Currency Exchange International, Corp.

Good morning, ladies and gentlemen, and welcome to Currency Exchange International First Quarter 2025 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn a conference call over to Bill Metullas, Investor Relations. Please go ahead.

Thank you, Jenny. Good morning, everyone. Welcome to the Currency Exchange International Conference Call to discuss the financial results for the first quarter of the 2025 fiscal year. Thank you for joining us. With us today are President and CEO Randolph Pina and Group CFO Gerhard Barnard. Gerhard will provide information us with 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. Gerard, please go ahead.

Thank you, Bill, and thank you, everyone, for joining today's call. These results are presented in US dollars, and my overview of the company, CXI, will also incorporate the results of our wholly owned subsidiary, Exchange Bank of Canada. On February 18, 2025, the group announced its decision to cease the operations of its wholly owned subsidiary, Exchange Bank of Canada. This strategic decision and operational plan for restructuring were communicated to all staff of Exchange Bank of Canada on February 19, 2025. Following the cessation of operations, the Bank intends to apply to the Minister of Finance in Canada to discontinue from the Bank Act. The voluntary discontinuance is expected to be completed in the fourth quarter of 2025, subject to the receipt of all necessary regulatory approvals. Following the group's decision, management has commenced implementation of the restructuring and planned discontinuance of the bank. Information on the bank's discontinuance is based on various assumptions and unknowns. And as a result, management is currently assessing the full financial impact of the discontinuance. An estimate that the exit from Canada may lead to a positive impact on the overall group results. Now, our IT team has recently migrated its core transaction processing and client-facing systems to a modern cloud computing environment. where it will be able to leverage modern scaling and automation capabilities. These initiatives and investments, among others, support a more sustainable and efficient future growth of the company. And we're very proud of our IT team's move there. Now let's look at the consolidated performance of the three months ended January 31st, 2025, compared to the previous three months ending January 31st, 2024. Before we go into detail, I'd like to note that the company measure 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 or adjusted results. The company's management believe that these measures are more reflective of its operating performance and results and provides a better understanding of management's perspective on the performance. These measures enhance the compatibility of our financial performance for the current period with the corresponding period in 2024. Now, management included the full reconciliation of the key performance and non-GAAP financial measures in the MD&A. When we refer to reported results, we refer to the financial statements based on IFRS. When we refer to adjusted results, such as adjusted net income, we refer to performance on based non-GAAP measures. Please note that the MD&A starting this quarter shows detailed segmented reporting for each of the business lines within CXI and EDC. And as promised, our improved reporting from Oracle NetSuite now allows management the required information to do present and comparative reporting in more detail on our business segments. The company reported a net income of $812,000 for the current quarter, compared to net income of roughly 850,000 for the same period last year. The company had 10% revenue growth and 32% net operating income growth, while the net operating income before tax increased 54%. However, net income was lower by 4% than last year due to the tax impact of the declined share price on stock option awards. during the current quarter as well as the regulatory compliance charges in Canada. Adjusted net income grew by 242,000 or 29% compared to the same period last year to 1.1 million in the current quarter, comprising 1.66 million of adjusted net income in the United States and about 572,000 of adjusted loss in Canada. Now this compares to an adjusted net income of 850,000 in the prior quarter, which comprised of 2 million of adjusted net income in the United States and nearly 1.2 million of adjusted net loss in Canada. Adjusted EBITDA and adjusted EBITDA margin percentage for the current period were 3.4 million and 17%, compared to roughly 2.3 million and 13%, indicating a positive improvement period over period. The company generated revenue of close to 20 million for the three-month period ending January 31, 2025. As mentioned, a 10% increase from the same period in the prior year. The revenue increase over the current period was driven by growth in both product lines across the United States and Canada, primarily due to the addition of new customers, improved pricing, and an increased demand for investment currencies during the current quarter. The mentioned 10% growth in revenue was primarily due to the growth in the wholesale banknotes business of roughly 1 million, followed by growth in the payments business of 450,000 