Currency Exchange International - Earnings Call - Q4 2024

Transcript

Operator (participant)

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

Bill Mitoulas (Head of Investor Relations)

Thank you, Sylvie. Good morning, everyone. Welcome to the Currency Exchange International Conference call to discuss the financial results for the 2024 fourth quarter and fiscal year end. Thanks for joining us. With us today are President and CEO Randolph Pinna and Group CFO Gerhard Barnard. Gerhard will provide an overview of CXI's financial results and his latest perspective on the company's operations. Randolph will then provide his commentary on CXI's strategic initiatives, sales efforts, and business activity, after which we'll open it up for your questions. Today's conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave our call before its conclusion, please be advised that this conference call will be recorded and then uploaded to CXI's Investor Relations website page, along with the financial statements and MD&A.

Please note that this conference call will include forward-looking information, which is based on a number of assumptions and can actually result that 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 both, and thank you everyone for joining today's call. These results are presented in US dollars. My overview of the company CXI will also incorporate the results of our wholly owned subsidiary, Exchange Bank of Canada. The company continues to invest in our people through in-house training, mentorship programs, and coaching initiatives. CXI and EBC combined have 298 full-time and 92 part-time employees as of October 31st, 2024, a decrease from roughly 410 a year ago, as our technology platforms continue to remain a strategic focus, and their continued enhancement and additional system implementations are creating planned operational efficiencies. Kyriba, our treasury management system, and Alessa AML compliance software are operational. Our IT team continues to leverage the power of cloud computing to enhance integration capabilities, improve scalability, performance, and resilience. These initiatives and investments, among others, support the more efficient future growth of the company.

Let's look at the consolidated performance for the three months ended October 31st, 2024, compared to the previous three months ending October 31st, 2023. But before we go into details, I would like to note that the company measures and evaluates its performance using a number of financial metrics and measures, some of which do not have standardized meanings under 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. The company's management believes that these measures are more reflective of its operating results and provide a better understanding of management's perspective on the performance of the company. These measures enhance the comparability of our financial performance for the current year and period with the corresponding year and previous period in 2023.

Management included the full reconciliation of the key performance and non-GAAP financial measures on page 22 of the management's discussion and analysis that was published on SEDAR+. When we refer to reported results, we refer to the audited financial statements based on IFRS. When we refer to adjusted results, such as adjusted net income, we refer to performance non-GAAP measures. Now, the company reported a net loss of $2.8 million for the current quarter compared to a reported net income of $2.3 million for the same period last year, primarily due to several non-recurring items in Canada in the current period. The adjusted net income based on non-GAAP measures grew by $477,000, or 21% to $2.78 million, and it is comprised of an adjusted net income of $3.35 million for the United States and an adjusted net loss of roughly $570,000 in Canada.

Now, this compares to an adjusted net income of $2.3 million for the prior period, which comprised of an adjusted net income of $3.3 million in the United States and an adjusted net loss of $1.25 million in Canada. Importantly, adjusted EBITDA and adjusted EBITDA margin for the current period were $5.9 million, or 26%, compared to roughly $5.95 million, or also 26%, indicating a flat EBITDA over the prior period. The company generated revenue of $23 million for the three-month period ended October 31st, 2024, a 1% increase from the same period in the prior year, largely driven by growth in the payments and the direct-to-consumer banknotes product lines, in particular via the online FX platform in the United States.

The growth in revenue was primarily due to growth in the payments product line of $704,000, followed by growth in direct-to-consumer business of $220,000, partially offset by a decline in the wholesale banknotes product line of $660,000. Revenue in Canada increased by roughly $550,000, or 14%, over last year, while in the United States it declined by $285,000, or 2%. Operating expenses increased by $3.2 million, or 19%, and it was impacted, as mentioned, by a number of non-recurring items in Canada at year-end, which will be discussed in more detail under the yearly review. Now, comparing the third quarter of 2024, revenue in the fourth quarter decreased by $944,000, or 4%, as demand for foreign currency decreased consistently with seasonality and the company's cyclical pattern.

This quarterly decline is in line with the same periods of last year when revenue decreased in the fourth quarter by roughly $800,000, or 4%. The top five currencies for this quarter were US dollar, euro, Canadian dollar, British pound sterling, and Mexican peso. The company's adjusted return on equity, ROE, for the current year was 12% compared to 14% for the prior year. The following is a highlight of revenue by product line for the three months ended October 31st, 2024, compared to the previous three months ending October 2023. Revenue in the banknotes product line decreased by $440,000, or 2%. Despite the strong customer-consumer demand for foreign currencies during the year, volumes in the current quarter declined. Between August 2024 and October of 2024, approximately 228 million travelers passed through TSA checkpoints in the United States. That is 14 million, or 6% more compared to the prior year.

