Caldwell Partners International : 2023 Annual Report

ANNUAL 20 REPORT 23

TRANSFORMING THE WORLD OF TALENT

WE BELIEVE TALENT TRANSFORMS

Caldwell Partners is a technology-powered talent acquisition firm specializing in recruitment at all levels. Through two distinct brands - Caldwell and IQTalent

• the firm leverages the latest innovations in AI to offer an integrated spectrum of services delivered by teams with deep knowledge in their respective areas. Services include candidate research and sourcing through to full recruitment at the professional, executive and board levels, as well as a suite of talent strategy and assessment tools that can help clients hire the right people, then manage and inspire them to achieve maximum business results.

Caldwell Partners' common shares are listed on The Toronto Stock Exchange (TSX: CWL) and trade on the OTCQX Market (OTCQX: CWLPF).

www.caldwell.com

@CaldwellSearch

Dear Shareholders, Clients, and Friends:

Fiscal 2023 turned out to be a challenging year, in a number of respects. Our organization is fueled by hiring demand, and the increased economic uncertainty driven by inflation, interest rates and other macroeconomic factors led to lower hiring trends and a significant pullback in talent acquisition at our clients, which impacted both of our businesses.

In our executive search segment, Caldwell's professional fees for the year represent a 26% decrease over the previous record-breaking year. Positively, we did generate an operating profit of $2.2 million in a very uncertain market for the year and our last two quarters experienced sequential increases in professional fees. The Caldwell executive search team continues to leverage their experience and expertise to push through a slower market and show their mettle. We look forward to leveraging our all-time high partner count team once hiring demand returns to normal levels.

In our on-demand talent acquisition support segment, IQTalent had the dual challenge of being an on-demand business with a heavy weighting in the tech sector, which has been the hardest hit sector by the negative economic cycle. Consequently, we saw a significant decrease in revenue for the year. As hiring demand fell, we implemented significant restructuring initiatives to downsize our staff to match revenue levels. We also adjusted our IQTalent leadership team structure for a leaner team and stronger go- to-market strategy by expanding our offering to accommodate full-service recruitment process outsourcing. With these measures, we are positioned for profitable growth with a return of hiring demand as the macro business environment improves.

While pushing through the headwinds of the last twelve months of economic uncertainty, this was a year that highlighted the professionalism and incredible commitment of our team.

Finding great candidates - no matter the market conditions - is something that takes a lot of time and effort to do well, and we continue to do it really well. We love the work we do and the impact we can have on our clients' success - a fact that is clearly reflected in our industry-leading satisfaction scores. We track our client and candidate satisfaction using Net Promoter® Score methodology - it is a measure of client satisfaction based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? Scores range from negative 100 to positive 100 to gauge customer satisfaction. Any score above positive 80 is considered 'world-class,' making our Fiscal 2023 score of 98 a tangible attestation to the commitment we as a firm have to our clients and candidates.

79 Wellington Street West

TD South Tower

Suite 2410, P.O. Box 75 Toronto, ON M5K 1E7 [phone]

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The themes we regularly see in our client feedback revolve around our professionalism, our depth of understanding, our responsiveness, and our excellent results. By integrating outcome-oriented service with innovative technology, our team can efficiently deliver a wide range of talent acquisition solutions to our clients in support of our driving principle, that "Talent Transforms."

We have weathered through a very choppy past year. Clients remain tentative regarding additional human resources, as they look for signs that the economy may be recovering. As we work through these ongoing economic uncertainties, we are confident in the strength of our company, our team, our service offerings, our balance sheet, and our future. 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 services and cross-collaborating between our two business segments, we expect to continue to grow both businesses, profitably, together.

As always, we thank the entire Caldwell/IQTalent team for their tireless work on behalf of our shareholders, our clients, our candidates, and each other. Their energy, professionalism, and love for what they do is what drives this company, and it makes us grateful to be a part of such an incredible team and organization.

