Q4 2024 Currency Exchange International Corp Earnings Call
Thank you.
Speaker Change: 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.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: 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 Mitoulas, Investor Relations. Please go ahead, sir.
Bill Mitoulas: 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.
Bill Mitoulas: 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 Pinna: Randolph will then provide his commentary on CXI strategic initiatives, sales efforts and business activity, after which we'll open it up for your questions.
Randolph Pinna: 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 statement and MD&A.
Randolph Pinna: 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.
Randolph Pinna: 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.
Gerhard Barnard: Thank you, Bill, and thank you everyone for joining today's call.
Gerhard Barnard: These results are presented in U.S. dollars. My overview of the company, CXI, will also incorporate the results of our wholly owned subsidiary, Exchange Bank of Canada.
Gerhard Barnard: The company continues to invest in our people through in-house training, mentorship programs, and coaching initiatives.
Gerhard Barnard: CXI and EBC combined have 298 full-time and 92 part-time employees as at October 31st, 2024.
Gerhard Barnard: 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.
Gerhard Barnard: Kariba, our treasury management system, and Alyssa, AML compliance software, are operational.
Gerhard Barnard: Our IT team continues to leverage the power of cloud computing to enhance integration capabilities, improve scalability, performance, and resilience.
Gerhard Barnard: These initiatives and investments, among others, support the more efficient future growth of the company.
Gerhard Barnard: 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.
Gerhard Barnard: But before we go into details, I would like to note
Gerhard Barnard: 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 GAP.
and may not be comparable to other companies.
Gerhard Barnard: We call these measures non-GAAP financial measures and or adjusted results.
Gerhard Barnard: The company's management believe 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.
Gerhard Barnard: These measures enhance the comparability of our financial performance for the current year and period with the corresponding year and previous period in 2023.
[inaudible]
Gerhard Barnard: 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-gap measures
Now the company reported
A net loss of $2.8 million for the current quarter.
Gerhard Barnard: compared to a reported net income of 2.3 million for the same period last year, primarily due to several non-reoccurring 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.
Gerhard Barnard: $3.5 million for the United States and an adjusted net loss of roughly $570,000 in Canada.
Gerhard Barnard: Importantly adjusted EBITDA and adjusted EBITDA margin for the current period were 5.9 million or 26 percent
Gerhard Barnard: compared to roughly 5.95 million or also 26% indicating a flat EBITDA over the prior period.
Gerhard Barnard: The company generated revenue of $23 million for the second period ended October 31, 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.
Gerhard Barnard: In particular, via the online FX platform in the United States.
Gerhard Barnard: 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.
Gerhard Barnard: 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%.
Gerhard Barnard: Operating expenses increased by 3.2 million, or 19%, and it was impacted, as mentioned, by a number of non-reoccurring items in Canada at year-end, which will be discussed in more detail under the yearly review.
Now comparing the third quarter of 2024
Gerhard Barnard: Revenue in the fourth quarter decreased by 944,000 or 4% as demand for foreign currency decreased consistently with seasonality and the company...
Cyclical Pattern
Gerhard Barnard: The top five currencies for this quarter were US Dollar, Euro, Canadian Dollar, British Pound, Sterling and Mexican Peso.
Gerhard Barnard: for the current year was 12% compared to 14% for the prior year.
Gerhard Barnard: 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.
Gerhard Barnard: Revenue in the banknotes product line decreased by 440,000 or 2%.
Gerhard Barnard: Despite the strong consumer demand for foreign currencies during the year, volumes in the current quarter declined.
Gerhard Barnard: Between August 24 and October of 2024, approximately 228 million travelers pass through TSA checkpoints in the United States. That is 14 million or 6% more compared to the prior year.
Gerhard Barnard: 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.
Gerhard Barnard: 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.
Gerhard Barnard: Now with four additional states compared to the same time last year.
Gerhard Barnard: 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
Gerhard Barnard: The company maintained 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.
Gerhard Barnard: Business trading volumes based on direct-to-consumer banknotes revenue was about $123 million compared to $120 million for the quarter prior.
Gerhard Barnard: Overall, direct-to-consumer banknotes revenue remained a growing business with its diversified delivery channels.
Gerhard Barnard: 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 operates a total of 40 company-owned branches throughout the U.S.
Gerhard Barnard: Direct-to-consumer revenue represented 34% of the total revenue of the current three-month period compared to 33% of the prior period.