and direct-to-consumer business growth of 327,000. Revenue in the United States increased by 1.3 million, or 9% over last year, while revenue in Canada increased by 512,000, or 13%. Operating expenses increased by 1.1 million, or 7%, the company reported net operating income of nearly $3 million in the current quarter, 32% higher than the $2.25 million reported last year as a result of revenue growth surpassing the increase in operating results. The top five currencies by revenue in the quarter were Euro, the US dollar, Mexican peso, Iraqi denarii, and Canadian dollar. The company's adjusted annualized return on equity, or ROE, is 12%, the same as the prior period. Now, the following is a highlight on revenue by product line for the three months end of January 2025 compared to the previous three months ending January 31, 2024. Revenue and bank numbers. grew in both wholesale and direct-to-consumer business lines, and as I said, increased by 1.3 million in the first quarter due to strong consumer demand for foreign currencies as international travel levels remained strong within the United States. Between November 2024 and January 2025, approximately 215 million travelers pass through TSA checkpoints in the United States airports, 14 million or 7% more compared to last year. Management is closely monitoring travel numbers and the effect of various trade policies and their impact on international growth, economic growth, international travel, and the demand for banknotes. Direct-to-consumer back-enders revenue increased by 327,000, or 5%, as the company continued to capitalize on its market share through its diversified delivery channels, including the online FX platform, company-owned branches, and agent relationships. Growth in the current quarter was primarily driven by online FX revenue, which continued to grow with the company's recent network expansions. During the first quarter of 2025, the company added the state of Nebraska to its network, and the online FX platform can now service 45 states, including the District of Columbia, four additional states compared to the same time last year. The company-owned branches continue to grow as the new locations are maturing and contributed to overall growth over the last year. Overall, direct-to-consumer banknotes revenue remained a growing business with its diversified delivery channels during the current quarter. Direct-to-consumer revenue represented 32% of the total revenue in the current three months compared to 34% in the prior three months. Now, wholesale banknotes revenue increased by 1 million, or 12%. as business trading volume grew with increased volumes from domestic and international financial institution customers, as well as money services businesses. Overall, wholesale banknotes accounted for 47% of total revenue in the current three-month period compared to 45% in the prior period. Now let's focus on revenue and payments. This product line increased 453,000, or 12%, in the three-month period ended January 31st, 2025, compared to the prior period, supported by an increase of 33% in trading volume activity from existing financial institution customers and the onboarding of new customers in both regions. Payments represented a 21% of the total revenue of both current and prior periods. Now revenue by geographic location for three months ended January 31st, 2025 compared to the previous three months ending January 31st, 2024. Let's focus on the United States first. Revenue increased 1.3 million or 9% compared to the prior period, primarily due to growth in both banknotes and payments businesses. As I mentioned, wholesale banknotes in the United States grew by 530,000, or 9%, followed by 415,000, or 18% growth in payments, and 327,000, or 5% growth in direct-to-consumer banknotes. The increase in wholesale banknotes was driven by both domestic and international financial institutions' customers, although majority of the growth was attributed to domestic financial institution customers. Payments revenue continued to grow in the current quarter as business trading volumes grew 40% over the same period last year, as highlighted previously, which reflected increased activity in both existing and new customers. Direct to consumer revenue, growth was primarily driven by an increase in customer demand for investment currencies through our online FX platforms. Revenue in the United States accounted for 77% of revenue by geographic location in the current quarter compared to 78% in the previous quarter. Revenue in Canada increased 13% in the first quarter compared to the prior period, driven by 475% or 19% growth in banknotes revenue and 38,000 or 3% growth in payments revenue. The banknotes business experienced a 27% increase in trading volumes, evidenced by a significant rise in activity among its Canadian banknotes clients. Demand for travel currencies increased during the quarter due to the increased travel levels in Mexico and the Caribbean destinations around the holidays. Further international customer volumes grew due to strengthening of the US dollars. The payments business had 871 active customers during the first quarter of 2025 compared to 809 active customers in the prior period. Overall, the revenue in Canada represented 23% of the total revenue by