Direct-to-consumer banknotes revenue increased by $220,000, or 3%, as the company continued to capitalize on its market share through its diversified delivery channels that include the Online FX platform, company-owned branches, and agent relationships. Growth in the current quarter was primarily led by Online FX revenue. With the company's recent expansion, the Online FX platform can now serve 44 states, including the District of Columbia, now with four additional states compared to the same time last year. Direct-to-consumer unit in the fourth quarter grew despite having two active company-owned branches in Florida, slightly impacted by the two hurricanes which forced closure for several days. Nonetheless, the company maintained revenue levels via its third main channel, agent relationships, as these relationships continued to drive revenue growth from the increased demand for travel currencies, in particular the euro currency, during the current quarter.

Business trading volumes based on direct-to-consumer banknotes revenue was about $123 million compared to $120 million for the quarter prior. Overall, direct-to-consumer banknotes revenue remained a growing business with its diversified delivery channels. The company has successfully opened two new locations in the United States, one in the state of Massachusetts and one in Georgia, during the current quarter, and now operate a total of 40 company-owned branches throughout the U.S. Direct-to-consumer revenue represented 34% of the total revenue of the current three-month period compared to 33% of the prior period. Now, let's look at wholesale banknotes revenue decreased by $660,000, or 6%.

Business trading volumes for wholesale banknotes revenue was $1.88 billion compared to close 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, whereas revenue from domestic and international financial institutions, as well as MSBs or money service businesses, remained flat relative to the prior year. In Canada, wholesale banknotes grew due to strong domestic demand despite being partially offset by a decline in international revenue due to the declining volumes from existing clients and lower-than-expected volumes from new customers. Overall, the banknotes product line accounted for 47% of total revenue in the current three-month period compared to 51% in the previous period.

Revenue in the payments product line increased by about $700,000, or 20%, and this is all for the three-month period, primarily driven by volume growth and increased activity in the United States and net gains from settlement timing differences in Canada. Business trading volumes based on payments revenue for the company were close to $2 billion compared to $1.44 billion for the prior quarter. Payments revenue represented 19% of the total revenue compared to last period's 16%. Now, revenue by geographic location for the three-month period is as follows. Revenue in the United States remained around the same level compared to last year, with a slight decline in the fourth quarter, as mentioned, despite growth achieved in payments and direct-to-consumer banknotes product lines. There were volume-driven declines from certain key customers in the banknotes product, which drove the overall decline in the United States during the quarter.

Payments growth of roughly 442,000, or 20%, and banknotes direct-to-consumer remained strong with growth of 220,000, or 2%. The decline in wholesale banknotes of 946,000, or 11%, led to a decline in revenue for the current quarter of roughly $300,000, or 2%. Revenue in the United States accounted for 80% of the total revenue by geographic location in the quarter compared to 82% in the same period last year. Revenue in Canada increased by 14% in the fourth quarter compared to the same period last year in both payments and banknotes.

Payments revenue, when excluding the impact of net gains from settlement timing differences, remained flat compared to the same period last year, and in banknotes, growth of $286,000, or 11%, was driven by an increase in domestic revenue from both financial institutions and money services businesses as demand for travel currencies increased, as mentioned in particular the euro and the Mexican peso. This growth was partially offset by a decline in transactional volumes of domestic FIs. Revenue in Canada represented a 20% share of the total revenue by geographic location in the current three-month period compared to 18% in the same period in 2023. Now, the company believes that providing adjusted results enhances comparability with the prior year, and this is especially true for expenses in the fourth quarter in EBC.

As such, the results for the fourth quarter were adjusted for the following non-recurring specific items in Canada totaling $5.6 million in the fourth quarter. The first one was an impairment loss of roughly $2.6 million related to the company's long-term assets in its wholly-owned subsidiary, Exchange Bank of Canada, as the carrying amounts of EBC's long-term assets have been assessed to be lower than the recoverable amount based on estimated future cash flows. An administrative monetary penalty imposed on EBC of $1.17 million and related third-party regulatory compliance advisory costs of roughly $630,000, and non-recurring tax charges of $1.2 million for Quebec compensation taxes and harmonized sales tax related to Canadian tax reporting. This was adjusted in the third quarter, as mentioned. Now, let's look at the year's results comparing 31st of October 2024 to the prior year. So these results are the yearly results, as mentioned.

