Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to the Currency Exchange International 2024 Q4 and Cisco Year-End Financial Results Conference Call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on January 23rd, 2025. And I would like to turn the conference over to Bill Matoulas, Investor Relations. Please go ahead, sir.

Thank you, Sylvie. Good morning, everyone. Welcome to the Currency Exchange International Conference call to discuss the financial results for the 2024 fourth quarter and fiscal year end. Thanks for joining us. With us today are President and CEO Randolph Pinna 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 activity, 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, Bo, and thank you, everyone, for joining today's call. These results are presented in US dollars. My overview of the company, CXI, will also incorporate the results of our wholly-owned subsidiary, Exchange Bank of Canada. The company continues to invest in our people through in-house training, mentorship programs, and coaching initiatives. CXI and EBC combined have 298 full-time and 92 part-time employees as at October 31st, 2024, a decrease from roughly 410 a year ago. As our technology platforms continue to remain a strategic focus and their continued enhancement and additional system implementations are creating planned operational efficiencies. Kariba, our treasury management system, and Alisa, AML compliance software, are operational. Our IT team continues to leverage the power of cloud computing to enhance integration capabilities, improve scalability, performance, and resilience. These initiatives and investments, among others, support the more efficient future growth of the company. Let's look at the consolidated performance for the three months ended October 31st, 2024, compared to the previous three months ending October 31st, 2023. But before we go into details, I would like to note that the company measures and evaluates its performance using a number of financial metrics and measures, some of which do not have standardized meanings under general accepted accounting principles or GAAP. and may not be comparable to other companies. We call these measures non-GAAP financial measures and or adjusted results. The company's management believes that these measures are more reflective of its operating results and provides a better understanding of management's perspective on the performance of the company. These measures enhance the comparability of our financial performance for the current year and period with the corresponding year and previous period in 2023. Management included the full reconciliation of the key performance and non-GAAP financial measures on page 22 of the management discussion and analysis that was published on CEDAW. When we refer to reported results, we refer to the audited financial statements based on IFRS. When we refer to adjusted results, such as adjusted net income, we refer to performance non-GAAP measures. Now, the company reported a net loss of 2.8 million for the current quarter compared to a reported net income of 2.3 million for the same period last year, primarily due to several non-recurring items in Canada in the current period. The adjusted net income based on non-GAAP measures grew by 477,000 or 21% to 2.78 million and it is comprised of an adjusted net income of 3.35 million for the United States and an adjusted net loss of roughly 570,000 in Canada. Now, this compares to an adjusted net income of 2.3 million for the prior period, which comprised of an adjusted net income of 3.3 million in the United States and an adjusted net loss of 1.25 million in Canada. Importantly, adjusted EBITDA and adjusted EBITDA margin for the current period were 5.9 million, or 26%, compared to roughly 5.95 million, or also 26%, indicating a flat EBITDA over the prior period. The company generated revenue of 23 million for the eight month period ended October 31st, 2024, a 1% increase from the same period in the prior year, largely driven by growth in the payments and the direct to consumer banknotes product lines. In particular, via the online FX platform in the United States. The growth in revenue was primarily due to growth in the payments product line of 704,000, followed by growth in direct-to-consumer business of 220,000, partially offset by a decline in the wholesale banknotes product line of 660,000. Revenue in Canada increased by roughly 550,000 or 14% over last year, while in the United States it declined by 285,000 or 2%. Operating expenses increased by 3.2 million or 19%, and it was impacted, as mentioned, by a number of non-recurring items in Canada at year end, which will be discussed in more detail under the yearly review. Now, comparing the third quarter of 2024 revenue in the fourth quarter decreased by 944,000 or 4%, as demand for foreign currency decreased consistently with seasonality and the company's cyclical pattern. This quarterly decline is in line with the same periods of last year, when revenue decreased in the fourth quarter by roughly 800,000 or 4%. The top five currencies for this quarter were US Dollar, Euro, Canadian Dollar, British Pound Sterling, and Mexican Peso. The company's adjusted return on equity, ROE, for the current year was 12% compared to 14% for the prior year. The following is