Gerhard Barnard: 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.
Gerhard Barnard: compared to 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.
Gerhard Barnard: whereas revenue from domestic and international financial institutions as well as MSBs or money service businesses remain flat relative to the prior year.
Gerhard Barnard: 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.
Gerhard Barnard: Overall, the banknotes product line accounted for 47% of total revenue in the current three-month period compared to 51% in the previous period.
Gerhard Barnard: Revenue in the payments product line increased by about 700,000 or 20% and this is all for the three-month period.
Gerhard Barnard: primarily driven by volume growth and increased activity in the United States and net gains from settlement timing differences in Canada.
Business Training Volumes Based
Gerhard Barnard: 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%.
Gerhard Barnard: Now revenue by geographic location for the three months period is as follows
Gerhard Barnard: 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.
Gerhard Barnard: 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.
Gerhard Barnard: Payments growth of roughly 442,000 or 20% and banknotes direct-to-consumer remain strong with growth of 220,000 or 2%.
Gerhard Barnard: 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%.
Gerhard Barnard: 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.
Gerhard Barnard: Revenue in Canada increased by 14% in the fourth quarter compared to the same period last year in both payments and banknotes.
Gerhard Barnard: 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, or 11%, was driven by an increase in domestic revenue from both financial institutions.
Gerhard Barnard: and many services business businesses as demand for travel currencies increased as mentioned in particular the euro and the Mexican peso
Gerhard Barnard: This growth was partially offset by a decline in transactional volumes of domestic FIs.
Gerhard Barnard: Revenue in Canada represented 20% share of the total revenue by geographic location in the current three months period compared to 18% in the same period in 2023.
Now, the company believes that providing adjusted results
Gerhard Barnard: enhances comparability with the prior year and this is especially true for expenses in the fourth quarter.
Gerhard Barnard: in EBC. As such, the results for the fourth quarter were adjusted.
Gerhard Barnard: for the following non-reoccurring specific items in Canada totaling 5.6 million in the fourth quarter.
Gerhard Barnard: 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
Gerhard Barnard: has been assessed to be lower than the recoverable amount based on estimated future cash flows.
Gerhard Barnard: and in an administrative monetary penalty imposed on EBC of 1.17 million and related third-party regulatory compliance advisory costs
of roughly 630,000.
Gerhard Barnard: and a non-reoccurring 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
Gerhard Barnard: Year's results comparing 31st of October 2024 to the prior year. So these results are the yearly results as mentioned.
Gerhard Barnard: This 2024 reported net income reflected 13.3 million net income in the United States.
Gerhard Barnard: These year's results included several non-reoccurring items in Canada totaling 7.7 million.
And that's for the year.
Gerhard Barnard: excluding these items adjusted net income remained flat compared to the prior year and adjusted diluting diluted earnings per share or EPS
Gerhard Barnard: was 3% higher at $1.56 compared to the prior year's $1.52.
Gerhard Barnard: The company's revenue of $85.25 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.
Gerhard Barnard: Revenue in the United States represented 81 percent, previously 79 percent.
While Canada represented 19 percent.
Gerhard Barnard: The company's capital position remained robust and liquidity was strong with $79.4 million in total equity and close to $74 million in net working capital as at October 31st, 2024.
Gerhard Barnard: Now, let's review revenue by product line for the year ended October 31st, 2024 compared to the previous year.
Direct-to-consumer banknotes
Gerhard Barnard: grew by 1.35 million or 5% and wholesale banknotes had marginal growth of roughly a quarter of a million or 1%.
Gerhard Barnard: Revenue from banknotes represented 81% of the total revenue compared to 83% in the prior year.
Gerhard Barnard: whereas payments increased by 12% in the current year driven by 2.5 million or 32% growth in the United States.
Gerhard Barnard: 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, waiving years in the United States grew 7%.
Payments revenue at a significant $2.5 million, or 32% growth.
Gerhard Barnard: 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%.
Gerhard Barnard: 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.
Gerhard Barnard: Banknotes revenue growth, including direct-to-consumer, was largely driven by increased demand for both travel and investment currencies.
Gerhard Barnard: complemented by growth across several branch locations and through the company's proprietary online FX platform.
Gerhard Barnard: Revenue in the United States accounted for 81% compared to 79% in the prior year.
Gerhard Barnard: Revenue in Canada declined by 6% primarily due to reduced transactional volumes.
and lower transacted volumes in U.S. dollars with international clients.