Yours sincerely,

Elias Vamvakas	John Wallace
Chair of the Board	Chief Executive Officer

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THE CALDWELL PARTNERS INTERNATIONAL INC

For the years ended August 31, 2023 and August 31, 2022

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Management Discussion & Analysis ("MD&A")

(Expressed in CAD $000s, except per share amounts)

PRESENTATION

The following discussion and analysis, prepared on November 28, 2023, should be read in conjunction with our consolidated annual audited financial statements and related notes and our Annual Information Form for the year ended August 31, 2023. Unless otherwise noted, all currency amounts are provided in thousands of Canadian dollars (except per share amounts). All references to quarters or years are for the fiscal periods unless otherwise noted. Unless otherwise noted as a non-GAAP financial measure or other operating measure, financial results are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this document are based on current expectations subject to the significant risks and uncertainties cited. These forward-looking statements generally can be identified by the use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee," "may," "will," "likely," "estimates," "potential," "continue" or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements.

We are subject to many factors that could cause our actual results to differ materially from those contemplated by the relevant forward looking statement including, but not limited to, the impact of pandemic diseases, our ability to attract and retain key personnel; exposure to our partners taking our clients with them to another firm; the performance of the US, Canadian and international economies; risks related to deposit-takinginstitutions; foreign currency exchange rate fluctuations; competition from other companies directly or indirectly engaged in talent acquisition; cybersecurity requirements, vulnerabilities, threats and attacks; damage to our brand reputation; our ability to align our cost structure to changes in our revenue; liability risk in the services we perform; potential legal liability from clients, employees and candidates for employment; reliance on software that we license from third parties; reliance on third-party contractors for talent acquisition support; the classification of third-party labour as contractors versus employee relationships; our ability to successfully recover from a disaster or other business continuity issues; adverse governmental and tax law rulings; successfully integrating or realizing the expected benefits from our acquisitions, adverse operating issues from acquired businesses; volatility of the market price and trading volume of our common shares; technological advances may significantly disrupt the labour market and weaken demand for human capital at a rapid rate; affiliation agreements may fail to renew or affiliates may be acquired; the impact on profitability from marketable securities valuation fluctuations; increasing dependence on third parties for the execution of critical functions; our ability to generate sufficient cash flow from operations to support our growth and fund any dividends; potential impairment of our acquired goodwill and intangible assets; and disruption as a result of actions of certain stockholders or potential acquirers of the Company. For more information on the factors that could affect the outcome of forward-looking statements, refer to the "Risk Factors" section of our Annual Information Form and other public filings (copies of which may be obtained at www.sedar.com). These factors should be considered carefully, and the reader should not place undue reliance on forward-looking statements. Although any forward- looking statements are based on what management currently believes to be reasonable assumptions, we cannot assure readers that actual results, performance or achievements will be consistent with these

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forward-looking statements. Management's assumptions may prove to be incorrect. Except as required by Canadian securities laws, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made. The forward-looking statements included herein are expressly qualified in their entirety by this cautionary language.

COMPANY DESCRIPTION

The Caldwell Partners International Inc. (the "Company") is a technology-powered talent acquisition firm specializing in recruitment at all levels. We leverage the latest innovations in artificial intelligence to offer an integrated spectrum of services delivered by teams with deep knowledge in their respective areas, allowing us to have a more significant impact on our clients' long-term success. Services include candidate research and sourcing through to full lifecycle recruitment at the professional, executive and board levels, as well as a suite of talent strategy and assessment tools that can help clients hire the right people, then manage and inspire them to achieve maximum business results.

We operate through two distinct segments - retained executive search and analytics solutions are conducted as Caldwell, and on-demand talent acquisition augmentation solutions are conducted as IQTalent Partners or IQTalent. Collectively, we believe talent transforms, and our purpose is to enable organizations to thrive and succeed by helping them identify, recruit and retain the best people.

The Company's common shares are listed on the Toronto Stock Exchange (TSX: CWL) and also trade

on the OTCQX Market in the United States (OTCQX: CWLPF). Please visit our website at www.caldwell.com for further information.

