Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to the Currency Exchange International 2023 Q3 Financial Results Conference Call. At this time, our lines are in a 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. This call is being recorded on Thursday, September 14, 2023. I would now like to turn the conference over to Mr. Bill Matulas, Investor Relations. Please go ahead, sir.

Thank you, Laura, and good morning, everyone. Welcome to the Currency Exchange International Conference Call to discuss the financial results for the third quarter of the 2023 fiscal year. Thanks for joining us. With us today are President and CEO Randolph Finna, Group CFO Gerhard Barnard, and CFO of Exchange Bank of Canada, Alan Stratton. Alan will begin with his brief comments on EBC's third quarter performance, followed by Gerhard, 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. And for those of you who may happen to leave our 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 a number of assumptions, and 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 that we have made. With that, I'll turn the call over to Alan. Alan, please go ahead.

Thank you, Bill. I'll start by saying that the first three months ended July 31, 2023. Exchange Bank of Canada generated U.S. $4.3 million in revenue. Now, this represented a 12% increase relative to Q2 of 2023, but a 9% decline compared with Q3 2022. Our payment segment generated 3% year over year growth, but a significant 31% improvement over the prior quarter ended April 30th of 2023. That was encouraging and indicative that the Q2 performance was impacted by temporal factors as many clients returned to more typical purchase and sale patterns as supply chain issues eased in late 2022 and early 2023. We continue to organically acquire new clients at a healthy rate, and client satisfaction remains high as we completed a survey in Q2 that resulted in a net promoter score of 85 for the corporate payment segment. Turning to the banknote segment, It generated $2.6 million in revenue, which was flat when compared to the prior year as well as Q2 of this year. Our domestic client base performed well as the recovery and travel contributed to develop strong demand through our wholesale channels. The international segment, however, continued to underperform as the bank was challenged in being able to trade with new clients and volume from some existing accounts in the Americas region experienced declines. What we have learned is that the patterns for the flow of US dollars can change over time. Significant appreciation or depreciation in the US currency seems to be a factor in impacting this. Our long-term strategy is to diversify geographically such that the bank becomes less dependent on any one region. We do have prospective clients in new regions that we expected would begin trading in Q3 once our parent guarantee structure was in place. However, this was not the case as financial institutions have become much more risk-averse this year to credit exposure, even for short-term settlement risk associated with our cash-for-cash trades. Recognizing the ABC size is the chief barrier to onboarding international clients, we decided to move forward with the implementation of a trust account structure. This is a tried-and-true structure that eliminates the residual risk but requires some operational changes to accommodate. We have been provided with assurances from our nearest prospects that this structure will be acceptable to their credit risk departments. We are in the process of working with an international banking partner to open a trust account, and we expect it to be operational by the end of the fourth quarter. While we are disappointed that we haven't been able to grow the international segment as planned this year, there hasn't been any change to our view of the market opportunity for the bank or our resolve to penetrate it. I'd especially like to thank our group treasurer, Katie Davis, for her tireless efforts in first working through the parent guarantee structure and now the trust account. Unfortunately, due to the negative growth in our international segment, the bank's operating leverage was negative in the quarter as the expense growth outpaced revenue growth. Part of this was due to increases in shipping costs that were primarily driven by abrupt changes made by our primary carrier in late Q1. On July 1st, we implemented two mitigating actions. Firstly, we migrated to a more cost-effective carrier in the southern Ontario market, which is our largest market. Secondly, we eliminated subsidies on shipping to our non-financial institution clients, making it mandatory that all of them pay for the true cost of shipping. For our financial institution clients, we have commenced negotiations to amend contracts, and when those are completed, we should be able to recover all of our outbound shipping costs. The operating structure has also increased over the past year as we have invested in the infrastructure to support our strategy. While inflation has driven some increases, building up key support functions and implementing new technology have been the predominant drivers, which Gerard will speak further about. Turning to the bank's balance sheet, its total assets of $54.3 million were well within the typical operating range. As cash is the largest asset on the balance sheet and has a low credit risk weighting, the bank's risk-weighted assets were $36.5 million at the end of the quarter. The capital position is strong with a Tier 1 capital ratio of 24.3%, a total capital ratio of 34.5%, and a leverage ratio of 15.1%. These are well above the internal minimum limits established annually in the bank's capital management policy. I'll now turn it over to Gerard Barnard to discuss the group's financial performance. Gerard?

