January 14, 2022 - 11:41pm EST by
2022 2023
Price: 1.94 EPS .255 0
Shares Out. (in M): 26 P/E 7.6 0
Market Cap (in $M): 50 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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Caldwell Partners roots date back 50+ years as an executive search firm. On December 31, 2020 they acquired IQTalent Partners (IQTP). This acquisition is transformational - it brings a broader range of recruitment with faster growth and higher margins. What was once an annuity type dividend play is now a growth play that is technology driven.

Combined organic growth has the potential of compounding at 15-20%+ annually. Caldwell’s balance sheet is strong.  The stock is mispriced due to it’s unknown status (egs. no analyst coverage), a couple items currently masking financial results and margin compression concerns.   

Caldwell Segment

This is the legacy segment. Caldwell’s business is executive search recruitment - focused exclusively on the C-Suite.

Caldwell’s business prior to John Wallace coming on as CEO in 2008 was exclusively in Canada.  Wallace has expanded into the US to the point that it now represents ~87% of revenue. In recent years they have entered the UK with more international aspirations to come. Despite distributing most free cash back to shareholders - annual revenue growth has been quite decent. I come up with an average of 10-11% (when adjusting for some dilution in the earlier years).  Dividend growth lagged somewhat. Company slide below.

Growth rate is not expected to change from the historical trend.  EBITDA margin history and expectation is 7-10%.

Caldwell’s sharing arrangement with partners is intentionally generous for retention purposes (they are at the high end of the industry). They presently have 43+ partners which along with consultants and management operate from 19 office locations.  The focus is not on growth in number of partners, but rather on growth in revenues per partner and other such metrics.

IQTP Segment

IQTP launched in 2014 introducing a new model to talent acquisition. The business model supports the trend of in-house recruiting, helping clients in-source rather than outsource talent. It involves hourly on-demand pricing using a technology platform that searches and sources candidates from the professional level on up to mid-senior level jobs.

IQTP is complimentary in that they search/source/recruit on a full life-cycle basis to professional and mid-senior levels below that of Caldwell’s executive level of recruitment. IQTP’s revenues are also more recurring and can be a continual component of a clients talent acquisition team. The broader offering brings a larger and faster growing market segment that is more scalable with higher margins.

With Caldwell, the partner is a large part of the brand. If a partner leaves the firm, along with it go that partner’s client contacts. IQTP is the opposite with the brand being the stickiness.

Revenue growth has averaged 45%+ per year. When acquired, David Windley (IQTP CEO) commented this type of growth would accelerate under Caldwell. 25-35% organic growth is the official guidance but John Wallace has mentioned expectations of 30% minimum. 

There is now 11 months of reporting history since the acquisition.  Growth has been outstanding. The metric below entitled ‘Average Fees Billed per Business Day’ shows tremendous growth, 15-20% per quarter - but it’s still very early days, no doubt this will moderate some.

The expected EBITDA margins for IQTP are 10-15%, but during a significant growth phase in the very high single digits. One of the drags on profitability during stronger growth phases is a larger percent of hired contractors vs employees they need to hire, train, etc. The chart below and spreadsheet above capture this.


Prior to the acquisition, IQTP introduced IQTalent Xchange (IQTX) which is an original marketplace platform for ‘passive’ candidates. This is the primary technology play part of IQTP. They use an AI search technology and proprietary platform that includes 300+ million global professionals. They believe this platform has significant margin potential.

IQTP is headquartered in Nashville - they partner with Fortune 500’s to startups. Clients are mostly US based.  Are in the process of expanding the Nashville leased footprint by +50%. Further expansion plans into Europe and Asia Pacific.

Annualizing Q1 results, IQTP is approaching $50 million in revenue.  The Caldwell segment recently surpassed $100 million.

Competition: Caldwell

The big 5 executive recruiting companies have revenues ranging between $400 - $750 million in executive search. Two of these are public: Korn Ferry (KFY) and Heidrick & Struggles (HSII). Caldwell competes with the top 5 and actually feel they have an advantage. In executive recruitment you make agreements such as not to recruit other executives from the client firm within a period of time and to never recruit out the selected candidate. Being small provides more freedom to move in the marketplace.