Gerhard Barnard: While the best domestic banknotes, revenue remained relatively consistent compared to the prior year.
Payments revenue declined
Gerhard Barnard: 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%.
Gerhard Barnard: Now below is a summary of the annual adjusted numbers based on non-GAAP metrics.
Gerhard Barnard: I would like to reiterate that the company believes that providing these adjusted results
enhances comparability with the prior year's results.
Gerhard Barnard: The reported results for the current year ended October 31st, 2024, were adjusted for the following specific items totaling 7.7 million.
Gerhard Barnard: Now these items have been mentioned in the quarterly reports but there's one that we added.
Gerhard Barnard: 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 cost of $728,000.
and non-reoccurring tax charges.
Gerhard Barnard: and then in the in the yearly results the reversal of a reserve for deferred tax assets
Gerhard Barnard: The Fertax 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.
Gerhard Barnard: During the year ended 31st of October 2024, the company's operating expenses increased 10% compared to the prior year.
Gerhard Barnard: Operating expenses grew faster than revenues 4% growth due to declining revenue and non-reoccurring items in Canada in the fourth quarter.
Gerhard Barnard: Variable cost 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.
Gerhard Barnard: 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.
Gerhard Barnard: The ratio comparing total operating expenses to total revenue for the year was 82 compared to 77% in the prior year.
However...
Gerhard Barnard: 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%.
Gerhard Barnard: The following is a summary of the main operating expenses and trending items during the year.
Losses and shortages typically represented
Gerhard Barnard: Shipment loss, shipments lost in transit that the company self-insures in addition to several other losses incurred in the normal course of business.
Gerhard Barnard: The company had accrued an initial provision of $613,000 in the 3rd quarter before the final charges were confirmed and then accrued the difference of $1.17 million in the 4th quarter.
Gerhard Barnard: Postage and shipping had a 16% decrease compared to last year despite the growth in banknotes volume.
Gerhard Barnard: This reflects the outcome of cost management initiatives, as mentioned, implemented by the company in the second quarter of 2023.
Gerhard Barnard: from the prior year primarily related to the share price movement.
Gerhard Barnard: We saw the Mexican peso again being the largest driver of foreign exchange hedging costs, hedging costs for the quarter.
Gerhard Barnard: Income tax expense reflected the statutory tax rate adjusted for permanent items, R&D credits and other non-deductible differences.
Gerhard Barnard: including, as mentioned, the reversal of an allowance for the Firtax assets in Canada and the amount of 1.43 million.
Gerhard Barnard: 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 $79.50.
Seventy-nine and a half million dollars.
Gerhard Barnard: The company had $5 million drawn on its lines of credit, with $45.3 million available.
Gerhard Barnard: This compares to roughly $15 million dollars drawn a year ago and $35.7 million available.
Interest expense declined in the current year.
Gerhard Barnard: 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 rate on borrowings was 8.7%.
Gerhard Barnard: for the current period compared to 7.6% for the same period last year.
Gerhard Barnard: The Toronto Stock Exchange accepts the company's notice of intention to make a normal course issuer bet, NCIB or share buyback as it stands.
Gerhard Barnard: and an automated securities purchase plan to purchase for cancellation a maximum of 316,646 common shares of the company, representing 5% of the companies issued and outstanding common shares.
Gerhard Barnard: Purchase under the NCIB commenced on December the 2nd 2024 and will terminate on December the 1st 2025
Gerhard Barnard: for such earlier date in the event that the maximum number of shares sold in the NCIB has been repurchased.
under the previous bridge.
Gerhard Barnard: The company repurchased 149,070 common shares at a volume weight average price of 25.3 Canadian dollars.
through the facilities of the TSX.
Gerhard Barnard: as well as on alternative Canadian trading systems and prevailing market rates.
Gerhard Barnard: 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
Gerhard Barnard: repurchasing its shares through the NCAB may represent good use of the group's resources. Such action can protect and enhance shareholder value when opportunities of volatility arise.
Gerhard Barnard: Therefore, the Board of Directors has determined that the MCIB is in the best interest of the groups and its shareholders.
on January 7th, 2025.
Gerhard Barnard: 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.
Gerhard Barnard: 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.
Gerhard Barnard: The Board of Directors and Management are focused on assessing stakeholder interest and evaluating the optimal path forward for EBC on an orderly basis.
