Category Archives: Company Analysis

OneSoft Solutions (cve: OSS)

I’vs had some shares of OneSoft for a few years. I thought it was a good idea to put down some of my thoughts on the company to instigate conversation. This is not a typical investment for me as this was pre-profit when I purchased shares and always trades at a expensive TTM revenue multiple.

I think it makes sense to stop and appreciate something this company does. The company probably has the best MD&A of any microcap that I have come across. Each quarter they go into very deep detail on how the quarter went and what they are working on.

Since purchasing shares, I’ve been able to witness the company hit a few major milestones and pivot a few times.

  • reaching commercialization of their product
  • partnering with a large US pipeline company to adapt their internal integrity management to CIM
  • continuing to expand the functionality of CIM with additional modules that are high value for customers
  • raise capital to fund growth initiatives at opportune times
  • pivot their sales strategy from a fixed fee per mile of pipe to a consumption based model that is easier for customers doing project based work
  • get to ebitda breakeven (tbd if it is for the full year)

Valuations

 

As you can see, not cheap. 10x forward sales is super expensive.

Business Background (pasted from AIF)

OneSoft Solutions Inc. is a provider of software solutions for select markets, all of which are built using Microsoft’s Cloud technologies. Its mission is to acquire, manage and build next-generation software businesses that will provide specialized, mission-critical cloud-based software solutions to address customer needs. OneSoft develops software technology and products that have the capability to transition legacy, on premise licensed software applications to  operate on the Microsoft Cloud using Microsoft Business Intelligence software (“Microsoft BI”) and Microsoft Azure Data Sciences functionality including Machine Learning and Predictive Analytics. OneSoft’s business strategy is to seek opportunities to convert legacy business software applications that are historically cumbersome to deploy and costly to operate, to a more cost-efficient subscription-based business model utilizing the Microsoft Cloud platform and services, with accessibility through any internet capable device.

Their Product (pasted from AIF)

Cognitive Integrity Management (“CIM”) is a software-as-a-service (“SaaS”) application that uses the Microsoft Azure Cloud Platform and services including machine learning (“ML”), predictive analytics, business intelligence reporting and other data science components to assist pipeline companies to prevent pipeline failures. Fees charged to access and use the software are variable and dependent on key metrics such as the miles of pipeline data analyzed, number and type of pipeline assessments ingested, Azure usage costs and the functionality that clients choose to use.
CIM features revolutionary Pattern Detection and Interacting Threats algorithms to detect and report on threats to the pipeline’s integrity. CIM was designed to ingest inline inspection (“ILI”) pipeline data using a simple “drag and drop” routine after which the data is normalized, anomalies are aligned to prior ILI data sets, and predictive analytics calculates anomaly growth rates, resulting in detection of threats to pipelines. CIM provides advanced business intelligence, intuitive graphical presentations, dashboard reporting and natural data query language capability that enables operators to manage their pipeline infrastructure with more efficiency than legacy systems and processes that do not utilize cloud computing.

Opportunity

As you know, pipeline failures are costly and bring a lot of bad press.

They specifically add value to the customer by:

  • reducing the staffing required to analyze pipeline cell wall anomalies, which is usually done by a team of engineers
  • increase the predictability of potential cell wall degradation
  • reduce unnecessary costs from digging up pipe that doesn’t need to be dug up
  • reduces the time to analyze the ILI data (from weeks/months to hours/days)
  • increase the effectiveness of a company’s repair work
  • most important from a regulatory standpoint; help companies identify high risk anomalies that will lead to pipeline failure
  • can give smaller companies a cost effective way to analyze ILI data if they don’t have the internal resources to hire engineers to look at the data

There is about 600,000 miles of pipe that gets “pigged” and has ILI data. This is the initial target for OneSoft. There are another 2.7 mil miles of pipe that doesn’t get “pigged”. They are currently adapting their platform to be able to handle non-pigged pipe in the future.

The largest hurdle so far is getting customers to buy into going to software performing the work of in house engineers. They industry is not known for being innovative with predicting failures.

Management has estimated that ARR (annual recurring revenue) will double the year. That means that we should see 5.4 mil ARR in 2020.

The company went through a Microsoft Accelerator program in 2016 to help bring the technology to market quickly. It sounds like they are a few years ahead of any potential competitors and management has made it clear that they will continue ton invest in the platform to stay ahead of any competitors.

