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Caldwell Partners loses $504,000 in Q3 2020

2020-07-09 17:16 ET - News Release

Mr. John Wallace reports

CALDWELL ANNOUNCES FISCAL 2020 THIRD QUARTER FINANCIAL RESULTS

The Caldwell Partners International Inc. has released its financial results for the fiscal 2020 third quarter ended May 31, 2020. All references to quarters or years are for the fiscal periods unless otherwise noted, and all currency amounts are in Canadian dollars.

                                FINANCIAL HIGHLIGHTS 
                        (in $000s except per-share amounts)
  
                                       Three months ended   Nine months ended
                                                   May 31,             May 31,  
                                           2020      2019      2020      2019  

Professional fees                       $11,223   $19,535   $45,562   $49,247
Licence fees                                $39       $38      $153      $629
Direct expense reimbursements              $294      $374    $1,224    $1,291
Revenues                                $11,556   $19,947   $46,939   $51,167
Cost of sales                            $8,925   $14,704   $35,415   $38,208
Reimbursed direct expenses                 $294      $374    $1,224    $1,291
Expenses                                 $1,690    $3,330    $8,785    $9,677
Operating profit                           $647    $1,539    $1,515    $1,991
Interest expense on lease liability (1)     $92         -      $220         -
Investment income (loss)                  ($748)      $88     ($612)     $144
Earnings (loss) before tax                ($193)   $1,627      $683    $2,135
Net earnings (loss) after tax             ($504)   $1,035      $274    $1,279
Net earnings (loss) per share           ($0.025)    $0.51    $0.013    $0.063

(1) Effective Sept. 1, 2019, IFRS (international financial reporting standards)
    16 was implemented, resulting in a change to the way leases are treated and
    giving rise to interest expense on lease liability. During periods prior to
    fiscal 2020, all lease-related expenses were recognized as occupancy costs
    and included in expenses in arriving at operating profit.

"This is a challenging business environment for the executive search industry," said John Wallace, chief executive officer. "Our third-quarter revenue is down 42 per cent over last year, which we believe is in line with our industry over all. That said, we remain extremely confident about our ability to manage our business through this pandemic and economic downturn."

Mr. Wallace continued: "In light of uncertainties in the depth and length we would be impacted, we took quick and decisive steps to actively manage costs, preserve capital and enhance liquidity. Our cash and untapped available credit facilities have us in an excellent financial position, allowing us to continue focusing on growth initiatives and, in particular, partner recruitment. We were pleased to announce the addition of a new partner, Peter Reed, during the quarter and expect to make further progress in the fourth quarter, leveraging the uncertainty in the industry with the stability and the opportunities Caldwell has to offer."

Financial highlights (all numbers expressed in $000s)

On Jan. 30, 2020, the World Health Organization (WHO) characterized the novel coronavirus (COVID-19) as a public health emergency. At that time, there had not been a direct negative impact seen in the regions in which the company operates in Canada, the United States and the United Kingdom. On March 11, the WHO expanded its characterization of COVID-19 to a global pandemic. The impact of COVID-19 on the company has been significant and was experienced consistently across all three of its primary geographies. Areas of impact include both revenue and costs.

Operating revenue

Third quarter

Professional fees for the third quarter of 2020 decreased 42.5 per cent (44.2 per cent excluding a favourable 1.7-per-cent variance from exchange-rate fluctuations) over the comparable period last year to $11,223 (2019: $19,535).

The decrease in professional fees is attributable to a reduction in the number of assignments to 61 (2019: 115) as a result of the COVID-19 pandemic across North America, partially offset by a higher average fee per assignment of $184 ($178 excluding exchange-rate fluctuations (2019: $170)) resulting from completing searches during the current quarter that had been initiated in prior quarters at a higher average compensation level than anticipated. The number of assignments decreased on a lower number of assignments per partner at 1.6 (2019: 2.9) and a lower average number of partners at 38.3 (2019: 39.3).

On a segment basis, $9,974 of professional fees were generated from the United States (2019: $15,852), $1,264 from Canada (2019: $3,425) and net negative revenue of $15 from Europe (2019: revenue of $258).

In light of concerns over the financial impact of the COVID-19 pandemic, all accounts receivable over 90 days old have been reserved. This reduced revenue in Canada, the United States and Europe in the quarter by $396, $502 and $415, respectively.

Licence fees from the company's licensees in Australia and New Zealand for the use of the Caldwell brand and intellectual property for the fiscal 2020 third quarter were $39 (2019: $38).

Direct expenses incurred and billed to clients during the fiscal 2020 third quarter were $294 (2019: $374).

Year to date

Professional fees for the first nine months of 2020 decreased 7.5 per cent (8.3 per cent excluding a favourable 0.8-per-cent variance from exchange-rate fluctuations) over the comparable period last year to $45,562 (2019: $49,247).

The decrease in professional fees is attributable to a reduction in the number of assignments to 298 (2019: 312) and a lower average fee per assignment of $153 ($152 excluding exchange-rate fluctuations (2019: $158)). The number of assignments decreased on a lower number of assignments per partner at 7.7 (2019: 8.0) on a consistent average number of partners at 38.8 (2019: 38.9).

On a segment basis, $35,301 of professional fees was generated from the U.S. (2019: $37,332), $8,303 from Canada (2019: $11,001) and $1,958 from Europe (2019: $914).

Year-to-date licence fees for the nine months ended May 31, 2020, were $153 (2019: $629). Last year's results included $497 in licence fees from CPGroup LatAm, with which the company ended its licensing relationship effective Feb. 28, 2019.

Year-to-date direct expenses incurred and billed to clients were $1,224 (2019: $1,291).

