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Caldwell Partners International Inc (The)
Symbol CWL
Shares Issued 20,404,552
Close 2020-11-12 C$ 0.78
Recent Sedar Documents

Caldwell Partners earns $2.84-million in fiscal 2020

2020-11-12 17:33 ET - News Release

Mr. John Wallace reports

CALDWELL ISSUES FISCAL 2020 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS

The Caldwell Partners International Inc. has issued its financial results for the fourth quarter fiscal 2020 and full year ended Aug. 31, 2020.

"Fiscal 2020 was a year unlike any other," said John Wallace, chief executive officer. "After an incredible start to the year, the world went in a completely unexpected direction due to the pandemic and the ensuing economic uncertainty. The effect on our business has been significant, as employment levels and hiring at our clients were dramatically reduced, but it has also been the catalyst for an impressive level of innovation and adaptation inside our firm. Our team has done a superlative job of delivering outstanding and transformative leadership talent for our clients, and we have seen monthly sequential increases in new search volumes and business development activity. We remain extremely confident in the team's ability to garner market share throughout a recovering market."

Mr. Wallace continued: "As a result of quick and decisive steps to actively manage costs, preserve capital and enhance liquidity, we have come out of a challenging year in a position of financial strength. We have a balance sheet and a cash position with liquidity to operate during the current pandemic environment, and do intend to make strategic investments to expand our industry, geographic and service coverage as the opportunities arise."

Financial highlights (all numbers expressed in thousands)

Impact of the COVID-19 pandemic on the company's business

The company experienced record growth results, leading up to the pandemic's occurrence. Fiscal 2019 revenue of $72.1-million was the highest in the firm's history, and the first half of fiscal 2020 (Sept. 1, 2019, to Feb. 28, 2020) was 12 per cent higher than the same period in fiscal 2019. Since the onset of the pandemic, the company has seen significant pressure on its business.

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 the company operates in of 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, impacting both revenue and costs. It is working entirely remotely beginning in March, and while it has reopened its offices as health restrictions provide, it is still encouraging its people to continue working remotely while safety concerns remain. It does not anticipate a full return to its offices until some time later in 2021.

Government stimulus grants

As discussed more fully in Note 11 to the company's annual financial statements, the company has participated in available stimulus grants offered by the governments in Canada and the United States to help offset the negative impact of the COVID-19 pandemic. The total amount of government stimulus grants recognized during 2020 was $2,839 ($241 and $2,598 in the third and fourth quarters, respectively). The costs are shown as offsets to the functional cost categories they applied to. Of the total, $707 was a direct grant pertaining to Canada, shown as an offset to cost of sales in the third and fourth quarters of $241 and $466, respectively. An amount of $2,132 pertained to the United States in the form of a loan that is eligible for forgiveness if certain conditions are met. The company believes it has complied with the relevant provisions of the program by validly using the entire proceeds of the loan for qualifying expenses during the coverage period and has therefore concluded that forgiveness of the loan is probable. As a result, it has recategorized the proceeds from a loan to that of a government grant, represented by deductions in cost of goods sold ($1,739) and selling, general and administrative expenses ($393), respectively.

The company applied for forgiveness review by its lender and the U.S. government on Sept. 21, 2020. It is unknown how long the loan forgiveness review process will take, with indication from its lender of up to five months. Ultimate forgiveness is dependent on the bank review and a further review by the Small Business Administration of the United States. While the company believes the forgiveness criteria have been achieved, no guarantee of forgiveness can be given until formal forgiveness is received. It is possible the loan will not be forgiven and will need to be repaid.