Future Opportunities

The company has recently set up an internal innovations lab. The lab will be focused on growing their TAM and increase (or at least maintain) the head start they have on competitors. I think this speaks to their focus on growing the business, but doing it in an intelligent manner. It doesn’t seem like unabashed top line growth for the sake of growth. As the company has grown, some resources that were designed for development were likely borrowed to help operations onboard new clients. The innovation lab should minimize or eliminate that form happening.

Current opportunities identified by management:

  • working with ILI tool vendors to automate some manual tasks
  • Collaborate with parties to see if there are specialized engineering knowledge to integrate into CIM
  • Explore integration of additional data sets
  • Investigate new industries (water and sewer have been identified)

Covid-19

The company has been doing the work from home thing for years, so there are no real risks to operations. There is the obvious economic risk from covid, but they are somewhat insulated being focused initially on mid-stream pipe. The biggest impact so far has probably been a slowdown in sales and perspective customer trials.

There are some potential positives as the work from home movement continues and the need for a cloud based solution like OneSoft’s CIM is desired.

Risks (I’ll let you judge the likelihood of each)

  • the regulation push from PHIMSA could be delayed or eliminated
  • sales may take way longer than anticipated and share price could see a multiple contraction
  • new competitor could emerge
  • they could continue to develop new solutions and be unable to market them

Tangible Milestones

I like to think in terms of tangible milestones for a company like OSS. Given that they are focused on growing the business, I think traditional profitability focused metrics do not apply in the near term. Here are some milestones I’ve identified over the next 9-36 months that I think are possible.

  • continue to see top line growth 50%+ yoy
  • obtain revenue from non-piggable pipe
  • enter new vertical(s)
  • derive revenue from their Canadian partnership with Worley Parsons
  • expand internationally by partnering with someone

Conclusion

I think of an investment in OneSoft as an asymmetrical risk/reward. There are many risks with a company this size that is pre-profit. Having said that, this company: has a large current and future TAM, is shareholder accessible and customer focused.

I believe I can manage the risks with an extended timeframe (2-3 years) and position sizing.

What do you think of OneSoft? What are you favorite SaaS companies?

 

 

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Corby Spirit and Wine Limited (tse: CSW-A & CSW-B)

As I continue on my full time investor journey, I have decided to start working toward having more passive income. I think it makes sense to dedicate a portion of my portfolio toward dividend paying companies. The goal would be to have 50% of my living expenses coming from dividends as well as having several months of living expenses set aside. I’ve been working through a list of small and microcap dividend paying companies that I think warrant further investigation. I like to stick to small companies because I have a tough time getting comfortable with large complex businesses.

Enter Corby Spirit and Wine

Chart courtesy of TIKR. Check them out here https://app.tikr.com/register?ref=smob7c

Quick Notes

  • Slow and consistent top line growth with strong brands
  • Consistent profitability
  • The company has a conservative balance sheet and runs a net cash position
  • Dual class share structure (A – voting, B – non-voting)
    • 24 mil A shares, 4 mil B shares
  • B class shares trade at slight discount
  • They pay a consistent dividend of 5.5% (for the B class shares)
  • 90% of revenue comes from Canada

Covid-19

I’m not going to spend a bunch of time going over the risks with this business and Covid-19. First of all, the business is pretty much recession resistant. Second of all, I have no idea how the whole Covid thing plays out. They have the balance sheet to survive and any hit to earnings should be viewed as temporary in my opionion.

They actually switched some production capacity to produce hand sanitizer.

Business Background

From their website:

Corby Spirit and Wine Limited is a leading Canadian manufacturer, marketer and distributor of spirits and imported wines. Corby’s portfolio of owned-brands includes some of the most renowned brands in Canada, including J.P. Wiser’s®, Lot 40®, and Pike Creek® Canadian whiskies, Lamb’s® rum, Polar Ice® vodka and McGuinness® liqueurs, as well as the Ungava® gin, Cabot Trail® maple-based liqueurs and Chic Choc® spiced rum and Foreign Affair® wines. Through its affiliation with Pernod Ricard S.A., a global leader in the spirits and wine industry, Corby also represents leading international brands such as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and Ballantine’s® Scotch whiskies, Jameson® Irish whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob’s Creek®, Wyndham Estate®, Stoneleigh®, Campo Viejo®, and Kenwood® wines.

The Corporation’s activities are comprised of the distribution of owned and represented spirits, liqueurs and imported wines. More specifically, 80% of Corby’s revenue is derived from sales of the Corporation’s owned spirit brands, while commissions earned from the sale of represented brands totaled 18% in 2019. The Corporation also supplements these primary sources of revenue with other ancillary activities incidental to its core business, such as logistics fees and miscellaneous bulk whisky sales to rebalance its maturation inventories

Many of the brands I recognize, some I don’t.

