Innodata (INOD) Q3 2026 earnings review
Innodata's sales rise 53%, but its profit before tax falls
Innodata, which builds training data for AI companies, grew quickly while its costs climbed faster. Sales rose 53%, led by its new largest customer. Profit before tax fell 18%, as staff and data costs outran sales. Chief executive Rahul Singhal raised the full-year outlook, but by our math its minimum needs only about 10% growth in the fourth quarter.
| Revenue | $95.6M +53% from a year ago |
|---|---|
| Gross margin, excluding one-offs | 40% 49% last quarter |
| Newer big customer's share of sales | 43% 34% last quarter |
| Full-year sales outlook | Raised at least 42% growth, from at least 40% |
⚖️ Verdict: 🟢 Bullish
The story got better, because the newer big customer kept growing and Innodata raised its outlook. The bad news: the older customer is shrinking. Singhal said a program it ended in October will remove about $12 million from fourth-quarter sales. Beating its own plan shows only that the plan was cautious.
The question now is whether that customer's work comes back. If new programs replace the lost one early next year, as Singhal expects, Innodata keeps two big customers; if not, it leans on one. The 2027 outlook, due with fourth-quarter results, will settle it.
🐂 Bull Case
The Newer Top Customer Kept Growing
Early this year Innodata, which prepares training data for AI developers, won projects from a large technology company worth about $51 million for 2026. The data firm had earned most of that by June, so this customer's work looked likely to run out in the second half.
Instead, the customer brought 43% of third-quarter sales, its biggest share yet. Chief executive Rahul Singhal said Innodata signed a new $29 million program with it during the quarter and another worth about $18 million since. The full-year outlook went up as well, so the gap did not appear.
What to watch: this customer's share of fourth-quarter sales, which Innodata reports early next year. A share near this quarter's level would show the new contracts turning into revenue on schedule.
Sales Ran Well Above Innodata's Own Plan
Innodata builds its outlook only from won work and deals with "a clear line of sight", finance chief Jayant Chauhan said. By our math, its earlier minimum of 40% growth for the year needed about $85 million of sales per quarter in the second half.
Third-quarter sales came in about 12% above that pace. The data firm then lifted its minimum to 42%. So the old plan was cautious, though that alone does not make reliance on two customers safer. Innodata also finished above its full-year plan in each of the last two years.
What to watch: fourth-quarter sales, due early next year. A result well above what the new minimum leaves for that quarter would show this plan is cautious too.
A Third Customer Could Reach $20 Million
Most of Innodata's sales come from two customers, so a third large one would spread the risk. Chief executive Rahul Singhal said customers see the firm as "a serious applied research organization". It won five new programs at a hyperscaler, one of the giant cloud-computing providers. That customer paid it about $3.1 million over the past year.
Singhal said Innodata forecasts this customer "may contribute more than $20 million in revenue in 2027". Its government unit also reported a verbal win on a five-year contract worth $5 million a year. None of it shows in sales yet.
What to watch: the 2027 outlook, due with fourth-quarter results. Finance chief Jayant Chauhan said it leaves out large deals until customers award them, so it will show how much of this work is real.
🐻 Bear Case
Two Customers Now Bring 74% of Sales
"Our significant new wins are also enabling us to meaningfully drive customer diversification," chief executive Rahul Singhal said. He pointed to two customers of similar size, where one used to dominate.
The numbers show less spreading of risk. The two biggest customers brought 74% of third-quarter sales, up from 71% in the second quarter. By our math, sales to everyone else slipped to about $25 million.
The older of the two is shrinking. By our math, its sales dropped to about $30 million from about $50 million in the first quarter. Singhal said it "decided to end one of its programs with us" in mid-October, costing about $12 million of fourth-quarter sales.
This matters because customers can stop Innodata's projects at will, so two accounts decide most of the year. Singhal expects new programs at the older customer to fill the gap by the first quarter, but he said "we don't comment on exact timing".
What to watch: the older customer's share of sales in the first quarter. If it keeps falling while the newer one holds, Innodata has swapped one dependence for another.
Gross Margin Fell Back to the 40% Target
Gross margin, excluding one-offs, is the share of sales Innodata keeps after paying for the work. It ran well above the company's target in the first half but fell to 40% in the third quarter, from 49%.
Chief executive Rahul Singhal said Innodata takes some skill-building programs "at lower margin". Direct costs, the cost of delivering work, climbed 3.6 percentage points of sales from a year ago, to 63%. Most of the extra was about $21 million of "content acquisition costs of our AI enabled projects", Innodata said. Singhal also said the firm will keep aiming for 40%, so the plan no longer counts on first-half margins.
What to watch: fourth-quarter gross margin, when holiday overtime at Asian sites lifts wages. A result below 40% would mean data purchases are outrunning the target.