The company reported net income of $2.5 million for the year ended October 31st, 2024, $7.7 million, or 76% lower than the prior year. This 2024 reported net income reflected $13.3 million net income in the United States and a net loss of $10.8 million in Canada. This year's results included several non-recurring items in Canada totaling $7.7 million, and that's for the year. Excluding these items, adjusted net income remained flat compared to the prior year, and adjusted diluted earnings per share, or EPS, was 3% higher at $1.56 compared to the prior year's $1.52. The company's revenue of $85.25 million, or 85 and a quarter million, was 4% higher than the prior year, reflecting overall growth, of which 7% was achieved in the United States, while revenue in Canada was 6% lower than the prior year.

Revenue in the United States represented 81%, previously 79%, while Canada represented 19%, previously 21%. The company's capital position 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. Now, let's review revenue by product line for the year ended October 31st, 2024, compared to the previous year. Direct-to-consumer banknotes grew by $1.35 million, or 5%, and wholesale banknotes had marginal growth of roughly $250,000, or 1%. Revenue from banknotes represented 81% of the total revenue compared to 83% in the prior year, whereas payments increased by 12% in the current year, driven by $2.5 million, or 32% growth in the United States, partially offset by a decline in Canada's corporate payments of $835,000, or 13%.

Revenue from payments represented 19% of total revenue in the current year compared to 17% in the previous year. Revenue by geographic location for the year comparing current 2024 to 2023. As mentioned, revenue in the United States grew 7%. Payments revenue had a significant $2.5 million, or 32% growth, while banknotes' growth in banknotes revenue was $1.8 million, with direct-to-consumers making $1.35 million, or 5% of the growth, and wholesale banknotes growing by about $500,000, or 2%. As mentioned, the payments growth was mostly the result of the company's investment in integrations with core banking platforms that expanded the onboarding of new customers during the year, in addition to increased activity from existing financial institution customers.

Banknotes' revenue growth, including direct-to-consumer, was largely driven by increased demand for both travel and investment currencies, complemented by growth across several branch locations and through the company's proprietary Online FX platform. Revenue in the United States accounted for 81% compared to 79% in the prior year. Revenue in Canada declined by 6%, primarily due to reduced transactional volumes from certain key clients in the corporate payments business and lower transacted volumes in US dollars with international clients, while the domestic banknotes revenue remained relatively consistent compared to the prior year. Payments revenue declined by $835,000, or 13%, while banknotes revenue declined by $250,000, or 2%, compared to the prior year. As mentioned, revenue in Canada represented 19% compared to the previous 21%. Now, below is a summary of the annual adjusted numbers based on non-GAAP metrics.

I would like to reiterate that the company believes that providing these adjusted results enhances comparability with the prior year's results. The reported results for the current year ended October 31st, 2024, were adjusted for the following specific items totaling $7.7 million. Now, these items have been mentioned in the quarterly reports, but there's one that we added. So to reiterate again, we had the impairment loss of $2.6 million. We had the administrative monetary penalty imposed on EBC of $1.8 million and related third-party advisory costs of $728,000, the non-recurring tax charges, and then in the yearly results, the reversal of a reserve for deferred tax assets, the deferred tax asset benefit related to the unused EBC loss carry forwards of $1.43 million for the fiscal years prior to 2023 deemed to be unrecoverable. So that last one got added in the yearly results.

Now, reported operating expenses increased 10% for the year. During the year ended 31st October 2024, the company's operating expenses increased 10% compared to the prior year. Operating expenses grew faster than revenue's 4% growth due to declining revenue and non-recurring items in Canada in the fourth quarter. Variable costs within operating expenses represented by postage shipping, banking fee, sales commission, incentive compensation totaled $19.3 million compared to $21.2 million in the prior year. This represents a 9% decrease from last year that was primarily driven by a significant decrease in postage and shipping expenses of roughly $2 million as a result of the company's cost management initiatives, as illustrated further below in the discussions. The ratio comparing total operating expenses to total revenue for the year was 82% compared to 77% in the prior year.