geographic location in the current three months compared to roughly 22% in the prior period. As mentioned, the company believes that providing adjusted results enhances comparability with the prior period, and this is true for expenses in the first quarter in EBC. As such, the results for the first quarter were adjusted for third-party advisory costs of roughly $280,000 related to regulatory compliance costs imposed on EBC. These costs were were included within our legal and professional fees within operating expenses. During the three-month period ended January 31st, 2025, the company's operating expenses increased by roughly 1.1 million, or 7%, compared to the same period last year. Variable costs within operating expenses were presented by posting and shipping, bank services, bank service charges, Sales commission and incentive compensation totals $4.3 million in the quarter, compared to $4.2 million in the prior period ended January 31, 2025. A slight increase of 3%, attributable to shipping costs and banking service charges, with both increased commensurate with the growth in revenue. So if you look at that higher revenue growth, 3% cost growth in shipping and bank charges. The ratio comparing total operating expenses to total revenue for the three-month period in January 2025 improved to 85% compared to 88% in the previous period. However, when adjusting operating expenses for the non-reoccurring items in Canada, as mentioned, the above operating expenses only grew 5%. The following is a summary of the main operating expenses trending items, including for the period. Salaries and benefits expense decreased when compared to the prior year, mostly driven by the climate headcount in Canada, as the group's headcount decreased from 406 to roughly 397 at January 31st, 2025. Legal and professional expenses increased primarily due to legal and advisory costs, as mentioned, associated with the regulatory compliance requirements and discontinuance planning costs. Bank services charges primarily reflect the increase in the number of payments and checks. As we said, the company processed 40,500 payment transactions compared to roughly 30,500 payments. payment transactions in the prior year. Foreign exchange losses and gains represent the net result of foreign exchange of foreign currency exchange transactions after considering inherent risk in the company's exposure to foreign exchange, thereby minimizing volatility in earnings. Mexican peso volatility was the largest contributor to net foreign exchange losses for the three-month period in the January 31st, 2025. The prior year was impacted by gains in the last 100 years. So StockBase Company experienced during the current quarter an amount of $170,000 related to outstanding deals in RSD awards. It helped offer the climb in the stock price. This compares to an expense of RSU prior . Increase the result of an increase in average borrowings utilized short-term working capital needs. The average outstanding borrowings for the amounted to 6.2 million during the first quarter compared to roughly $5.5 million during the same period last year. The average interest rate on borrowing was 8.7%, compared to 8.6% in the prior period. Income tax expense in the current quarter is related to the United States region. It reflects an effective tax rate of 41%. where the majority of the increased expense above the statutory rate of 26.5% was related to a deferred tax asset adjustment or stock options due to a decline in the share price during the quarter, and this accounted for 11% of the effective tax rate increase. The rest of the increase was related to permanent items as well as other non-deductible differences. Tax in the three-month period in 2025 resulted in an outflow of $7.1 million compared to an inflow of $23.4 million during the prior period. A still change in working capital on this flow generated by commission and fee income adjusted for operating expenses was in flow of roughly $2.8 million for the three-month period versus more or less the same inflow, 2.9 million for the prior period. Now let us review the balance sheet. On January 31st, 2025, the company had net working capital of 73.6 million, almost the same as the prior period. The company had available unused lines of credit amounting to 45.1 million At January 31st, 2025, compared to a year end balance, roughly 45.3 million. That's the unused lines of credit. Now, on November 28th, 2024, the TSX accepted the company's notice of intention to make another NCIB an automatic share purchase plan to purchase for cancellation a maximum amount of 316,000 common shares of the company representing 5% of the company's issued and outstanding common shares. Purchases under the NCIB commenced on December the 2nd, 2024, and will terminate on December the 1st, 2025, or such earlier date in the event that the maximum number of shares sold in the NCIB or buyback has been repurchased. During the three-month period for this quarter, the company purchased for cancellation 35,100 common shares at normal market prices trading on the TSX for roughly $562,000. These shares were immediately canceled and removed from Treasury by the company. At this time, I would like to turn over the call to Randolph Pinner, our CEO, to provide his perspective.