Profit Before Tax Fell 18%
Net income rose 24%, but only because of taxes. A small tax credit replaced the usual charge, thanks to "net windfalls related to stock-based compensation", the quarterly filing said. Profit before tax fell 18%.
Selling and administrative costs, which cover sales, marketing and head-office spending, reached 28% of sales, up 6.1 percentage points from a year ago. Hiring, raises and share-based pay added $9.2 million, Innodata said.
By our math, net income would have fallen about 9% at the firm's long-term tax rate. Chief executive Rahul Singhal expects the spending to "pay back quickly", but share-based pay also adds shares, with $38.3 million still to come.
What to watch: overhead as a share of fourth-quarter sales. If it holds near this level while sales dip, profit before tax would shrink again.
Risks this quarter didn't answer
Four standing concerns got little new evidence from these results, so each stays open until a later filing or call settles it.
- Spending by AI labs: chief executive Rahul Singhal described strong demand but gave no figures on customer budgets; the 2027 outlook is the first real test.
- Leadership change: Singhal's first quarter as chief executive passed without visible disruption, with founder Jack Abuhoff as executive chairman; the 2027 plan will be his first full outlook.
- Prepaid customer cash: most of it went out to suppliers, as Innodata had said it would; the cash balance net of these payments still rose.
- One reporting segment: the medical-records data unit and the media-monitoring software unit remain invisible inside the total; a revenue split would answer it.
👓 Other Themes
AI Labs Are Buying New Kinds of Data
Chief executive Rahul Singhal described a change in what AI developers buy. "The open web is running dry," he said, so labs now pay for data made on purpose. That includes practice environments where AI agents learn by trial and error. He also said money is flowing into robotics, citing $47.4 billion of venture funding in the first half of 2026.
Innodata Opened a Motion-Capture Lab for Robots
In September Innodata opened a motion-capture lab, built "to capture high-fidelity 3D human motion for world model training and humanoid robot training". Chief executive Rahul Singhal said the firm runs pilots with robotics labs. He expects one of them, if it succeeds, to bring about $7 million of revenue in 2027. Innodata has not reported any revenue from the lab yet.
💲 Other KPIs
Money customers owe Innodata rose 12.6% from a year ago, far behind sales. Unpaid bills now equal 46% of a quarter's revenue, against 63% a year ago. That is the lowest share in at least five quarters, so the data firm turns sales into cash faster than before.
Cash after setting aside customer prepayments rose $19.3 million in the quarter, finance chief Jayant Chauhan said, a slower gain than in the first half. Reported cash and short-term investments fell to $164.0 million from $250.4 million, because Innodata paid suppliers with money customers had sent ahead. The firm has no debt.
Deferred revenue, cash customers paid for work not yet delivered, rose 12.3% from a year ago. In the second quarter it had shrunk 3.7%, so the balance turned back up. It stays small next to sales, because most of the data firm's revenue comes from projects it bills as it works.
Innodata's basic share count rose 8.0% from a year ago, up from a 5.3% gain in the second quarter, as staff exercised options. The diluted count, which already included those options, barely moved. The firm has not sold any stock yet under the $300 million share-sale program it set up in August.
🔮 Guidance
Raised. The plan now has sales growing at least 42% this year. By our math, that minimum leaves about $80 million for the fourth quarter, roughly 10% above a year ago. Chief executive Rahul Singhal said a program that ended in October removes about $12 million from that quarter. This is the second increase this year, after 35% became 40% in the spring.
Unchanged. Singhal said Innodata will keep aiming for a gross margin near 40%, excluding one-offs, because it takes some skill-building programs at thinner margins. Finance chief Jayant Chauhan said program mix decides the margin in any quarter, so a single quarter can land well above or below the target.
Cut. The data firm now plans about $10 million of spending on equipment and in-house software for the coming year. Three months ago the figure was about $13.1 million. By our math, spending in the first nine months of 2026 ran at about $10.3 million a year. So the new plan matches the current pace.
❓ Key Questions
When will new programs replace the one that ended?
Singhal expects new work at the older big customer by the first quarter but declined to give timing. Those programs decide whether Innodata has two customers of similar size or leans on one.
How fast are sales outside the top two customers growing?
By our math, revenue from all other customers slipped from the second quarter. A growth rate for this group would show whether new customers, government work and enterprise projects add meaningful revenue.
What margins do the new programs carry?
Gross margin returned to the target as data purchases rose. Finance chief Jayant Chauhan declined to discuss margins by program, so readers cannot tell whether replacement work at the older customer earns more or less than the program that ended.
How will Innodata use its $300 million share-sale program?
The firm has ample cash and no debt, yet set up the program in August. Chauhan named investment in its own business first and selective acquisitions second, but gave no size or timing for any sale.
What has the government unit earned in its first year?
Singhal listed programs and a verbal win worth $5 million a year, but Innodata has never reported the unit's revenue. A year ago it described a first project worth about $25 million, mostly for 2026.