Competition: IQTP

The company believes IQTP is creating a new category in talent acquisition.  There are a lot of players in this space, but IQTP’s business model is very unique and provides far more value. The offering is flexible and ‘on demand’ - they target in-house teams and many clients come about by word-of-mouth.  They are also searching/sourcing the best candidate - not just ‘a’ candidate.  They find what they have to offer a pretty easy sell.


42% of shares are owned by management and the BOD. IQTP’s leadership team are now significant shareholders in Caldwell (~20%).


Items Impacting the Bottom Line

Part 1: IQTP acquisition compensation accruals

The IQTP acquisition included ~$4.35 million (US) in acquisition compensation accruals for retention purposes of selling and non-selling shareholders of IQTP along with a smaller revenue and profitability performance arrangement.

Since the acquisition, these accruals have been expensed at +/- $800k per quarter masking profitability by ~3 cents per share (pre-tax) each quarter.  The accruals have a finite expense period and will end on December 31, 2022. Approximately $2.6 million remains to be accrued.

Part 2: Share-based compensation

Within the SG&A expense for fiscal 2021 is share-based compensation expense of $5.5 million for key management and BOD. Some one-time cost corrections within this, but much of it reflected the 180% share price rise ($0.79 to $2.21) during the fiscal year ending August 31/21.

The Q1 average weighted share price improved further to $2.49 adding another $1.4 million in share-based comp expense. 

These costs reflect a significant rise in share price - a situation that has now reversed with the stock price mainly in decline as of late.  There are still likely some costs to be worked through the next couple quarters, but if the price remains depressed below the above hurdle of $2.21 the cost eventually becomes zero.  

The goal in this section is to come up with a normalized cost of share-based comp.  Using an under-valued share price such as where it is currently would under-estimate the cost.  To normalize this requires a reasonable assumption of fair value.  

More on this later, but I think the fair value of CWL is around $4.00-$4.50.  To be conservative I am using the upper end of this range at $4.50.  The higher the assumption - the more conservative.  Same goes for the growth rate where I am figuring 18% overall.   

The company states: ‘based on current performance factors, a $0.01 change in our share price would result in approximately a $27k charge in compensation expense on a pre-tax basis’. 

So assume a fair value today of $4.50 - that increases by 18% in a year.  That’s 81 cents x $27k = $2.2 million. (Alternatively, one could take the number of PSUs & DSUs and come up with a similar result.)

Yes, the above is in a perfect world but I think it gives a better idea of normalized share-based comp vs the wild gyrations the stock price causes. 

Part 3: Margins

For the Caldwell segment, they have been experiencing an exceptional surge in business momentum post-pandemic best demonstrated by certain key metrics below.  


Excluding share-based comp expense, operating margins were ~12% in fiscal 2021.  This dropped to ~10% in Q1/22 but key metrics were still on the high side of normal. In addition there will eventually be costs returning for post-pandemic travel/office related expenses, etc. I am figuring normal operating margins for the Caldwell segment at 7-8 percent.

IQTP again states 10-15% normal operating margins but in the very high single digits during a rapid growth phase.  During the 8 months of IQTP ownership in fiscal 2021, IQTP achieved an operating  margin of 7.8%. But in Q1 this slipped to 6.5%.  Q1 saw a significant hiring/training spree as they reduced contractors from 54% to 45%, with utilization also lower.  I think this drop was temporary and even in a 40% type growth scenario an ~8% operating margin should be sustainable. Under a more controlled growth rate of ~30%, 9 or 10% seems reachable.

The blended operating margin in Q1/22 was ~8.8%.  Caldwell was still over achieving - but there will hopefully be some improvements coming from IQTP.  I have figured a normalized 8.0% blended operating margin in my spreadsheet analysis that follows.       