Thank you, Alan, and thank you, everyone, for joining us on today's call. I will now present an overview of the results for the quarter ending the 31st of July 2023 for the Consolidated CXI Group. And just a reminder, these results are presented in U.S. dollars. The third quarter of 2023 demonstrated strong year-over-year growth as the group continues to see an increased demand for international travel and a return to a more traditional seasonality in travel patterns. As previously mentioned, this has historically translated into the first quarter being the weakest quarter and the third quarter being our strongest quarter for banknotes revenue. This pattern is reoccurring in 2023. Using Bain's low-growth air travel scenario, They expected between 95% and 99% of pre-pandemic travel levels for the financial year and around 103% to 105% of pre-pandemic levels for 2024. The group continues to focus on executing against the strategic plan in which significant investments are being made in our people. CXI and EBC combined have 414 full-time and part-time employees. On infrastructure, we added an additional 13 airport agent locations and 14 non-airport agent locations. We have about 190 in total. Our total year-to-date transacting locations is around 21,500. Technology platforms range of focus, and NetSuite went live on May the 1st of 2023. And this was our first quarter end. on NetSuite. Kariba, the new treasury management system, has completed phase one, and phase two is scheduled for completion in the third quarter of 2024. ELISA, AML compliance and fraud detection software, is making good implementation progress. Our technology team continues to explore ways to leverage the power of the cloud computing to enhance integration capabilities, improve scalability, performance, and resilience. And that is very important to us. These initiatives and investments will support more efficient future growth. However, as Alan has mentioned, these investments will impact the operating leverage of the group due to high setup, consulting, and implementation costs that are mostly not capitalized due to the fact that it's software as a service. The third quarter continued our successful transition to our new organizational structure that took effect on November 1, 2022. and I'm confident that we have the right team and systems to achieve our vision of being the preferred provider of foreign exchange solutions. Now let's look at the consolidated performance for the three months ended July 31st, 2023, compared to the previous three months ending July 31st, 2022. The group generated a 10% increase in revenue for the three months period ended July 31st, 2023, of roughly 23.5 million compared to 21.1 million. Since travel restrictions progressively eased over the course of 2022, there has been a sustained progressive improvement in the demand for international travel between North America and Europe, the Caribbean and certain Central American destinations such as Costa Rica. Some South American and Asian currencies have been slow to recover, but with Japan relaxing some travel restrictions, in foreign national markets have seen increased travel demand in 2023, in addition to certain exotic foreign currencies, which have showed increased volume in the same period last year. The group's top five currencies by revenue were U.S. dollar, Euro, Canadian dollar, British pounds sterling, and Mexican pesos. The revenue increased over the comparable period in the year also reflects the acquisition of new customers in both the banknotes and payments product lines. Compared to the three-month period ended April 31st, 2023, April 30th, revenue increased 5 million or 27% as demand for foreign currencies increased, which is consistent with the seasonality associated with the group's operations around the peak seasons. The group recorded net operating income of $6.4 million in the three-month period ended July 31, 2023, 12% lower than the same period last year. Overall, the increased growth in revenue was accompanied by a corresponding increase in operating expenses, and the group generated $4.1 million in net income during the three-month period ended 31, 2023, half a million or 12% lower when compared to the same period last year. Now, when comparing the three-month period, July 31st, 2023, to the same period last year, the following is notable. As Alice mentioned in the bank, for the group overall, revenue in banknotes product line increased by 11% to 19.5 million in the three-month period ending, July 31st, 2023, from roughly 17.6 million during the same period in 2022. Demand for foreign currencies has significantly improved as restrictions on international travel has substantially eased over the past year. Between May and July of 2023, approximately 230 million travelers passed through the TSA checkpoints in the United States airports. As we said, approximately 99% of the pre-pandemic levels. Now, this is an increase of 13% for the same period last year. The group was successful in increasing its market share as indicated by the increase in new wholesale clients and developing its direct-to-consumer footprint through new locations, including agents, and via its well-performing FX online platform. Relative to the three-month period ended April 30, 2023, banknote revenue increased by 4.2 million, or 27%. which coincides with typical seasonality in tourism-related demand for foreign currencies in North America. Relative to the most comparable period to the pandemic, that would be the three months July 31, 2019, banknote revenue has increased 66%, reflecting the impact of increased market penetration and expansion of international trade. Now, revenue and payments product line increased 7% to 3.8 million in the three-month period ended July 31st, 2023, from 3.6 million in the same period in 2022. While client acquisitions remained consistent with the same period last year, certain of our top clients experienced declines in their volume as a result of the slower economy. However, the group was successful in onboarding new clients and processed more payment transactions, but with lower volumes at higher