Currency Exchange International - Q1 2026

Transcript

Operator (participant)

Morning, ladies and gentlemen, and welcome to the Currency Exchange International Q1 2026 financial results conference call. At this time, note that all participant lines are in the listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Thursday, March 12th, 2026. I will now turn the conference over to Bill Mitoulas, Investor Relations. Please go ahead, sir.

Bill Mitoulas (Director of Investor Relations)

Thank you, Sylvie. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the first quarter. 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 perspectives on the company's financial and company operations. Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts, and business activities. After which, we'll open it up to 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 happen to leave the 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.

Gerhard Barnard (Group CFO)

Thank you, Bill, and thank you everyone for joining today's call. My overview of the company's performance, CXI, will also incorporate the results of the discontinued operations of Exchange Bank of Canada, or EBC. These results are presented in U.S. dollars. As a reminder, on February 18th, 2025, the group announced its decision to discontinue the operations of its wholly owned subsidiary, Exchange Bank of Canada. EBC ceased operations as of October 31st, 2025, and on December 19th, 2025, EBC issued its year-end audited financial statements to its regulators. EBC has formally applied for approval from the Minister of Finance in Canada to discontinue from the Bank Act. Following final regulatory approval, management and the directors plan to liquidate the remaining assets and liabilities and distribute EBC's net assets to CXI, its sole shareholder.

Management anticipates that all required regulatory approvals for discontinuance will be granted during the second fiscal quarter of this year. Starting in the second quarter of 2025, and following the board decision and discussions to discontinue the bank's operations, the group updated its financial statements presentation to present continuing operations and discontinued operations separately in accordance with IFRS accounting standards. Therefore, included in the group's financial statements are the results of the United States operations under continuing operations and the results of Exchange Bank of Canada under discontinued operations. Before we go into these results in more detail, I'd like to note that the group measures and evaluates its performance using several financial metrics and measures, some of which do not have standardized meanings under generally 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. Management believes that these measures are more reflective of its operating results and provide a better understanding of management's perspective on performance. These measures enhance the comparability of our financial performance for the current period with the corresponding period last year. Management included a full reconciliation of these key performance and non-GAAP financial measures in its MD&A. When we refer to reported results, we refer to the results as reported in the financial statements based on IFRS. When we refer to adjusted results, such as adjusted net income, we refer to the performance and non-GAAP measures. The group reported net income of $1.5 million for the quarter ended January 31st, 2026, representing an increase of about $700,000 or 88% compared to the previous quarter, while maintaining consistent quarterly revenue.

This quarter's reported net income reflected $1.7 million of net income from continuing operations and a net loss of about $200,000 from discontinued operations. Reported unadjusted results for the continuing operations included pre-tax, non-recurring items, restructuring charges of about $140,000 related to the closure of CXI's Miami Vault and about $36,000 related to severance costs in discontinued operations in Canada. It is important to note that the reported results of the prior quarter included non-recurring items related to severance costs of $280,000. During the current quarter, management made a change to the assumptions used in its non-GAAP financial measures and ratios and introduced stock-based compensation expense as an additional adjustment item to reported earnings.

Stock-based compensation costs are non-cash expenses, and the majority of these expenses are largely tied to the company's stock price movement and have historically caused significant volatility to the reported results in past quarters. Management determined that based on best practice and industry group measures, the adjusted results should exclude stock-based compensation expense and plans to follow this presentation consistently going forward. Excluding stock-based compensation, restructuring and non-recurring charges, adjusted net income from continuing operations increased to $2.1 million, a 29% increase, and the group's adjusted net income increased to $1.9 million, an increase of 84%. The group's adjusted diluted earnings per share increased to $0.32, which is close to a 100% increase over the prior year or prior period.

As mentioned, certain operating expenses and personnel costs, stranded costs, previously shared with EBC are now fully assumed by CXI following EBC's exit from Canada. With that, here is a summary of the current first quarter's results compared to the same quarter in 2025. Revenue remained unchanged at roughly CAD 15.5 million. Operating expenses increased to CAD 12.2 million or by CAD 580,000 or 5%. Reported EBITDA decreased to CAD 3.3 million by CAD 543,000 or 14%, and adjusted EBITDA remained unchanged at CAD 3.8 million. Let's look at revenue in a bit more detail.

Revenue growth was driven by the payments product line's growth of $1.4 million or 49%, offset by $1.4 million or an 11% decline in banknotes revenue, resulting in total revenue that remained essentially unchanged when compared to the prior first quarter. Banknotes' revenue declined by 11%, primarily due to a significant decline in wholesale banknotes, followed by the OnlineFX platform and company-owned branches. Wholesale banknotes experienced a moderate decrease in business trading volumes compared to the prior year. While the company continued to onboard new customers from domestic financial institutions and money services businesses, overall activity from existing customers declined during the current quarter due to the continued slowdown in international inbound travelers, particularly from Canada, increased costs associated with sourcing certain currencies such as the Mexican peso, which adversely affected demand from certain MSB customers.