Good morning. Thank you, Gerard. Thank you, everybody, for joining. As the group CEO, as you can imagine, I'm very focused on several things. First, of course, is the execution of our discontinuous plan or exit plan, as we've called it, as well as ensuring that the group continues to operate as best it can this year. And most importantly, ensuring that we have the correct structure of CXI, along with an updated strategic plan for the years ahead. I'd like to start with EBC. As you've heard, we have made this decision in the second quarter, and there will be more information in our second quarter reporting as we finish our assessment. The discontinuance or exit plan had us giving notifications to customers and all employees, and we are following that notification process as we speak for a discontinuance this year. We are seeking a referral agreement for the bank note business and possibly separately a referral agreement for the payment business. There are several interested, qualified, Canadian-based businesses that are in these advanced discussions. Moving over to CXI, as I said, without a bank, we are focused on the correct optimal structure of the group of CXI. and the strategy that we will follow going forward. It does, of course, include our number one product, which is banknotes. As you know, the banknotes are broken down into two parts of the company, each run by its own managing director. The consumer unit, while it had a 5% growth, we see a lot of potential for even bigger growth in the consumer unit through the online expansion, through company-owned selective stores in key markets as well as agents. We have several good agent opportunities that are very warm, and we will continue to focus on careful growth within the consumer unit. Wholesale banknotes, as you saw, is continuing to grow, and our focus with wholesale is remaining with financial institutions in the United States. While we seek to sell banknotes, We've been very successful to also sell the payment business. Our payment operations is continuing to improve in its automation. As Harard mentioned, we've upgraded to a cloud environment for all of our activity here in CXI, which enables us to be even more efficient in scaling with demand. Our payment product line, of course, is focused on foreign exchange payments, international payments, but we also do process U.S. dollar payments for a fee. And we have spent a lot of time giving you an update, so I just want to go ahead and open it up, give everybody time to answer questions or ask questions so we can answer them. But before I get to the questions, I do want to remind everybody that our annual shareholder meeting is this March 24th at 3 p.m. at the KPMG headquarters there downtown Toronto on Bay Street, as it has been in previous. It will be an in-person meeting as we have done many times, and we hope you can make it by at 3 o'clock. I do ask if you are not there in person to vote that you do find your control number and vote CXI shares online in advance of the annual shareholder meeting. So thank you again for your support, and I open up the floor to questions.

