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Aptinyx Inc. (NASDAQ:APTX) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET

Company Participants

Patrick Flavin - Senior Manager, Corporate Development & Investor Relations

Andy Kidd - President & Chief Executive Officer

Ashish Khanna - Chief Financial Officer & Chief Business Officer

Kathryn King - Senior Vice President, Clinical & CMC Operations

Conference Call Participants

Ritu Baral - Cowen

Evan Hua - BMO Capital Markets

Myles Minter - William Blair

Boobalan Pachaiyappan - H.C. Wainwright

Operator

Good afternoon and welcome to the Aptinyx Second Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open up the call to your questions. Please be advised this call is being recorded at the company's request.

At this time I would like to turn the call over to Mr. Patrick Flavin, Senior Manager of Corporate Development and Investor Relations at Aptinyx. Patrick, please go ahead.

Patrick Flavin

Thanks, Kelly, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Aptinyx's second quarter 2022 financial and operating results. We invite you to visit the Investors section of the Aptinyx website to view our press release describing financial results and business highlights from the second quarter of 2022.

On today's call Andy Kidd, our President and Chief Executive Officer will discuss our business and clinical development progress. Then Ashish Khanna, our Chief Financial Officer and Chief Business Officer will review our financial results. In addition Kathryn King, Senior Vice President of Clinical and CMC Operations; and Harald Murck, Vice President of Clinical & Medical Affairs are on the line for the Q&A portion of the call.

I would like to remind everyone that statements made during this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties that can cause genuine results to differ materially.

Any forward-looking statements are made only as of today and we disclaim any obligation to update these forward-looking statements. Please see the forward-looking statements disclaimer in our financial results release issued this afternoon and the risk factors in the company's current and subsequent filings with the SEC.

It's now my pleasure to turn the call over to Andy.

Andy Kidd

Thanks Pat. Good afternoon everyone and thank you for joining us on today's call. I'm happy to say that despite our disappointing data readout for NYX-2925 in DPN in April, we've otherwise made great progress over the past few months and are well-positioned to deliver several major milestones from our pipeline of NMDA receptor modulators.

First of these is the data set from our Phase IIb study of NYX-2925 in patients with fibromyalgia, which we expect to receive and communicate later this month. We're also pleased to announce that we've recently been able to close new patient screening in our Phase II study of NYX-458 in cognitive impairment associated with Parkinson's disease and we therefore, expect to complete enrollment in the next few weeks. As a result we're on track to report data from this study in the first quarter of 2023.

In addition we continued to make progress with our Phase IIb study of NYX-783 in patients with PTSD and we remain on track for data readout in the second half of 2023.

As a reminder this study is assessing the 50-milligram QD dose level of NYX-783 with the study of the 150-milligram QD dose level having been paused last quarter following the DPN readout.

I'm also very excited to share that NYX-783 will soon begin a Phase I study for the treatment of opioid use disorder or OUD. This study is enabled by a multimillion-dollar grant awarded to researchers at Yale University School of Medicine, who's demonstrated the potential of NYX-783 in preclinical studies and we'll be conducting the Phase I study.

The grant is sponsored by the NIH and administered by the National Institute on Drug Abuse or NIDA. This funding for the development program enables us to partner with world-class researchers and expand the therapeutic potential of NYX-783 in a new indication, all through non-dilutive financing that preserves our cash runway. With strong progress across our pipeline, we're fortunate that our current balance sheet can enable data readouts from all of our ongoing studies.

Let's discuss our pipeline programs in more detail, beginning with NYX-2925 in fibromyalgia. As I mentioned, we plan to receive and communicate data from our Phase IIb study of NYX-2925 in patients with fibromyalgia later in August.

As a reminder, this follows the promising effect seen in our prior Phase IIa neuroimaging study in fibromyalgia that we read out in 2019. These prior data as well as several differences in the underlying biology between fibromyalgia and DPN provide a basis for optimism as we approach the data readout.

Since fibromyalgia is a multifaceted centralized pain disorder, we've designed the study to incorporate some exploratory features. We're testing multiple dose levels of NYX-2925 50 milligrams QD and 100 milligrams QD and are evaluating patients across a variety of symptom endpoints related to pain severity, fatigue levels, sleep quality, and impact on daily function.

That said, we've also based the design of the study on what we believe will be the requirements for a pivotal trial so that it can be as informative as possible. This is a 12-week randomized placebo-controlled double-blind study and we're testing NYX-2925 as a monotherapy with no concomitant analgesics.

The primary endpoint is the change from baseline to week 12 in patient-reported average daily pain, averaged over a week and evaluated using the zero to 10 numeric rating scale or NRS.

Study is powered to detect an effect size that's clinically meaningful. Depending on what the exact degree of variation seen in pain score differences, the lower band of what's needed to achieve statistical significance will be approximately a 0.5 difference between NYX-2925 and placebo on the NRS.

Next steps following the completion of this study would include an end of Phase II meeting with FDA to discuss requirements for Phase III NMDA. We expect a positive data in this study would unlock significant value for Aptinyx. We believe that a well-tolerated therapy with a novel mechanism of action such as NYX-2925 represents a multibillion-dollar commercial opportunity in the US alone, with 50% to 70% of diagnosed patients, discontinuing existing approved therapies after just one year, due to tolerability issues and the lack of sustained efficacy.

As we previously mentioned, this opportunity is driven by substantial patient volume and unmet need, rather than by price. Given the enormity of the treatment landscape, we've long believed, that a larger commercial partner would add meaningful value in maximizing the reach of an approved therapy. This is an avenue we will certainly consider for our program, under the right circumstances. I'd like to thank all Aptinyx colleagues and partners for their hard work and dedication to bringing this study to completion. We look forward to receiving the results and communicating them very soon.

Let's move on to NYX-458 in Phase II development for the treatment of cognitive impairment in Parkinson's disease and dementia with Lewy body. I'm very pleased with the progress made over the past several months in this study. We've remained focused on execution and have recently been able to stop screening new patients with sufficient patients already in the screening pipeline at our sites to meet our enrollment goal. We therefore expect to complete enrollment in the next few weeks, as these last patients complete screening and we're on track to report data from this study in the first quarter of 2023.

You may recall that the study's population was expanded from mild cognitive impairment associated with Parkinson's disease to also encompass mild dementia in Parkinson's disease, as well as dementia with Lewy body. As enrollment nears completion, it's not clear, that the majority of patients in the study will have a diagnosis of mild cognitive impairment or dementia associated with Parkinson's disease and there will be relatively fewer patients with dementia with Lewy body. These differences reflect screening activity and therefore the availability of suitable subjects within these diagnostic groups at our study sites. We're very comfortable that the patient population we've enrolled will enable a robust readout.

Although this is an exploratory Phase II study, we've applied a well-controlled design with the potential to generate strong proof of concept data. The study is randomized placebo-controlled and double-blinded, which will enable us to characterize the therapeutic benefit of NYX-458 accurately. We expect final enrollment of approximately 100 patients across two group's placebo and 30 milligrams QD of NYX-458, with a treatment period of 12 weeks.

In addition to evaluating the safety and tolerability of NYX-458 in patients, the study employed well-validated tablet-based neurocognitive assessments to evaluate effects across key cognitive domains, including attention, memory and executive function. While this current study focuses on Parkinson's disease, we believe that positive data would unlock the opportunity to further develop NYX-458 across other cognitive impairment conditions. We look forward to sharing more updates in the coming months, as the study moves toward completion ahead of the expected readout in Q1, 2023.

Finally, let's move on to NYX-783. NYX-783 is currently being evaluated in a Phase IIb study in patients with posttraumatic stress disorder. The study which kicked off towards the end of last year is evaluating 50 milligrams of NYX-783 QD versus placebo in approximately 300 PTSD patients over 10 weeks of treatment. As a reminder, our similar study looking at 150 milligrams QD was placed on a temporary pause prior to the start of its enrollment in order to extend our cash runway, following our DPN data readout in April. We remain committed to recommencing this study, when is operationally and financially feasible to do so.

Following the initiation of the Phase IIb study for the 50-milligram dose in December, our team has worked diligently to bring the study sites online and begin enrolling patients. Despite an increase in clinical development activity in PTSD across the industry, which has increased competition for sites and patients, we've seen steady progress over the past few months and we remain on track to report data from the study in the second half of 2023.