Further announcements will be made.
Speaker Change: CXI emphasizes that there is no assurance the strategic review will result in any specific transaction.
Speaker Change: The company remains committed to ensuring minimal disruption to its customers and employees through this process.
Speaker Change: It is important to preserve the confidentiality necessary for this review. We are not providing any additional details.
Speaker Change: A public announcement will be made as the strategic review process progresses.
Speaker Change: Now at this time I would like to hand the call over to Randolph Pinna, our CEO, for his perspective.
Bill Pinna, Bill Mitoulas, Gerhard Barnard
Speaker Change: Thank you, Gerhard, and thank you all for the call. I appreciate your time.
Speaker Change: To begin with, I usually talk about Exchange Bank of Canada, but as you just heard in Gerhard's detailed...
Speaker Change: presentation, the conclusion was there's not anything that I can really say except to confirm that the Strategic Committee is active. They have engaged Infor Financial, a well-known investment banking company here in Toronto.
Speaker Change: to guide us through this process, and the process is well underway.
Speaker Change: As you know, we are exploring several different options for Exchange Bank of Canada, but I confirm it is business as usual, ensuring that we continue to operate fully as we have always done here in Canada.
We will update you as we know more information.
Speaker Change: Moving to CXI, as you've seen, the payment business is one of the top focuses of the CXI group.
It is...
Speaker Change: CXI has a relationship with the Federal Reserve Bank in America, which is not a part of the Exchange Bank of Canada's relationship with the Federal Reserve Bank of New York for cash. This is focused strictly on payments.
Speaker Change: What's most exciting and looking forward is great for our group is that the Fed-Now relationship has us not processing actual cash transactions or payment transactions.
Speaker Change: Our connectivity with the Federal Reserve to what's called FedNow and our customer banks allows our banks to utilize in our automated fashion our software to do domestic payment processing.
Speaker Change: We do not move money. We are only a software provider to our financial institution customers Connecting them in an automated way to the Federal Reserve We already have three clients on our pilot and our pipeline is quite full on this
Speaker Change: This integration does allow us to have a full relationship with the U.S. Bank and enables us to not only get income, you know, software as a service fee income for our software usage, but it also enables us to get extra income by providing
Speaker Change: international services, LUTs, foreign wires, which we do process, as well as potential banknote activity.
Speaker Change: So, that remains a top focus for CXI and our payment unit to continue to grow with financial institutions utilizing integrations such as this.
Speaker Change: Our core business, as you know, is banknotes, so this is not ever going to be forgotten for our group, that banknote sales, both for financial institutions, select money service businesses, unique businesses, potentially cruise lines or other travel-type companies.
as well as our agent business.
Speaker Change: With our own company stores, we have selectively been adding locations because the key to a successful store, besides having a good manager and staff, is to get the right spot at the right price.
Speaker Change: So we are selective in our expansion on our retail stores as there's great locations, but many of them are too expensive.
Speaker Change: and therefore we will continue to grow in our core markets of Florida, New York, California, Hawaii and possibly some new select states that we see opportunity in.
Speaker Change: Our agent model is the biggest focus of our banknote unit.
Speaker Change: The partnership with good retailers, utilizing their staff and their locations that they pay the rent enables a true win-win-win situation for the retailer, adding a new revenue source and an attraction to their core customers. Those customers who currently don't have the ability to get their currency exchange from their commonly used retailer.
Speaker Change: It provides a win-win for them, and for us, we have another location similar to our own company stores that allow us to have a service offering in places we currently don't have without the rent and payroll associated with us opening our own stores.
Speaker Change: We are working on a very large national agent relationship, and I hope to be able to announce that partnership soon.
Speaker Change: ensuring there's a business case for the cost associated to be licensed in each state. And ultimately, we do have a goal to be licensed in all states, although we will not go into a state like Alaska until we have a business case showing the
Speaker Change: the, you know, the investment relative to the rewards, and when that is large enough, we will continue to grow.
Speaker Change: So, again, our banknote business is a top focus while our diversification and payments and automation and integrations is key to our overall groups.
of success.
Speaker Change: We have a focus on our capital and the return on capital deployed, and this remains a top focus because not only cost control is important, but ensuring revenues relative to their potential risks that are there and the costs associated to that. It remains a focus for our group.