margins. The group processed 32,670 payment transactions, representing roughly $2.5 billion in volume in the current three months. This compares to close to 30,000 transactions and 2.7 billion of volume in the same period in 2022. Payments represented a 16% share of the revenue in the current three-month period, a slight decrease from 17% in the same period in 2022. Now, operating expenses increased 22% to $16.9 million compared to $13.8 for the three-month period ended July 31, 2022. Let me explain what this consists of. Salaries and benefits increased mostly driven by incremental growth in headcount which, as I mentioned, increased to 414 in the three-month period in July 31st, 2023, compared to 320 in the comparative previous period. The increase is required to manage the growth in the business as the group continues to backfill some of the vacant roles that were cut as part of the group's restructuring plans during COVID-19. In addition, A reminder, a partial increase in cost is driven by inflation in base salaries and wages as the group implemented broad-based increases in 2022 to maintain its competitiveness in the labor market due to the inflationary environment, whereas wages were largely frozen in early 2022 due to the ongoing impact of the pandemic. Postage and shipping increased primarily due to increases in volume and shipments associated with the banknotes product line. The balance in product mix as the international banknote trade involves air freight and third-party processing fees. Inflation, also driven in part by high fuel costs, has also been a contributing factor. CXI, just like EBC, has implemented some price increases to compensate for the higher shipping cost level during fiscal 2022 and 2023. And these strategies were successful in absorbing some of the large shipping costs increased incurred by the group. Information technology expenses included non-capital expenditures on software and related services contracts that do not meet the capitalization criteria. About one-third of the increased cost was associated with the group's increased reliance on third-party technology service providers to deliver its products, including accounting and treasury management systems, in addition to the continuous improvement of new enhancements to our CFIX software, the group's proprietary system, and other technology costs that the group incurs in the normal course of business. Losses and shortages increased primarily due to lost shipments in transit, for which the group self-insures, reflecting a significant shipment and volume increases year over year. The increase also reflects amounts that the group provided for settlement losses on certain exotic currencies that are held in inventory. The foreign exchange net gains are primarily attributable to the gains realized on banknotes inventory revaluation under the current hedging program. The majority related to Mexican pesos, whereas the rate change in most of the major currencies in the prior year contributed to the majority of the losses over the same three-month period last year. Now, let's take a high-level look at July 31st, 2023's consolidated performance for the nine years ended July 31st, 2023, compared to the previous nine months. The group generated a 22% increase in revenue, with revenue for the nine-month period ended at roughly $58 million compared to $47.7 million, and with net operating income of nearly $13 million, compared to the 13.3 in the same period last year. The group generated 7.9 million in net income during the nine-month period compared to 7.4 million for the same period last year. Now when comparing the nine-month period to the same period of the previous year, the following is notable. Revenue in the payments product line increased by 16% to 10.4 million from 9 million Revenue in the banknotes product increased by 23% to $47.7 million from $38.7 million. And operating expenses increased 31% to $45.1 million when compared to $33.4 million for the nine-month period ended July 2022, mostly due to salaries and wages. There was a 29% increase to 24.4 million from about 19 million. Postage and shippings over this nine-month period increased 51%. Losses and shortages nearly 300% to 1.7 million from close to half a million. And stock-based compensation roughly 70% to 1.4 million from 0.8 million. Now, be assured that management continues to focus on cost containment and negotiations with our clients to recover some of the inflation seen in shipping and costs through fees. The ratio of total operating expenses to total revenue was 78% for the nine month period compared to 81% for the prior six months and 72% for the nine month period, July 2022. Let us now review the balance sheet. The group's capital base as at 31st of July, 2023, has grown to 78 million net equity in addition to the growth in its credit facility with its primary lender to 40 million from 20 million. Working capital has grown to 68.7 million from roughly 60.5 million. The combination of the solid capital base and debt capacity provides sufficient liquidity to continue to meet its financial obligations and ensures that CXI and the group is well positioned to support its strategic initiatives that include the organic and inorganic acquisition of new clients in both the banknotes and payments product lines. The group has a total available balance of unused lines of credit of 54.1 million compared to 55.5 million as at October 2022, and 20.1 million as at July 31st, 2022. Given the unpredictable nature of demand and the significant increase in volumes during the summer, our busiest third quarter, the group held higher inventory balances of certain currencies to mitigate the risk of running out. I would like to conclude my discussion reiterating the group's continued focus on executing against its strategic plan with a particular focus on 2023 on making significant investments in our people, our infrastructure, our technology platforms, to be in a position to create an even brighter future for all stakeholders. And with this, I would like to hand over to Randolph Pinna, our CEO, for his perspective. Thank you, Randolph.