In addition, as I mentioned at the beginning of the call, we're very excited that the FDA recently cleared our IND application to allow for the evaluation of NYX-783 in patients with opioid use disorder or OUD. This IND is a testament to the productive partnership Aptinyx has enjoyed with a world-class team of researchers at Yale University School of Medicine, which spearheaded an impressive preclinical development effort, building on our work in extinction learning in PTSD and alcohol use disorder. The Yale team has generated compelling preclinical data, supporting the hypothesis that the extinction learning mechanism underlying NYX-783 may provide a safe and effective treatment for OUD.

In their studies, NYX-783 showed positive effects, combined with a strong safety profile and models of addiction utilizing oxycodone. The preclinical data set was generated with the support of a multimillion dollar grant under the NIH helping to end addiction long-term or heal initiatives. Based on the preclinical evidence, our research collaborators at Yale recently received preliminary approval by the NIH and NIA to transition to clinical stage development, starting with a Phase I study of NYX-783 in people who use opioids to begin later this year.

Opioid use disorder represents a significant public health issues facing society today. In this Phase I study in OUD will be a critical first step to evaluating NYX-783 potential for treating. We look forward to sharing more detailed updates on this program later in the year as the clinical stage grant funding is formally announced and the Phase I study is initiated.

I'll now hand over to Ashish to review our quarterly financials.

Ashish Khanna

Thanks Andy. Beginning with the balance sheet. We ended the second quarter of 2022 with $85.3 million in cash and cash equivalents compared to $106.1 million at the end of 2021. We expect this existing cash balance will support operating runway into 2024 and can enable data readouts from each of our ongoing clinical development programs.

As Andy mentioned earlier, we also do not anticipate the upcoming Phase I study of NYX-783 in OUD to impact our cash burn as the clinical study will be conducted by the team at Yale and funded by the generous grant from NIDA. The majority of our spend during the quarter centered around research and development related to our ongoing clinical studies.

R&D expenses were $11.9 million for the second quarter of 2022 compared to $14.8 million for the same period in 2021. The decrease in R&D expenses was primarily driven by the completion of enrollment in our Phase IIb studies of NYX-2925 in both DPN and fibromyalgia. We reported G&A expenses of $5.2 million for the second quarter of 2022 compared to $5.1 million for the same period in 2021. Finally, our net loss for the second quarter of 2022 was $17.7 million compared to a net loss of $19.8 million for the same period in 2021.

I'll now turn the call back over to Andy.

Andy Kidd

Thanks Ashish. We're very happy with our progress in the last quarter, despite the disappointment of DPN. Our team has shown incredible dedication to bring each of our clinical studies closer to the finish line and we're poised for two major Phase II readouts in the very near future supported by a strong balance sheet.

We are happy to begin taking your questions now.

Question-and-Answer Session

Operator

[Operator Instructions] We'll move first today to Marc Goodman with SVB Securities.

Q – Unidentified Analyst

Thank you for taking question. This is Rudy on the line for Marc. For the upcoming fibromyalgia data, can you remind us what are your current expectations for the baseline pain score and the change from baseline for both NYX-2925 and placebo? Thanks.

Andy Kidd

Yes. Thank you. So, I think it's difficult to be too specific as we know from the variation that we see in different pain studies. We I think have talked prior to DPN about wanting to see baseline pain scores that were at least in the mid-single digits. And I think in our DPN study they were a little over six. And so, I think our expectations in fibro were similar.

And then again with respect to changes from baseline, those do vary from study to study and indication to indication. I think the most important point is the one that we mentioned in the remarks which is in order to be clinically meaningful -- and it does depend a little bit on other factors like the safety and tolerability and obviously the variation seen. But as we mentioned, we are hoping to see a separation between NYX-2925 and placebo of around 0.5 points or higher on NRS.

Q – Unidentified Analyst

Got it. So -- and regarding following steps you mentioned you're going to have the Phase II meeting with FDA first. But can you provide more granular timing? Are you expecting starting another trial by the end of the year or into next year?

Andy Kidd

Yes, good question. I think starting the next trial would be into next year. Our expectations for the timing of the meeting with FDA that we will move as quickly as we can, but it depends a little bit on the timing from the agency side and I think that we are certainly not expecting to start the next study this year. That would be into 2023.

Q – Unidentified Analyst

Got it. Thank you.

Andy Kidd

Thank you.

Operator

We'll hear next from Ritu Baral with Cowen.

Ritu Baral

Good afternoon, guys. Can you hear me okay?

Andy Kidd

Yes.

Ritu Baral

Okay. Thanks for taking the question. I wanted to ask about how standard deviation or variance for pain scores in fibromyalgia might differ from DPN? Just wondering about assumptions wondering about what expected placebo response might be for this indication versus DPN as well?

Andy Kidd

Yes. Thanks Ritu. So, a good question. As you probably know there have been a range of studies done in these indications and there is a good amount of variation from study to study. One of the things that I can say is we do -- in this study as in the last one, we do apply some screening to the patients beforehand in terms of their pain score reporting and then we also train patients in terms of accurate pain score reporting once they are in the study.

So we have done a few things that we try to minimize the variance of the pain scores. There's I don't think a consistent evidence that's markedly different between fibromyalgia DPN and other pain indications. So, we have taken similar steps to try to manage it. And then I think it's a similar story with placebo response. There is some evidence from meta analysis that have been done and published that might suggest in some cases fibro studies have seen a little bit of a lower placebo effect. But I think importantly, we're not putting too much weight on that but that is something that has been published.

Ritu Baral

Got it. That's helpful. And can you talk a little bit about 783 site activation and enrollment how that's going?

Andy Kidd

Yes. I think as I said it's certainly – we've certainly seen some increase in industry activity overall in PTSD. And as I mentioned that has led to more competition for sites and for subjects. But I think that we've managed to work through a lot of that over the last few months and so I think our feeling now is that you never know what will happen in the future with factors that drive enrollment. But I think like I said right now, we feel reasonably comfortable with the time lines for the study. But certainly I think the process of identifying and activating sites has been definitely affected by the fact that there is a lot of industry activity going on. I think we've heard that – we've heard that from quite a few people. Like I said I think we're comfortable with where we are now.

Ritu Baral

Got it. Great. Thanks for taking the questions.

Andy Kidd

Thank you.

Operator

We'll move next to Joon Lee with Truist Securities.

Unidentified Analyst

Good afternoon. This is Asim [ph] on for Joon. Thanks for taking the questions. So now that Phase IIb results for DPN are known, how do you think that might influence placebo response in the upcoming FM trial? And my second question is, if you could comment on the impact of the NIH funding on your plans for 783? And if you anticipate further grants? Thank you.

Andy Kidd

Yes. Thank you. Good question. So I think for DPN, we wouldn't imagine there'd be much influence. In terms of the timing we had already completed enrollment in the fibromyalgia study by the time the DPN data were made public. And it would only have been a very small number of patients that were still kind of in treatment and a lot of them would be quite far through. So I don't think there's likely to be much influence there.

With respect to 783 and NIH funding, I think we will be able to talk a little bit more about that once as I mentioned it's formally announced. But I do think we – there is a cost for funding the Phase I study and potentially some next steps beyond that. I think we look on this as really a good way for us, particularly at this time now, where we're trying to maximize our cash runway to really create a whole new program.

And I think in disorder where as I mentioned there's substantial unmet need. And I think on top of that to be working with the researchers at Yale University School of Medicine, who have tremendous experience and a great background in study in opioid use disorder which as you can imagine there are some complexities to studying we're very excited about it. So yes, I think it's the Phase I study and potentially as well some next steps after that.

Unidentified Analyst

Thank you and congrats on the progress.

Andy Kidd

Thank you.

Operator

We'll hear next from Gary Nachman with BMO Capital Markets.

Evan Hua

Hi. This is Evan Hua on for Gary Nachman. Thanks for taking my questions. Yes my first question for NYX-783, what are some of the exclusion criteria in the trial that could help manage the potential variance in the patient population? And then secondly for 2925, can you just talk about your confidence level to be able to hit the primary and secondary endpoints in the fibromyalgia study? Thanks.

Andy Kidd

Thank you. Well so for 783 in terms of exclusion criteria variance, I think in general terms there's – as there was in the last study, obviously we're looking for a certain extent of symptom severity. So trying to exclude, particularly the patients with milder symptoms that are closer to a floor effect. There's a few other things that we have put in there. But I'd say for the most part we have also tried to make sure that this is a representative patient population, which is quite important in this case because there really isn't a strong biological basis for segmenting that population and so we have a range of different types of trauma and so on.

I think we've also mentioned one of the things we noticed in the last study that we published was to do with an association with Kinetisense [ph] trauma and so that is something that we are very mindful of. We're not excluding patients for the longer time since trauma but we are taking steps to make sure that we have a good balance of patients for a shorter time [ph] of trauma as well.