  • Operating revenue
  • Fourth quarter:
    • Professional fees for the fourth quarter of fiscal 2020 decreased 45.7 per cent (46.5 per cent excluding a favourable 0.8-per-cent variance from exchange rate fluctuations) from the comparable period last year to $11,128 (2019: $20,502).
    • The decrease in professional fees is attributable to reductions in the number of assignments to 110 (2019: 127) and average fee per assignment to $101 ($100 excluding exchange rate fluctuations; 2019: $161). The decrease in both factors is primarily the result of the pandemic's economic impact on clients and related pricing pressures among executive search firms. The number of assignments decreased on a lower number of assignments per partner at 2.9 (2019: 3.2) and a lower average number of partners at 37.3 (2019: 40.0).
    • On a segment basis, $7,541 of professional fees were generated from the United States (2019: $15,950), $2,304 from Canada (2019: $4,496) and $1,283 from Europe (2019: $56).
    • Licence fees from the company's licensee in New Zealand for the use of the Caldwell brand and intellectual property for the fiscal 2020 fourth quarter were $24 (2019: $71).
    • Direct expenses incurred and billed to clients during the fiscal 2020 fourth quarter were $102 (2019: $398).
  • Full year:
    • Professional fees for 2020 decreased 18.7 per cent (19.5 per cent excluding a favourable 0.8-per-cent variance from exchange rate fluctuations) over the comparable period last year to $56,690 (2019: $69,749).
    • The decrease in professional fees is attributable to a reduction in the number of assignments to 408 (2019: 439) and a lower average fee per assignment of $139 ($138, excluding exchange rate fluctuations; 2019: $159). Similar to the fourth quarter figures, both factors were negatively impacted by the pandemic in the second half of the year. The number of assignments decreased on a lower number of assignments per partner at 10.6 (2019: 11.1) and a lower average number of partners at 38.5 (2019: 39.5).
    • On a segment basis, $42,842 of professional fees were generated from the United States (2019: $53,282), $10,607 from Canada (2019: $15,497) and $3,241 from Europe (2019: $970).
    • Licence fees for the year ended Aug. 31, 2020, were $177 (2019: $700).
    • Year-to-date direct expenses incurred and billed to clients were $1,326 (2019: $1,689).
  • Operating profit
  • Fourth quarter:
    • The fourth quarter's operating profit increased $2,548 to $2,302 (2019: loss of $246). The increase was the result of lower revenue, net of reimbursements ($9,421), being more than offset by lower cost of sales ($6,142), lower selling, general and administrative expenses ($1,708), government stimulus grants received in 2020 ($2,598), and the impairment expense taken in the fourth quarter of fiscal 2019 to write off the goodwill balance of the company's European segment ($1,521). Excluding the net favourable impact of exchange rate changes on operations for the quarter of $33, operating profit on a constant currency basis increased $2,515 to $2,269.
    • Selling, general and administrative expenses for the fourth quarter decreased $1,708 (38.3 per cent) from $4,460 to $2,752. Excluding unfavourable exchange rate variances of $15 (0.3 per cent), expenses decreased $1,723 (38.6 per cent). This constant currency decrease was the result of management bonus accrual reversals as a result of not meeting targeted performance ($604); decreased share-based compensation expense, the result of a lower share price and a reduction in performance factors, as targeted performance was not achieved ($439); lower marketing and business development expenses due to the company's consultants' inability to travel as a result of COVID-19 travel restrictions and reduced marketing spend ($381); a municipal tax assessment in fourth quarter 2019 primarily related to prior years ($350); and offsetting favourable variances across other smaller cost categories ($51).
    • Effective Sept. 1, 2019, the company implemented international financial reporting standard 16. An interest expense on lease liability of $104 (2019: nil) was recognized during the quarter per IFRS 16.
    • On a segment basis, fourth quarter operating profit was $678 (2019: loss of $5) from Canada, $1,360 (2019: $1,714) from the United States and $264 (2019: loss of $1,955) from Europe.
  • Full year:
    • Operating profit for the full year increased $1,958 to $3,766 (2019: $1,808). The increase was the result of lower revenue, net of reimbursements ($13,582), being more than offset by lower cost of sales ($8,694), lower selling, general and administrative expenses ($2,486), government stimulus grants received in 2020 ($2,839), and the impairment expense taken in the fourth quarter of fiscal 2019 to write off the goodwill balance of the company's European segment ($1,521).
    • Selling, general and administrative expenses for the full year decreased $2,486 (17.7 per cent) to 11,588 from $14,074. Excluding unfavourable exchange rate variances of $74 (0.5 per cent), expenses decreased $2,560 (18.2 per cent). 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 ($804); management bonus accrual reversals as a result of not meeting targeted performance ($670); lower marketing and business development expenses ($532); lower office expenses as a result of adoption of IFRS 16 ($456), largely offset by the interest on lease liability (see below); a municipal tax assessment in Q4 2019 primarily related to prior years ($350); 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 ($265); lower costs of annual practice meetings, held last year but not in the current year ($188); lower partner recruitment expenses ($111); and offsetting investment costs in the company's Caldwell Analytics growth initiative through higher consulting fees ($501); higher office expenses on the early termination of and losses on disposition related to a Dallas lease ($292); and unfavourable variances across other smaller cost categories ($23).
    • For 2020, an interest expense on lease liability of $324 (2019: $nil) was recognized.
    • On a segment basis, operating profit for the year was $1,290 (2019: $1,490) from Canada, $2,494 (2019: $3,334) from the U.S. and a loss of $18 (2019: loss of $3,016) from Europe.
  • Net earnings after tax:
    • Fourth quarter net income was $2,572 (12.6 cents per share), as compared with a net loss of $954 (4.7 cents per share) in the comparable period a year earlier.
    • Full-year net income was $2,846 (13.9 cents per share) compared with $325 (1.6 cents per share) last year.
    • Income tax expense was lower than statutory rates in the fourth quarter and for the full year. This was largely due to the cancellation of an intercompany loan balance between the company's U.S. and United Kingdom entities. The cancellation generated a deductible loss in the U.S., which was able to be carried back up to five years to generate an immediate benefit. In the U.K., the cancellation generated taxable income, but the company was able to fully apply loss carryforward from prior years to shield current tax expense.