Business Performance

As mentioned, this is not a high growth company. This is a (slow and) steady grower with seasonality, but consistent annual margins.

 

Consistent top line growth from the trough in 2015 and consistent margins as well.

The company has been able to earn a good return on the existing brands of the business.

Honestly, I think it’s worth taking a moment to appreciate that the company hasn’t done anything foolish with the business. They seem focused on consistent ROIC over low quality growth at any cost. It’s not sexy, but it’s appreciated.

Valuation

For the valuation, I’m using the price of the B class shares.

Not mind blowing cheap, but not overly expensive. Given the equity-bond nature of the business, one could make the case that this should trade at a higher valuation should be higher. One could also make the case that given the slow growth of the business, shares should trade at a cheaper valuation.

Management, Ownership & Board

The current CEO (Patrick O’Driscoll) will be retiring in June this year and a new CEO from outside the business has been announced. I always find it interesting when an established company hires from outside the business for a C-suite position.

Compensation for the CEO position has averaged 1.5mil for the last 3 years. The company lists a fair amount of senior leaders in the management information circular. Here is what compensation looks like as a percentage of the income statement and cash flow.

The CFO (Edward Mayle) has been with the business for about 1.5 years.

No one from the executive owns a large amount of shares. The CEO (leaving in June) owns about 1/5th of his annual comp in common shares.

A subsidiary of Pernod Ricard (HWSL) owns over 50% of the A shares and essentially controls voting decisions for the company. Pernod Ricard is considered Corby’s parent. So far, this seems like a symbiotic relationship as Corby sources over 90% of spirits from them in Ontario, while Corby outsources various admin to the parent. They have a supply agreement with HWSL for another 6 years.

From AIF:

Corby engages in a significant number of transactions with its parent company, its ultimate parent and various affiliates. Specifically, Corby renders services to its parent company, its ultimate parent, and
affiliates for the marketing and sale of beverage alcohol products in Canada. Furthermore, Corby outsources the large majority of its distilling, maturing, storing, blending, bottling and related production
activities to its parent company. A significant portion of Corby’s bookkeeping, recordkeeping services, data processing and other administrative services are also outsourced to its parent company. All of these
transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions with the
parent company, ultimate parent and affiliates are subject to Corby’s related party transaction policy, which requires such transactions to undergo an extensive review and receive approval from an Independent Committee of the Board of Directors.

Some Risks

  • Even if you purchase the A shares, HWSL controls the votes for this business
  • New CEO coming on may take the business in a direction that isn’t conducive with generating wealth for stakeholders
  • Executive team does not own many common shares
  • Intertwinement with HWSL is deep and would be disruptive to the business if that changed

Closing

Given that HWSL owns the majority of the A shares, I would purchase the B shares to get a slightly higher dividend.

What do you think of Corby? And what are you favorite dividend paying companies in Canada?

I don’t own shares in Corby, but may initiate a position soon.

 

Dean

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Bri-Chem $BRY.to

I mentioned Bri-Chem a long time ago in this post on net-nets. At the end of the day the majority of the assets (inventory) on the balance sheet were over-stated.

Fast forward to 2019 and Bri-Chem has been hit hard. The share price has fallen 65% over the last year and now trades at 0.33x net-net. It should be noted that they are ebitda positive over the previous 12 months. The market cap is under $3mil CAD and EV is just under $40mil CAD. So debt is the major concern here.

This time is different

Given that the basis of my valuation is price to net-net, it’s important to understand the different moving pieces to their working capital.

The balance sheet assets consist mainly of accounts receivable and inventory, (this is a fluid distributor after all). Other than debt, the largest liability is accounts payable. Given that this is a distribution business (and extremely cyclical) I like using the cash conversion cycle as an leading indicator for a potential write-down. As you can see below the CCC has remained stable throughout the last 2 years.

I spoke with the CFO has led me to believe that the inventory value that is stated is accurate (or at least accurate enough to avoid a write-down). He mentioned how they have been working really hard through the down-turn to move the right product to the right location and that they have never analyzed inventory to this degree before. Since Bri-Chem uses debt to fund working capital (primarily inventory), their lender (TD) will be looking closely for inventory turns and an accurately stated inventory on the balance sheet.

Working Capital And Debt

You can see the working capital fluctuate through the last 12 years.