So yes there's a few things. But I think a lot of the variance actually comes not so much from exclusion criteria, although that plays a role. A lot of what we're focused on with variance is the quality of the data that is collected by the site. As you may recall, the primary endpoint is the CAPS-5 scale for the clinician assessment of PTSD symptoms aligned with the DSM-5. And so we're putting a lot of effort into making sure that we have a relatively limited number of sites with very well-trained raters and limited numbers of raters particularly to do with the training and the quality of the data and then surveillance of that.

So I think a lot of it really is more there. It's making sure that this is a scale where we want to make sure that the quality of data we will get from that is as high as possible. And, therefore, any variances if to do with true underlying differences in symptoms and not differences in raters and methodology and so on.

With respect to the second question, like, I said I think we're optimistic about the study. There's a lot of differences biologically between DPN and fibro. I think fibromyalgia is classified as the nociplastic pain condition at centralized pain stage. We know that DPN is a peripheral neuropathy. We have all, of course, been aware of those differences. But I think also as I mentioned this builds on the neuroimaging study that we published in -- that we disclosed the data from in 2019 that showed neuroimaging biomarkers improved in fibromyalgia with NYX-2925. And in that study we also saw some improvement in some of the other symptoms like fatigue and so on. So I think we're always cautious ahead of the readout. But I do think as we usually are, we are cautiously optimistic because of those differences and some of the underlying data that is building up.

Evan Hua

Great. Thanks.

Operator

[Operator Instructions] We'll hear now from Myles Minter with William Blair.

Myles Minter

Hi. Thanks for the questions. On the fibromyalgia study, can you just remind us of the stat hierarchy here? Are you testing the 100-milligram dose versus placebo before the 50 mg versus placebo? And on that 100 milligram, can you remind us how that actually performed in the neuroimaging study relative to the 50-milligram dose? I'm blanking on the doses that you tested in your prior study. So I apologize for the naivety here.

Andy Kidd

Yeah, no problem Myles. Thank you. So in terms of the hierarchy, I think we've mentioned before that one of the aspects of the study that is more exploratory. And in many ways, it's a very robust and as I mentioned pivotal design study. But one of the more exploratory aspects was the dosing, and so we are not testing the doses hierarchically. We're testing both independently.

And in the prior study that you referred to, we tested two doses 20 milligrams and 200 milligrams. And we saw biomarker effects of both doses and what appeared to be a stronger clinical effect with the 200-milligram dose, although that interpretation was complicated by the fact that they were administered sequentially. So by the time the patients have finished two weeks, 200 milligrams they've been on drug for four weeks versus with the 20-milligram they've been on drug for two weeks. And so we worked with our collaborators on interpreting the data. And we felt as though testing the two doses in the middle 50 milligrams to 100 milligrams was the best approach. And so that -- neither of those two doses was tested in neuroimaging study but dose of either side of that showed effect on the neuroimaging markers.

Myles Minter

Okay. Thanks for that. And then just on the Phase I study that's being proposed by your friends at Yale there. I guess, what are the goals of that study? And why is it a Phase I study when theoretically you've already done that for 783, so you kind of know the safety is that are we going to get some dose selection out of that study that a future grant might fund in a later-stage trial, or I guess what are your outcomes coming out of that? Thanks.

Andy Kidd

Yeah. Thanks Myles. So Kathryn is here. I'm going to have her answer that question.

Kathryn King

Yeah. Thanks Andy. So this is a different Phase I trial than the single ascending and multiple ascending dose that we've already done with 783. This is a direct drug-drug interaction with oxycodone looking at safety tolerability and PK of those two compounds together.

Myles Minter

Do you have any like direct head-to-head data in preclinical models against naloxone, how it sort of comps up against that?

Andy Kidd

Well, it's a difference mechanism of action and really a different -- conceptually a different thing than naloxone obviously, which is blocking the effect where it deals with extinction learning and essentially making the process of stopping taking the opioids easier, quicker and with fewer drug-seeking symptoms. I think one thing I will say on this Myles is and we were a little bit high level in our remarks that we do anticipate that this data will likely be made public by us and by the Yale team over the next few months. So I think that we're holding off a little bit on going into too much detail here but that's certainly data that you will likely see over the next few months shown in more detail.

Myles Minter

Okay, cool. Thanks for the questions.

Andy Kidd

Thanks Myles.

Operator

We'll hear now from Charles Duncan with Cantor Fitzgerald.

Andy Kidd

Charles?

Operator

Mr. Duncan, you might have us on mute.

Unidentified Analyst

Sorry we wish to join the queue at a later time.

Operator

Thank you. We'll move next then to Ram Selvaraju with H.C. Wainwright.

Boobalan Pachaiyappan

Hi. This is Boobalan dialing in for Ram Selvaraju. Can you hear me okay?

Andy Kidd

Yes. We hear you fine.

Boobalan Pachaiyappan

Great. A couple of questions from us. So, firstly, are you planning to evaluate any chronic pain indications in the future, or is that not going to be part of the strategy moving forward?

Andy Kidd

So fibromyalgia obviously being a chronic pain condition will drive that. I think at this point we mentioned, we weren't planning to move forward with DPN. So, yes, I think clearly, if we have positive data, we will move into Phase 3 with fibromyalgia. And I think we will also review at that point in time what other -- based on the data, what other chronic pain indications we think it might make sense to explore in addition. So I think there's a little bit to be determined by the data, but yes, that would still be our plan.

Boobalan Pachaiyappan

Great. Thanks. And then nextly with the Parkinson's disease program, what would you consider a clinical success? And how do you see 458 readout being positioned?

Andy Kidd

Yes. It's -- a question in this study is characterizing the effect on cognitive impairment. And as I mentioned we're doing that with a series of well-validated tablet-based neurocognitive assessments [ph] cover attention, working memory and executive function. It's very hard.

The other point, I should say is that there's only one drug rivastigmine that's approved for Parkinson's dementia and nothing approved for Parkinson's mild cognitive impairment and rivastigmine was approved over 20 years ago with the primary endpoint being an Alzheimer's scale. So I think one could argue the unmet need is pretty significant and it's not specific to one cognitive domain or another. There's really a lot of issues that different patients can experience based on different pattern of cognitive symptoms or different effects from different cognitive symptoms.

So it's not really, I think at this point meaningful to say, we need to see a very specific thing in those six neurocognitive tests. Clearly, we need to see something that's commensurate with an active drug that we think can be clinically meaningful, but I think it's very hard ahead of time to describe exactly all of the different permutations that that could be.

We would need to see a meaningful improvement in cognition, and we've got those six different sales across the different domains to do it. I think in the past what we've said is more if we see something that we think represents a coherent signature of a signal across the endpoint and there's probably multiple options as to what that would be combined with good safety and tolerability, but that would -- and there's multiple permutations of that but that would be a basis for moving forward.

Boobalan Pachaiyappan

Great. Thanks for the detail answer. Yes. That's it from us. Thank you.

Andy Kidd

Great. Thank you.

Operator

[Operator Instructions] And with no other questions at this time, Andy, I'd like to turn things back to you for closing remarks.

Andy Kidd

Thank you operator, and thank you for all the questions. We appreciate your time and attention, and wish you all a very pleasant rest of your day.

Operator

And that does conclude today's conference. Again, we thank you all for your participation and you may now disconnect.

Sat, 06 Aug 2022 23:13:00 -0500 en text/html https://seekingalpha.com/article/4531134-aptinyx-inc-aptx-ceo-andy-kidd-on-q2-2022-results-earnings-call-transcript
Killexams : Forum Real Estate Income and Impact Fund Announces Second Quarter Results

TORONTO, ON / ACCESSWIRE / August 3, 2022 / Forum Real Estate Income and Impact Fund ("REIIF" or the "Fund") announced its second quarter results and is on track to deliver strong performance for its unitholders in its first year.

REIIF was launched in December 2021 and is focused on acquiring impact-driven, institutional quality residential rental real estate providing long-term, inflation-hedged, and stable cash flows, with the opportunity for capital appreciation. REIIF's portfolio is located across Canada, with an emphasis on supply constrained markets that exhibit strong rental demand including Toronto, Vancouver, Ottawa, Montreal and Winnipeg.

Following REIIF's latest acquisition of 399 Stan Bailie (Winnipeg) in July 2022, the portfolio is comprised of approximately $290M of assets representing over 1,100 units, spanning over 400,000 square feet of residential gross leasable area across multi-family apartments, purpose-built student accommodation (PBSA) and co-living communities.