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 section "Non-GAAP Financial Measures and Other Operating Measures" in the company's management's discussion and analysis for a definition of these terms.

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

About The Caldwell Partners International Inc.

At Caldwell, it believes talent transforms. As a leading provider of executive talent, it enables its clients to thrive and succeed by helping them identify, recruit and retain the 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. With offices and partners across North America, Europe and Asia Pacific, it takes pride in delivering an unmatched level of service and expertise to its clients.

Understanding that transformative talent is not limited to executive levels, its Caldwell Advance solution focuses on emerging leaders and advancing professionals who can also have a profound impact on a company's ability to turn potential into success. The company also leverages its skills and networks to provide agile talent solutions in the form of flexible and on-demand advisory solutions for companies looking for support in strategy and operations. Caldwell Analytics is a talent optimization solution that uses highly respected, results-driven assessments to align clients' talent and business strategies, driving better business results.

Caldwell's common shares are listed on the Toronto Stock Exchange (TSX: CWL).

                            CONSOLIDATED STATEMENTS OF EARNINGS           
                            (in $000s except per-share amounts) 

                                                                         12 months ended Aug. 31,
                                                                            2020            2019
Revenues
Professional fees                                                        $56,690         $69,749
Licence fees                                                                 177             700
Direct expense reimbursements                                              1,326           1,689
                                                                          58,193          72,138
Cost of sales expenses
Cost of sales                                                             44,352          53,046
Government stimulus grants                                                (2,446)              -
Reimbursed direct expenses                                                 1,326           1,689
                                                                       ---------       ---------
                                                                          43,232          54,735
                                                                       ---------       ---------
Gross profit                                                              14,961          17,403
Operating expenses
Selling, general and administrative                                       11,588          14,074
Goodwill impairment                                                            -           1,521
Government stimulus grants                                                  (393)              -
                                                                       ---------       ---------
                                                                          11,195          15,595
                                                                       ---------       ---------
Operating profit                                                           3,766           1,808
Finance expenses (income)
Interest expense on lease liability                                          367               -
Investment loss (income)                                                     605            (211)
Foreign exchange (gain) loss                                                (179)            168
                                                                       ---------       ---------
Earnings before income tax                                                 2,973           1,851
Income tax expense                                                           127           1,526
                                                                       ---------       ---------
Net earnings for the year attributable to owners of the company            2,846             325
                                                                       =========       =========
Earnings per share
Basic and diluted                                                         $0.139          $0.016
                                                                       =========       =========

We seek Safe Harbor.

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