Yes, thank you, Gerhard. Thank you, Alan. And thank you all for joining us this morning. Appreciate the detailed summary from both of the CFOs. So I will like to just speak at a high level of focusing on our strategic initiatives of our group. As always, I usually like to start with our biggest asset that CXI has, which is Exchange Bank of Canada. And yes, we all look at it and scratch our head saying, well, why is there a return to loss after finally last year we had a profitable bank? Why were the revenues kind of flat? And what is going on with Exchange Bank? Well, I'm very proud of Exchange Bank. Banknotes will be continuing to grow. We have a focus on both domestic banknote expansion with Canadian financial institutions primarily, as well as money service businesses, as well as international banknote expansion. As you know, Exchange Bank of Canada is one of very few banks that have the authority to represent the United States Federal Reserve Bank system in distributing U.S. dollars globally. There is a high demand for this. Our pipeline is quite full. We have remained very cautious in our international expansion, expansion focusing primarily on FATF countries. Those are the big major countries like UK, France, Switzerland, Mexico, Brazil, Singapore, etc. The problem, as Alan pointed out, is our bank is small. Transaction sizes in US dollars, especially when it goes to Asia, are large, typically 50 million in a clip. that doubles the size of the bank. And so therefore we've had to reach out to our large international bank to establish a trust agreement to allow us to provide the credit concerns, you know, addressing the credit concerns of these financial institutions. Additionally, another challenge for our bank on the international stage is we are getting a lot of requests for Canadian dollars. They want, of course, primarily U.S., but they're asking for another $5 million Canadian because the demand for Canadian dollar has increased from both a tourism point of view as well as possibly a diversification of inventories of cash held in their vaults with a currency like Canadian, which is mirrored to the U.S. dollar, but there has been a movement towards less U.S. dollars and possibly other foreign currencies as a mix to be held in a reserve. As you may know, Bank of Canada only allows large what they call direct clearing banks to deal with Bank of Canada. We're very proud to know that we've been in discussions with Bank of Canada, and they have verbally as well as in an email offered for us to apply to become a member of Bank of Canada and eventually join the Canadian banknote distribution system, which is a process that Bank of Canada has to distribute Canadian banknotes. If and when we get this, this will enable our bank to really be a leader in wholesale bank notes around the world. We continue to focus on both the credit as well as the risks and our plan to expand internationally. Domestically in Canada, we have a strong edge because we have a direct relationship with the Federal Reserve for U.S. dollars. As you know, the Canadian banks run a dual ledger system of both U.S. dollars and Canadian dollars. So there is a strong demand for U.S. dollar cash. We intend to continue to compete in the domestic market, growing our share with financial institutions across Canada, including some of our existing customers. And what that is is we have a lot of customers using us for foreign currency, but not U.S. dollars. Similarly, besides us being able to sell to them U.S. dollars, we have recognized the model that has been working successfully at CXI, growing its payment business, we've realized that these banks could utilize our software, which is already embedded within the financial institution. EBC is already an approved vendor, and it's as simple as turning on the wire tab to the authorized employees of those financial institutions to enable them to send, as we call it in our system, prepare a wire. Certain employees would have the authority to approve the wire, and select employees usually in a wire room would have the authority to release those wires. The beauty, as we found with testing this model in Ottawa just recently, that they are very excited the fact that this software is in place, the vendor is already approved, and there's no need for a new username or password because it's just enabling the authority to do a new product on our existing system. So we will see that Exchange Bank of Canada will continue to grow its business both with banknotes as well as with payments in this digital format. While the wire business has been growing, it is true, as Gerard pointed out, that the transaction sizes have gone down. The amount of transactions are still there and actually growing, but the amounts have gone down. As Alan pointed out, there had been some extra buying going on, and we feel that's a seasonal blip here with the domestic, what we call the FX banking services, which is where we have dedicated bankers to certain corporations that can talk to their banker and execute trades in the old-fashioned by phone manner. Of course, our online FX system is being promoted more and more as this enables our salespeople to focus on larger trades, allowing the corporations to self-service them for smaller trades. So overall, Exchange Bank of Canada has three areas of focus. It's domestic business with banknotes. It's domestic financial institutions with hopefully new payment business. And then, of course, international companies expansion with banknotes around the world. Our FX banking system, which is being led mostly out of Montreal, but we have a strong team now in Ontario as well, is continuing to grow corporate by corporate day after day. And so we're very pleased with Exchange Bank of Canada, and it has this potential to continue to grow significantly and be a prize jewel within the portfolio of CXI. Now moving to CXI, as you noticed, CXI is continuing to show great growth. CXI has its two main areas. It has its wholesale business. That wholesale business is primarily banknotes. It has been successfully expanding with integrations and doing digital wire payments, tapping into networks like Fiserv and Jack Henry. We have just recently implemented a system with a technology provider that is going to allow us to enhance our wire platform, allowing for software for small to medium-sized corporations to do automated invoicing and accounts receivables and so forth. So it's an extension of our software enabling our client banks to enable their corporations to allow their customers to actually deal in an automated fashion all through a straight-through process. So the invoice can go out, the client can click pay, they do the pay, and the debits and credits all occur digitally all through the network of them to us to the final clearing wholesale bank that we utilize typically in New York or in Toronto. So our wire business, you'll see continued growth and focus in our sales. We are not abandoning banknotes by any means. In fact, we recognize now with our NetSuite that where our best profitability is has been with banknotes, both within our own stores as well as with our agent stores. And that moves us from the CXI wholesale unit to Matt Schillow leading the consumer unit. The consumer unit is very strong. It has its own company-owned stores. I think we're around 40 now. Very proud to say we have our first direct contract with an airport, of course, based in our hometown of Orlando, Florida. So we now service Orlando International Airport. I believe that brought us to about 40 stores that we own and operate ourselves. The bigger focus is on our agents. We have about 190 agent locations where we don't pay rent or payroll. It's a revenue share between the local operator, typically in this case where we have a lot of revenues from the airport operators, the airport authorities, and ourselves as the wholesaler. providing the software, the brand, the inventory, the licensing, and oversight. That agent relationships will continue to grow as we are focused on this model, and we're finally going to be hopefully opening the duty-free stores on the southern border, which was put on hold during the pandemic and finally coming back to light. That's just one example of some of the expansion that could be ahead for the agent division. Our online store continues state by state getting new licenses allowing us now to be able to deliver to over 92% of the entire U.S. population with home delivery. So our consumer unit will continue to be a major part of CXI's future growth. With our own company stores being selective, we may see ourselves opening in Atlanta, Georgia, somewhere like in Buckhead, our agents across the country, and of course our online store as we add additional states and other agent locations in new states. So lastly, that leaves us with what else? What are we going to do with all this cash? Many shareholders are saying, buy back your stock. We feel that the best investment will be to continue to expand our infrastructure. As Harard and Allen have pointed out, we've invested heavily into ensuring we have not only the technology, but most importantly, us. We are people, and we need a great team of people. I'm very proud of the people we have. We have a long way, Bracey, leading the CXI wholesale unit. Worked with him in over 20 years. Matt Schiller, probably 25 years. We have an experienced management team. We have an experienced board of directors. And we have a great balance sheet to utilize. And therefore, we are looking at payments as an opportunity to acquire. However, the current market where people are paying ridiculous multiples like 9, 10 times earnings is too expensive. It's not sustainable. We will not overpay for an acquisition. We do believe in paying a premium, and so we will continue to work and try to convince owners to join with us, recognizing the benefits of our technology and our back office so that we can both collectively enjoy the benefit of merging together and eliminating overlapping costs and teaming up to grow. We also, though, now are focused, again, back on banknotes. We have identified a few banknote opportunities, one of which could be quite significant. that we all will continue to pursue. So in summary, as I told you, we have a great team, we have leading software, we have a great reputation, we have a great board, and most importantly, you all on the phone, our great investor base. So I thank all of you for your support, your understanding, and we look forward to your questions. Thank you.