Portfolio Update

Initial Series F investors in REIIF have earned a time-weighted return of 6.2% to date through June 30, 2022, including a 4.5% distribution yield (3.75 cents/month)1. The returns to date are primarily driven by capital appreciation and strong rental rate growth. REIIF's Net Asset Value per unit is supported by third-party property appraisals and approved monthly by REIIF's board of trustees, the majority of which are independent of Forum Asset Management Inc. ("FAM").

"We are pleased with our progress to date, focused on delivering strong total returns for unitholders through this period of market volatility," said Aly Damji, Managing Partner of Real Estate at FAM.

Rental revenue grew 25% quarter-over-quarter, as initial properties in the portfolio that were acquired with vacancy are leased.

"With 95.4% occupancy at the end of the second quarter, we remain on track for all of REIIF's properties to be substantially leased before the end of the year, driving net operating income and cash flow higher," said Greg Spafford, Fund Head for REIIF. "Further, through active asset management that includes increasing beds, units and amenities within our buildings, we can generate more revenue per square foot to create long-term value."

Impact Initiatives

REIIF's impact and environmental, social and governance ("ESG") initiatives are focused on reducing environmental footprint and increasing social engagement.

REIIF has established decarbonization plans for its 455 Abbott (Vancouver) and 1602-1604 Queen. (Toronto) properties, targeting near-term energy savings and a multi-year plan to achieve net zero operational greenhouse gas emissions. In the second quarter REIIF also submitted for its inaugural Real Estate Assessment, the investor-driven global ESG benchmark and reporting framework for listed property companies, private property funds, developers and investors that invest directly in real estate.

Balance Sheet Update

The Fund ended the quarter with a debt to assets ratio of 48.4% and over $30M of available liquidity. Further, nearly two-thirds of REIIF's debt is priced at fixed rates with a WATM2 of over 8 years.

"REIIF's strong balance sheet is supported by long-term, fixed rate mortgages insured through the Government of Canada's Canada Mortgage and Housing Corporation (CMHC), amongst the lowest cost debt capital available to real estate owners," said Rajeev Viswanathan, Managing Partner and CFO at FAM.

Figure 1 - 399 Stan Bailie, Winnipeg, Manitoba

Acquisition - 399 Stan Bailie, Winnipeg, Manitoba

On July 11th, REIIF added its fourth acquisition in 2022 and seventh acquisition since launching in December 2021. 399 Stan Bailie Drive, a 126-unit, multi-family asset built in 2021 and located in Winnipeg, Manitoba. The Winnipeg market continues to benefit from strong immigration as well as employment growth, trends that are expected to continue in the future.3

The asset was acquired fully occupied, with attractive in-place fixed-rate financing at 1.6% interest, making it a highly accretive acquisition for the Fund. Over the coming year, the asset will benefit from several ESG upgrades that will contribute to higher revenue, lower operating costs and greater social engagement, all of which will drive higher value.

For further details please refer to the second quarter 2022 REIIF report provided to current and prospective investors.

1 - The yield and total return is for the December 2021 Series F units and is no ensure of future results. The distribution rate and total return received by a unit holder will differ based on the series of trust units in which a unit holder invests.

2 - Weighted average term to maturity (WATM) aggregates each loan's remaining years to maturity, weighted by the loan's principal balance outstanding over total indebtedness.

3 - Source: CBRE "Assessment of Secondary Canadian Markets for Multifamily Investment", May 2022.

About REIIF

REIIF invests principally in institutional-quality, multi-family rental apartments, purpose-built student accommodations (PBSA), and co-living communities located in supply constrained markets in Canada. The Fund also strives to deliver a sector-leading impact and ESG-driven portfolio that will enhance yields and total returns while future-proofing the portfolio to ensure diversity and resiliency of income. For more information, please visit our website at www.forumreiif.ca.

About Forum Asset Management Inc.

Forum Asset Management Inc., the manager of REIIF, collectively with its affiliates, is an investor, developer and asset manager operating across North America for over 25 years. Our core purpose is to deliver Extraordinary Outcomes™ to our stakeholders. Our adaptable, agile and dynamic team is committed to sustainability and responsible investing, creating value that benefits the communities in which we invest.

Our investment focus includes real estate, private equity and infrastructure. The enterprise value of our assets under management currently exceeds C$1.7 billion. Our investments have attracted a number of top investors. We're proud to have delivered in the top tier of alternative asset returns since 2002, while positively impacting over 6,000 lives. Visit www.forumam.com.

Contacts

Name: Rajeev Viswanathan, Managing Partner and CFO
Phone Number: 416-947-0389
Email: rajeev@forumam.com

Cautionary Statement

The information contained in this news release is for informational purposes only; is not investment, financial or other advice; and is not intended to be used as the basis for making an investment decision. This news release does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities, nor shall any part of this news release form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities of REIIF. This news release does not constitute any form of commitment, recommendation, representation, or warranty on the part of any person. No reliance should be placed on the completeness of the information contained in this news release. This news release is not intended to be a comprehensive review of all matters concerning REIIF. Please visit www.forumreiif.ca for more information.

This news release may contain forward-looking information within the meaning of applicable Canadian securities laws. Often, but not always, forward-looking information can be identified by the use of words such as "expect", "intends", "anticipated", "believes" or variations (including negative variations) of such words and phrases, or states that certain actions, events or results "may", "could", "would" or "will" be taken, occur or be achieved. Such forward-looking statements reflect management's current beliefs and are based on assumptions made by and information currently available to FAMI. Readers are cautioned that these forward-looking statements are neither promises nor guarantees, and are subject to risks and uncertainties that may cause future results to differ materially from those expected including, without limitation, risks associated with general economic conditions; adverse factors affecting the real estate market generally or those specific markets in which REIIF holds properties; volatility of real estate prices; inability to access sufficient capital from internal and external sources and/or inability to access capital on favourable terms; currency and interest rate fluctuations and other risks. Although FAMI has attempted to identify important factors that could cause genuine results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as genuine results and future events could differ materially from those anticipated in such information. These forward-looking statements are made as of the date hereof and FAMI does not assume any obligation to update or revise them to reflect new events or circumstances save as required under applicable securities legislation.

SOURCE: Forum Asset Management

View source version on accesswire.com:
https://www.accesswire.com/710717/Forum-Real-Estate-Income-and-Impact-Fund-Announces-Second-Quarter-Results

Wed, 03 Aug 2022 05:00:00 -0500 en-US text/html https://finance.yahoo.com/news/forum-real-estate-income-impact-170000158.html
Killexams : Ontex to sell its Mexican business to Softys

Mexico   Ontex


Softys is a wholly owned subsidiary of Empresas CMPC S.A., headquartered in Chile.

The transaction includes Ontex’s business in Mexico and related exports to regional markets as well as its manufacturing facility in Puebla, Mexico.

The plant in Tijuana, Mexico remains within the Ontex portfolio as an integral part of Ontex’s North American supply chain footprint.

The transaction is an important milestone in Ontex’s new strategy announced in December 2021 to focus on its Partner Brands and Healthcare Business, and accordingly to explore strategic alternatives for its branded business in Emerging Markets.

Ontex’s Mexican business is being sold at an enterprise value of MXN $5,950 million (or approximately €285 million at current exchange rate). This includes a deferred payment of MXN $500 million, spread over a maximum of five years.

Aggregate net cash proceeds, after the impact of taxes, transaction expenses and balance sheet adjustments are estimated at approximately €250 million, and will be exclusively applied to reduce debt.

The business being sold develops, manufactures and distributes baby diapers, baby pants, adult diapers and feminine hygiene products, marketed through the brands BBTips, Chicolastic, Kiddies, BioBaby and others. It has approximately 1,300 employees and generated sales of MXN $7.4 billion in 2021.

Ontex and Softys aim to close the transaction, which is subject to the customary conditions, including the applicable merger clearance approvals, by early 2023.

Thu, 04 Aug 2022 00:52:00 -0500 en text/html https://www.poandpo.com/companies/ontex-to-sell-its-mexican-business-to-softys/
Killexams : Perficient, Inc. (PRFT) CEO Jeff Davis on Q2 2022 Results - Earnings Call Transcript

Perficient, Inc. (NASDAQ:PRFT) Q1 2023 Earnings Conference Call August 4, 2022 11:00 AM ET

Company Participants

Jeff Davis - Chairman & Chief Executive Officer

Paul Martin - Chief Financial Officer

Tom Hogan - President & Chief Operating Officer

Conference Call Participants

Maggie Nolan - William Blair

Mayank Tandon - Needham Company

Brian Kinstlinger - Alliance Global

Surinder Thind - Jefferies

Jonathan Lee - Morgan Stanley

Puneet Jain - JPMorgan

Vincent Colicchio - Barrington Research

Jack Vander Aarde - Maxim Group

Divya Goyal - Scotiabank

Operator

Good day and thank you for standing by. Welcome to Perficient Q2 2022 Earnings conference call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker for today Jeff Davis Chairman and CEO. You may begin.

