Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to Currency Exchange International's third quarter 2024 financial results conference call. At this time, all lines are in a lesson-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to get up for a question. If anyone has any difficulties hearing the conference, please press bar zero for operator assistance at any time. I would now like to turn the conference over to Bill Metellus, investor relations manager. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to the Currency Exchange International Conference call to discuss the financial results for the third quarter of the fiscal 2024 year. Thanks for joining us. With us today are President and CEO Randolph Pina and Group CFO Gerhard Barnard. Gerhard 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 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 Gerhard. Gerhard, please go ahead.

Thank you, Bill, and thank you, everyone, for joining today's call. These results are presented in U.S. dollars. My overview will also incorporate the results of our only owned subsidiary, Exchange Bank of Canada. The group continues to focus on executing against its strategic plan in which investments are being made in our people through in-house training, mentorship programs, and coaching initiatives. CXI and EBC combined have 384 full-time and part-time employees as at July 31st, 2024, a decrease from 391 ending April 30th, 2024. As our technology platforms continue to remain a strategic focus and their continued enhancement and additional system implementations are creating planned operational efficiencies. Kairiba, our treasury management system, and ELISA AML compliance software are on schedule for operationalization by the end of this fiscal year. Our IT team continues to leverage the power of the cloud to enhance integration capabilities, improve scalability, performance, and resilience. These initiatives and investments, among others, support the more efficient future growth of the group. On November 29th, 2023, the group announced its notice of intention to make a formal course, a normal course issuer bid, NCIB, or share buyback, and to purchase for cancellation a maximum amount of 322,169 common shares, representing 5% of the company's issued and outstanding common shares. At the end of the third quarter, The company bought back roughly 96,000 shares for a total investment of 1.8 million US dollars and nearly 2.4 million Canadian dollars. Let's look at the consolidated performance for the three months ended July 31st, 2024, compared to the previous three months ending July 31st, 2023. The company reported 3.9 million of net income, which is slightly lower than the 4 million for the same period last year. Net income in the United States grew 576,000, or 13%, to 5.14 million, whereas net losses from Canada further declined by 700,000 to a current quarterly loss of 1.2 million. The Group's Return on Equity, ROE, for the current period was 9% compared to 17% for the same period last year. The company generated revenue of 24 million, a 2% increase from the same period last year, with noticeable new customer acquisitions in both the banknotes and payments product lines. Now comparing the third quarter of 2024 to the second quarter of 2024, Revenue increased by 3.9 million, or 19%, which is consistent with the cyclical growth patterns. The top five currencies by revenue were US dollars, euros, Canadian dollar, British pounds, sterling, and Mexican pesos. The 2% year-over-year growth in revenue price was primarily due to growth in wholesale banknotes of $365,000. followed by growth in the payments product line of 197,000, whereas direct-to-consumer, or DTC, declined by 155,000. Now, revenue in the United States increased 661,000, or 3% over last year, while in Canada it declined 255,000, or 6%. Operating expenses increased slightly by about 100,000, or only 1%. The company recorded net operating income of $6.75 million in the three-month period ended July 31, 2024, 5% higher than the same period last year. EBITDA margin for the current period was 29% compared to 28% for the same period last year. The following is a highlight on revenue by product line for the three months ended July 31st, 2024, compared to the previous three months, July 31st, 2023. And I'd like to start off with banknotes. Revenue in the banknotes product line increased by about 210,000, or 1%. Between May 2024 and July 2024, approximately 246 million travelers passed through TSA checkpoints in the United States airports. 15 million or 6% more compared to pre-COVID levels. Wholesale banknotes revenue increased 365,000 or 3% as the company continued to grow its wholesale banknotes domestic product line with new customer acquisitions and growth in volumes from existing relationships in both Canada and the United States. The company was able to achieve efficiencies in operating costs associated with wholesale banknotes, including shipping cost. Relative to the three-month period ended April 30th, 2024, wholesale banknote revenue increased 2.4 million, or 26%, which coincides with the typical seasonal increase in tourism in North America. Overall, wholesale banknotes revenue accounted for 49% of the total revenue in the current three-month period, consistent with the prior period in 2023. Direct-to-consumer banknotes revenue increased $150,000, or 2%. The company maintains its market share and growth level despite the tapering of demand in investment currencies. During the third quarter, demand for travel currencies grew from last year, and revenue from the company's FX online or online FX platform led to growth in revenue for the period. Overall, direct-to-consumer remained a growing business segment with its diversified delivery channels between company-owned branch locations through agents, relationships, and using the company's online ethics platform where the company successfully added the state of Maryland and Iowa to its network during the third quarter, which represents an opportunity for the company to offer its online services to almost 93% of the United States population. Direct-to-consumer revenue represents 34% of the total revenue in the current three-month period compared to 35 in the previous period. Now let's look at payments. Revenue in the payments product line increased 5% in this three-month period in the July 31st, 2024 compared to last year's. In the United States, the payments revenue grew 27%. Now that's in the last three months, whereas in Canada declined by 22%. Growth in the United States was primarily driven by new customer acquisitions and increased activity from existing financial institutions. A direct result of the company's continued investment in integrations with core banking platforms. In Canada, the decrease year over year was driven by the economic impact of inflationary pressures in Canada. The company processed nearly 40,000 payments, representing $3.38 billion in volume in the three-month period, and this compares to roughly 32,700 transactions on $2.6 billion in the same period last year. Now, payments represent roughly 16-17% of the total revenue. Now let's look at revenue by geographic location for the three-month period. In the United States, revenue grew by 3% during the three-month period as compared to the same period last year, primarily led by the growth in payments, which increased by about 580,000 or 27%, and also banknotes, which increased by 235,000 or 3%. a decrease in direct-to-consumer banknotes, as I mentioned, of roughly 155,000 or 2%. Revenue in the United States accounted for 83% of the total revenue by geographic location, where compared to 82% in the prior period. Let's look at Canada. Revenue in Canada declined 6% in the third quarter compared to the same period last year. Growth in domestic banknotes revenue was offset by a notable decline in transacted volumes and revenue from international banknotes clients. Overall, revenue in the banknotes product line increased by 127,000, or 5%, and revenue in the payments product line decreased or declined about 382,000, or 22%. Overall, revenue in Canada represented a 17% of the total revenue by geographic location in the current three months compared to roughly 18 in the prior period. Now, operating expenses increased nearly 1% for the three-month period in the July 31st, 2024. For the U.S., there's been no increase in operating expenses. As a matter of fact, there was a slight decline of about $150,000. Income tax expense for the current period is related to United States region, It primarily represents taxable income growth and is subject to certain temporary and permanent adjustments to taxable income. The Mexican peso was the largest contributor to net foreign exchange losses for the three-month period ended 31st of July 2024, while it was the largest driver of gains in the same period last year. Let's look at the consolidated performance quickly for the total nine months year-to-date in the July 31st compared to the prior nine months. Overall, the company reported 5.3 million of net income during the nine-month period. In the July 31st, 2024, 2.6 million or 33% lower than the same period last year. Adjusted net income was 6.7 million, a decrease of 1.2 or 15% compared to the same period last year. Now, adjusted net income for the United States grew by 1.6 million and 20% compared to the same period last year. Whereas in Canada, the adjusted net loss increased by 2.8 million. Now, this adjusted loss comprised of reported net loss adjusted for the reversal of the deferred tax benefit allowance of 1.43 million in Canada during the current period. The company generated revenue of 62.2 million for the nine-month period, a 5% increase from the same period last year. The revenue increase was driven by strengthening international travel and new customer acquisitions in both banknotes and payment product lines in the United States, partially offset by a decline in trades with foreign financial institutions in Canada. A quick review by product line for the nine months. Bank notes, revenue and bank notes, product line increased roughly 2.1 million or 4%. In payments, the product line increased by 9% with a 37% increase in the United States and a 22% decline in Canada as a result of reduced volumes and slower economic conditions. Payments revenue represented 19% of total revenue in the current nine months period, compared to 18% in the previous period. Now, if you look at revenue by geographic location for the nine months, in the United States, revenue grew by 10% as a result of strong growth in both product lines. Revenue growth in the payment product line was 2.1 million or 37% for the nine months. The growth in the banknotes product line was 1.4 million or 7%. where in wholesale banknotes it was 1.1 million or 6% indirect to consumer. Revenue in the United States accounted for 81% of total revenue by geographic location in the nine months compared to roughly 77% in the prior period of 2023. In Canada, revenue declined by 12% for the same period last year due to reduced transactional volumes from certain key clients in the payments product line, lower transacted volumes in US dollar with international clients, and a decline in domestic bank notes revenue compared to the same period last year. Revenue in Canada represented 19% of the total revenue by geographic location in the current nine-month period, which is a reduction from the previous 23%. Now, operating expenses increased 7% for the nine-month period, This 7% is slightly higher than the 5% growth in revenue, primarily due to slower revenue growth in Canada. Having said that, variable cost within operating expenses represented by posting and shipping, sales commissions, incentive compensation, and bank fees totaled 14.4 million and was lower compared to the 15.6 million in the same nine-month period in 2023. This represents a 7% decrease from last year and was primarily driven by a decrease in postage and shipping expenses. The ratio comparing total operating expenses to total revenue for the nine-month period was 79% compared to 78% in the previous nine months. Postage and shipping had a 19% decrease when compared to the same period last year, despite the growth in banknotes volume. Losses and shortages primarily represented the lost transit shipments that the company self-insures. The Mexican peso was the largest driver of foreign exchange losses for the nine-month period ended July 31, 2024, while the gains in the same period last year represented natural gains from the company's unhedged foreign currency inventory. Interest expense had significantly declined in the current period compared to the same period last year because of a notable decline in average borrowings utilized from funding short-term capital needs during the current period. Let's review the balance sheet. As of July 31, 2024, the company had a capital base of $83 million and $5 million drawn on its line of credit. with 45 million in borrowing capacity. This compares to 14.6 million drawn and 35.5 million of borrowing capacity for the same nine months a year ago. The average outstanding borrowings by the company amounted to 6.3 million during the nine-month period, compared to roughly 14.8 million in the same period last year. The average interest rate on borrowings was 8.7%, versus 7.3 in the last period. During the third quarter, the group continued its focus on capital allocations with enhanced modeling, a revised capital plan, and the normal course issue of NCIB, or share buyback, that confirms both management and the board's belief that the underlying value of currency exchange international may not be reflected in the market price of its common shares from time to time. And at this time, I would like to turn the call over to Randolph Pinnow, our CEO, to provide his perspective. Thank you.