Speaker Change: Lastly, while we have a lot going on both in the U.S. and Canada,
Speaker Change: I want to confirm that the I of CFO and CEO of our group
Speaker Change: remains also on creative potential transactions. We do still pursue, are pursuing a large banknote opportunity in the United States. While that is a very big transaction, hence it takes a lot of time, that is a focus of mine on a daily basis.
Speaker Change: We are also, because of our core software focus as a group, looking at a potential software transaction that would enhance our currency exchange offering, further strengthening our fintech focus.
Speaker Change: So that's all I have as the CEO for a high-level report for me, and I would like to open up the floor to questions, as I imagine there are a few. So thank you again for your time, and we look forward to answering your questions.
Speaker Change: Thank you, sir. Ladies and gentlemen, should you have any questions, please press star followed by 1 on your touch-tone phone. You will then hear a prompt that your hand has been raised.
Speaker Change: And should you wish to decline from the polling process, please press star followed by 2. And if you're using a speakerphone, please lift the handset first before pressing any keys.
Speaker Change: And out of considerations to other callers on the line today, we ask that you please limit yourself to one question and one follow-up. Thank you.
Speaker Change: And your first question will be from Jane Byrne at Acumen. Please go ahead.
Yeah, good morning, guys.
Speaker Change: We appreciate all the colour around some of the unusual items here in Canada. Maybe just talk about the expense efforts and cost controls that you implemented last year.
Speaker Change: certainly look like it took effect on postage and shipping and losses. Is there more room to come on some of those efforts for 2025?
Gerhard Barnard: I don't know if Gerhard wants to do it, he's more focused on the topic.
Gerhard Barnard: But I can say at a high level, I'm sorry, Gerhard, I'll just take one bit and then I'll turn it to you, at a high level we are always focused on
Gerhard Barnard: improving our costs. So one of the shipping measures that in the US was implemented has now been implemented in Canada and we have seen a reduction in the last few months that will help our continued focused profitability here as well in Canada. Go ahead Erard.
Speaker Change: Thank you. Thanks for the question Jim. Yes, there is continued focus on expense management as you saw. We are continuing to focus on shipping and postage, which is a major expense for us. We're reviewing various commission structures and compensation that we go through. We have renegotiated certain
Speaker Change: of our leases and it continues to be a top focus for us. Bank charges are under review at this point in time so we really take each one of those major items, review it, analyze it and see if we can renegotiate it.
and Bill Mitoulas.
Speaker Change: Okay, that's great. And then maybe just on the IT spend, the implementation of a number of programs I know that you guys have been working on, where do we sit on that implementation and how does the spend look for 2025?
Speaker Change: So I Thank you for that. I think it's very important to to just reiterate how proud we are of our treasury team that implemented Gariba, of our compliance team that implemented Alessa. So now that we have those systems in place
doing additional and enhanced volumes.
Speaker Change: with Faster Turnaround Times. In 2025, as I mentioned, our IT team is focused on the migration into the web or that whole AWS and web services.
Speaker Change: that we're working on, as well as finishing one or two other larger system implementations.
Speaker Change: And Jim, if I could add to that, what I think Gerhard was implying, it may not have been clear, was that the Alessa project and the Kariba project, which was a lot of IT spend in the 24-year, have concluded.
Speaker Change: And so the NetSuite implementation, the Kariba implementation, and the Alessa implementation have been completed, and so those costs will not be recurring.
Speaker Change: However, as I told you, we are focused on additional integrations and the one department in our whole group that our board and I fully support growing the team is in our IT division.
Speaker Change: and we have some very strong people there and we will continue to ensure that we are a fintech-focused company utilizing technology.
Speaker Change: the cloud, AI, and enabling us to further strengthen our software stance on the foreign exchange market.
Thank you.
Speaker Change: Okay, that's great. And if I could maybe just squeeze in one more on the vault operations. I know there had been talks about consolidating some of the vault operations down in the U.S. Maybe just an update there, Randolph.
Speaker Change: Yes, so I'm very happy that our Louisville facility is processing the majority of our outbound orders. We still do maintain our Miami and LA facilities. Miami is
Speaker Change: has been repositioned more as an inbound because we do get a lot of shipments that are naturally, have always been going there.
Speaker Change: and but the automation in the Louisville facility is outbound as we experienced.
Speaker Change: So, we are properly structured, but the actual cash usage of having three inventories has been reviewed and we are ideally going to improve the amount of cash in each facility so to maximize return on the cash deployed.