a highlight of revenue by product line for the three months ended October 31st, 2024, compared to the previous three months ending October 2023. Revenue in the banknotes product line decreased by 440,000, or 2%. Despite the strong consumer demand for foreign currencies during the year, volumes in the current quarter declined. Between August 24 and October of 2024, approximately 228 million travelers passed through TSA checkpoints in the United States. That is 14 million or 6% more compared to the prior year. Direct-to-consumer banknotes revenue increased by 220,000 or 3% as the company continued to capitalize on its market share through its diversified delivery channels that include the online FX platform, company-owned branches, and agent relationships. Growth in the current quarter was primarily led by online FX revenue. With the company's recent expansion, the online FX platform can now serve 44 states, including the District of Columbia, now with four additional states compared to the same time last year. Direct-to-consumer unit in the fourth quarter grew despite having two active company-owned branches in Florida slightly impacted by the two hurricanes which forced closure for several days. Nonetheless, the company maintains revenue levels via its third main channel, agent relationships. As these relationships continue to drive revenue growth from the increased demand for travel currencies, in particular the Euro currency during the current quarter. Business trading volumes based on direct to consumer banknotes revenue was about 123 million compared to 120 million for the quarter prior. Overall, direct-to-consumer banknotes revenue remained a growing business with its diversified delivery channels. The company has successfully opened two new locations in the United States, one in the state of Massachusetts, and one in Georgia during the current quarter, and now operate a total of 40 company-owned branches throughout the US. Direct-to-consumer revenue represented 34% of the total revenue of the current three-month period compared to 33% of the prior period. Now let's look at wholesale banknotes. Revenue decreased by 660,000, or 6%. Business trading volumes for wholesale banknotes revenue was 1.88 billion compared to closely 2.06 billion from the prior period as a result of reduced volumes for certain key customers in the United States whose volumes tend to be sporadic in nature, whereas revenue from domestic and international financial institutions, as well as MSBs, or money service businesses, remain flat relative to the prior year. In Canada, also banknotes grew due to strong domestic demand, despite being partially offset by declining international revenue due to the declining volumes from existing clients and lower than expected volumes from new customers. Overall, the banknotes product line accounted for 47% of total revenue in the current three-month period compared to 51% in the previous period. Revenue in the payments product line increased by about 700,000 or 20%, and this is all for the three-month period. Primarily driven by volume growth and increased activity in the United States, and net gains from settlement timing differences in Canada. Business trading volumes based on payments revenue for the company were close to $2 billion compared to $1.44 billion for the prior quarter. Payments revenue represented 19% of the total revenue compared to last period's 16%. Now revenue by geographic location for the three months period is as follows. Revenue in the United States remained around the same level compared to last year, with a slight decline in the fourth quarter, as mentioned, despite growth achieved in payments and direct-to-consumer banknotes product lines. There were volume-driven declines from certain key customers in the banknotes product, which drove the overall decline in the United States during the quarter. Payments growth of roughly 442,000, or 20%, and banknotes direct to consumer remained strong with growth of 220,000 or 2%. The decline in wholesale banknotes of 946,000 or 11% led to a decline in revenue for the current quarter of roughly $300,000 or 2%. Revenue in the United States accounted for 80% of the total revenue by geographic location in the quarter, compared to 82% in the same period last year. Revenue in Canada increased by 14% in the fourth quarter compared to the same period last year in both payments and banknotes. Payments revenue, when excluding the impact of net gains from settlement timing differences, remained flat compared to the same period last year, and in banknotes, growth of 286,000 for 11% was driven by an increase in domestic revenue from both financial institutions and money services businesses as demand for travel currencies increased, as mentioned in particular the euro and the Mexican peso. This growth was partially offset by a decline in transactional volumes of domestic FIs. Revenue in Canada represented 20% share of the total revenue by geographic location in the current three months compared to 18% in the same period in 2023. Now, the company believes that providing adjusted results enhances comparability with the prior year, and this is especially true for expenses in the fourth quarter in EBC. As such, the results for the fourth quarter were adjusted for the following non-reoccurring