Banknotes presented 41% of total revenue in the current quarter compared to 47% for the same quarter last year. The OnlineFX platform's revenue decreased by about a quarter of a million dollars or 24% due to a decline in demand for exotic foreign currencies, primarily the Iraqi dinar, partially offset by a slight increase in foreign travel currencies such as the euro and the Mexican peso. During the current quarter, the company added Nevada to the states in which OnlineFX operates. Revenue from the OnlineFX platform represented 5% of the current quarter's revenue compared to 7% of the last quarter.

CXI's company-owned branches revenue decreased about $100,000 or 3%, impacted by the temporary closure of three stores between the fourth quarter of 2025 and the current quarter due to required relocation and the permanent closure of Santa Monica location during the third quarter of 2025. We opened two new locations, Scottsdale in Arizona and Woodbury in New York during the second half of 2025, and these did not fully offset the decline in revenue from the closed locations yet as we know the first year a store has to really settle in. Revenue from company-owned branches represented 27% of total revenue for the quarter, which compared roughly to 28% of the prior quarter. Payments revenue increased $1.4 million or 49% in this quarter, supported by a 46% increase in trading volume activity.

The company's continued investment in core banking system integrations and scalable growth capabilities contributed to the higher revenue in the current period as the company continued to onboard new customers as well as increase transaction volumes from existing financial institutions and credit union clients. Collectively, these factors resulted in substantial growth in the current quarter. Additionally, CXI recently revised the fee structure of certain service offerings to align pricing with current market trends, supporting the overall revenue increase. Business trading volumes were $2.22 billion, so just over the $2 billion for the current quarter compared to about $1.47 billion for the prior quarter. The growth in payments revenue increased its contribution to the company's total revenue to 27% in this quarter, compared to 18% in the prior quarter.

The following is a highlight of operating expenses from continuing operations for the first quarter of 2026 compared to the first quarter last year. CXI's operating expenses, as I mentioned, increased roughly $580,000 or 5%. Now, variable costs within operating expenses, postage, shipping, bank charges, sales commission, and incentive compensation totaled $3.4 million compared to $2.5 million, a 34% increase. This increase was primarily attributable to bank service charges and salaries and wages. The ratio comparing total operating expenses to total revenue was 79% compared to 75% of the same quarter last year. Now let's look at salaries and benefits. It increased due to several factors, including the full absorption of the cost of continuing staff and directors from EBC following the cessation of cost sharing with EBC.

A change in the vacation policy implemented last year that resulted in an accrual reversal for unused vacation balances and general inflationary increases. These increases were partially offset by a reduction in the headcount resulting from the closure of the Miami Vault. Bank services charges represented fees associated with processing payments and banknotes transactions, but are primarily driven by the payments product line. The significant increase in the quarter was driven by two main factors. Firstly, the substantial increase. Almost 17,000 additional payments were made in the first quarter, with payment transaction volumes increasing to almost 60,000, up from 34,000 the last quarter, related to wire processing costs compared to the prior year.

Secondly, CXI's transitioning its payment process activity away from EBC during the fourth quarter of 2025, which resulted in having 100% of CXI bank fees incurred within continuing operations in the current quarter. Whereas in the same quarter last year, as we mentioned, CXI's bank charges almost CAD 450,000 for the first quarter of 2025 were incurred through EBC's corresponding banking relationship and was accounted for within the discontinued operations, so not included in continuing operations of CXI. Legal and professional expenses decreased significantly compared to the prior period, as it included certain legal and advisory charges related to EBC's strategic review, as well as one-time advisory service charges. That was the whole continued discontinuation of EBC. Stock-based compensation of CAD 356,000 was incurred during the current period, compared to CAD 74,000 in the prior period.

As mentioned, management made a change to the assumptions in building its non-GAAP financial measures and ratios and introduced stock-based compensation expense as an additional adjustment to its reported earnings. The majority of stock-based compensation expense are largely tied to the company's stock price movement and have historically caused significant volatility in the reported results in the past quarters. Management determined that based on best practices and industry GAAP measures, the adjusted results should exclude stock-based compensation expense. As I mentioned, CXI plans to follow the presentation consistently going forward. Foreign exchange gains were almost $820,000 in the current quarter, compared to a loss of roughly $280,000 a year ago.