I can turn it back to questions.

Thank you, Sam. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. Again, that's star followed by the number one on your touchstone phone. If you would like to withdraw your request, please press star followed by the number two. Your first question comes from the line of Robin Cornwall from Catalyst Research. Please go ahead.

Hi. Good morning. I guess my first question is back to expenses. I'm just curious as to whether you expect the expenses to continue to grow at this level or you've found replace people from COVID that you're going to ease off a little bit. I'm not too sure where I should look at or how to look at expenses going forward. And as part of that, if you could maybe give us an idea of what the exotic currency losses, uh, where is this quarter?

Uh, I'm not sure who wants to take her. I want to take that. I, I, I can, I can just, before you go her art, I'll just add a high level. You know, we have a, we have our two CFOs, which we didn't have before. And we've got our structure in place. So I don't think there'll be as radical of a increase in headcount as you've seen because we have ensured the right team because of the expected growth over the next three years. And this is the year that we have put in the systems and focused on ensuring we have the right structure going forward. So at a high level, that's my comment, but Gerard, you're welcome to add to that if you feel.

Yeah, no, I echo that. Robin, just to give you a little more color around that, as Randolph mentioned, we had to bolt back the team post-COVID. So in my opinion, and also in our executive and our board's opinion, we have now reached the optimal staff complement We are looking at productivity and ensuring that we have people doing the right things right, which is always conducive to ensuring that we have the right springboard when business grows in 2024, 25, 26, that we understand exactly how to manage that growth with existing staff. We also look at two or three major areas, postage and shipping, as Alan has mentioned, and I've also... elaborated. We now have a person on staff that brings significant fraud experience, and we're really going through each one of these items when it creates a loss or a shortage and investigate, understand, report, work with the authorities on that so that we can really curb that. And as you've seen, that is a significant expense for us in this year. Also, the package sizing that that we mentioned before. Exotic currencies is profitable. Exotic currencies can also swing due to external factors, so we do ensure that we have adequate reserves or accruals for those swings and roundabouts in exotic currencies.

Okay, thank you. My next question is, really directed at Randolph. I'm quite intrigued with your online FX. And you indicated, if I've got this correct, that there was an 11% increase in direct-to-consumer, which I assume is online FX. I think that's year over year. Now, that would make it about 3% of your revenues or if it's just commission revenues, I guess would be up close to 5% of your business. Can you give us your thoughts on the potential growth of this business? I mean, you're in an exceptional position with your distribution now, like 75% of the United States that you could deliver online FX. How do you promote it and whether or not there's any acquisition opportunities. It's an intriguing area to me, and I'm not sure I quite understand what the potential is.

Yes, the potential is, Robin, thank you. We're now over 90% of the U.S. population. The potential is tremendous. Part of the reorganizational designs is that uh we it's under the consumer unit so matt shillow who was our chief operating officer of everything for the during the pandemic um is now focused solely on the three parts of consumer which is our own stores our agent stores and our online store you've asked about the online store uh ryan graham who's the vt of marketing owns the online store because there's a direct correlation and the highest spend we have in marketing dollars is to the consumer unit and a lot of that is on the online expansion. Ryan has just recently hired a salesperson focused strictly on integrations to other travel websites and vacation sites to allow for integrations and digital online referrals to our site. So if you're buying an international trip or a vacation package, for example, there's a company in Seattle called REI. It's one of those sports store type things where you can buy your hiking gear, but you can also buy a vacation to go hiking in Costa Rica or something, and that we are trying to package selling Costa Rican colones as part of that process. There's Semester at Sea. There's a lot of these specific groups that have large followings that we're cross-selling to, and so we are investing more in that. In fact, we have doubled the marketing online spent. We have a client that's in California that runs a boutique, an online store, and their focus is not so much on travel money but more about the collectible and old money and unique bills and so forth. And we looked at, from an acquisition point of view to your question, and his company was probably just as profitable as ours, and he's just one vault center in California servicing the U.S., but it just gave us the realization how profitable our online store could be. And so, yes, it is a profitable business. Yes, it is planned that it will significantly grow even faster than it's been doing now because of our additional state licenses and our intent to integrate with other travel and vacation sites to cross-sell our product while they're selling their product. Does that answer your question, Robin?