Randolph, if I can make a correction, the AGM is actually on March 25th.

Oh, did I say 24? Sorry, 25th. Sorry.

Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on a touch-down phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. Also, we ask that you please limit yourself to ask only two questions. If you have any further questions, kindly rejoin the queue. Once again, that is star one, should you wish to ask a question. And we have a question from Robin Cornell from Catalyst Research. Your line is now open.

Thank you, and good morning. I guess the first quick question is, have you seen any impact from the tariff slash trade core that's taking over the world in the volume of your currency transactions to date?

We have seen a slight decline in the inbound traffic. We don't know if it's going to get worse or not. Luckily, it has been offset mostly by an increased outbound. As you may know, the U.S. dollar is quite strong on a global level and flights are quite cheap nowadays. And so we are seeing a very strong outbound trend. demand and we have seen a softening to the inbound due to people like in Canada not wanting to come to the States anytime soon due to the political situation.

Okay, that's interesting. Thank you. The second question is kind of like two parts. The first is that you reported in 2024 that that your after-tax U.S. income was $13.3 million on revenues of about $69 million. That gives me an after-tax margin for the year of 19.3%. Now, we're kind of skipping over 25 in a way. Are we going into 26? Would you expect that kind of a margin on your U.S. operations? uh, to continue.

Uh, Robin, it is, uh, very challenging for us to make or confirm any future looking statements, as you know, um, that, uh, that would be the comment, you know, for us to, to, to glare into the future and answer those questions is, uh,

Okay, so your business going forward, I guess part of the question is, do you expect, I'm not really clear on how much revenue retention you're going to have on the Canadian business. So if you just took your current revenue generation in Canada, are you expecting to retain any of that business or is it basically all going to be uh, moved off to, uh, other providers.

Go ahead.

Sorry. We, we are, we are discontinuing the, the bank's activity in Canada and moving most of that revenue over to potential referral agreements. Okay.

Okay, that's the clarification I was looking for. And basically, going forward in your U.S. operations, you're basically driving the existing business and your new business, as Randolph said. So the expectation would be that it's going to be similar to your history. So I'm talking about margins again as to, there's no anticipation that your margins are going to necessarily decline in the US.

That's a tough question, I know.

Yeah, we are focusing on managing cost, driving revenue on a constant basis.

Okay. Okay, thank you. I'll re-cue. Thanks.

Thank you. Once again, that is store one. Should you wish to ask a question? And your next question is from Peter Ramiver from Arco Capital. Your line is now open.

Hey, guys. Can you hear me?

Yeah, good morning, Peter.

Good morning. Hey, I wanted to make a statement first, and then I had a couple of questions. But I think, you know, I've spoken to a few shareholders, and I think there's like a little misunderstanding about the difficulty of the decision that went into taking, you know, making this bank exit and Canada exit. And I think... I think my statement here is I would hope shareholders see this as a positive, bold move from a management that's able to recognize that, you know, a function is not a high return on capital function and it's time to turn it off and making a bold decision than some sort of bad investment. And I just want to say, I'm frankly very happy that you're doing this. And from my perspective, I think it's a good thing, and I hope the other shareholders see it as well. So one of my questions is, one is for Randolph. I would just love to hear your thoughts about how this will improve return on capital. And then for Gerard, what is the current balance of the intercompany loan that would be potentially received in an affiliate transaction at this point? I'd love to hear both of those.

Well, absolutely, we feel that the stopping to use what my father says, stop the bleeding, because he's a medical doctor, will be beneficial to the group, not only just from a cash flow point of view of having those losses every year go away, But more importantly, it allows CXI to be 100% focused on the big opportunities that we see in the United States. And for me as a leader, it will allow me to be more focused on strategic growth and allowing the management team to focus on the efficiency and the continued sales growth as we anticipate. I'll turn it over to Harar for the technical question. I'm not sure That loan account goes up and down on a daily basis, but I'll see what happens.

Yeah, I'd just like to hear what the number is right now.

Yeah, so Peter, the number that we report in our financial statements, or let me say in our auspices, as Randolph said, ranges between 10 and 15 million Canadian on any given day.

Okay, but honestly, what do you think your expectation in shutting down or in a transaction that whatever way you're thinking about it, that there will be potential to realize this out?

Peter, what I can tell you is at the end of January 31st, 2025, the intercompany loan balance as reported was 16 million Canadian.

Great. You know what? Thank you. I really appreciate you telling me this number and I'll jump back to you. And again, you know, top decision and I'm glad you guys are making it.

Thank you, Peter. We appreciate that.

Thank you. Once again, that is star one. That's a question. And your next question is from Mark Holmes, a private investor. Your line is now open.

Hi, good morning. I think my last question concerning the $16 million was kind of answered, but I suppose the follow-on would be, with that additional capital becoming available, is there attention to maybe increase the NCIB from 5% to 10%, possibly a substantial issuer bid? And I guess for the last few quarters, you've discussed a couple M&A targets being kind of more advanced. Is there something more near-term, or how do you view M&A right now?

Uh, it, it, the CFO Harar and I are always looking at opportunities. We have been, uh, identified a few, uh, opportunities both in bank notes and in payments, but there's nothing in an advanced stage, uh, nothing to be reported at this time. But yes, the capital, uh, and not the fact that we don't have to keep lending money to, um, EBC will provide additional capital for transactions like that or potentially an increased share buyback, which I personally am in favor of. However, we do have to weigh the balance of that purchase versus the potential capital need of a good transaction. So that is a discussion the board and the senior management have every quarter. And so we are assessing the best use of a capital to ensure the highest return of capital employed for our shareholders.