Operating profit

Third quarter

Operating profit for the third quarter was $647 (2019: $1,539). The $892 decrease was caused by lower revenue, net of reimbursements ($8,311) partially offset by lower cost of sales ($5,779) and lower expenses ($1,640) from the variances discussed below. Excluding exchange-rate variances, operating profit decreased $921 to $618.

Expenses in the third quarter decreased 49.2 per cent or $1,640 over the same period in the prior year to $1,687 (2019: $3,330). Excluding the impact of exchange-rate variances of $52, expenses decreased $1,692 or 50.8 per cent over the same period last year. This constant currency decrease was the result of decreased share-based compensation expense, the result of a lower share price and a reduction in performance factors, as a result of not meeting targeted performance ($588); management bonus accrual reversals as a result of not expecting to meet targeted performance ($473); lower marketing and business development expenses, largely due to consultants' inability to travel as a result of COVID-19 travel restrictions ($291); lower recruitment expenses as partner hires came from sources without fees ($141); annual partner practice meetings, held last year but not in the current year due to travel restrictions ($135); the implementation of IFRS 16 resulted in a decrease in office lease expenses ($103), although the net impact on the company's results is immaterial when interest expense is included; and unfavourable variances across other smaller cost categories ($39).

Effective Sept. 1, 2019, the company implemented IFRS 16. An interest expense on lease liability of $92 (2019: nil) was recognized during the quarter in accordance with IFRS 16.

On a segment basis, third-quarter operating profit was $462 (2019: $188) from Canada, $767 (2019: $1,800) from the U.S. and a loss of $582 (2019: loss of $449) from Europe.

Year to date

Operating profit for the first nine months of 2020 was $1,515 (2019: $1,991). The $476 decrease was caused by lower revenue, net of reimbursements ($4,161) partially offset by lower cost of sales ($2,793) and lower expenses ($892) from the variances discussed above. Excluding exchange-rate variances, operating profit decreased $512 to $1,479.

Expenses for the first nine months of 2020 decreased 9.2 per cent or $892 over the same period in the prior year to $8,785 (2019: $9,677). Excluding the impact of exchange-rate variances of $51, expenses decreased $943 or 9.7 per cent over the same period last year. This constant currency decrease was the result of lower share-based compensation expense as a result of a lower share price and a reduction in performance factors as a result of not meeting targeted performance in the current period ($365); lower legal expenses with last year's expenses being higher than usual due to the company's pursuit of a claim against a former client ($316); the implementation of IFRS 16 resulted in a decrease in office lease expenses ($271), although the net impact on the company's results is immaterial when interest expense (see below) is included; lower costs of annual practice meetings, held last year but not in the current year ($178); lower marketing and business development expenses ($151); higher consulting costs related to the company's Caldwell Analytics growth initiative ($391); and favourable variances across other smaller cost categories ($53).

For the first nine months of 2020 an interest expense on lease liability of $220 (2019: nil) was recognized.

On a segment basis, operating profit for the first nine months was $1,136 (2019: $1,530) from Canada, $629 (2019: $1,622) from the U.S. and a loss of $250 (2019: loss of $1,161) from Europe.

Net earnings after tax

Third-quarter net loss was $504 (2.5 cents per share), as compared with net income of $1,035 (5.1 cents per share) in the comparable period a year earlier.

Year-to-date net income was $274 (1.3 cents per share), as compared with $1,279 (6.3 cents per share) in the comparable period a year earlier.

Average number of partners, annualized professional fees per partner, number of assignments, number of assignments per partner, average fee per assignment, revenue, net of reimbursements and unencumbered cash do not have any standardized meaning under IFRS and may not be comparable with measures presented by other companies. These operating measures are used by the company to analyze its results. Please refer to the section, non-generally accepted accounting principles financial measures and other operating measures, in the company's management discussion and analysis for a definition of these terms.

For a complete discussion of the quarterly financial results, please see the company's management discussion and analysis posted on SEDAR.

                      CONSOLIDATED INTERIM STATEMENTS OF EARNINGS
                                  (in $000s Canadian)

                                        Three months ended  Nine months ended 
                                                    May 31,            May 31,            
                                              2020    2019       2020    2019                                     
Revenues
Professional fees                          $11,223 $19,535    $45,562 $49,247
Licence fees                                    39      38        153     629
Direct expense reimbursements                  294     374      1,224   1,291
                                            11,556  19,947     46,939  51,167
Cost of sales                                8,925  14,704     35,415  38,208
Reimbursed direct expenses                     294     374      1,224   1,291
                                             9,219  15,078     36,639  39,499
Gross profit                                 2,337   4,869     10,300  11,668
Expenses
General and administrative                   1,449   2,788      8,003   8,631
Sales and marketing                            151     440        833     983
Foreign exchange loss (gain)                    90     102        (51)     63
                                             1,690   3,330      8,785   9,677
Operating profit                               647   1,539      1,515   1,991
Interest expense                                92       -        220       -
Investment loss (income)                       748     (88)       612    (144)
(Loss) earnings before income tax             (193)  1,627        683   2,135
Income tax expense                             311     592        409     856
Net (loss) earnings for the period
attributable to owners of the company         (504)  1,035        274   1,279
Earnings per share
Basic and diluted                          ($0.025) $0.051     $0.013  $0.063

About The Caldwell Partners International Inc.

Caldwell believes that talent transforms. As a leading provider of executive talent, Caldwell enables its clients to thrive and succeed by helping them identify, recruit and retain their best people. Its reputation, 50 years in the making, has been built on transformative searches across functions and geographies at the very highest levels of management and operations.

We seek Safe Harbor.

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