specific items in Canada totaling 5.6 million in the fourth quarter. The first one was an impairment loss of roughly 2.6 million related to the company's long-term assets in its wholly owned subsidiary, Exchange Bank of Canada, as the carrying amounts of EBC's long-term assets has been assessed to be lower than the recoverable amount based on estimated future cash flows. an administrative monetary penalty imposed on EBC of 1.17 million and related third party regulatory compliance advisory costs of roughly 630,000 and a non-recurring tax charges of 1.2 million for Quebec compensation taxes and harmonized sales tax related to Canadian tax reporting. This was adjusted in the third quarter as mentioned. Now next let's look at the. Years results comparing 31st of October 2024 to the prior year, so these results are the yearly results as mentioned. The company reported net income of 2.5 million for the year ended October 31st, 2024, 7.7 million or 76% lower than the prior year. This 2024 reported. net income reflected 13.3 million net income in the United States and a net loss of 10.8 million in Canada. These years' results included several non-recurring items in Canada totaling 7.7 million, and that's for the year. Excluding these items, adjusted net income remained flat compared to the prior year and adjusted diluted earnings per share or EPS was 3% higher at $1.56 compared to the prior year's $1.52. The company's revenue of 85.25 or 85 and a quarter million was 4% higher than the prior year reflecting overall growth of which 7% was achieved in the United States while revenue in Canada was 6% lower than the prior year. Revenue in the United States represented 81%, previously 79%, while Canada represented 19%, previously 21%. The company's capital position remains robust, and liquidity was strong with $79.4 million in total equity and close to $74 million in networking capital as at October 31st, 2024. Now, let's review revenue by product line for the year ended October 31st, 2024 compared to the previous year. Direct-to-consumer banknotes grew by 1.35 million, or 5%, and wholesale banknotes had marginal growth of roughly a quarter of a million, or 1%. Revenue from banknotes represented 81% of the total revenue compared to 83% in the prior year, whereas payments increased by 12% in the current year, driven by $2.5 million or 32% growth in the United States, partially offset by a decline in Canada's corporate payments of $835,000 or 13%. Revenue from payments represented 19% of total revenue in the current year compared to 17% in the previous year. Revenue by geographic location for the year comparing current 2024 to 2023. As mentioned, revenue in the United States grew 7%. Payments revenue had a significant 2.5 million or 32% growth. while banknotes growth in banknotes revenue was 1.8 million with direct to consumers making 1.35 million or 5% of the growth and wholesale banknotes growing by about half a million or 2%. As mentioned, the payments growth was mostly the result of the company's investment in integrations with core banking platforms that expanded the onboarding of new customers during the year in addition to increased activity from existing financial institution customers. Banknote's revenue growth, including direct-to-consumer, was largely driven by increased demand for both travel and investment currencies, complemented by growth across several branch locations and through the company's proprietary online FX platform. Revenue in the United States accounted for 81% compared to 79% in the prior year. Revenue in Canada declined by 6%, primarily due to reduced transactional volumes from certain key clients in the corporate payments business and lower transacted volumes in US dollars with international clients. While the domestic bank notes, revenue remains relatively consistent compared to the prior year. Payments revenue declined by 835,000, or 13%, while banknotes revenue declined by a quarter of a million or 2% compared to the prior year. As mentioned, revenue in Canada represented 19% compared to the previous 21%. Now below is a summary of the annual adjusted numbers based on non-GAAP metrics. I would like to reiterate that the company believes that providing these adjusted results enhances comparability with the prior year's results. The reported results for the current year ended October 31st, 2024 were adjusted for the following specific items totaling 7.7 million. Now these items have been mentioned in the quarterly reports, but there's one that we added. So to reiterate again, we had the impairment loss of 2.6 million. We had the administrative monetary penalty imposed on EBC of $1.8 million and related third-party advisory costs of $728,000, the non-reoccurring tax charges, and then in the yearly results, the reversal of a reserve for deferred tax assets, the deferred tax asset benefit related to the unused EBC loss carry forwards of $1.43 million for the fiscal years prior to 2023 deemed to be unrecoverable. So that last one got added in the yearly results. Now reported operating expenses increased 10% for the year. During the year ended 31st October 2024, the company's operating expenses increased 10% compared to the prior year. Operating expenses grew faster than revenues 4% growth due to declining revenue and non-recurring items