Jeff Davis

Thank you and welcome everybody. Appreciate your time. With me on the call today is Paul Martin our CFO and Tom Hogan our President and COO. We have 10 to 15 minutes of prepared comments per usual after which we'll open up the call for Q&A. Before we proceed Paul would you please read the CFO's statement?

Paul Martin

Thanks Jeff and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Action results may purely differ from those discussed these forward-looking statements and we encourage you to refer to the additional information contained during FCC filings concerning factors that could cause those results to be different than contemplated in today's discussion.

At times during this call, we will refer to adjusted EPS and adjusted EBITDA, our earning press release including a reconciliation of certain non-GAAP financial measure to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles or our GAAP. It is posted on our website at www.perficient.com. We have also posted a slide deck which includes a reconciliation of certain non-GAAP guidance to the most directly comparable financial measures prepared in accordance with GAAP on our website under investor relations. Jeff?

Jeff Davis

Thanks Paul. And once again we appreciate your time this morning as we discuss our second quarter performance and continued growth, as well as our optimism for the remainder of the year. Adjust earnings per share was up 26% during the period with revenue of 21%. North American average bill rates remained in an all-time high and offshore rates increased by double digits.

While there are always project cancellations and delays there were more than a normal number in the quarter, in evaluating each of these we are confident they are isolated incidents and we do not believe them to be indicative of any broader trends. These events combined with an accelerated shift to offshore modestly impacted revenue in the quarter. In fact, our bookings and pipeline remain robust with the quarter up more than 40% versus the prior year period.

Let me repeat that. Q2 bookings were up 40% organically versus the prior year period. Representing also at an all-time high for Q2 bookings. Q3 is also off to a great start, July was an incredible month for bookings. Just last week we closed more than $55 million of bookings at a single day at a single client and we continue to pursue nearly 207 figure plus opportunities in a number of deals well into eight figures.

Organic offshore revenue grew 44% of the quarter and offshore revenue grew 93% overall. Our fully integrated global delivery model continues to resonate with clients who value the combination of our local and global reach. Offshore ADR reached an all-time high as I mentioned before in double-digit range and added the percentage of revenue delivered by our non-US colleagues. So, we're delivering more and more revenue offshore which again as I alluded to earlier had some impact on the top line revenue in the quarter.

We continue to scale in both Latin America and India. We recently opened a new office in Argentina increased our office base by nearly 60% in India expanding into new territory in Hyderabad and Pune, adding satellite offices in both Chennai and Bangalore and adding space to our facility and net core.

Industry analysts and partners continue to recognize us for our capabilities and expertise. In fact recently Forrester named Perficient a strong performer in the modern application development service provider wave. And just this week our enterprise partner Sitecore awarded us with their sales excellence award. So a solid quarter of continued growth and with that I'm going to turn things over to Paul for more details on the numbers. Paul?

Paul Martin

Thanks Jeff. Services revenue excluded reimbursable expenses for the quarter were 219.8 million, a 21.3% increase over the prior year. Year over year organic services revenue growth was 14.1%. Services gross margin excluded reimburse expenses at stock count was 40% for the second quarter compared to 40.2 in the second quarter of 2021.

SG&A expense was 40.9 million for the second quarter of 2022 compared to 37.4 million in the prior year. SG&A expense is a percentage of revenue decreased to 18.3% from 20.3% in the second quarter of 2021. Adjusted EBITDA for the second quarter of 2022 was 51.2 million or 23% of revenues compared to 39 million or 21.2% of revenues for the second quarter of 2021.

The second quarter of 2022 included amortization of six million compared to 6.3 million in the prior year period. The decrease in amortization is primarily due to certain intangibles for acquisitions becoming fully amortized. Net interest expense for the second quarter of 2022, decreased to 0.8 billion from 3.4 billion in the prior year primarily as a result of adopting a new accounting standard for convertible debt in the first quarter of 2022.

Our effective tax rate was 28% for the three months end of June 30th 2022 compared to 27% in the comparable prior-year quarter. Net income increased 67.6% to 27.8 million for the second quarter of 2022 from 16.6 million in the second quarter of 2021, primarily as a result of higher revenues and lower SG&A as a percentage of revenue. Diluted GAAP earning per share increases $0.77 a share for the second quarter of 2022 for $0.49 in the second quarter of 2021. Adjusted earnings per share increased to $1.6 for the second quarter of 2022 from $0.84 cents in the second quarter of 2021. You can see the press release for a full reconciliation between GAAP and adjusted earnings.

I'll now turn to the year-to-date results. Services revenue excluding reimbursable expenses, were $439.3 million for the six months end of June 30th 2022, a 26.4% increase over the comparable prior year period. Year over year organic growth for services was 18.4%. Gross margin for the six months ended June 30th 2022, increased 10 basis points to 38.1% compared to the prior year period.

SG&A expense was $83.1 million compared to $71.4 million in the comparable prior year period and SG&A expenses, a percentage of revenues decreased to 18.7% from 20.2% percent in the six months ended June 30th 2021. Adjusted EBITDA for the six months ended June 30th 2022 was $98.5 million or 22.1% of revenues compared to $73.6 million or 20.8% of revenues in the comparable prior year period.

The six months ended June 30th 2022 included amortization of 12 million, compared to 13.4 million in the comparable prior year period. Net interest expense for the six months end of June 30th 2022 decreased to $1.7 million from $6.7 million in the comparable prior year period again primarily, as a result of adopting the new accounting standard for a convertible debt in the first quarter of 2022.

Our effective tax rate was 23.3%, for the six months compared to 23.6% for the comparable prior year period. That income for the six months ended June 30, 2022 was $54.9 million compared to $30.2 million on the comparable prior year period, primarily as a result of higher revenues the lower SG&A has a percent of revenues. Diluted GAAP earning per share increased to a $1.52 for the six months end of June 30th 2022 compared to $0.90 cents for the prior year period.

Adjusted earnings per share increased to $2.3 for the six months end of June 30,2022 from $1.58 in the comparable prior year period. Our ending global headcount at June 30, 2022 was 5,810 including 5,455 billable consultants and 355 subcontractors. SG&A head count at June 30 was 937.

Our outstanding debt net of deferred issuance cost as of June 30,2022 was $393.5 million. We also had $38.9 million in cash and cash equivalents as of June 30th 2022 and $199.8 million of unused borrowing capacity on our credit facility. Our balance sheet continuously was very well positioned to execute against our strategic plan.

I'll now turn the call over to Tom Hogan. for a little commentary behind the metrics. Tom?

Tom Hogan

Thank you, Paul and good morning everybody. As Jeff mentioned, booking's momentum continued during the second quarter and the third quarter is off to a very fast start. Historically, we've classified large deals as those worth $500,000 or more and we've shared our progress each quarter winning work in that range. Given our success in the scale, we now feel $1 million and greater is a more appropriate framework, so we'll be sharing those results moving forward.

And of course at some point the future, we'll reach a place where it makes sense to again adjust higher. We've booked 45 deals greater than a $1 million during the second quarter of 2022, which compares to 28 in the second quarter of 2021. Again, we've booked 45 deals greater than a $1 million during the second quarter compared to 28 in the second quarter of 2021.

And in addition to that large deal volume growth of greater than 60%, the average deal size went up as well. A couple of Q2 highlights I wanted to share. We're building on a long-term partnership, with a global health services and insurance company. We recently secured multi-year, eight-figure deal one of the largest in our company's history positioning Perficient as the trusted partner for healthcare data and analytics modernization.

Our multi-shore team will work across several technology stacks to build a platform that provides the company with better financial data, accurate financial transactions enhanced reporting capabilities. Not only are our global teams contributing to many of our largest accounts, they're also generating meaningful bookings.

Our Latin America sales team recently pursued in one a seven-figure project, providing many services to a pharmacy benefit management healthcare provider. Our team will work with the provider to run all IT operations for their end client. This work will include software development, testing and support services, for the end client core systems and custom service applications.

We continue to remain well diversified from a customer industry and platform perspective. During the quarter, healthcare remains solid and the financial services, automotive, energy and utility verticals continue to demonstrate strong performance from a revenue of booking perspective.

As we continue to land new enterprise clients and expand in existing accounts, we remain focused on investing in development of our internal systems and applications that enable us to scale more rapidly and create competitive advantages.