To reach a stock price of $4.50, in simple terms from Q4/21 would cost $4.50-$2.21 = 229 cents x $27k = $6.2 million.  There is a bit more to be considered over the next couple quarters - but ~$7.5 million should be in the ballpark.    

Add to this the $2.6 million remaining accruals from part 1 and you have ~$10 million in remaining one-time extraordinary items.  This amount is more than covered by surpluses on the balance sheet: unrestricted cash ($27.5 mil), positive working capital ($14 mil), non-current restricted cash ($2.6 mil relating to an escrow account and expected loan forgiveness), zero debt.

In the spreadsheet below, I have modeled the thinking from parts 1, 2 & 3 above.  The estimations aren’t necessarily a projection for fiscal 2022 - but more of a normalized take on the criteria discussed. 


The fiscal 2021 multiple doesn’t reflect normalized margins very well, so probably best to consider the 7.6x PE multiple for fiscal 2022 which is more conservative.  This compares to:

KFY - trading at a 13.0x multiple on analyst estimates for fiscal 2022 and 13.5x fiscal 2023 (Apr YE). CWL’s historic revenue growth has kept pace with KFY. Yet CWL has paid out most of their free cash, whereas KFY with higher margins and retention of cash flows have expanded into other segments. CWL remained a pure play executive search company up until a year ago - only then pivoting toward growth.

HSII - has only one analyst following the company. It’s trading at 11.6x fiscal 2021 and 14.2x fiscal 2022 estimates (Dec YE). HSII has really lagged in terms of growth history.

As for returns, Caldwell on an adjusted basis is achieving an ROE of ~25%. KFY is presently at ~21%. HSII is at ~23%, but expected to drop off a bit next year. Considering the growth expectations, returns and historical achievement it seems more possible that CWL deserves a premium multiple, yet it trades at a substantial discount.

Is CWL worth the $4.00 to $4.50 range previously mentioned?  That’s an equivalent adjusted PE of 15.7-17.7x.  There’s a lot to execute on to justify this kind of multiple, but they seem on the right track.  This would also imply a p/s multiple of 0.7-0.8x - if they can execute at that assumed 8% operating margin, this doesn’t seem too far off.  IQTP’s growth pace plays into this as well.  


Key personnel risk from top executives down.

IQTP is in large scale hire mode. If they can’t find employees, hopefully they find contractors in the interim. One specific company they contract with accounted for ~19% of their workforce at fiscal 2021 year end.

International Expansion.

Cyclical business. Economic downturns. But post-downturns they have a history of coming out strong.

Technological advances impacting executive search and/or IQTP.

Further Pandemic disruption.

Foreign currency exchange.




CWL is at the very beginning stages of a major transformation. Growth of 17-18% is possible with IQTP growing at a more tempered pace of 30%.  However, since the acquisition they have been trending above their historic 45%+ pace. It’s still a bit early as to where growth moderates, but the company is starting to throw out some positive hints.  IQTP will have a larger impact as it grows. It represents roughly a third of overall revenue right now but is quickly gaining to eventually overtake Caldwell as the larger segment.

In the mean-time the company is also generating free cash, for which they are seeking the appropriate opportunities.  At some point in time this gets valued perhaps for the growth play it is - rather than the dividend annuity play it was. 

A lot hinges on execution. So far things seem on track. CWL has a good history of executing. They are very client focussed and shareholder friendly. Management incentives are generous but aligned with shareholder interests. Multiple catalysts exist.   




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.



Acquisition compensation accruals (IQTP) end on Dec 31, 2022.

IQTP’s growth. IQTP’s faster growth and increasing proportion stands to accelerate growth overall. Could exceed the 25-35% organic growth guidance.  Since the acquisition they have exceeded the historic 45% pace. 

Another meaningful acquisition and/or further investment into IQTP’s growth using free cash flows.

Increasing margins.

Pandemic has displaced many in the workforce and sent others searching for alternate careers. This could continue for a while yet.

Trend of bringing manufacturing jobs back to the US.

International Expansion.

If share price remains low, share-based compensation expense will respond accordingly - perhaps even be reversed. Makes for lumpy financial reporting though.


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