BUSINESS SEGMENTS

Identification of Segments

We operate through two distinct segments - retained executive search and analytics solutions are conducted as Caldwell, and on-demand talent acquisition augmentation solutions are conducted as IQTalent. The services Caldwell offers, the nature of its clients and its pricing and delivery model are uniform across geographies, and those geographies are largely interconnected in economic cycles. We therefore measure the key metrics and reporting of Caldwell as one segment. IQTalent's business is managed and measured separately from Caldwell with unique branding, operations and pricing. As a result, we operate with two distinct business segments differentiated by brand, services, operations and pricing models.

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The following chart explains the spectrum of services we offer our clients:

Together, Caldwell and IQTalent are transforming the world of talent. IQTalent's unique service model and innovative use of technology - paired with Caldwell's expertise, network and resources - allows us to have a greater impact on our clients' long-term success.

Our vision for our two segments working in tandem is for IQTalent to be a constant presence at our clients, providing recurring talent acquisition support, with Caldwell engaged for higher-end retained executive searches not undertaken by our clients' in-house teams. Together we will provide seamless support for the talent acquisition needs at all levels for our clients who will benefit from an increasingly diversified mix of products and services, with cross-collaboration opportunities between the two business segments expected to amplify our long-term success. We will continue to review business and technology acquisition opportunities that align with client-driven talent offerings and our belief that Talent Transforms.

Segment Operating Characteristics Revenue

Caldwell

Caldwell operates with partners in Canada, the United States and Europe, with functional currencies being the Canadian dollar, US dollar and British pound. We take pride in delivering an unmatched level of service and expertise to our clients from 17 locations throughout the world, including Atlanta, Calgary, Charleston, Chicago, Dallas, Houston, London, Los Angeles, Miami, Nashville, New York, Philadelphia, San Francisco, Stamford, Toronto, Vancouver, and Zurich.

Caldwell's executive search revenue and operating income are difficult to predict and have historically varied significantly from quarter to quarter. There is no discernible seasonality in our business on a quarterly basis, although historically, we have usually seen lower revenue in the first and second quarters compared to the third and fourth quarters.

Our capacity to generate revenue increases with the number of partners and affiliates in our network and depends on the fees we are able to charge and our partners' productivity, which is influenced significantly by competition and general economic hiring conditions. Additionally, given our relatively small partner base, we have limited diversification, and consequently, results may fluctuate

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significantly from quarter to quarter. We provide fully-retained executive search and bill our clients based on a fee of approximately one-third of a placed executive's compensation.

IQTalent

Our IQTalent segment was formed with our acquisition of IQTalent Partners, Inc. ("IQTalent") on December 31, 2020. IQTalent operates from a single leased location in Nashville, TN, while also leveraging a virtual, work-from-home workforce primarily across the United States.

IQTalent provides on-demand talent acquisition augmentation as a managed service to our clients, who are typically in-house talent acquisition departments. We provide candidate research and sourcing at all talent levels and full lifecycle recruiting services at the professional level, with revenue generated per labour hour. Services are on-demand with no long-term contractual commitments and can vary significantly from quarter to quarter and with economic cycles or events as experienced with the global pandemic and the current hiring demand downturn. IQTalent's clients were historically heavily weighted to those in the technology sector which magnified cyclicality to economic conditions. However, over the past year, we have diversified our client base, and reduced our exposure to this sector. As services are billed to clients on an hourly basis, revenue fluctuates based on the number of business days. There are 251 business days in each of fiscals 2023 and 2022, with 62 days (24.7%) in the first quarter, 59 days (23.5%) in the second quarter, 65 days (25.9%) in the third quarter and 65 days (25.9%) in the fourth quarter.