Bill Pinna, Bill Mitoulas, Gerhard Barnard
Okay, that's great. I'll pass the mic. Thanks.
Thank you.
Speaker Change: Next question will be from Peter Rebova at Artco Capital. Please go ahead.
Speaker Change: Hey guys, how are you? Maybe I'll take the questions in the other direction, and I just want to be clear, I'm not asking for guidance or anything like that, and I'm thinking through, like, you know, not maybe next year, but the next three years.
Speaker Change: And obviously, I know you're thinking you're doing a Canada transaction and you've mentioned you're looking at some other transactions. So with that in mind, I'm curious if you could tell us some buckets of growth that you're seeing for your business in the next...
Speaker Change: a few years. I know this year was about roughly three to four percent growth overall with puts and takes, and I'm curious where you see, you know, increasing that growth in your, you know, bank notes, wholesale, retail, software, etc. with external-internal growth. We'd love to hear that.
Speaker Change: Thank you, yes, that's a very good question and as I said in my quick
Speaker Change: We are continuing to have a growth in both our payments business. You've seen we had a significant growth in the 24-year. We expect that to continue because of our integrations.
to existing flows of payments.
Speaker Change: That is going to be further enhanced because we have a strong team focused on enabling our software to be used as a service, which will allow this software income without us having the compliance.
Speaker Change: and the labor involved with moving the funds because our software in those situations are just enabling the connectivity of a smaller bank to the Federal Reserve utilizing our proven platform.
Speaker Change: So that will continue to fuel payment revenue growth at CXI. Our core business, as I said in my little brief update, what is our banknotes business? So we will continue to expand our stores selectively. We have some marketing programs that we think are going to improve our profitability of each store.
um...
Gerhard Barnard: As well as Gerhard mentioned, we have been aggressive with our landlords to ensure that the price we pay is reasonable and that they don't keep charging more and more.
Gerhard Barnard: and then lastly is our agents business. Again, I'm working on a large national client that could generate well over a million dollars on that one agent relationship, but because of the size and opportunities that exist with retailers across the United States
We see that as a continued focus.
Gerhard Barnard: our online stores continuing to be enhanced to allow for you know faster checkout and all of the little features that do improve.
Gerhard Barnard: sales. We even have a call back process for abandoned carts and so forth that is proving successful. And even our call center is ensuring that if
Gerhard Barnard: inbound calls actually crystallize into transactions by placing reservations at the stores and so forth. So we will be focused on both payment growth and bank note growth.
Gerhard Barnard: which doesn't include any strategic accretive transaction that are being pursued by us in terms of an acquisition. And so that will enable us over the next three years to get back into double-digit growth as we've always had for the last ten years.
Okay. Thank you. Thank you. Thank you.
Gerhard Barnard: Maybe to complement that point, we have also, now that we've got better visibility on all the various business lines, we've also realigned and increased our marketing spend to these focus areas that Randolph has mentioned.
Speaker Change: Okay, thanks, that's great. I mean, I have a tough follow-up, and I know you're going to wince at this question, but I would really like to hear your comment. Like, look, Canada as a country, like, relative to the United States, is just, you know, the last 20 years, economically, it's...
the left behind.
Speaker Change: I mean, looking at your, you know, buyback, you're severely limited by the Canadian Stock Exchange. You've clearly gotten, I guess, a severe penalty from the banking regulatory thing. I mean, what are the reasonings to even, and you're an 80% revenue company in the United States.
Speaker Change: I know you're making a strategic review for the bank, but...
Speaker Change: Maybe this review should include your whole relationship with Canada. It sounds like this is really holding you back.
Speaker Change: a lot of areas, and I guess I would just like to hear your...
Speaker Change: your thoughts on between the stock and the bank and you know and your business in Canada what you know what your thoughts on reasonings for remaining there.
Bill Pinna, Bill Mitoulas, Gerhard Barnard
Speaker Change: Again, the strategic review cannot be commented on. There are lots of different considerations being done by the Board of Directors, so I'd like to please park that.
Speaker Change: I do want to confirm the interest of our stock buyback as the largest shareholder of our group. I'm keen and I believe that our stock is undervalued and therefore is a good return for the capital deployed on the buyback. We do have restrictions because of the OSCE and the TSX.
Speaker Change: but we are allowed to do blocks and so we are continuing to remain an active buyer of our stocks. And I think that answered your questions or no?