We've spoke in the Q4 in year-end calls, about our investment in Compass, a custom-developed proprietary tool that provides our business and project leaders with incredibly detailed project performance metrics, including real-time project profitability data as granular as the margins associated with an individual contribution to particular work streams.

The tool also surfaces client insights, budget for dashboards, and even resource availability that ensures we're maximized utilization across the world. We continue to add functionality to the tool and can further enable leaders to manage current and upcoming projects. We added alerts for senior leaders, when projects or client performance metrics cross key thresholds, allowing us to proactively respond and Excellerate financial outcomes. For project leaders, we made additional enhancements to further centralize project administrative tasks into one tool, freeing them to spend more time working directly with our clients.

Future innovation will include additional standardized reports and scale and certification management, which will make it easier to identify ideal resources for a specific project task at scale as Perficient grow globally.

And with that I'll turn things back to Jeff to discuss the third quarter and the remainder of 2022.

Jeff Davis

Thanks, Tom. Perficient expects its third quarter 2022 revenue to be in the range of $227 to $233 million. Third quarter GAAP earnings per share is expected to be in the range of $0.75 to $0.78. Third quarter adjusted earnings per share is expected to be in the range of $1.8 to $1.12. We expect full-year 2022 revenue to be in the range of 907 billion to 923 billion and we're reaffirming our 2022 GAAP earnings per share range of $3.08 and $3.19 and reaffirming our 2022 adjusted earnings per share range of $4.24 to $4.36. And let me just comment that the adjustment that we're making at the top line revenue reflects what I mentioned earlier which were a couple of cancellations above the norm but also a material impact of our advanced or I should say accelerated shift to offshore which actually is a positive. It's actually enhancing margins, which of course is what's enabling us to reaffirm earnings even while adjusting revenue somewhat down.

With that we'll open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you [Operator Instructions] Our first question comes from the line of Maggie Nolan with William Blair. Your line is open.

Maggie Nolan

Hi, thank you. A lot of good details here on how you're feeling about Q3 and the large deals but I have to ask on the cancellations just a little bit more info on what are the circumstances there? What gives you confidence that they're isolated rather than indicative of a trend? And then did they involve any maybe top 10 clients or hit any particular verticals?

Jeff Davis

That's one of the reasons that we're pretty confident or are quite confident actually that it's not a trend, it was not isolated to any particular industry. And as we looked at each of them again in isolation, it was really a function of shifting business priorities or business conditions, which weren't macro-related. So again this is a nature of the beast in this industry it happens. It was unusual in terms of the number that we had in the quarter.

Maggie Nolan

Okay, understood. And then on the offshore impact to revenue, good to see that's a positive for profitability and that you reaffirmed bottom-line guidance, but I'm curious is that accelerated move driven by client preferences or requests or was it a matter of trying to absorb the amount that you had planned in the face of some of these cancellations?

Jeff Davis

No, it's really more a function of the market. And it’s not – so it is client preference but a lot of it represents what would be incremental revenue to us. What I was really specifically referring to I'll be very specific, we exceeded our forecast for offshore revenue in the quarter by more than $1 million. So if you translate that back to US revenue it's about a $4 million difference. It's a four-to-one ratio on the rates. And we're seeing that trend continue through the year. So again in addition to the cancellations, that's a material component of the reason that we're adjusting revenue and again it did have some impact on the quarter.

Maggie Nolan

Okay. Thanks so much.

Jeff Davis

Thanks, Maggie.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Mayank Tandon with Needham Company. Your line is open.

Mayank Tandon

Thank you. Good morning. Jeff, I wanted to just get maybe a broader sense of demand. Clearly the bookings are positive and that's a good sign for the back half of the year but given the economic uncertainty and obviously you've lived through some trying times for the economy before how is this different if at all in terms of client decision-making and client priorities, as you look over the next six months and beyond?

Jeff Davis

I would say the current climate remains robust. We certainly don't want any surprises going forward so we put what we believe is a pretty conservative guidance out there to also again reflect on things I mentioned earlier, but also reflect some of the volatility that exists.

However having said that, we don't believe these latest events are related to macro and the activity of the pipeline remain very robust from what we see right now. To your point, everybody in this industry is seen ups and downs and so the climate can change quickly but I would say right now, I'm more confident than ever in terms of what we're seeing right in front of us, which is the pipeline in the bookings that we've already locked in.

Mayank Tandon

Got it. And then turning to the supply side, I just want to get a sense of, how are you navigating the cost pressures? I'm sure like everyone in the industry you're probably seeing some incremental wage inflation impact. Are you able to pass on these higher costs to your clients through price increases? Are there other levers you can pull beyond the offshore mix to help protect margins and earnings?

Jeff Davis

Actually, we are. I mentioned earlier that AVR for North America was actually up, as well as substantially up offshore. Both of those increases, which I'm not going to disclose for proprietary reasons specifically, but both of those increases exceeded our cost increases at least modestly. So, we're having great success in terms of passing that on. It's the climate we're in, clients understand, it particularly new engagements in new clients, we have a lot of pricing control on that and like I said, they're pretty reasonable and understanding.

In terms of additional capacity and other ideas, we’re bringing the largest -- we've already begun to and will continue to bring in the largest campus recruiting groups that we ever had in our history. That's a relief area in terms of capacity very exciting to get this new fresh blood in as well. It's great to see these guys and gals. And then also, our Bright Paths program, where we're pursuing underserved constituents and getting them in here as well. And those are a couple of areas that we're leveraging and I'll reiterate and you mentioned it, but offshore is going extremely well. Very well received. And when I say offshore, I'm lobbing nearshore into that. So, we're seeing a tremendous amount of demand both in Asia specifically India as well as LatAm.

Mayank Tandon

And just -- sorry Jeff, one housekeeping item. I think you addressed this in response to Maggie's question, but what is the breakdown between the guidance adjustment for the cancellations versus the offshore revenue mix shift? If you could just give that detail, that would be helpful. Thank you.

Jeff Davis

Sure. I don't have the specific numbers in front of me, but I would estimate it's about 50/50.

Mayank Tandon

Got it. Thank you.

Jeff Davis

Thanks, Mayank.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Brian Kinstlinger with Alliance Global. Your line is open.

Brian Kinstlinger

Hi. Thanks for taking my questions, guy. I know for North American billable headcount quarter end was lower than the average for the quarter which was unusual for a growing company like Perficient is and it's actually unusual for Perficient in general for the last several years. So with your growing revenue, I'm curious in addition with bookings up 40%, what's behind that? Is it involuntary? Is it voluntary? Maybe some details would help. Thanks.

Jeff Davis

Yes, sure Brian. It's a combination of both and it was also a function of us allowing attrition, both voluntary and involuntary to adjust the headcount to reflect those cancellations that we've been talking about. But as you pointed out, that's North America. So, we've continued to add headcount at a very accelerated pace for both offshore and nearshore. So again, a lot of it's the shift that we're experiencing.

Brian Kinstlinger

Hiring in North America has picked back up in this current quarter I assume.

Jeff Davis

Yes, that's likely.

Brian Kinstlinger

Yes. My other question I'm sure everyone's going to focus on the topline, given the commentary on the guidance, but in the second quarter, again, in the many years I've covered Perficient especially as you invest in growth have rarely seen cash SG&A decline as much as it did sequentially in the second quarter versus the first. Was there a one-time benefit? Was there some cost cutting? Just maybe some detail behind that. Thanks so much.

Jeff Davis

Yes, there were a number of areas where we cut cost to your point. Obviously, we continue to enjoy scale. Q1 tends to be a seasonally high expense quarter and then of course a component of that based on the Q2 result is tied to bonus accrual. So, that was substantially down from the first quarter.

Brian Kinstlinger

Great. Thank you, so much.

Jeff Davis

Thanks, Brian.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Surinder Thind with Jefferies. Your line is open.

Surinder Thind

Thank you. Jeff, can you please elaborate on the comment about the client preferences for offshore? That's obviously been a secular theme for a while, but is it accelerating at this point or is there anything where you're getting a sense that, there's client concerns around costs and budgets and that's maybe perhaps driving a little bit more sensitivity to how they want their global delivery?

Jeff Davis

I think it's really us taking share more than anything. So, certainly, in this climate, it's been this way for a long time you just made this point, where clients are always looking for more for less. I would too. And so that's a factor and it's been there for a while, but it's a space that we really didn't have the critical mass to go and pursue aggressively and we do now. So a lot of it is our own strategy that's driving it and taking share away from others that would normally have gotten that work.