Yes, thank you very much. That was very good. Okay, that's it for me. Thank you. Thank you, Robin.

Just a reminder, ladies and gentlemen, should you have a question, please press star followed by the number one on your touchstone phone. Your next question comes from the line of Jim Byrne from Acumen Capital. Please go ahead.

Good morning, guys. A couple of questions for me. Nice to see the payments business rebound in the quarter. Maybe just give us a sense of your outlook for the short and medium term, whether this level of activity is going to continue, or do you see any signs that with the economic backdrop that there could be some slowing in that business?

Well, the payment business, as we've seen in the last two quarters, has softened. However, from a longer-term perspective, as I was highlighting with our plan to cross-sell to existing clients additional payment services, we do anticipate those revenues to increase. In my little presentation I just did, I missed one little note that I wrote here because I don't read off a script. I kind of just have some bullets. But one of the bullets that I forgot to mention on the cross-selling to existing customers is in the U.S. we've recognized the need for domestic payment processing, that they want to use our software as a wire hub. We have a very experienced person that has a lot of relationships and experience with having domestic processing besides international processing, and this is more a software-as-a-service model. And therefore, because it's U.S. for U.S., so there's no exchange rate, so it's fee-based. but it has the opportunity to significantly grow our revenue base as well. So both in Canada and the U.S., we do have a plan to continue to expand our payment business in spite of the overall global recognition that commerce is going to slow down a bit. And yes, I do believe that the good days are, won't be going forever. I don't think it's going to be held, but there'll be a softening in this commerce space. And we are going to expand by adding new clients. Even if the pie is shrinking in totality, we can continue to show significant growth. And now with our new structure, Exchange Bank has its team focused on its growth, while CXI has its team focused on its payment growth. Banknotes, we see both in both businesses continuing to grow. There are some players that are probably interested in getting out of the space. And we are a leader, especially in the US and Canada in this space. And so we are continuing to focus on our expansion there. I'm not sure if that answered your question. But overall, we do anticipate both businesses resuming solid revenue growth from both banknotes and payments.

Randall, I might add some color to that with the implementation of NetSuite and the going live on May the 1st. We are now able to really understand down to the marrow exactly what happens in each revenue generating unit, in each airport location, in each agent, understanding the revenue, the cost, the shared services cost, the cost of shared services themes. So that, as Randolph mentioned, that allows us to really hone in on where we need to grow and also understand, if you think of FX online, as Randolph has explained, we have actually tripled that budget from what Ryan asked initially, because we have empirical evidence that shows us if we spend X, we get Y in revenue. So it is exciting for us to understand where are we going, being able to have the data to support it, and really drill down on each and every one of the smaller units that we have, if I can call it that. And that just focuses the attention on the right places to grow.

Okay, that's great. Thanks, guys. The delay in international expansion that you anticipated for this quarter, Can you help us quantify what that business could be in the next few quarters? Is it $1 million a quarter, $250,000, $4 million? Maybe just help us quantify what type of impact that potential business has.

The international business has huge potential because of the high volume nature of it. And so we don't have any guidance to give. I mean, we already have three approved banks lined up for what we call a first-time trade. Again, the credit was what stalled and the failure of the banks in the U.S. has caused a huge reaction from the risk units of banks around the world. Even our bank, who's not a deposit-taking institution, had dealt with lots of questions from everybody about, well, how are you, capital? How are you? We don't have any run on our deposits because we don't have any deposits, but yet there's just a heightened fear with all the bank regulators and hence the banks around the world, and that tightening literally stopped in its tracks trades that were supposed to happen. thereby saying, oh, the corporate guarantee of CXI is not solid enough because you've got other corporate guarantees in place. And so they wanted something like a real, you know, in trade finance called a standby letter of credit. Similar to that is where you can have a trust account where it goes through a large financial institution and that institution will take ownership or responsibility since it's passing through their hands. And so we have went through, We're now finally getting that in place, but as a delay. But to the question, how much can you make? Yes, you can make millions on this each year. So 500 a quarter would be a reasonable number. If you look at a money corp who is in the UK who got their license in their second full year of operation, they added 20 million in new revenues from international. Now they went into higher risk jurisdictions. like the Africa's, and we are not going into those high-risk areas. We currently are in FATF areas. We have explored some low-risk non-FATF areas, but our board and I have agreed we will get more experience with FATF countries as we slowly prepare to expand into non-FATF low-risk countries. So we do have a conservative growth approach, but it can be significant. So in 24, we do have some big numbers expected from the international expansion. What's also encouraging is we're getting a lot of requests for payments. They want us, the bank, Exchange Bank, to do their U.S. and Canadian dollar payment clearing and so forth. And so there's opportunities to expand our payment business also internationally. But we're taking it quite conservatively. We are a Canadian bank, as you know, the Canadian banking system is very sound and very risk-averse. And so, therefore, we are cautiously expanding our bank.

Okay. No, that's great. I appreciate that, Randolph. And maybe just one more. Gerhard, you mentioned NetSuite went live. You're into the second phase here for Ariba. Maybe just give us an idea, when does that spending kind of roll off? Is it A year from now? Is it two years from now? What do you think for the timeline?

