Caldwell Posts 38 Percent Revenue Loss

The search firm has agreed with the selling shareholders of IQTalent Partners to amend an existing purchase agreement to defer the majority of the remaining purchase price and earnout payments.

January 13, 2023 – Toronto-based Caldwell issued its financial results for the fiscal 2023 first quarter ended Nov. 30, 2022, posting consolidated professional fee of $23.7 million (Canadian), a 38 percent decrease from the same period a year ago when it reported $38.3 millon. “We experienced a slowing in our business segments in the last quarter of our record-breaking fiscal 2022,” said John Wallace, CEO. “That suppressed hiring environment has amplified throughout the first quarter of fiscal 2023, given our clients’ growing concerns about rising inflation, interest rates and an impending recession.”

“The reduced revenue streams coupled with restructuring charges of $2.5 million resulted in a $5.5 million operating loss for the quarter,” Mr. Wallace said. $5.3 million of the operating loss arose in the firm’s IQTalent Partners’ business segment, whose clients – largely technology and early-stage companies – are among those that have been hit hardest by the economic slowdown. The IQTalent leadership team took quick and decisive action in the first quarter to align costs to revenue levels, said Mr. Wallace, reducing staff and third-party consultant headcount, which resulted in severance restructuring costs of $2.3 million.

Deferred Payments

“Not included in this severance amount is $1.1 million of carrying costs incurred in September for these severed employees, who were underutilized,” he added. The firm is exploring strategic alternatives for IQTalent’s proprietary software platform, an investment that accounted for approximately $0.5 million of SG&A costs during the first quarter.

Caldwell has agreed with the selling shareholders of IQTalent Partners to amend the existing purchase agreement to defer the majority of the remaining purchase price and earnout payments. Caldwell acquired IQTalent in late 2020 with a portion of the purchase price subject to payment over time and earnout achievements.

The remaining accrued purchase price and earnout payments payable of $3.6 million were initially scheduled to be paid on January 15, 2023. The payments were deferred while IQTalent restructures its business for reduced hiring demand.

“In total, the actions we have taken in the first quarter will result in the elimination of $3.7 million of go-forward quarterly costs,” said Mr. Wallace. “We continue to weigh pending client demand with current staffing levels and will be taking additional actions, as appropriate, to return the business to sustainable profitability.”

Related: Caldwell Acquires Applied Behavioral Academy

“Clients are broadly talking about beginning to increase hiring somewhat further into the calendar year, with the release of annual hiring plans and budgets,” he said. “In the meantime, we are adjusting our cost structure to address the ongoing pressure on profitability in these challenging economic conditions. We remain focused on making investments for the long term. To that end, we expanded our Caldwell executive search partner and principal teams by five during the first quarter, an 11% increase to our partner count, which will build considerably on revenues as search volumes return.”

“We are confident regarding the strength of our company, our team, our service offerings, and our future,” said Mr. Wallace. Our clients value our ability to provide seamless support for their talent acquisition needs at all levels, and by continuing to diversify our mix of products and services and identify opportunities to cross-collaborate between our two business segments, we expect to return to profitability by the third quarter of this fiscal year.”

New Offices

During the quarter, Caldwell expanded with the opening of new locations in Annapolis, MD and Tysons Corner, VA, in the Washington, D.C. area. In conjunction, the firm added Byron Marchant as a partner and Tiffany Faucette as an associate. The moves expand the firm’s capabilities and add focus on the sports and entertainment industry, federal and state public sector, and the public utilities space. “This is an exciting next step for Caldwell,” said Mr. Beck. “We’re thrilled to have such exceptional people join our outstanding team and lead our continued growth in the mid-Atlantic market and our firm.”

Mr. Marchant serves in the board and CEO practice. He joined Caldwell from the U.S. Naval Academy Alumni and Foundation, where he served as president and CEO for over 13 years. His tenure was highlighted by his steady, strategic leadership through the 2009 recession and the ongoing COVID-19 pandemic, said Caldwell. Mr. Marchant oversaw the most successful campaign in organization’s history, raising more than $541 million in support of the Naval Academy’s Strategic Plan 2020. Previously, Mr. Marchant served as executive vice president, general counsel, and chief administrative officer for Black Entertainment Television (BET).

Caldwell Acquires The Counsel Network
Caldwell has acquired The Counsel Network Inc., a Canada-based executive search firm specializing in the Canadian legal market. The acquisition of was an all-cash deal, and no securities of Caldwell were issued in connection with the acquisition. “The Counsel Network is the most respected, connected, and powerful legal recruitment firm in Canada,” said Michael DeCosta, managing partner of Caldwell’s professional services practice. “This combination brings together two strong executive search brands with exceptional reputations borne of a true passion for achieving the best results for clients and candidates.”

“Byron has a successful track record that cuts across a wide range of areas – from his impressive tenure leading the U.S. Naval Academy Alumni and Foundation to his role in the $3 billion acquisition of BET by Viacom to his background with technology and nuclear submarines in the Navy and everything in between,” said Jay Millen, managing partner of Caldwell’s board and CEO practice. “He’s an incredibly accomplished individual with an exceptionally wide network of content, which together make him a true asset to the team.”

Related: Caldwell Acquires Applied Behavioral Academy

Ms. Faucette has a 30-year track record in the professional sports world as an award-winning LPGA instructor, competitor, entrepreneur, and author, delivering a rare combination of sports and business acumen, said Caldwell. Additionally, she launched FG Enterprises, which conceived, developed, patented, and released globally available products, as well as an instructional book. She has made numerous appearances on television and talk radio, including The Golf Channel, NBC, ABC, and Fox. Ms. Faucette holds a bachelor’s degree in marketing from Florida State University.

A New Alliance

Caldwell also forged an international alliance partnership with Johnson Partners, a consulting firm working in board search, executive search, and leadership succession with offices across Australia. In connection with the alliance, Johnson Partners has acquired the business of Caldwell’s non-owned New Zealand licensee, and integrated Caldwell’s Australian team. Johnson Partners will become Caldwell’s external search partner for Australia and New Zealand, and Caldwell will become Johnson Partners’ external search partner for North America and the U.K.

“Johnson Partners is one of the region’s most successful and influential executive search firms, widely recognized for their long-lasting collaborative partnerships with clients,” said Mr. Beck. “This reciprocal alliance is beneficial in several ways. First, it will allow us to jointly conduct transformative searches across the globe at the very highest levels of management and operations, with a keen eye towards delivering outstanding outcomes for our clients. Second, we believe this considerable expansion with the Johnson Partners team will drive greater worldwide revenue opportunities for Caldwell, further creating value for our shareholders.”

Related: Caldwell Forms Alliance with Johnson Partners

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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