in Canada in the fourth quarter. Variable costs within operating expenses represented by postage, shipping, banking fee, sales commission, incentive compensation totals 19.3 million compared to 21.2 in the prior year. This represents a 9% decrease from last year that was primarily driven by a significant decrease in postage and shipping expenses of roughly $2 million as a result of the company's cost management initiatives as illustrated further below in the discussions. The ratio comparing total operating expenses to total revenue for the year was 82 compared to 77% in the prior year. However, when adjusting operating expenses for non-recurring items in Canada, as mentioned above, adjusted operating expenses grew 4%, in line with revenue growth of 4%. The following is a summary of the main operating expenses trending items during the year. Losses and shortages typically represented shipment loss, shipments lost in transit that the company self-insures in addition to several other losses incurred in the normal course of business. In the prior year, the company had a write-off of non-recurring style-dated items, while during the current quarter, the company accrued the remainder of the regulatory compliance charges. The company had accrued an initial provision of $613,000 in the third quarter before the final charges were confirmed and then accrued the difference of $1.17 million in the fourth quarter. Postage and shipping had a 16% decrease compared to last year despite the growth in banknotes volume. This reflects the outcome of cost management initiatives as mentioned implemented by the company in the second quarter of 2023. Stock-based compensation increased from the prior year primarily related to the share price movement. We saw the Mexican peso again being the largest driver of foreign exchange hedging costs for the quarter. Income tax expense reflected the statutory tax rate adjusted for permanent items, R&D credits, and other non-deductible differences, including, as mentioned, the reversal of an allowance for deferred tax assets in Canada in the amount of 1.43 million. The amount reflects the reversal of several allowances for deferred tax assets as discussed. Let us review the balance sheet at year end. At 31st of October, 2024, the company remained well capitalized at $79.5 million. The company has $5 million drawn on its lines of credit was $45.3 million available. This compares to roughly $15 million drawn a year ago and $35.7 million available. Interest expense declined in the current year due to results of a notable decline in the average borrowings, as mentioned. The average outstanding borrowings by the company amounted to roughly $6.6 million during the current year compared to $13 million during the prior year. which led to a significant reduction in interest rates. The average interest rates on borrowings was 8.7% for the current period compared to 7.6% for the same period last year. Now, on November 28, 2024, the Toronto Stock Exchange accepted the company's notice of intention to make a normal course issuer bet, NCIB or share buyback as it stands. and an automated securities purchase plan to purchase for cancellation a maximum of 316,646 common shares of the company, representing 5% of the company's issued and outstanding common shares. Purchase under the NCIB commenced on December 2, 2024, and will terminate on December 1, 2025, for such earlier date in the event that the maximum number of shares sought in the NCIB has been repurchased. Under the previous bid, the company repurchased 149,070 common shares at a volume weight average price of $25.3 Canadian dollars through the facilities of the TSX, as well as on alternative Canadian trading systems and prevailing market rates. Management believes that the underlying value of the group may not reflect the market price of its common shares from time to time, and that, at appropriate times, repurchasing its shares through the NCIB may represent good use of the group's resources, as such action can protect and enhance shareholder value when opportunities or volatility arise. Therefore, the Board of Directors has determined that the NCIB is in the best interest of the groups and its shareholders. On January 7, 2025, CXI announced the formation of a special committee of independent directors to consider a range of strategic options for its wholly-owned subsidiary, Exchange Bank of Canada. The strategic review is exploring and considering several different opportunities to maximize long-term value for shareholders and focus the company's resources towards its profitable U.S. operations. The Board of Directors and Management are focused on assessing stakeholder interests and evaluating the optimal path forward for EBC on an orderly basis. Further announcements will be made. CXI emphasizes that there is no assurance the strategic review will result in any specific transaction. The company remains committed to ensuring minimal disruption to its customers and employees through this process. It is important to preserve the confidentiality necessary for this review. We are not providing any additional details. A public announcement will be made as the strategic review process progress. Now, at this time, I would like to hand the call over to Randolph Binner, our CEO, for his perspective.