That's a fantastic question. I am happy to say that the spending on NetSuite has really dried up substantially. NetSuite Phase 2 is called Budget and Planning, which allows us to really do proper revised estimates, faster budget processes, there's about $150,000 in the next four or five months that we're going to spend on that. Other than that, NetSuite is implemented. Chris and Caitlin and Ahmed and the team has done a phenomenal job of moving from our old system to NetSuite. They are experiencing the benefit of that and the cost is stopped. On Pariba, that is probably two or three quarters out. We've employed the services of a very skilled project manager who's also helped us through NetSuite to ensure that we continue down that path, organized and structured. So there is still cost being incurred there. And on ELISA, it is mostly internal resources that's currently being used to ensure that we go through the whole data mapping structure with our ELISA partners. So We expect that cost to substantially decrease. And to give you more tangible facts, I'm looking at a spreadsheet here of we've spent roughly between 100 and 150,000 a month on systems in the last nine months. So we expect that to decrease substantially as we utilize and operationalize these systems. That's great. Appreciate it. That's it from me, guys.

Thank you, Jim. Thank you.

Your next question comes from the line of Stephen Renzini from University Bank Corp. Please go ahead.

Hey, good morning, and congratulations on a solid quarter. I've got... a question and a comment. My question is, my understanding is that you're not yet licensed to do business directly with consumers in Canada under your Exchange Bank of Canada charter. Is that something that you're thinking about changing? Because it sounds like the opportunities for online FX in Canada would be as good as they are in the United States too, correct?

That is correct. And Stephen, yes, we can't speak specifically to any applications or paperwork we're doing with our regulator. However, I can speak to the strategic direction of Exchange Bank of Canada. And as I commented, we have a more clear focus on our domestic business, not just the international opportunities, but domestically in Canada. And yes, to enhance our business plan to allow us to have direct relationships with the clients of our corporations that we are dealing with. It's right now a disadvantage where our corporate who's now using us to, let's say, buy their pesos or their euro digitally to make their payments and import the products they're selling in Canada. They say, well, I need to get $5,000 worth of pesos or $5,000 worth of euros for my trip. We say, we can't do that. You got to go to your bank. And so we're at a disadvantage. And so we do... We've gone through what's called the Change Management Initiative, and we're looking at the value add of possibly adding a consumer unit where we would focus on our corporate clients, some high net worth clients, and then have an online home delivery option to compete with the big banks because all the big banks do offer home delivery of cash. And so we want to be able to allow our bank to compete shoulder to shoulder with the big banks as well. And you did point on it. point out a deficiency we have in our offering because our bank currently was started as a B2B, just bank to bank or a business to bank. But we do see the value of having selective consumer coverage. And so we are, you know, ready to discuss that when we feel we're ready and we are doing something internally.

Thanks for that explanation. And then the comment that I've got, or maybe a question too, is, you know, you mentioned this struggle that you're having on larger customers for settlement services, right? Financial institution customers and getting approved by their credit departments, right? So I don't know if you've looked at or considered having Exchange Bank join CLS Bank because that's how most of the largest banks are doing their FX settlement to eliminate bank hair stock risk. And if you were a member of CLS Bank, essentially any registered transaction there, they guarantee the performance, right? So it eliminates the credit risk element for all of the counterparties and it would open you up to doing business with all 70 of their members, the major members.

I'm very familiar with CLS. In fact, we had a board member on our board who left our board to go to that bank's board. I believe that that bank only allows you to join if you're a mega bank. Like you said, there are 70 banks there, and those are the 70 largest banks of the world. And so I don't know if we're qualified. But that same guarantee process with a large New York bank, we're getting a similar guarantee because our bank is requiring prepayment. So we have a bank over in Asia that wants to buy $50 million worth. We're saying, wire us the $50 million. We put that money in our Federal Reserve account. And then with that funds, we pull out the cash and we instruct the international shipper to deliver. So the process going forward when this is in place is they're going to wire the money into that trust account at the bank, which is a gazillion-dollar bank. And that bank will then move it on our behalf to the Fed, and the Fed will then move it back, give authority to them to direct the shipment back of cash overseas. And so that's how the process will work. It's just taking time, as you can imagine. There are costs. Luckily, it's not a basis point cost. It's a transactional fee, which is very reasonable and allows us to control the exchange rate, if any, when dealing in these international transactions. So we are doing a similar process as the CLS Bank. I don't think CLS would take us straight away, but I will take that note. So I appreciate the comment. Thank you.

I sent you during this call their membership criteria and you may qualify. You might be surprised. I was surprised because I thought myself before I downloaded it that, you know, only major banks need to apply. Right. But what they're saying is as long as your credit rating can be double B minus or better. Right. Which isn't a great rating, to be frank. I mean, our banks got triple B plus from Egan Jones. Right. Right. and your profitability and return equity basis, you know, being so high, you might actually, uh, okay. Yeah.

Well, we'll take it offline. I'll give you a call. I'll give you a call later to discuss it. I, we have one or two minutes left, so I just want to see if there's any more questions. I know between Alan Harard and I, we take, we eat up most of the time, the call time. And so I, I, if I may, I'm going to let someone throw another question unless you have another one. Um, But I just wanted to exhaust the room of any questions that are still pending, please.

