ from those estimates. |
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| Revenue Recognition | Revenue Recognition - The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, when control of promised services or goods is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or goods. The Company’s contracts with customers may include multiple performance obligations. At contract inception, the Company evaluates the promised goods and services to identify each performance obligation and determines whether each is distinct. If a promised good or service is not distinct, it is combined with other promised goods or services until a distinct performance obligation is identified. For contracts with multiple distinct performance obligations, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price, which is determined using observable prices when available or estimated using appropriate valuation techniques. The Company generates revenue from AI-enabled data services, digital transformation solutions, platform-based offerings, and related services. Revenue is recognized either over time or at a point in time, depending on the nature of the performance obligation and the manner in which control is transferred to the customer. Revenue is primarily recognized over time as the Company’s performance creates or enhances an asset that the customer controls, or as the customer simultaneously receives and consumes the benefits of the Company’s performance. For time-and-materials arrangements, revenue is recognized based on labor hours incurred at contractually agreed rates. For output- or volume-based arrangements, revenue is recognized based on units delivered or transactions processed in the period in which the services are performed. For fixed-fee arrangements, revenue is recognized over time using an appropriate measure of progress, such as costs incurred, labor hours, or achievement of contractual milestones, depending on which method best depicts the transfer of control of the services to the customer. Revenue from subscription-based and platform services is recognized ratably over the contractual service period as the customer receives continuous access to the Company’s platform or services and simultaneously consumes the benefits provided. For certain transactional or project-based arrangements, revenue may be recognized at a point in time when control of the promised service is transferred to the customer, which may occur upon completion of the service or upon customer acceptance, if applicable. The Company may also enter into arrangements to resell third-party goods or services. In such arrangements, the Company evaluates whether it acts as a principal or an agent. The Company recognizes revenue on a gross basis when it controls the specified good or service before it is transferred to the customer, including when the Company is primarily responsible for fulfillment, has discretion in establishing pricing, and bears credit risk. If the Company does not control the specified good or service before transfer, it acts as an agent and recognizes revenue on a net basis in the amount of any fee or commission. A contract with a customer exists when the parties have approved the arrangement, each party’s rights and payment terms are identifiable, the arrangement has commercial substance, and collection of substantially all consideration is probable. The Company evaluates variable consideration, including performance-based fees, usage-based fees, and penalties, at contract inception and includes such amounts in the transaction price only to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Contract acquisition costs, which are included in prepaid expenses and other current assets, are amortized over the term of a subscription agreement or contract that normally has a duration of 12 months or less. The Company reviews these prepaid acquisition costs on a periodic basis to determine the need to adjust the carrying values for early terminated contracts. Included in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets are contract acquisition costs amounting to $0.9 million and $0.8 million for the periods ended June 30, 2026 and December 31, 2025. Revenue includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in direct operating costs. Revenue associated with the services provided in one period and billed in a subsequent period is commonly referred to as unbilled revenues and is included under Accounts receivable. |
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| Foreign Currency Translation | Foreign Currency Translation - The Company determines the functional currency of each subsidiary based on the currency of the primary economic environment in which the subsidiary operates, and as such, the functional currency of the Company’s subsidiaries in the Philippines, India, Sri Lanka, Israel, Hong Kong, and one of the Company’s subsidiaries in each of the United Kingdom and Canada is the U.S. dollar. Transactions denominated in Philippine pesos, Indian and Sri Lankan rupees, Israeli shekels, United Kingdom Pound Sterling and Canadian dollars are translated to U.S. dollars at rates which approximate those in effect on the transaction dates. Monetary assets and all liabilities denominated in foreign currencies on June 30, 2026 and December 31, 2025 are translated at the exchange rate in effect as of those dates. Non-monetary assets and stockholders’ equity are translated at the appropriate historical rates. Included in direct operating costs were foreign exchange (gains) losses resulting from such transactions of approximately ($21,000) and $206,000 for the three months ended June 30, 2026 and 2025, respectively and ($615,000) and $314,000 for the six months ended June 30, 2026 and 2025, respectively. For certain foreign subsidiaries, the local currency is the functional currency because their operations are relatively self-contained and integrated within their local economic environments and they primarily generate and expend local-currency cash flows. The functional currency for the Company’s subsidiary in Germany is the Euro. The functional currencies for one of the Company’s subsidiaries in each of the United Kingdom and Canada are the Pound Sterling and the Canadian dollar, respectively. The financial statements of these subsidiaries are prepared in their respective currencies. Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s condensed consolidated financial statements. Income, expenses, and cash flows are translated at weighted-average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income or loss in stockholders’ equity. Foreign exchange transaction gains or losses are included in direct operating costs in the accompanying condensed consolidated statements of operations and comprehensive income (loss). |
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| Derivative Instruments | Derivative Instruments - The Company accounts for derivative transactions in accordance with the FASB’s Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments”. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument is recorded in other comprehensive income (loss). When the amounts recorded in other comprehensive income (loss) are reclassified to earnings, they are included as part of direct operating costs. For derivative instruments that are not designated as hedges, any change in fair value is recorded directly in earnings as part of direct operating costs. |
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| Capitalized Developed Software | Capitalized Developed Software - The Company incurs development costs related to software it develops for its internal use. Qualifying costs incurred during the application development stage are capitalized. These costs primarily consist of internal labor and third-party development costs and are amortized using the straight-line method over the estimated useful life of the capitalized developed software, which generally ranges from to ten years. All other research and maintenance costs are expensed as incurred. Capitalized developed software in progress were $3.2 million and $4.2 million as of June 30, 2026 and December 31, 2025, respectively. The cumulative completed capitalized developed software was $27.8 million and $23.1 million as of June 30, 2026 and December 31, 2025, respectively. |