Net foreign exchange gains for the current quarter were driven primarily by foreign currency inventory appreciation against the U.S. dollar, in particular the euro and the Mexican peso, which represents CXI's largest foreign currency exposure. A balance of unhedged currencies and certain foreign bank currency balances also contributed to the company's foreign exchange gains in the current period. Now, interest revenue was primarily driven by CXI's investment of roughly $34 million in excess cash as at the end of the quarter in AAA-rated money market funds, compared to $0 in the first quarter of 2025. The increase in interest income reflects a significant rise in excess cash available for daily investment, resulting from reduced EBC working capital requirements and an increase in fee-free cash flow generation for CXI.

Total tax expense for the current quarter reflected an effective tax rate of 25% compared to 40% for the same quarter last year, which was impacted by a large decline in the stock price and its impact on deferred tax assets, which resulted in higher income tax provision last year. Now looking at the results of discontinued operations related to Exchange Bank of Canada, where the bank had reported a net loss of $226,000 in the first quarter, mostly related to final payroll expenses and benefits, compared to a net loss of almost $900,000 in the prior year's first quarter. Once final regulatory approval has been obtained. As I mentioned, the board of directors plans to liquidate the remaining assets and liabilities of EBC, and distribute those net assets to CXI, its sole shareholder.

As of January 31st, 2026, the net assets directly associated with this disposal group, EBC, were approximately $4.7 million. Reviewing the year-end balance sheet due to the company's business being subject to seasonality, CXI uses a 12-month trailing net income amount to calculate its ROE, which is 14%. CXI has net working capital of $74 million and total equity of $84 million, and 100% available and unused line of credit amounting to $40 million. CXI reported a cash balance of $96 million. Additionally, approximately $5 million is held at EBC, resulting in a total cash position slightly exceeding $101 million. CXI had $49.2 million cash held in the form of banknote inventory in transit, vaults, ATMs, and on consignment locations at quarter end.

CXI maintains cyclical banknote inventory with average levels ranging from $50-$70 million, depending on seasonal travel. Cash deposits in bank accounts totaled $47 million. The total amount of $47 million includes $34 million in excess cash designated for investment purposes. The remaining balance is comprised of minimum cash reserves maintained by CXI in bank accounts with selected banking partners to support banknote settlement activities, as well as operating cash balances corresponding to payment settlement activities. Now, it is important to note that cash serves as CXI's primary product. Which is primarily utilized for transactional activities within the banknote segment for both wholesale and customer transactions. Maximizing shareholder returns remains a top focus of management with improved operating efficiencies and through CXI share buyback under the Normal Course Issuer Bid or the NCIB.

During the first quarter of 2026, CXI acquired and canceled 151,000 common shares at prevailing market prices on the TSX, totaling $2.5 million. At this time, I will turn the call over to Randolph Pinna, our President and CEO, for his perspective. Thank you, Randolph.

Randolph Pinna (President and CEO)

Thank you, Gerhard, and good morning, everybody. Thank you for attending. I know it's an early day for some. I'd like to start off with Exchange Bank of Canada, just to reiterate, remind you that, August was the last day of business. By the end of the year, we had closed all responsibilities, satisfied anything outstanding, and went through many steps and approvals to get to where we are now, which is the waiting on the final approval, which is expected this quarter for our total exit from Canada. Moving to CXI, I'd like to focus on banknotes. As we can all see and can imagine, banknote activity because of reduced travel is down because of this geopolitical situation we have globally. The banknote business is still our core business, and it is comprised of both our wholesale activity and our consumer activity.

Starting with the consumer activity, we are adding additional stores, and as Gerhard mentioned, we did have to relocate three stores due to the landlords closing their shopping malls and converting them into housing. Therefore, we have moved these three stores and are in the process right now. We're adding additional stores selectively in key markets, with our newest store being in Charlotte, North Carolina, a new market for CXI's consumer unit. Additionally, we are expanding our OnlineFX business by adding additional states as well as expanding our digital marketing campaign. We do see the consumer unit as a strong part of the overall business we have. Moving into the wholesale business.

Yes, the banknote business there is also softer due to mostly inbound travel, whereas a negative sentiment occurs and exists, especially in Canada and other select markets where they're currently choosing not to come to America. We feel this is a temporary situation with the reduced inbound travel from foreign tourists coming to the States, and long-term, we feel that it will normalize. The outbound business remains a normal, solid business for the wholesale business. The good news is our pipeline is full. We've signed a few new bank clients to add additional bank branches, as well as we are focused on mining existing relationships by expanding our online FX offering to the banks, to their clients, as well as selectively adding inventory on consignment. Another focus to grow our wholesale banknote business is a dedicated non-financial institution sales plan and effort.

We are focused on other types of businesses like money service businesses and specialty retailers such as grocery stores or select agent locations, and even potentially adding some retail stock brokerage shops to allow those clients having money at these brokerages to order foreign currency or even possibly do a foreign wire transfer. We have recently signed a new agreement with a global business that does remittance activity, and they also own their own locations. We have started a pilot with 100 of their locations in the New York area, and soon thereafter, we'll be adding another 150 locations that they have based mostly in South America. I mean, south of America, Florida, in the southeast.