Thank you.

I think it's important to note that we are currently in a blackout, and we could, due to referral agreements and so forth, remain in a blackout. And during this period, According to the TSX, we're allowed to purchase 1,000 shares on the buyback or the NCIB on a daily basis. We're not allowed to do any block purchases while in blackout. So as Randolph said, these are subject to the TSX, the board, and certain financial covenant requirements that we ask.

Okay. That's a great answer to my question. Much appreciated. Good job.

Thank you.

Thank you. Your next question is from Yale Block from YH&C Investment. Your line is now open.

Good morning, guys. Randolph, you scared me when you went the wrong date as we're headed up there. Sorry about that. No worries. Just a few questions. Number one, could you confirm that the supply agreement at Vegas International Airport, that's existing? I noticed that the affiliate there is open. And then another question would be the situation in the Orlando airport, they're opening up. You mentioned they might be opening up a second level and where that stands. And then the final one, quickly, have you all thought about an online offering internationally, given where things are headed with your online offering domestically? Thanks.

Thank you. I appreciate all the consumer division questions. I know you're in Las Vegas, so that airport's dear to you. I confirm that the change group which is a Europe-based company, but in the States, they're based in New York. We are their exclusive vendor for the United States in doing their operations in New York City and their newest location there at the Las Vegas airport. So yes, I'm glad they finally opened and we are their wholesale operator, you know, their wholesale vendor. The other question is we do operate currently in the Orlando airport and the new terminal C is of consideration. This is the only company owned airport location that we have. And we are assessing it. It is very different than our usual retail stores, which are often in shopping malls, which provide, in my opinion, a better environment to do currency exchange, and especially with less overhead because the airport takes a very large chunk of it. But that is being assessed. But no, we don't have a contract to open in the Terminal C, the new terminal in Orlando, but it is on our radar. And then lastly, our online offering is U.S. only. I've been asked this very clearly, and I think it was Robin Cornwell at the start was kind of wondering if CXI will be servicing some of the customers in Canada. And we have made a conscious decision not to be doing any business in Canada at all, thereby our full discontinuance. And so our online offering will remain to the states. Right now, we're in 45 states and D.C., and each state must have a business case to support why we will increase our costs to open in that state. So our online offering will remain in the U.S. We are looking at an opportunity to team up with other online operators through an agent model. And so we do see a significant growth ahead in our consumer unit, as I said in my little speech there was our own couple stores we found some great spots and um and then again these agents and are online and and and the online could include an agent relationship did that answer your question you know yes um as a follow-up i should also ask how is the traction with some of the new partnerships that you announced i think you there's a big uh a um

related to the cruise industry and then a couple smaller travel agents. I should just ask about the traction there.

Yeah, we are, again, that is where we are even getting more focus is on these agent relationships. We have not had success yet with the cruise ship industry, but the head of sales, Chris Johnson, is very aware of our focus on continuing to grow banknotes and payments. And so banknotes could include a cruise ship, could include grocery stores. It could include a major theme park here in Orlando. And so we are not restricting ourselves of the opportunities for banknotes or payments in the United States. That's exactly, I think, what Peter Rabover was saying is now that we're focused 100% on the U.S., we can even do a better job dominating the marketplace.

Okay. Thanks a lot, guys. We'll see you in a few weeks.

Sounds good, Yale. I'll see you there.

Okay. Thank you. Once again, please press door one should you wish to ask a question. There are no further questions at this time. Please proceed.

Again, thank you all for your time. I know some of you out west, it's quite early, so we appreciate you getting up and following and keeping up with us. If you have questions that we can't answer, we're happy to do any follow-up calls to this, but I look forward to seeing as many of you in person on the 25th in Toronto at our annual shareholder meeting. So thank you again, and I look forward to talking to you soon. Have a good day.

Bye-bye.

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.