And when I talk about that work, I mean, combined onshore, offshore, with a significant offshore component. So it's a blend of the two. We're not necessarily competing against guys that do everything offshore, which is why our rates and margins are substantially better, but it's a blend of the two and that blend is increasing on the offshore side.

Surinder Thind

Got it. And then, just following up on the question about the cancellations, I realize, it's been asked in a few different ways, but it sounded like there wasn't a pattern, whether it was industry, but anything to do with maybe the types of projects that the clients were thinking or client durations, or was it truly just, everyone was literally unique to internal client reorganizations? And put another way, is that potentially a theme where, again, if we have a deteriorating economic environment we may see more internal deliberations at clients that may potentially impact work?

Jeff Davis

Yes, it really was shifting priorities. It was businesses that might be struggling on their own, but again not a trend for their industry, as an example. And frankly, one or two of them, I should say, at least one of these and sometimes is the case is the regime change. And with that come new priorities and often new partners. So this is some of that. Like, I said if you take each one and its story in isolation, you won't be able to put any correlation together among them.

Surinder Thind

Got it. And then, a final question here on the revision to the metrics on the deal size. Any color on what the metric would be under the old methodology of project sizes greater than $500,000?

Jeff Davis

Yes. If you look at the over half a million, we did 107 in the second quarter and that compares to 75 in the second quarter of last year.

Surinder Thind

Thank you. And then, in terms of just further breakdown of that number, obviously, where does, kind of, the breakpoints start to move at this point? Is it $2 million; is it $5 million projects? I know that in the past you've talked about potentially even pursuing eight-figure projects. But any kind of sense of the distribution of the deals that are greater than $1 million here?

Jeff Davis

Yes. I think, let me have a look here. So we have the million-dollar-plus deals making up about 50% of our revenue. And that's up substantially from 40% a year ago.

Surinder Thind

Okay. Got it. Thank you.

Jeff Davis

Yes.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Jonathan Lee with Morgan Stanley. Your line is open.

Jonathan Lee

Hey, guys. Thanks for taking my questions. Have you seen any notable changes to engagement type over the course of the quarter, whether that's there because of shifting delivery or macro-related concerns? Any sort of color that would be helpful.

Jeff Davis

Yes. Not much beyond what we talked about. If anything, it improved throughout the court. If you look at bookings, right, and then the types of projects, their size and duration, complexity, all are increasing. And I think that's a function of our building brand.

And a lot of those are with repeat customers. Much of our revenue comes from repeat customers, which I think is a testament to our quality delivery and them having more confidence and faith and giving us more business and letting us take on larger and more complex engagements.

That said, we've got a lot of new engagements that are starting at a higher level. The way this business works and always has is, often in a new relationship you start pretty small and build from there as you gain trust.

But we're actually seeing clients willing, I think, because of reputation and brand and things like that, willing to bite off a bigger chunk out of the gate. So that's helping move up the average as well.

Jonathan Lee

Got it. That's helpful color. And look historically, you've been very acquisitive. Any sort of update as to how you're thinking about future acquisitions? What are you looking for in these acquisitions and what's the current landscape or pipeline like for targets?

Jeff Davis

Yes. So, sort of, all things digital, of course, as we move our focus more and more, almost exclusively to that, in terms of our revenue base. But we also really like the nearshore. That's worked extremely well for us as the offshore continues to.

So we're going to continue to look for things that are digital that also have that component. That isn't to say, we wouldn't do something that was North American only, but we like the combination and we like that back end for sure.

And we're pretty optimistic. It's been a while since we've gotten a deal done. We've been in a lot of discussions, a lot of talks and we are in later stages now with a couple of firms. So we're optimistic that we'll have a deal done here probably in this quarter, and perhaps another one before the end of the year behind that possibly even two more.

Jonathan Lee

Thanks for the color, guys.

Jeff Davis

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from a line of Puneet Jain with JPMorgan. Your line is open.

Puneet Jain

Hey, thanks for taking my question. The question on margins for this year given higher offshore -- a potentially higher offshore and with further expansion into Argentina, India. What should we expect for margins this year EBITDA margins for this year or maybe for next year? Can you remind us the margin sensitivity with increasing offshore mix?

Jeff Davis

Yes. If you look at the guidance that we reaffirmed that's going to point to probably about 150 basis points or more of adjusted EBITDA expansion. And we've got a serious opportunity there that will continue for some time in terms of the scale particularly obviously in SG&A.

In terms of gross margin, I've said for some time we're going to hold it intentionally strategically around the 40 -- low 40s as a percent because we want to stay as competitive as possible. We're a little more concerned about growing the top-line than we are necessarily expanding gross margins.

Again that said even holding gross margins flat, we do have an opportunity to continue to expand EBITDA. I do think however that gross margin can and will expand gradually. But on the face of wage inflation and everything else we're applying some of that additional margin on a location basis to your point more to pricing and more to the wage increase.

Puneet Jain

Got you. And then second -- Jeff if you take a step back look at the business you are lot more globally distributed in delivery now. The projects that you are trying to pursue are larger than what they used to be before. Is there a risk or rather maybe not risk -- is there a consideration about project management like -- or contract management?

Like a few years ago I think, you talked about inside platform, a proprietary platform for project management -- internal project management. Is that something that you need to pay more attention to as you become larger as you become more distributed and service global customers?

Jeff Davis

Yes. Most definitely. And I'm not sure if you made the early part of the call and the prepared statements, but Tom covered what we're referring to as Compass or what is our internal proprietary tool that is custom called Compass that does exactly what you described.

It's a tool that management can use to not only allocate resources and make sure we've got the right people aligned with the right opportunities, but also monitor in real-time the performance of any given project in terms of financial as well as progress. So you're right. It is important to scale the entire business, including the infrastructure not just headcount. And we're doing that with Compass.

Puneet Jain

Got it. Thank you.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open.

Vincent Colicchio

Yes, Jeff. I'm curious on the healthcare and financial services verticals which have been mainstays for the company in terms of growth. They were down sequentially. Should we expect a rebound in the near future?

Jeff Davis

Absolutely. Both of those are actually very healthy. And I'll make no secret we talked about Kaiser Permanente for a long time. We did $30 some-odd million in business with them last year. I've mentioned for a long time that we're exiting that account and that's going to be down to single-digits this year. So some of the sort of at least year-over-year basis is coming from just that account.

At the same time, we're adding more and more and growing the existing ones we have. So we still continue to see robust demand in healthcare. Super excited about financial services. I mean, you're going to see us I think increase that obviously absolutely, but also relatively going forward where we've finally gotten to the point where we've penetrated more on the technology side.

We've done a lot of management consulting over the years in that space, but we've been under-represented on the technology piece which we're gaining a lot of traction with right now and starting up a lot of new accounts and new engagements and existing accounts. And I think you'll see that move the meter pretty substantially material here by end of year.

Vincent Colicchio

And any thoughts on the changes in Columbia's government any impact they may have on the business?

Jeff Davis

You know, I have some concern because you never know in those situations and I think the individual has a reputation of maybe not being the most US-friendly. However, I was at least pleased that now he's saying and shortly after the election he's enforced that he wants a good relationship with the US. And we'll just have to see how it goes and take it as it comes. But right now from what we understand in talking to the folks that live there, of course, and understand the climate better than I do, they're pretty optimistic.

Paul Martin

And one thing I add there Vince is we did the Overactive acquisition last fall, which essentially broadened our delivery capability in Latin America. And as Jeff said on the M&A front, if we do something in Latin America, we would likely again further reduce our dependance on Columbia.

Vincent Colicchio

And one macro question. I think, I know the answer, but any easing in wage inflation in any of your geographies?

Jeff Davis

I would say it’s been surprisingly manageable. It's definitely increased but not as much as you'd think given the lack of supply, right? But a lot of these folks are I guess Gen-Z not necessarily motivated just by money. Of course everybody needs to make a good living and that's an important yardstick for where you are in your career.

But there are other factors that come into that. I think we're seeing that come into play. And we're I think very competitive on both the wage increases, as well as new hire wages, and we're faring well in terms of landing new people. So I feel like we've got it at the right level and right now it's very manageable. And as I said before our rates are actually slightly ahead of it.

Vincent Colicchio

Thanks for answering my questions.

Jeff Davis

Thanks Vince.

Operator

Thank you. Please stand by for our next question. Our next question comes from a line of Jack Vander Aarde with Maxim Group. Your line is open.

Jack Vander Aarde

Great. Good morning and thanks for taking my question. Jeff, good to see the EPS guidance range maintained for the year despite the lower revenue guide. I know you mentioned contract cancellations and offshore mix shifts as factors. But was there any other impact maybe from currency fluctuations stronger dollar maybe delays in large projects or just maybe a greater uncertainty of the timing of large projects? How much should that play a role?