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| Advances from Customers | Advances from Customers – Represent cash received from customers in advance of the delivery of goods or services or the incurrence of project-related costs. These amounts are recorded as liabilities until the related obligations are fulfilled or otherwise settled in accordance with the applicable customer agreement. As of June 30, 2026 and December 31, 2025, advances from customers for unfulfilled obligations were $67.0 million and $1.8 million, respectively. In addition, as of June 30, 2026, $61.8 million of such project costs that had been incurred but remained unpaid and is included in accounts payable and accrued expenses. |
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| Income Taxes | Income Taxes – The Company uses the annual effective tax rate method to compute interim tax provisions for financial reporting purposes. In accordance with ASC 740-270, this method involves estimating the annual effective tax rate based on forecasted annual pre-tax book income and expected income tax expense and applying this rate to year-to-date pre-tax income to determine the interim tax provision. The Company accounts for discrete items in the quarter in which they occur. The annual effective tax rate is calculated by dividing the estimated total tax expense for the year by the estimated total pre-tax income for the year. This calculation includes all expected permanent differences, tax credits, and other relevant tax rate reconciling items in accordance with ASC 740. The Company updates the annual effective tax rate each interim period based on revised forecasts of annual income and tax expense. Adjustments to the interim tax provision will be made as necessary to reflect changes in the estimated annual effective tax rate. Estimated deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates, as well as any net operating loss or tax credit carryforwards expected to reduce taxes payable in future years. A valuation allowance is provided when it is more likely than not that all or some portion of the estimated deferred tax assets will not be realized. While the Company considers future taxable income in assessing the need for the valuation allowance, in the event that the Company anticipates that it will be able to realize the estimated deferred tax assets in the future in excess of its net recorded amount, an adjustment to the provision for deferred tax assets would increase income in the period such determination was made. Similarly, in the event that the Company anticipates that it will not be able to realize the estimated deferred tax assets in the future considering future taxable income, an adjustment to the provision for deferred tax assets would decrease income in the period such determination was made. Changes in the valuation allowance from period to period are included in the Company’s tax provision in the period of change. The Company indefinitely reinvests the foreign earnings in its foreign subsidiaries. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes associated with such remittances. In assessing the realization of deferred tax assets, management considered whether it is more likely than not that all or some portion of the deferred tax assets of a subsidiary in Canada will be realizable or not. As the expectation of future taxable income of this Canadian subsidiary cannot be predicted with reasonable accuracy, the Company continues to maintain a valuation allowance against the deferred tax assets of this subsidiary. The Company accounts for income taxes regarding uncertain tax positions and recognizes interest and penalties related to uncertain tax positions in income tax expense in the condensed consolidated statements of operations and comprehensive income. |
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| Accounting for Stock-Based Compensation | Accounting for Stock-Based Compensation - The Company accounts for stock-based compensation in accordance with ASC 718 and measures all awards, including stock options and restricted stock units (“RSUs”), at their grant-date fair value. The fair value of stock options is estimated using the Black-Scholes model for standard awards or a binomial (lattice) model for awards with more complex features. The fair value of time-based RSUs and performance-based RSUs with non-market conditions is based on the closing market price of the Company’s common stock at the grant date, with compensation expense recognized only when achievement of service and performance conditions is probable. For awards with market conditions, such as total shareholder return, fair value is determined using a Monte Carlo simulation or, where appropriate, a binomial model, and compensation expense is recognized over the requisite service period regardless of whether the market condition is ultimately achieved. Stock-based compensation expense for the awards that vest based solely on service conditions and for awards with market conditions is generally recognized on a straight-line basis over the requisite service period. Compensation expense for awards with non-market financial performance conditions is recognized only when achievement of the applicable performance condition is probable and is recognized over the requisite service period using an attribution method appropriate to the award’s vesting terms. Forfeitures are accounted for as they occur. |
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| Deferred Revenue | Deferred Revenue - Deferred revenue represents payments received from customers in advance of providing services and amounts deferred if conditions for revenue recognition have not been met. The Company expects to recognize substantially all of these performance obligations over the next 12 months. The table below summarizes the deferred revenue balances as of June 30, 2026 and December 31, 2025 (in thousands):
The table below provides information about contract liabilities (deferred revenue) and the significant changes in the balances for the three and six months ended June 30, 2026 and 2025 were as follows (in thousands):
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| Recently Issued Accounting Pronouncements Not Yet Adopted | Recently Issued Accounting Pronouncements Not Yet Adopted - In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), fourth amendment via ASU No. 2025-01: Disaggregation of Income Statement Expenses”. ASU No. 2024-03 does not change or remove existing expense disclosure requirements but requires disaggregated disclosures about certain expense categories and captions, including but not limited to, purchases of inventory, employee compensation, depreciation, amortization and selling expenses. ASU No. 2024-03 will be effective for the Company beginning in fiscal year 2027, and for interim financial reporting beginning in the first quarter of fiscal year 2028. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s disclosures within the condensed consolidated financial statements. In September 2025, the FASB issued ASU No. 2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. ASU No. 2025-06 modernizes the accounting for internal-use software costs by increasing the operability of the recognition guidance considering different methods of software development. ASU No. 2025-06, which can be applied prospectively, retrospectively, or with a modified transition approach, is effective for the Company for annual reporting as well as interim period reporting beginning in fiscal year 2028. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s financial statements and disclosures within the condensed consolidated financial statements. |
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