Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to the Currency Exchange International 2023 Q2 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. As a reminder, this call is being recorded today, Wednesday, June the 14th, 2023. I would now like to turn the conference over to Mr. Bill Matulis. Please go ahead, sir.

Thank you, Michelle. Good morning, everyone. Welcome to the Currency Exchange International Conference Call to discuss the financial results for the second quarter of the 2023 fiscal year. Thanks for joining us. With us today are President and CEO Randolph Pina, Group CFO Gerhard Barnard, and CFO of Exchange Bank of Canada, Alan Stratton. Alan will begin with his brief comments on EBC's second quarter performance, followed by Gerhard's comments who will provide an overview of CXI's financial results and his latest perspective on the company's operations. Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts, and business activities, after which we'll open it up for your questions. Today's conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave the call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI's Investor Relations website page, along with the financial statements and MD&A. Please note that this conference call will include forward-looking information, which is based on the number of assumptions, and the actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about the factors that could cause these different results and the assumptions we have made. With that, I'll turn the call over to Alan. Alan, please go ahead.

Thank you, Bill. I'll just begin by saying that while the bank's performance didn't meet our expectations in Q2, We believe that many of the factors that created headwinds for us will prove to be temporal in nature. The reported segmented information in U.S. dollars states that Canadian-based revenue declined by 7% to $3.6 million from $3.8 million in Q2 2022. It's important to note, however, that the bank actually generated revenue growth of 9% in its functional currency, the Canadian dollar, to $5.2 million from $4.8 million in the prior year. Differences in the rates used to translate the foreign subsidiary's results, as well as intercompany sales from the bank to CXI that get eliminated on consolidation, resulted in the decline in the reported segmented revenue in U.S. dollars. Now, the bank's revenue growth was attributable to the banknote product line, which grew to Canadian $3.4 million from $3 million in the prior year. Strong demand for foreign currencies related to the recovery of international travel was drove a 39% increase in the bank's domestic client base. This was partially offset by a 33% decline in revenue from foreign financial institutions. And that decline has been largely attributable to the weakening of the U.S. dollar earlier this year that resulted in lower volumes of dollars converted to local currencies by the customers of our financial institution clients. Now, as those customers accumulate dollars, they will typically convert them within six to 12 months' time. Our expectation was that the bank would have been able to mitigate some of this by trading with new clients in the quarter, but that did not occur. While there are foreign financial institutions that want to trade with EBC, they have requested a guarantee from CXI in order to meet their underwriting criteria for credit. And the banking crisis that began with Silicon Valley Bank's collapse in March didn't help our cause, as EBC's financial capacity is small relative to the value of the dollars being traded. We've been working through the complexities of implementing the parent guarantees or in the process of executing documents with those clients that require it such that it is anticipated the bank will commence trading with new clients in Q3. Now, the bank's payment segment also experienced a decline of revenue of 8% in Q2 to Canadian $1.7 million from $1.8 million in the prior year. That decline was primarily related to a reduction in transaction volume of 6% as average transaction value increased by 8% and the number of transacting clients increased by 22% over the prior year. So the lower volume has been attributed to many clients reducing their inventory purchases or being impacted by their customers reducing purchases. This is partly due to advanced purchasing made in 2022 as a consequence of supply chain issues and rising consumer demand. As both of those factors moderated, Many businesses appear to be returning to patterns more typical of pre-pandemic levels. We anticipate the volumes will increase as inventories are replenished, given that consumer demand continues to hold up well. The bank has continued to grow its client base with 80 new corporate clients added in the quarter. The bank's operating leverage turned negative in the quarter as operating expense growth slightly outpaced revenue growth. And the primary driver was an increase in variable costs associated with shipping. In late Q1, there was a change imposed by our primary domestic carrier to its insurance coverage that resulted in us doubling the number of packages shipped per order. And this generated approximately 1.5 million Canadian dollars in unexpected shipping costs in Q2. Identifying a long-term solution took time as it involves a mix of alternatives, including more cost-effective carriers in certain markets, and implementing a new pricing strategy to fully recover shipping costs that for most of our clients has been embedded in their margins. The solutions are being phased in with full implementation completed by early July. By then clients will have full visibility to the shipping costs and we are providing them with multiple options where feasible. The bank's EBITDA margin fell to 8% in Q2 from 10% in the prior year. and this coincided with the seasonal low for demand of foreign currencies associated with international travel. A strong demand for travel is forecast for the summer. That, coupled with the initiatives underway that I've discussed, are expected to generate an improvement to the EBITDA margins in future periods. I'd now like to turn it over to Harard Barnard to discuss the group's financial performance. Thank you, Alan.