We reciprocally are adding their remittance service to a current pilot of 16 of our retail stores, which will generate additional traffic from international visitors and domestic visitors to send remittance money back, and this will generate new fee income to the business. This type of expanded relationship is being pursued under this non-financial institution sales effort, which is in addition to, of course, our core client type financial institutions, banks and credit unions. Which brings us right to our very successful payment expansion. As you saw, the payment revenues continue to grow significantly, and we will continue to have our top team focus on adding additional client relationships, which is very often because of integration into software systems or core banking software. The payment business is expanding both on the international FX side as well as dollar domestic payments.

We see additional income from fee income for processing domestic activity as well as while we grow the foreign exchange activity with the international wires. Lastly, we always, as you can imagine, Gerhard and I are always looking at strategic opportunities for CXI. Our focus has been on banknotes, and we do have the cash available to make a good transaction that will be accreted to the business. I would like to now open it up, for questions and, please limit the questions to two, if you could.

Operator (participant)

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press Star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, you will need to lift the handset first before pressing any keys. As mentioned, we ask that you please limit yourself to two questions. Thank you. First question will be from Robin Cornwell at Catalyst Research. Please go ahead, Robin.

Robin Cornwell (Founder and Principal Shareholder)

Thank you and good morning. I guess the first question is just to clarify the bank service charges. I know it's volume, but was there anything exceptional, or can we kind of see this kinda ratio for the payments volume of the payments business going forward to be consistent with this quarter?

Randolph Pinna (President and CEO)

Robin, thank you for that.

Robin Cornwell (Founder and Principal Shareholder)

Go for it.

Randolph Pinna (President and CEO)

Go ahead, Gerhard. Sorry.

Robin Cornwell (Founder and Principal Shareholder)

No, go ahead.

Gerhard Barnard (Group CFO)

Robin, thanks for that question. I think there's two items in there. The first one is this is the current level of our bank service charges, but you have to take into account the additional volume, obviously, that we've incurred between quarter one last year and quarter one of this year. Roughly, that's 17,000-18,000 extra transactions at a certain cost per wire. The second part of your question is can we see this continue? We cannot comment on that. That would be a forward-looking statement.

Robin Cornwell (Founder and Principal Shareholder)

Okay. It basically is consistent.

Randolph Pinna (President and CEO)

Robin.

Robin Cornwell (Founder and Principal Shareholder)

Sorry.

Randolph Pinna (President and CEO)

No, that's okay. I just wanted to, which is not a forward-looking statement, it's basically a current reality that CXI is continuing to evaluate its strategic banking partners and evaluating which partner for each product of a payment is the best provider. Currently, that is our current cost, but this is a focus of our treasury unit to expand its international correspondent relationships, which does even include the evaluation of utilizing stablecoins. Currently, the stablecoin has not indicated much of an improvement in pricing. It does accelerate the speed. However, as the Federal Reserve says themselves, the core currency is the dollar, and you go into a crypto and back to a physical fiat currency. We are evaluating all the payment rails to have the most efficient and best use for our clients.

Robin Cornwell (Founder and Principal Shareholder)

Great. Thank you. My second question is, basically, how, if at all, does artificial intelligence fit into your business strategy now?

Randolph Pinna (President and CEO)

Thank you for that question. That is a strategic question. I can confirm that CXI has been very active with AI, in fact, has implemented its own CXI FX AI tool within our system that sits right on top of our data and allows management better access and better reporting interacting with our own internal AI. The board has presented or we presented to the board our overall AI policy outlining the risks around AI and what can be used with AI and what should not be used, as well as focusing on the integration of AI into current processes.

Robin Cornwell (Founder and Principal Shareholder)

Okay. Thank you. That's all for me.

Operator (participant)

Thank you.

Randolph Pinna (President and CEO)

Thank you.

Operator (participant)

Ladies and gentlemen, a reminder to please press star one at this time if you have any questions. At this time, Mr. Pinna, it appears we have no questions registered. Please proceed.

Randolph Pinna (President and CEO)

Thank you. Again, I wanna thank everybody for their support of CXI and their continued interest. I remind everyone that the annual shareholder meeting of CXI this year will be held at its headquarters in Orlando on the 24th of this month. We hope that you can join us in person where management and board members will be in attendance, and we will be doing a presentation to the audience at the conclusion of the formal part of the annual shareholder meeting. Thank you very much for your attendance, and we look forward to talking to you again soon.

Operator (participant)

Thank you, sir.

Randolph Pinna (President and CEO)

Have a great-

Operator (participant)

Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and we do ask that you please disconnect your lines. Enjoy the rest of your day.