However, when adjusting operating expenses for non-recurring items in Canada, as mentioned above, adjusted operating expenses grew 4% in line with revenue growth of 4%. The following is a summary of the main operating expenses trending items during the year. Losses and shortages typically represented shipment loss in transit that the company self-insures, in addition to several other losses incurred in the normal course of business. In the prior year, the company had a write-off of non-recurring stale-dated items, while during the current quarter, the company accrued the remainder of the regulatory compliance charges. The company had accrued an initial provision of $613,000 in the third quarter before the final charges were confirmed and then accrued the difference of $1.17 million in the fourth quarter. Postage and shipping had a 16% decrease compared to last year despite the growth in banknotes volume.

This reflects the outcome of cost management initiatives, as mentioned, implemented by the company in the second quarter of 2023. Stock price compensation increased from the prior year primarily related to the share price movement. We saw the Mexican peso again being the largest driver of foreign exchange hedging costs for the quarter. Income tax expense reflected the statutory tax rate adjusted for permanent items, R&D credits, and other non-deductible differences, including, as mentioned, the reversal of an allowance for deferred tax assets in Canada and the amount of $1.43 million. The amount reflects the reversal of several allowances for deferred tax assets as discussed. Let us review the balance sheet at year-end. At 31st of October 2024, the company remained well-capitalized at $79.5 million. The company had $5 million drawn on its lines of credit, with $45.3 million available.

This compares to roughly $15 million drawn a year ago and $35.7 million available. Interest expense declined in the current year due to results of a notable decline in the average borrowings, as mentioned. The average outstanding borrowings by the company amounted to roughly $6.6 million during the current year compared to $13 million during the prior year, which led to a significant reduction in interest rates. The average interest rate on borrowings was 8.7% for the current period compared to 7.6% for the same period last year. Now, on November 28, 2024, the Toronto Stock Exchange accepted the company's notice of intention to make a normal course issuer bid, NCIB, or share buyback as it stands, and an automated securities purchase plan to purchase for cancellation a maximum of 316,646 common shares of the company, representing 5% of the company's issued and outstanding common shares.

Purchase under the NCIB commenced on December 2nd, 2024, and will terminate on December 1st, 2025, or such earlier date in the event that the maximum number of shares sought in the NCIB has been repurchased. Under the previous bid, the company repurchased 149,070 common shares at a volume-weighted average price of CAD 25.3 through the facilities of the TSX, as well as on alternative Canadian trading systems at prevailing market rates. Management believes that the underlying value of the group may not reflect the market price of its common shares from time to time, and that, at appropriate times, repurchasing its shares through the NCIB may represent good use of the group's resources, as such action can protect and enhance shareholder value when opportunities or volatility arise. Therefore, the Board of Directors has determined that the NCIB is in the best interest of the group and its shareholders.

On January 7th, 2025, CXI announced the formation of a special committee of independent directors to consider a range of strategic options for its wholly owned subsidiary Exchange Bank of Canada. The strategic review is exploring and considering several different opportunities to maximize long-term value for shareholders and focus the company's resources towards its profitable US operations. 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. CXI emphasizes that there is no assurance the strategic review will result in any specific transaction.

The company remains committed to ensuring minimal disruption to its customers and employees through this process. It is important to preserve the confidentiality necessary for this review. We are not providing any additional details. A public announcement will be made as the strategic review process progresses. Now, at this time, I would like to hand the call over to Randolph Pinna, our CEO, for his perspective.

Randolph Pinna (President and CEO)

Thank you, Gerhard, and thank you all for the call. I appreciate your time. To begin with, I usually talk about Exchange Bank of Canada, but as you just heard in Gerhard's detailed 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, to guide us through this process, and the process is well underway. 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.

Moving to CXI, as you've seen, the payment business is one of the top focuses of the CXI group. It is very well along on its integrations with additional systems. The most notable is the FedNow integration. CXI has a relationship with the Federal Reserve Bank in America, which is not a part of Exchange Bank of Canada's relationship with the Federal Reserve Bank of New York for cash. This is focused strictly on payments. What's most exciting and looking forward, it's great for our group, is that the FedNow relationship has us not processing actual cash transactions or payment transactions. 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. 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. This integration does allow us to have a full relationship with the U.S. bank and enables us to not only get income, software as a service fee income for our software usage, but it also enables us to get extra income by providing international services, less foreign wires, which we do process, as well as potential banknote activity, so that remains a top focus for CXI and our payment unit to continue to grow with financial institutions utilizing integrations such as this. 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. 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 at the right spot at the right price. So we are selective in our expansion on our retail stores, as there's great locations, but many of them are too expensive. 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. Our agent model is the biggest focus of our banknote unit.