You can see the debt levels fluctuate with inventory. This was stated as their strategy at the AGM.

One should not expect debt levels to drop materially from here. If anything the debt levels will increase as activity returns to more normalized levels.

One can see that as equity, tangible book and net-net values rise with business activity.

Summing it up

Bri-Chem has been left for dead. There is no appetite for this type of company in today’s market. There isn’t a major competitive advantage, it’s a cyclical industry, there are political headwinds, the market believes we are awash in oil, it’s illiquid, management owns only about 5%, and so forth.

But it trades cheap, it has a resourceful management team and it is not bleeding cash. I think there is substaintially more upside than downside.

Given how debt heavy this company is and that they can do very little to control the demand of their product, I am going to limit my position size to about half of the other energy services company’s that I own.

Thanks,

Dean

Disclosure: The author is long $BRY.to at time of writing.

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High Arctic Energy Services $HWO.to

This isn’t my first go around with High Arctic. See here.

Background

This idea is quite simple. A number of years ago High Arctic was an early mover in PNG. They built strong industry connections and have benefited from having above average utilization and profitability for a company in their industry. They have used the cash that has been built up to purchase assets in distress. Here is a brief summary of activity since the downturn in 2016

  • In 2016, they purchased assets on the cheap from Tervita for $42.8mil. This is the Concord Well Servicing assets.
  • They also invested in their rental fleet in 2016 to the tune of about $10mil.
  • In 2017,  they entered into an agreement with a major PNG customer for ownership of some rigs in PNG. They will operate the rigs under a 3 year exclusive agreement. This will give them better revenue visibility for 2 of the rigs in PNG.
  • In 2018 they acquired the shares of Power Energy Holdings (Powerstroke assets).
  • Bought Saddle Well Services in August 2018, increasing exposure to southeast Alberta.
  • In April 2019, they announced that they have purchased snubbing assets from Precision Drilling for $8.25mil.

As you can see this is a much larger company than it was a few years ago. Their discipline with the balance sheet has allowed them to purchase assets and grow their customer base in the midst of a downturn. The company has done everything in their control to survive and be a bigger company once activity returns. On the Q1 2019 call, they indicated that activity in Q2 was better than expected.

Chart Dump

Since this post was short, here are some charts.

*net cash doesn’t include the acquisition of the Precision Drilling assets for $8.25mil

Summary

Similar to my other energy ideas. This is really a bet on business activity returning coupled with investor sentiment. There is also a 5.8% dividend yield as well. Current valuation is about 4x EV/EBITDA and I am betting that the EBITDA is temporarily depressed.

 

Thanks,

Dean

Disclosure: the author is long shares of HWO.to at time of writing.

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McCoy Global $MCB.to

Continuing from the post where I said I was sniffing around the energy services names I took a look at McCoy Global. I’m no stranger to McCoy and owned it a few times in the past. The most recent post is from early 2012. I ended up selling in mid 2013 and early 2014.

Background

McCoy is a leader in threaded connections in well casings. They have exposure to onshore and offshore markets. Despite listing in Toronto, they do most of their business internationally.  About 5% of their revenue is derived from the WCSB.

McCoy has worked to remove the high cost manufacturing form their book of business, they outsource as much as possible now. Focusing on supply chain as they have become a global business has been a priority; especially given their size, their geographical exposure and large business customer base.

Current State

Their current backlog was only 9.9mil in Q1 2019, down from 15mil at the end of 2018. 7.2 mil of orders came in April 2019 and this gives confidence that they will survive this lean environment. Their top line has bounced back somewhat after the lows in 2016, but is very far below previous cycle peaks. As you can see McCoy has done what they can to control opex costs.

Valuation

At $0.63 (from a few weeks ago) McCoy has a market cap of just over $17mil and an EV of $12mil. See the valuations below.

Management compensation is reasonable and the board owns 3%. It could be better, but I’ve definitely seen worse in O&G. Several large institutions own significant stakes in McCoy.

McCoy has also continued to invest in R&D and building a suite of products that uses data to ensure the best possible connection and monitoring for the customer. I’m expecting a couple new products by the end of 2019.

Given the ever increasing well complexity (which lend well to McCoy’s products), diverse geographical exposure, off-the-grid size of the business and modest valuation; I feel that McCoy has substantially more upside than downside.

Are you finding any value out there?

 

Thanks,

Dean

Disclosure: the author is long MCB.to at time of writing.

