Good morning, ladies and gentlemen, and welcome to the Currency Exchange International Corporate Update Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time you require immediate assistance, please press star zero for an operator. Also note that this call is being recorded on February 19, 2025. At this time, I would like to turn the call over to Bill Mitoulas, Investor Relations. Please go ahead, sir.
Thank you, Sylvie. Good morning, everyone. Welcome to the Currency Exchange International Corporate Update Conference Call. With us today are President and CEO Randolph Pinna and Group CFO Gerhard Barnard. We will both discuss yesterday's press release titled, "CXI Announces Strategic Decision to Discontinue Operations of its Subsidiary Exchange Bank of Canada, Pursue Referral Agreements with Appropriate Parties, and Seek Discontinuance from the Bank Act." Following management's update and commentary, we will open up the lines 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. With that, I'll turn the call over to Gerhard. Gerhard, please go ahead.
Thank you both, and thank you for taking time to meet with us today. We wanted to take the time to ensure that you understand the rationale behind our objective to seek discontinuance under the Bank Act and pursue several referral opportunities, and to answer any questions you might have. Currency Exchange International Corporation announced its decision to cease its operations of its wholly-owned subsidiary, Exchange Bank of Canada, a federally chartered, non-deposit-taking, non-lending Canadian Schedule I bank. Following the cessation of operations, EBC intends to apply to the Minister of Finance to discontinue from the Bank Act. The voluntary discontinuance is expected to be completed in the fourth quarter of 2025, subject to receipt of all necessary regulatory approvals.
On January 7, 2025, CXI announced that a special committee of independent directors was actively considering a range of strategic options for EBC with the aim of identifying opportunities to maximize long-term value for shareholders. After the assessment of strategic options, assisted by an independent financial advisor in Foulis Financial Incorporated, CXI's board has decided to discontinue operations of its subsidiary, Exchange Bank of Canada. As part of this process, a special committee actively explored different options and supported a plan to cease EBC's operations, pursue referral agreements for both the majority of its customers and select employees to well-established Canadian financial businesses, and seek discontinuance from the Bank Act. Now, as Randolph has mentioned, this decision to seek discontinuance from the Bank Act for EBC was taken really very seriously and not made lightly, and reflects the difficult business environment in Canada.
We are optimistic that the contemplated referral agreements are the best outcome for EBC stakeholders as well as CXI shareholders. Importantly, the CXI group continues to perform well. This strategic move allows CXI to focus resources on its US operations, where we see significant growth potential with both existing and new client relations. The potential referrals of EBC's customers and employees will mutually benefit all parties and will enable a more orderly discontinuance process that will ensure CXI resources are focused on its US business. CXI's long-term outlook remains positive due to the company's focus on its growing fintech businesses in the US and anticipated additional new product growth in the US market. The company will provide further updates as the Canadian business operations are being discontinued. In connection with the cessation of operations and discontinuance, certain one-time costs will be incurred, primarily over the next six months.
These are largely driven by restructuring, vendor termination fees, severance obligations, professional fees, and other related charges. CXI expects to remain profitable during this period. During this process, EBC is committed to ensuring minimal disruption for all its stakeholders. CXI is grateful to all EBC's key members for their contributions over the years and is committed to providing support and guidance to all employees during this transition to ensure a smooth and respectful process. I will now hand it over to Randolph, and we will deal with questions.
Good morning, everybody. Thank you for taking the time to be on this call. The decision is a very tough one that the board and I had to make. We do recognize the value of our business in the United States and how our additional focus can continue to allow us to grow at the rates we've used to have been growing at. I want to comment that the Exchange Bank of Canada, some had thought, was a failure for CXI Group. In reflecting back, it actually was part of the development of CXI to the level it is today. As you recall, CXI was a money service business focused on servicing US financial institutions and money service businesses and saw the need to grow its global operations by establishing central bank relationships, such as the Federal Reserve Bank.
We're very proud of the fact that CXI was able to come into Canada and open a Schedule I bank, execute on its plan to set up relationships with central banks. That capability really elevated CXI Group on the global stage. Eight years later, as a bank, we have recognized the costs associated in the challenging market in Canada forced us to really review our different options. We considered several different options, and unfortunately, the best option we feel is to cease business in Canada and exit our business here. We have identified several parties that are well-established financial businesses here in Canada that are very likely to welcome the customer base of Exchange Bank since we are hopeful we can refer them to a new vendor, as well as welcoming a good chunk or select employees of our Canadian operations.
While this decision was difficult, it has been made, and we're very focused on our exit plan and to discontinue our operations this year so that the years ahead can remain focused on returning to solid growth for our shareholders. I will open it up for questions since we've received several emails from many people, and we appreciate your input and your focus on CXI going forward. Thank you. Operator, you can release the questions.
Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will 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. Out of consideration to other callers on the line today, we ask that you please limit yourself to one question and one follow-up. Please go ahead and press star one now if you have any questions. First, we will hear from Robin Cornwell at Catalyst Research. Please go ahead, sir.
Hi, good morning. Lots of questions, but I'll try to keep my two questions. First, what is a referral agreement? I guess, have you arranged for some of these already? Do you receive payment, or does it cost you? Just a quick overview of what we should expect.
Robin, if we had a definitive referral agreement in place, it would be announced. We anticipate that we are likely to establish one. It's not for sure. I have to provide you that cautionary statement that until it's executed, we have nothing in place, but we have had solid ongoing conversations as part of this review process. What is a referral agreement? There is no money being paid to EBC for the referral. The purpose of this referral agreement is to assist our customers in finding a replacement vendor for their foreign exchange needs. The benefit for EBC, of course, will be that we are hopeful they will take a good select number of employees, providing those employees jobs going forward.
That's the only real benefit for us, is that there is a reduction of the severance costs for employees that may not have a new work opportunity, as well as it accelerates the ceasing of business since once the new vendor takes over, this will relieve EBC of its role of servicing the current customers of EBC. Hopefully that answered your question, Robin.
Yes, thank you. My second part of the question, I guess, is in expenses and one-time provisions. Some institutions, when they're endeavoring to do what they're doing, take a one-time provision upfront, and then they allocate the expenses against that provision. The provision takes place in the next quarter, I guess, or next first quarter. Are you doing that, or it seems like you might be spreading these costs out over a period of six months? Perhaps you don't know what all the costs are yet, but is that what you're doing as opposed to an upfront one-time charge?
That's being discussed internally. Oh, sorry, Gerhard, go ahead. Yeah, the first quarter is where we intend to be able to have a better reflection on the cost for this year ahead. That is a finance question. I'll let Gerhard answer that.
Yeah. Robin, while the discontinuance of EBC might have short-term impact on our company, CXI's long-term output remains very positive due to the expected cost savings and anticipated growth in the US market. We remain committed to our core business, and we will continue to pursue the growth opportunities in this market and have a more detailed update on the financial impacts at our first quarter financial release later in March.
Okay. We can expect that in that quarter, we may see some impact on revenues and expenses going forward, or is it just the impact we are going to see in that particular quarter?
You can expect an update from us at that meeting.
Okay. Thank you. I'll reach you.
Thank you, Robin.
Next question will be from Peter Rebola at Artco Capital. Please go ahead, Peter.
Hey, guys. Yeah, difficult decision, no doubt. My question is, I guess, it would be the two-parter that we're talking about. One is, could you just give us the inputs, I guess, or the outcomes of that decision? What were the good things, the bad things, and then maybe more on the logistics of it? Please correct me and the investors. I think I understood that the bank was the function for the Fed relationship as well as for the payments relationship in the US as well. I am curious how that translates operationally if there's any issues. On the financial side, whether this releases any capital at all. Any color on those questions, you can give us an idea.
Peter, I'll answer the first one and leave the finance one for Gerhard. The first thing that a lot of people thought was that the EBC Federal Reserve relationship helped CXI with US dollars. It did not. In fact, the FIBEX program, the Foreign Bank International Cash Services Program of the Federal Reserve System, allowed Exchange Bank of Canada to be a direct distributor of US dollars globally, except for the US, since they're based, obviously, in the US. The US business had nothing to do with EBC, and EBC was prohibited from selling US dollars from the Fed back into the US. It had zero bearing on CXI's core cash business in the United States. EBC's role with the Fed was to sell dollars globally, where we did have some customers in Europe and in Central and South America. However, that had nothing to do with CXI.
As far as the payment rails, while EBC was one of CXI's payment providers, it was not the only payment provider. CXI, as with its core bank in the States, transitioned some of the business already there. As part of our exit discontinuance plan, we will be transitioning 100% of our business to banks based in the US for processing our foreign wires. We do not anticipate any impact to CXI's current business for both cash or payments on a go-forward basis. As far as the other question, I'll leave that to Gerhard.
Yeah. Peter, on the capital question, as mentioned to Robin as well, we will happily provide more details at our first quarter result meeting.
I mean, I appreciate that. I guess I'm just to hark back to the question that I always ask once a year on the calls is, you have excess cash in addition to all your cash or excess assets, what to say? Would it be fair to comment that part of the decision that led to this would be an increase in excess cash that you no longer would have to hold for the Canadian banking rules?