IQTalent's capacity to generate revenue increases with the size of fully trained research, sourcing and recruitment staff. Third-party contractors are used to manage fluctuations in customer demand. Staffing needs are dependent on the pipeline of active and potential business opportunities available to generate billable hours. Active accounts and potential new business in the pipeline are managed by senior leadership and are influenced significantly by competition and general economic hiring conditions.

Caldwell is a client of IQTalent. IQTalent provides certain research services to support Caldwell's executive search teams. The pricing of these services is in-line with other third parties of similar size. IQTalent and Caldwell recognize these fees in their revenue and cost of sales, respectively. Such amounts are eliminated upon consolidation.

Cost of Sales

Caldwell

Cost of sales for executive search pertains to professional fees. It comprises partner compensation, related search delivery personnel compensation and the direct costs of providing our search services, much of which relates to candidate databases and research tools. Compensation costs include fixed salaries, variable incentive compensation and related employee benefits and payroll taxes.

Our partners are paid a set level of base compensation referred to as draws. Variable incentive compensation is based on a percentage of collected professional fees attributed to each partner, based on a tiered commission grid. The higher a partner's collected professional fees in a fiscal year, the higher the partner's earning percentage. In aggregate, as Annualized Professional Fees per Partner increases, compensation tiers and expense also increase. Please see the discussion on Non-GAAP measures for further details on this metric. The partners' variable compensation incentives are credited first to draw amounts already paid as an advance, with any excess due as a commission payment. A deficit occurs when a partner's variable compensation earned is less than their draw. The full draw amount is expensed each period. Additionally, any excess variable compensation is expensed

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and accrued for future payment. Deficit amounts within a fiscal year may be recouped in subsequent quarters if a partner earns enough variable compensation over the remainder of the year to credit against any deficit which has already been expensed. Deficits at the end of each fiscal year are not brought forward into future fiscal years for recoupment. In periods of organic growth, as new partner hires transition, deficits may increase.

In aggregate and over time, these costs are largely variable to professional fees, with fluctuations arising from changes in incentive compensation based on the Average Professional Fee per Partner and the leverage impact of certain fixed support costs during periods of rapid growth or decline. Please see the discussion on Non-GAAP measures for further details on the Average Professional Fee per Partner metric.

Costs associated with direct expense reimbursements are recorded separately as reimbursed direct expenses.

IQTalent

Cost of sales for on-demand recruiting services is comprised of research, sourcing and recruitment staff compensation, including benefits and payroll taxes and third-party contractor fees. Employees are primarily salaried with traditional bonus plans tied to company and individual performance. As a result, in the short term, IQTalent's cost of sales is more fixed in nature than Caldwell's. Other direct costs of providing our services are primarily related to candidate databases and research tools.

Staffing levels are actively managed with the utilization of hourly capacity, a key managerial metric. To help manage demand fluctuations, we also maintain a network of experienced non-employee contracted professionals. Although the overall cost of contracted professionals is higher than employees, when demand exceeds the available hours of employed staff, the contracted professional network allows us to scale to meet our clients' service delivery needs. During periods of significant revenue growth, margins may be compressed as contracted professional costs increase while additional in-house staff are hired and trained.

Contractors are generally paid for actual hours worked which will fluctuate each period relative to the number of working business days. In contrast to salaried employees, the cost of contractors is variable to revenue.

Selling, general and administrative

Selling, general and administrative expenses are similar in nature across Caldwell and IQTP, consisting of items such as occupancy, information technology, marketing, professional and other operating costs. We have consolidated certain support functions such as finance, accounting, payroll, information technology and select administrative functions. We allocate shared support costs from Caldwell to IQTP in the segmented statements of earnings based on the incremental direct cost of managing IQTalent. Costs related to our status and operation as a public company are not allocated to IQTalent.

NON-GAAP FINANCIAL MEASURES AND OTHER OPERATING MEASURES

Certain non‐GAAP financial measures and other operating measures are used to manage the business and explain the results of operations. Such measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Non‐GAAP measures and other operating measures used herein have been calculated on a consistent basis for the periods presented and include the following defined terms:

Caldwell

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