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 exchanged from their commonly used retailer. 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. We are working on a very large national agent relationship, and I hope to be able to announce that partnership soon. Lastly, our online store. As you see, we're selectively going state by state, ensuring there's a business case for the cost associated to be licensed in each state.

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 investment relative to the rewards. When that is large enough, we will continue to grow. Again, our banknote business is a top focus, while our diversification and payments and automation and integrations is key to our overall group's success. 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 the potential risk that are there and the costs associated to that, it remains a focus for our group.

Lastly, while we have a lot going on both in the U.S. and Canada, I want to confirm that the eye of the CFO and CEO of our group remains also on accretive potential transactions. We do still pursue 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. 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. So that's all I have as the CEO for a high-level report from 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.

Operator (participant)

Thank you, sir. Ladies and gentlemen, should you have any questions, please press star followed by one on your touch-tone 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, please lift the handset first before pressing any keys. Out of consideration to other callers on the line today, we ask that you please limit yourself to one question and one follow-up. Thank you. Your first question will be from Jim Byrne at Acumen. Please go ahead.

Jim Byrne (Research Analyst)

Yeah, good morning, guys. Appreciate all the color around some of the unusual items here in Canada. Maybe just talk about the expense efforts and cost controls that you implemented last year. Certainly, it looked like it took effect on postage and shipping and losses. Is there more room to come on some of those efforts for 2025?

Randolph Pinna (President and CEO)

I don't know if Gerhard wants to do it. He's more focused on the cost. But I can say on some, sorry, Gerhard, I'll just say one bit, and then I'll turn it to you. At a high level, we are always focused on 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 focus profitability here as well in Canada. But go ahead, Gerhard.

Gerhard Barnard (Group CFO)

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 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.

Jim Byrne (Research Analyst)

Okay, that's great. And then maybe just on the IT spend, the implementation of a number of programs that you guys are working on, where do we sit on that implementation, and how does the spend look for 2025?

Gerhard Barnard (Group CFO)

So I thank you for that. I think it's very important to just reiterate how proud we are of our treasury team that implemented Kyriba, of our compliance team that implemented Alessa. So now that we have those systems in place, we can further drive our manage our headcount. As you saw, we were roughly 409 people a year ago. We're closer to 390 at this point in time. Operational efficiencies are coming through these systems, doing additional and enhanced volumes with faster turnaround times. In 2025, as I mentioned, our IT team is focused on the migration into the web with that whole AWS and web services that we're working on, as well as finishing one or two other larger system implementations.

Randolph Pinna (President and CEO)

Jim, if I could add to that, what I think Gerhard was implying, it may not have been clear, was that the Alaska project and the Kyriba project, which was a lot of IT spend in 2024, have concluded. The NetSuite implementation, the Kyriba implementation, and the Alaska implementation have been completed, and so those costs will not be recurring. 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. And we have some very strong people there, and we will continue to ensure that we are a fintech-focused company utilizing technology, the cloud, AI, and enabling us to further strengthen our software stance on the foreign exchange market.

Jim Byrne (Research Analyst)

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.

Randolph Pinna (President and CEO)

Yeah, 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 has been repositioned more as an inbound because we do get a lot of shipments that have always been going there, but the automation in the Louisville facility is outbound. As we experienced this last week, this huge cold front that hit America actually crippled the Louisville facility for a day or two, and so having the two other facilities certainly was a nice relief to be able to not drop any pack, drop any orders, miss any transactions. 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 to maximize return on the cash deployed.

Jim Byrne (Research Analyst)

Okay, that's great. I'll pass it on. Thanks.

Randolph Pinna (President and CEO)

Thank you.

Operator (participant)

Next question will be from Peter Rabover at Artko Capital. Please go ahead.

Peter Rabover (Managing Director)

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 not maybe next year, but the next three years. 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 three years. I know this year was about roughly 3%-4% growth overall with puts and takes. And I'm curious where you see increasing that growth in your banknotes, wholesale, retail, software, etc., with external, internal growth. Would love to hear that.

Randolph Pinna (President and CEO)

Thank you. Yes, that's a very good question. As I said in my quick intro here, we are continuing to have a growth in both our payments business. You've seen we had a significant growth in 2024. We expect that to continue because of our integrations to existing flows of payments. 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 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. That will continue to fuel payment revenue growth at CXI. Our core business, as I said in my little brief update, is our banknotes business. 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. 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, and then lastly is our agents business. Again, I'm working on a large national client that could generate well over $1 million 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. Our online store is continuing to be enhanced to allow for faster checkout and all of the little features that do improve sales. We even have a callback process for abandoned carts and so forth that is proving successful.