There is another question from Robin Cornwall from Catalyst Research. Please go ahead, sir.

Thank you. You answered my question, so I have no further questions. Thank you.

Okay. Thanks, Robin. Are there any others before we hang? I know we're right at the time, so.

Yes, sir. If you care to take one more question, we have one more from Peter Rebover from Artco Capital. Please go ahead.

Yes. Hey, Peter. Hey, guys. So I have like a bigger existential question. You know, you're talking about these large transactions and the trouble that you're having getting them. And then I think the previous caller, you know, Mr. Rangini, you know, you answered him that the – the organization that he mentioned is, you know, for mega banks. And so I guess my bigger question is, you know, how many of these large transactions are there a year? Like what percent of, I guess on a revenue basis for the market, did they represent like, right. Is the market more on these like one to two or 3 million trends? But I guess the question is like, is your, What percent of the market is your balance sheet equipped to handle right now? And is it worth all the effort and the headache and the operational stuff and more? I know you see where I'm alluding to, you know, putting your balance sheet unnecessarily, you know, I don't want to say at risk, but kind of draining your returns on capital for maybe just chasing a handful of transactions. So that's my question.

Thank you, Peter, because I'm very happy to clarify what I'm hearing is a misconception of it. First of all, the size of revenues, the total pie is tremendous on the amount of U.S. dollars being sold globally. The world's reserve currency is still the U.S. dollar, and it will be for a very long time. And so the amount of trades are regular. So this 50 million trade typically happens two to three times a week with that one financial institution. We have the big the big UK banks and all of that. I mean, the Bank of America has what's called an EMI from the Federal Reserve, which is basically what I call inventory on consignment. And they have billions sitting on reserve in London and also in Switzerland to distribute up through all of the FATF Eurozone. So the revenues are tremendous. So while the work up front to get this in place is going on and the delay is what we just recognized, the bank was structured to handle the revenue. We have the people. We have just as many compliance people and risk people as I have sales people. And we are working on... growing the revenue side and hopefully holding still on the cost side, as we said before. And so the work we're doing is tremendously accretive to us. And why is because the number one reason it's not using our balance sheet here, we're asking them to prepay us. And if everybody prepays us, then the growth potential is tremendous and it doesn't touch a penny on our balance sheet. Hence the need for the big mega banks to stand in the middle, for a small fee and say, yeah, we've received your funds. I put them into the Fed, and, yep, we've told the Fed to ship those dollars over to Singapore. There you go. And they did their work. They get their fee. We made our spread because we're getting the basis points, and they're just charging a flat transactional fee. And so this is a tremendous opportunity for our bank to have the potential to grow unlimited without touching the balance sheet because our balance sheet is very small, and we need to grow our retained earnings at the bank to make everybody comfortable and us shareholders happy that we've invested so much money and time into Exchange Bank of Canada. But make no mistake, we are building Canada's next great bank by getting on board with the Bank of Canada eventually, like we already have with the Federal Reserve Bank, enables us from a cash point of view. By being on the interbank desk of FX trading floors in New York, London, Toronto, and so forth, allows us to compete head-to-head on the payment space. So our group is well-positioned. We've got the team. We've got over 400 people, and these are not just newbies. A lot of these are experienced bankers. I'm very proud to have Gerard on board, who brings a wealth of knowledge and experience as a chief financial officer. All his techniques of how we're going to improve the efficiency of our group are already well underway. We are in a great spot. And as an owner, I'm very proud of our team, our employees. our board and you all as shareholders. So Peter, I really appreciate your support and your questions. And I look forward to seeing you in, I think at that conference in LA in a couple of weeks. Great. Okay.

Thanks. Thanks for, uh, thanks for taking the time. I appreciate it.

My pleasure, Peter. Thank you. And I think we're out of time. Uh, was there any more questions or no, I'm sorry for those folks that we've gone over, but, uh, Happy to answer. These are very good questions and feedback from the audience.

If you still care to have one more question, we have one last from Mr. Will Carter. Please go ahead, sir.

Yes. Yeah, just a Hey, guys. Great quarter. Obviously, really positive on the revenue side. Some kind of moving pieces on the cost side. Just kind of wanted to understand how we should think about margins once all of the IT spend and growth investment is out of the way. Is last year's margin level a good way to think about that? Is it going to be improved because of some of these efficiencies, maybe lower because of the higher cost spaces? Is there kind of some high-level guidance we could get around that?

We typically don't do guidance, but Gerard, he can maybe paint a little color there.

Yeah, I agree with Randolph. Let us understand our cost structure with the new net suite in place. I would be comfortable looking at last year and say we're striving and our strategic plan is striving to improve. the margins and the ratios that we have, especially on the operating margin. The EBITDA margin has been monitored and tracked by us as well as the board. So that would be the floor that we would be ready to jump off from.

Got it. That's helpful. Thank you.

Thank you. Thank you, everybody.

Yes, thank you for your time. Apologies for going a little long, but I feel it was a very good detailed meeting. And as always, please reach out to Bill, Harard, Alan, or I at any time, and we can answer your questions if we are allowed. So thank you again. Have a good day. Thank you, presenters.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day. Speakers, please stand by.