Jeff Davis

That's a good question. We have FX pretty largely hedged, so it doesn't play much of a factor in reality. Of course, most of our revenue is -- no -- North American revenue, so it's really more on the cost side. And again we have that mostly hedged and we'll continue to do that as we continue the expansion obviously in offshore and near-shore.

Jack Vander Aarde

Okay, great. And then maybe just in terms of organic growth and maybe Paul can help here too. Any chance you can share what the overall organic growth rate was in the second quarter? And then the implied, if you can, implied organic growth for the third quarter guidance in the 2022 rev guide?

Paul Martin

Sure. Yeah. So the organic growth for Q2 was 14% and the guide is 11.5 to 14.5 in Q3, and 14 to 16 for the year.

Jack Vander Aarde

Okay, great. Thank you. That’s it for me guys. Thank you.

Jeff Davis

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Divya Goyal with Scotiabank. Your line is open.

Divya Goyal

Good morning, everyone. So, I have a special question on the guidance for the year. You did cut the guidance down by approximately $10 million to $20 million, but you continue to maintain your EPS guidance. Do we anticipate material cost cutting here, or is it due to the offshoring is why you see that benefit?

Jeff Davis

It's mostly offshore. We're not aggressively cutting any costs. We always try to manage costs carefully. In fact we're actually making investments with, obviously, baked into that guidance above and beyond what we've done in most latest years I would say. So, it’s more -- there's a little bit of a bonus reduction but mostly it's scale.

Divya Goyal

That's great. So, on that same subject could you talk to us a little bit about your expansion across India? And then currently all these offshore locations are your cost basis, but do you see them becoming revenue basis eventually as you continue to expand your presence there?

Paul Martin

Sure. We're going to continue to expand. I think we see the market primarily as delivery centers for US customers. The acquisitions that we did in Latin America, we do a modest amount of work for in-country customers, and we'll continue to evaluate that with our scale in India and likely would pick up in-country customers so to speak over time there.

Divya Goyal

But there is no such plans for now?

Jeff Davis

Right now, not so much in India. We do actually do that in Latham, and a little bit in China. China is actually servicing a client that we already had a preexisting relationship with in the US. But currently no, we're managing India as basically a development center.

Divya Goyal

Perfect. And one more subject on the staffing side of things. You did mention that you're aggressively hiring and obviously, you do see a huge amount of demand, but something that is an industry-wide theme is -- tech services are doing well. All companies on the tech services front seem to be hiring, but could there be a risk of over-hiring or over-staffing considering your expansion across India and in general this trend of college hiring?

Jeff Davis

Yes, I think that's a good question, and there’s always a balance in this business. I think we're doing a good job with it. As I mentioned before, we've got tools in place, proprietary tools that we're using to manage the proper capacity. And again, mainly allowing attrition if we feel like we need to slow increase more allowing attrition than slowing hiring. We've got a very real-time hiring model with 20-some-odd full-time people in our talent acquisition pool, and we'll continue to deflect that as we need.

Divya Goyal

Perfect. And just my last question. On the M&A front, do you see M&A coming more from access to technology or would it be more offshore? What are your general expansion plans in the next few quarters?

Jeff Davis

Yes. We're very interested in adding to our offshore and nearshore capacity, but also in a way that fills skill gaps, right? It isn't just a headcount play. These are targets that have a meaningful account base that we'll be introducing additional services into, but also a great talent pool that in many cases have either more depth or even unique skills that we don't have enough of or have gaps in today.

Divya Goyal

Great. Sorry, can I just ask one more last question here? On Compass, is that an internal tool only or is that an IP that you use externally as well?

Jeff Davis

Operator?

Operator

Yes. Can you hear me?

Jeff Davis

Yes.

Operator

All right. There was a question.

Jeff Davis

Do we have a question?

Operator

Your line is open.

Divya Goyal

Sorry Jeff. I was just asking about Compass as a tool. Do you use that internally or do you use that as a proprietary tool externally as well and sell it to external customers?

Jeff Davis

Currently, it's internal. But -- of course, a lot of it the information data coming out of it is geared towards driving client success. The future plans for it is to extend it actually to the client where they can log in and see a lot of these details directly.

Divya Goyal

Perfect. Thank you so much for answering my questions.

Jeff Davis

Okay. Thank you.

Operator

Thank you. Please standby for our next question. We have a follow-up question from the line of Brian Kinstlinger with Alliance. Your line is open.

Brian Kinstlinger

Great. Thank you. In your presentation, healthcare is 25% of revenue compared to 31% in the prior second quarter and using back of the envelope suggesting industry contribution's down despite M&A. If I used that same methodology, retail and CPG were down as well. Last quarter you talked about the natural conclusions of some projects. So with the 40% increase in bookings and the solid pipeline you're discussing, when should we expect these verticals are going to return to growth?

Jeff Davis

I think you'll see it this year. I'm not sure if you caught it earlier, but some of the contributor on a year-over-year basis -- material contributor on a year-over-year basis to healthcare is KP. We talked about that in the past. So substantial decrease there this year and as I think I mentioned earlier, financial services decreasing. Retail CPG, it's an interesting climate out there. Consumer-driven economy, we'll see what happens. I'm not as probably bullish on that, in general, as I am in healthcare. I do think that we'll see it increase there. I think some of the percentage of declines, are actually dilution from increases in other industries.

Brian Kinstlinger

Great. Thank you so much follow-up.

Jeff Davis

Thanks, Brian.

Operator

Thank you. Please stand by for our next question. We have a follow-up from the line of Surinder Thind with Jefferies. Your line is open.

Surinder Thind

Thank you. A question about just your expansion in India and the addition of the new global delivery locations. Can you talk a little bit about that in terms of the relative cost of opening up a new location versus maybe expanding an existing location?

Also in terms of the selection of the location perhaps moving to smaller cities. Is there may be a more of a work-from-home model there? How should we think about the forward-looking expansion plans versus existing real estate footprints?

Tom Hogan

During the pandemic and what we're doing there's a lot of work from home that was happening in India. We were pretty strategic in where we made those hires whereas worked remotely. Actually the infrastructure we're building is just a supply for the individuals we've hired specifically in certain areas. We are expanding in Chennai a very large city. We're actually expanding to another side of Chennai which helps us there. Costs are relative are good position for us there.

As well as when we look at Pune, Hyderabad, we have a infrastructure of team that we're providing a place them to work as they now come back into the office and provide better collaboration and get out of their homes and work more at our office space. So, the locations are very specific to hiring that we did during 2021 and currently. Sorry, go ahead.

Jeff Davis

I was going to say on the cost side of that you asked about. You probably know well it's very effective and pretty low cost. However as part of your question we are actually expanding in existing facilities where we can, so it's a pretty darn low-cost gamble.

Surinder Thind

Got it. And then a follow on the M&A question earlier. Sounds like you're in the process or maybe a deal this quarter maybe something thereafter in the following quarters. Can you talk a little bit about valuations? It seems that it's been more difficult to get deals done simply because valuations are higher and they haven't quite reset the way the public markets have. Any color there in terms of the attractiveness in consideration of valuation versus the strategicness of the deal?

Jeff Davis

Absolutely. There is a higher premium today than there was a year ago and the year before that. We really haven't seen a lot of a pullback maybe a little bit. I think the difference between that and the public market is that there are other factors impacting the public market that aren't impacting these private businesses or our own in terms of demand.

I mean other than what we've already talked about these folks are very optimistic. They're not desperate and they continue to be a premium. However again we work hard look at a lot of different businesses and a lot of different elements of those businesses and whether they're going to be a fit for us or not. And we will walk away from deals that we think are just too expensive and have.

Surinder Thind

And one final housekeeping question under the new large project metric are you able to provide the numbers for last quarter?

Jeff Davis

Where is it?

Paul Martin

Yes. 53 deals over a million dollars in Q1 of 2022 and 47 in the summer quarter last year.

Surinder Thind

Got it. Thank you. That’s it for me.

Paul Martin

Thank you.

Operator

Thank you. I'm showing no further questions in the queue. I will now like to turn the call back over to Jeff for closing remarks.

Jeff Davis

Well, thank you all for your time today. While the results I'm sure from many perspectives were mixed, I think the outlook is fantastic. Hopefully, we conveyed that result. Thank you. And we'll be back here in 90 days with another great result. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Fri, 05 Aug 2022 11:13:00 -0500 en text/html https://seekingalpha.com/article/4530557-perficient-inc-prft-ceo-jeff-davis-on-q2-2022-results-earnings-call-transcript
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