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Vigil Health Solutions (cve: vgl)

I wrote this post just before the most recent quarter was released. Not much changed from a valuation standpoint than what is written here.

 

I’ve recently taken a position in Vigil Health Solutions. Of course, I didn’t discover this idea on my own, I stole it from others. Quality Small Caps wrote is up here and this company has been profiled on the MicroCapClub (you should join if you haven’t already). The Quality Small Caps write-up is quite detailed, I suggest you read it.

Background

Vigil develops and markets hardware and software solutions that guide care of and monitor residents in senior living communities. They focus on non-invasive monitoring for residents with dementia.

There are obvious demographic tailwinds with this one. The addressable market is growing quite fast and Vigil provides a high value service with a monthly recurring cost.

They are quality focused and not the cheapest product on the market. They differentiate themselves by focusing on integrating the monitoring system (door, phone, etc) with analytics that will trigger alarms to the relevant parties. For example, if a resident leaves his/her room at 2am when he/she normally doesn’t then the staff are notified and can intervene and ensure the resident is returned safely to their room. They also offer cloud based analytics.

Their service scales up from very basic to quite comprehensive, allowing them to compete on most (if not all) projects.

The sales cycle is long and much of the bookings are part of new facility construction which leads to quite lumpy revenue.

Management

There’s limited information on the management team in the filings, so here’s all I’ve been able to dig up:

  • Troy Griffiths – CEO
    • has been CEO since 2005 and with the company since 1998
    • started out as COO of Vigil’s predecessor
    • compensation last year was $128k in salary with $250k in total comp
    • own 820,000 shares or over 3 times his salary
  • Nicola Chalmers – CFO
    • has been with Vigil since 1998 as CFO
    • compensation last year was $82k salary and $120k total comp
    • owns 167,000 shares or roughly her annual salary
  • Steven Smith – VP R&D
    • has been with Vigil since 2006
    • $117k salary and $156k total comp
    • owns 1.1 mil shares or more than 3x his total comp last year

The team seems to be experienced in the business, is incentivized with common share ownership and gets compensated reasonably.

The variable part of their compensation is based on both financial and business performance. This is something you don’t always see in the Canadian microcap space and is really nice to see.

Board

For a company this size Vigil has a small but quite respectable board. Non-executive directors are compensated by mix of fees and options. Total compensation ranges from $25-41k per year.

  • Troy Griffiths – CEO
  • Greg Peet – Chairman
    • was CEO and Chairman of ALI Technologies which was acquired by McKesson Corp in 2002
    • owns 4.9mil shares
    • principal at GrowthPoint Capital
  • Ian Power
    • several senior positions
    • director of Pender Growth Fund
    • owns 15,000 shares
  • Lindsay Ryerson
    • VP and GM of Telematics at Vecima
    • owns 10,000 shares

Financials

See below for a quick look at the income statement. TTM rev at 6.3 mil, Ebit of 0.5 mil and ebitda of 0.5 mil.

The top line and bottom line have been growing. You can see that they have a strong backlog and bookings. Backlog is almost 4 mil.

They also have a large portion of their revenue based on recurring service and maintenance work. This portion should fetch a high multiple.

Valuation

At $0.50, the market cap is around 9.3 mil and the EV is 6.7 mil. See below for relevant valuations.

Not particularly cheap from a profitability standpoint. But I believe that this is a growing business and should see some operating leverage in the future.

Risks

Here are the risks that I can identify.

  • Liquidity for your personal portfolio. I am blessed to have a small amount of money. If you are responsible for a large amount of capital, it may be difficult to build or unwind a position.
  • Product/service risk for Vigil. There is a chance that despite a large and growing market, customers may seek solutions that Vigil does not compete in. Namely, the low priced and more commoditized portion of the market. Of course, Vigil may be able to adapt. Vigil’s average deal size is around $70k and the facility costs are usually over $10 mil. Go/No-Go decisions are not likely based on the Vigil solutions alone and it’s not a large portion of the cost of the facility.
  • Execution (most notably for a microcap). Many microcaps have the executive teams wearing multiple hats. They regularly have to bounce between long term strategic and day-to-day tactical decisions. That leads to increased importance on specific individuals.
  • Price volatility. Given the long sales cycle, dependent on facility completions and modest valuation, one can paint a scenario where the share price of Vigil could take a hit.
  • There may be concern of reimbursement (medicare/medicaid) risk. I don’t believe that this is a significant risk for Vigil. Given that they participate in the facility build out, they are not exposed to the typical reimbursement risk (at least, not to my knowledge).

