Currency Exchange International Q3 Earnings Call Highlights

Key Points

• Payments drove growth: Third-quarter revenue rose 5% to $22.4 million as payments revenue surged 54% to nearly $5.2 million, offsetting a 4% decline in banknote revenue. Payment volume increased 33% to $2.4 billion, supported by new customer additions and higher activity from existing clients.
• Banknote performance faced temporary and macroeconomic pressure: Revenue was affected by branch relocations, weaker demand for exotic currencies, reduced travel and geopolitical uncertainty. CXI continued expanding, adding financial institution clients and increasing its agent network to 51 airport and roughly 480 non-airport locations.
• Profitability and outlook remained positive: Adjusted net income rose 31% and adjusted diluted EPS increased to $0.93 from $0.68, although operating expenses climbed 11%. Management expects a seasonally stronger fourth quarter but cautioned that travel-related banknote activity may remain softer than usual.

Currency Exchange International TSE: CXI reported higher third-quarter revenue as rapid growth in its payments business more than offset lower banknote revenue, while management said the company continues to invest in payment-processing capabilities and expand its customer network.

Revenue for the fiscal third quarter ended July 31 rose 5% year over year to $22.4 million. Payments revenue increased 54% to nearly $5.2 million, while banknotes revenue declined 4% to $17.2 million.

Group CFO Gerhard Barnard said payments represented 23% of total quarterly revenue, up from 16% a year earlier. Banknotes accounted for 77% of revenue, compared with 84% in the prior-year period.

Payments Growth Offsets Banknote Pressure

Payments trading volume climbed 33% to $2.4 billion during the quarter, while payment transactions increased to 68,700 from approximately 51,700 a year earlier. Barnard attributed the growth to new-client onboarding and higher activity from existing financial institution and credit-union customers.

“Our investments in core banking integrations and scalable infrastructure continue to support this growth and advance our one provider, one platform strategy,” Barnard said.

President and CEO Randolph Pinna said the company established a direct relationship with the Federal Reserve Bank and connected to FedLine, enabling CXI to offer domestic payment processing through its software-as-a-service offering in addition to foreign-exchange wire payments.

Pinna said CXI is adding banks to its domestic payments offering each month and expects the service to increase fee income while also creating additional foreign-currency wire-transfer opportunities. The company is also pursuing integrations with core banking systems and other payment flows.

Management said a new global wholesale correspondent banking relationship, as well as an additional North American banking relationship, should help reduce the costs associated with sending foreign wires. Pinna said the new global relationship is not exclusive, and he did not identify the institution because CXI did not have permission to disclose its name.

During the question-and-answer session, Barnard said the payments business had EBITDA margins above 20% when CXI previously reported segment information. He said margins were affected by wire fees and sales commissions, while the new correspondent banking arrangements are expected to help lower wire costs over the next several quarters.

Pinna added that the payments business could benefit from operating leverage as volumes rise, as the company may need only limited additional processing staff while spreading other costs across a larger revenue base.

Banknote Revenue Affected by Travel and Branch Relocations

Banknotes revenue declined primarily because of temporary branch relocations and reduced demand for higher-margin exotic currencies, according to Barnard. He said broader economic and geopolitical conditions also contributed to a more moderate travel environment and lower activity in certain foreign-currency transactions.

Wholesale banknotes revenue fell about 1%, or approximately $150,000, though the company added 21 new financial institution clients during the quarter. OnlineFX revenue declined 20%, with lower Vietnamese dong activity accounting for much of the decrease, management said.

Company-owned branch revenue decreased 6%, largely because four established locations were temporarily closed for relocations requested by their host stores. CXI opened branches in Newport Beach, California, and at SouthPark Mall in Charlotte, North Carolina, during the quarter. As of July 31, the company operated 39 company-owned branches.

The company also expanded its agent network to 51 airport locations and about 480 non-airport locations. A new airport agent location opened at Chicago O’Hare International Airport during the quarter.

Pinna said geopolitical uncertainty, inflation and ongoing wars have weighed on banknote activity across CXI’s stores, online platform and wholesale banking customers. He said inbound travel has been particularly affected, including travel from Canada to the U.S.

Still, Pinna said CXI plans to continue adding locations and agents, broaden its customer mix to include select retailers, and selectively expand international relationships with banks in certain jurisdictions.

Earnings, Expenses and Balance Sheet

Reported EBITDA was $8.1 million, down about 1% from the prior-year quarter. Adjusted EBITDA rose 3% to $8.5 million. Reported net income from continuing operations was $5.3 million, roughly unchanged from a year earlier.

Reported group net income rose 24% to $5.3 million, reflecting a $1 million loss from discontinued operations in the prior-year quarter. Adjusted group net income increased 31% to $5.6 million. Diluted earnings per share were $0.87, compared with $0.67 a year earlier, while adjusted diluted EPS increased to $0.93 from $0.68.

Operating expenses rose 11% to $14.6 million. The increase included higher bank service charges tied to payment-volume growth and the movement of payment processing away from Exchange Bank of Canada during fiscal 2025. Salary and benefits, information technology, marketing and stock-based compensation expenses also increased.

For the first nine months of fiscal 2026, revenue increased 6% to nearly $56 million. Payments revenue rose nearly 60% to $14.1 million, while banknotes revenue decreased 5%. Adjusted group net income increased 29% to almost $10 million, and adjusted diluted EPS increased to $1.66 from $1.23.

At quarter-end, CXI had $105 million in cash and cash equivalents, including about $65 million of banknotes in transit, vaults and consignment locations; $11.7 million in operating accounts; and $29 million in AAA-rated money market funds. Its $40 million revolving credit facility was undrawn.

During the first nine months, the company repurchased and canceled 241,700 common shares for $4.2 million under its normal course issuer bid.

Looking ahead, Pinna said management expects a normal seasonally stronger fourth quarter, although banknote activity could remain softer than usual because of travel conditions and geopolitical factors. He said the company was not aware of any specific development that would materially alter its typical fourth-quarter performance.

About Currency Exchange International (TSE:CXI)

Currency Exchange International is in the business of providing comprehensive foreign exchange technology and processing services for banks, credit unions, businesses, and consumers in the United States and select clients globally. Primary products and services include the exchange of foreign currencies, wire transfer payments, Global EFTs, and foreign cheque clearing. Wholesale customers are served through its proprietary FX software applications delivered on its web-based interface, www.cxifx.com ('CXIFX'), its related APIs with core banking platforms, and through personal relationship managers.

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