And even our call center is ensuring that its 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 banknote growth, 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 10 years.

Peter Rabover (Managing Director)

Okay.

Gerhard Barnard (Group CFO)

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.

Peter Rabover (Managing Director)

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 color. Look, Canada as a country, relative to the United States, is just, in the last 20 years, economically, it's been left behind. I mean, looking at your buyback, you're severely limited by the Toronto Stock Exchange. You've clearly gotten 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. Can you just - I know you're making a strategic review for the bank, but maybe this review should include your whole relationship with Canada. It sounds like this is really holding you back in a lot of areas. And I guess I would just like to hear your thoughts on between the stock and the bank and your business in Canada, what your thoughts on reasonings or remaining there?

Randolph Pinna (President and CEO)

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. 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 OSC and the TSX, but we are allowed to do blocks, and so we are continuing to remain an active buyer of our stock. And I think that answered your questions or no?

Peter Rabover (Managing Director)

No. I mean, I think my question is why, I don't think it makes sense to be in Canada in general. I think you're really hurting yourself between just business and bank and the stock exchange. That's what I'm asking. Why stick with Canada? It seems to be hurting you in almost every direction.

Randolph Pinna (President and CEO)

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 said, we've been seeing improved profitability of the bank, putting aside this regulatory dispute. But as far as listing in the Toronto Stock Exchange, it's been a good market. Canada has been a good area for us, but Nasdaq is not ruled out. But right now, we have a lot more important priorities than our stock exchange, if that's what you were talking about, exiting Canada's stock exchange. So we intend 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. Our investment will help our shareholding position.

Peter Rabover (Managing Director)

Okay. Well, I think you know how I feel. I think Canada, in general, was 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.

Gerhard Barnard (Group CFO)

Thank you, Peter, for your feedback.

Randolph Pinna (President and CEO)

Thanks, Peter.

Operator (participant)

Again, ladies and gentlemen, a reminder to please press star one if you do have any questions. And we also ask that you limit yourself to one question and one follow-up. Thank you. Next question will be from Robert Van Voorhis at Vanatoc Capital. Please go ahead.

Robert Van Voorhis (Founder and Portfolio Manager)

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?

Randolph Pinna (President and CEO)

That is correct. No, no The current relationship between EBC and CXI towards the U.S. payment business is that CXI utilizes Exchange Bank of Canada as its primary payment rail. It's not the exclusive payment provider to CXI. And so that is an intercompany relationship. And therefore, CXI, this review, is considering all of the benefits of EBC to CXI that may not be seen visibly. So while we see a cost of a loss of running the bank, we also see the benefit of getting interbank pricing because, as a bank dealing with other banks, they get what's called interbank pricing as opposed to corporate pricing. And the group enjoys the benefit of having that preferred pricing model.

Exchange Bank of Canada has really grown our overall group and has enabled our total volumes to increase, which we believe allows CXI to be able to stand on its own should that be a step it takes. 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.

Robert Van Voorhis (Founder and Portfolio Manager)

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 EBC, my understanding is that it's basically a catch-up from 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 tax expenses would be higher because they were previously being misestimated? Is that correct?

Gerhard Barnard (Group CFO)

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 HST purposes. And it's definitely an immaterial dollar amount. So yes, it will be higher, but. Sorry. Go ahead. It's a small amount.

Robert Van Voorhis (Founder and Portfolio Manager)

Okay. And I guess just as a clarification to that, Gerhard, are you allowed to tell us how long of a catch-up period was that? Was that a catch-up for transactions that had occurred over 10 years or last year? I'm just curious about that.

Gerhard Barnard (Group CFO)

Yeah. It's normally CRA has various abilities to go back between three and six years. And that is all I would like to say on the matter.

Robert Van Voorhis (Founder and Portfolio Manager)

Got it. Okay. That's fine. I'll pass this to the next person. Thanks.

Operator (participant)

Thank you. And at this time, gentlemen, it appears we have no further questions. Please proceed.

Randolph Pinna (President and CEO)

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 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. So I thank you again for your support and appreciate your time.

Gerhard Barnard (Group CFO)

Thank you very much. Enjoy the day.

Operator (participant)

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