Other Things of Interest

  • Wayen Enright owns 2.7 mil share or about 16% of the outstanding. I can’t find much about him online.
  • I’ll be attending the AGM next week

Overall, I think Vigil is a decent bet at these prices. They have a secular tailwind, strong and incentivezed management team, a board that compliments the business and a modest valuation.

Feel free to comment.

 

Thanks,

Dean

*disclosure: the author is long Vigil (cve: vgl) at time of writing.

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Caldwell Partners (tse: cwl)

I recently took a small position in Caldwell Partners and I thought I would would do a post on why I bought. Just to be clear, it’s quite a small position relative to my other holdings. As usual, I stole this idea from others (h/t Gerry Wimmer and DeepDiscount).

I view Caldwell as a position that has good risk/reward profile and will make a nice addition to a portfolio that’s primarily driven by faster growing (and more expensive companies).

Background

Caldwell is an executive search firm that specializes in finding the highest levels of management and operations across many geographies and functions. They have been slowly expanding the number of partners over the years.

The numbers

At $1.20 Caldwell has a market cap of 24.5 mil and an enterprise value of 8.1 mil. Yeah lots of cash. It trades at about 6.5x ebit and 2.2 ev/ebit. That’s statistically quite cheap. One would expect a slow growth (or no growth) business for those prices. They also pay a dividend that is yielding 6.7%.

See below for the income statement

There is top line growth with some operational efficiencies being gained.

See below for geographical mix.

Canada has been flat to slightly up while the US has been consistently growing.

See below for some quick analysis by geography. Note the different axis min/max and Europe is starting from a relatively low base.

The last quarter was particularly strong in Europe, we have seen this before.

 

Positive Comments

The news release from the latest quarter had positive comments that indicates that momentum may continue.

“This was an outstanding quarter, bringing the firm to a new high-water mark for revenue,” said John Wallace, chief executive officer. “Our search teams throughout our geographic regions drove strong growth in both search volume and the value of assignments, despite pressure from foreign currency rates. We are especially pleased with the quarterly profit of our UK operations. With the largest level of new bookings and revenue in a single quarter in our history, we are positioned well for the fourth quarter. The significant increase in volume and our sustained focus on strategic additions to our partner team is creating search execution support needs, for which we will continue to hire in the fourth quarter.”
Wallace continued: “There is a lot of positive momentum inside our firm right now – our updated brand has been very well received since its debut, and we are excited about the recent expansion of our Agile Talent offering with the launch of our Value Creation Advisory Solution. We have an exceptional team of talented professionals at every level, all working towards a common goal – to provide value to our clients and shareholders – and it shows.”

Risks

I think the most obvious risk that came to my mind was LinkedIn taking away market share in executive search. Anecdotally, I would have expected this to have been a bigger impact on lower and mid level managers and not senior leaders in important roles. One would think that LinkedIn could actually be leveraged as a tool by Caldwell. I would think that given how important the roles are in the organizations that quality of candidates matter more than anything. I see the Caldwell brand as particularly important.

The other big risk that I can think of is the economy. Less hiring equals less need for Caldwell’s services. One does tend to get nervous after 9 years in a bull market.

These risks are not going away, so you will have to get comfortable with them if you take a position. For me, I will control these risks by limiting exposure to Caldwell.

Management

  • CEO – John Wallace. He jointed in 2008 and has previous experience in another executive search division of Hudson Highland Group. John owns about 20% of the shares.
  • COO & CFO – Chris Beck. Joined in 2013 as CFO. Recently appointed COO as well. Also has experience at Highland Parnters (which is a division of Hudson Highland Group).
  • Total compensation seems a little high, but much of the total compensation is based off performance bonuses.
  • Both of these gentlemen have employment agreements in place.
  • I think a key metric to think about is revenue per partner, which has been trending in the right direction.

Board

  • The board is comprised of 5 members with 4 of them being deemed independent.
  • The Chair of the board is not the CEO of the company.
  • The board is comprised mostly of corporate directors.
  • Many of the board members are also on the board of other public companies.
  • Almost all board meetings had full attendance in 2017.
  • Compensation is a mix of fees and shares. Average 2017 compensation was $40k/director.
  • I did some digging on the board members and there seems to be pretty good mix of strategic, operations and public market presence.

Summing it Up

I think a starter position is warranted. I would be willing to add with continued confidence in operational leverage or other positive news. Caldwell is nice because you get paid to wait.

Disclosure: the author is long Caldwell Partners at time of writing.

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