Speaker Change: No, I mean, I think my question is why like I don't think it makes sense to be in Canada in general I think you're really
Speaker Change: hurting yourself between just business and bank and the stock exchange. I'm, you know, I don't, that's what I'm asking, like, why stick with Canada? It seems to be hurting you in almost every direction.
Speaker Change: Again, the business that we do in Canada is under review. Again, our default is we continue to run our bank as we have. As I've said, we've been seeing improved profitability of the bank, putting aside this regulatory dispute.
Speaker Change: But as far as listing in the Toronto Stock Exchange, it's been a good market, Canada's been a good market.
Speaker Change: area for us, but NASDAQ is not ruled out, but right now we have a lot more important priorities than our stock exchange.
Speaker Change: if that's what you were talking about exiting Canada's stock exchange.
Speaker Change: We intend, you know, for the next year or so, for sure, to be a TSX listed company and our business in Canada is being focused on so that it begins, you know, our investment will help our shareholding position.
Speaker Change: Okay, well, I think you know how I feel. I think Canada in general is hurting, severely hurting you as a shareholder, and I would recommend exiting the country in almost every way you can. But I'll let somebody else take the questions.
Thank you, Peter, for your feedback.
Thanks Peter.
Speaker Change: Again, ladies and gentlemen, a reminder to please press star 1 if you do have any questions. And we also ask that you limit yourself to one question and one follow-up. Thank you.
Speaker Change: Next question will be from Robert Van Bors at Vanaduk Capital. Please go ahead.
Speaker Change: Hey, good morning guys. Thanks for taking the questions. I think Peter asked some of my questions but I'm just curious specifically on the U.S. payments business and I just would like to understand how does EBC fit into the U.S. payments business?
Are those related or?
That is correct.
Speaker Change: No, the current relationship between EBC and CXI towards the U.S. payment business is that
CXI utilizes Exchange Bank of Canada.
Speaker Change: as its primary payment rail. It's not the exclusive payment provider to CXI. And so that is a inter-company relationship.
Speaker Change: of running the bank, we also see the benefit of getting inter-bank pricing because as a bank dealing with other banks, they get what's called inter-bank pricing as opposed to corporate pricing. And the group enjoys the benefit of having that preferred pricing model.
Speaker Change: The Exchange Bank of Canada has really grown our overall group and has enabled our total volumes to increase.
Speaker Change: which we believe allows CXI to be able to stand on its own should that be a step it takes.
Speaker Change: However, right now the biggest dependency on the U.S. payment business is the fact that Exchange Bank is a primary processor of the foreign wires being sent.
Gerhard Barnard: Okay, got it. That's helpful. And my second question, maybe this is more for Gerhard, but just on the HST, the tax item for ABC, my understanding is that it's basically a catch-up from...
Gerhard Barnard: previously not having paid the estimated tax for previous transactions. But I guess what I'm more interested in is, does that mean that expenses will be higher going forward because
Now the new text.
expenses would be higher because they were previously being misestimated.
Breck
Speaker Change: That is a fair assumption although it's an immaterial increase. There is some intercompany charges between CXI and EBC that needs to be self-assessed for HSD purposes and it's definitely an immaterial dollar amount.
Speaker Change: Okay, I guess it will be higher, but, oh sorry, go ahead.
It's a small amount.
Speaker Change: Okay, and I guess just as a clarification to that Gerhard, do you know, are you allowed to tell us like how long of a catch-up period was that? Was that a catch-up for transactions that had occurred over like ten years or last year? I'm just curious about that.
Speaker Change: Yeah, it's normally CRA has various abilities to go black between three and six years and that is all I would like to say on the matter.
Speaker Change: Got it. Okay. That's fine. I'll pass it to the next person. Thanks.
Speaker Change: Thank you. And at this time, gentlemen, it appears we have no further questions. Please proceed.
Speaker Change: Okay, well I thank all of you for your time on our call this morning. If we can, we'd be happy to have a separate call should
Speaker Change: there be any specific question that we are able to answer, we'd be happy to do so. I am in Canada today and fully booked. I've received about five requests for a meeting today. I personally am not available today, but Gerhard may be, and we will be happy to field any additional calls should that be of interest, and we are able to answer them.
Speaker Change: So I thank you again for your support and appreciate your time
Thank you very much. Enjoy the day.
Speaker Change: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending.
Speaker Change: and at this time we ask that you please disconnect your lines. Enjoy the rest of your day.