Peter, this was a difficult decision for us to make. As we mentioned, the discontinuance and the cessation was the first priority that the board and the advisors worked through. Yes, capital is always an important part of decisions, but it wasn't specifically taken into account in this one. We would happily share more details of the financial effects at the March first quarter meeting.
Okay. I'll let you answer my question then. I guess I'll replace my follow-up with the follow-up of, I assume it does not make sense to stay as a Canadian-listed company after you cease operations in Canada. Would that be a fair assessment to look at down the line?
I think there's many things to consider going forward, and that would be one of them in the next year.
Yeah. You got your hands full. I get it with the until the fourth quarter. That's not a pressure question, just more of an implication question. I'll jump back in with you and let somebody else ask some questions. Thanks.
Thank you.
Next question will be from Robert Vanveres at Vanetic Capital. Please go ahead, Robert.
Hi guys. Good morning. Randolph, I just wanted to follow up on your comment that EBC has no bearing on the US business, which I understand, but I'd just like to clarify. In the MD&A, you guys break out the US business and the Canadian business. I think last year, the US business generated like $21 million in EBITDA. Just to be clear, does us discontinuing EBC have any impact on that number at all?
The structure, the group structure of being an international bank group will change and revert back to being a publicly traded fintech money service business. As Gerhard just said, there are many, many moving parts. There is an impact to the US, I think overall positively. There are shared resources between the two. This year of 2025, we will be executing on our exit plan and ensuring that the group is structured and has an updated strategic plan for the three years going forward. This is the whole purpose of the board review with me, to focus on return on capital deployed and ensuring that our shareholders will see the value of owning CXI stock.
We do feel that reducing our overall group structure back to being a more nimble fintech-focused foreign exchange operator utilizing its proprietary software was the right decision. Did that answer your question?
Yeah. I mean, I suspect you guys are probably going to provide a more financial update like you've been saying in Q1. I was just curious on the specific sort of financial impacts in terms of if discontinuing EBC actually means that you earn less money in the US, though I'm not sure that it does. I'll let you guys answer that.
If you do the math, you saw we had $21 million, and then we lost money. And so we feel there will be a if we feel that it's a positive move, this decision. That was exactly why we made the decision, is to allow CXI to continue to grow without the losses that it has been experiencing in Canada. This year, of course, there will be cost in executing on this plan. In the years ahead, it should be positive.
Yep. Got it. Thanks.
Thank you. Once again, ladies and gentlemen, if you do have any questions, please press star one. Next, we will hear from Jim Byrne at Acumen Capital. Please go ahead, Jim.
Yeah. Good morning, guys. Maybe just to clarify, Randolph, about the payments business. Obviously, Canada was primarily focused on that. You are not exiting the payments business in its entirety. It is just a shift to whatever you can get done in the US. Is that fair?
Correct. Just to clarify for the audience, we have two businesses in the CXI group, CXI, which operates throughout the United States with many financial institutions. We also have Exchange Bank of Canada. Both of those businesses do payments. It is correct that CXI has used EBC as one of its primary payment rails because EBC does have connections with global correspondent banks. CXI, as I said in the previous answer, has its own rails. The payment business at CXI will continue to grow as planned. If you noticed in the last releases, you will see that the payment growth at CXI has been quite significant.
At EBC, which is a little bit of a different model, whereas CXI and the US services banks who services their corporations, here in Canada, Exchange Bank of Canada was Canada's foreign exchange bank and has had direct relationships with over 1,300 corporations throughout Canada and being their foreign exchange bank for payments. That business here is likely to be referred to another specialized payment operator here in Canada that will be able to honor the current relationships that we have with the corporates in Canada. In summary, the Canadian business, which all the revenues and hence all their costs to support those revenues in 2026, will not be a part of our financials on a go-forward basis. CXI will continue to remain focused on growing its payment business.
Without Exchange Bank, CXI will utilize its other banking partners that it has to replicate the service provided by Exchange Bank to CXI. In summary, CXI will continue to do payments with its US clients, which are almost 100% banks.
Okay. No, that's helpful. Just to, is there a chance that you could transition some of these European customers? I know some of them were banks, if I recall, to the US business out of Europe, or is that not going to happen?
CXI has its own business operations in the US that does include a few international clients. However, the current strategic plan for CXI does not have a holistic international expansion plan as Exchange Bank had with its Fed relationship. Since CXI does not have a direct Federal Reserve relationship for cash, it is unlikely to try to transition the international banks to CXI. In fact, it's being contemplated to be referred to another bank operator here in North America. However, the primary goal right now is Canada and our payment business and our banknote business and the large customer base of banknote clients we have in Canada. That is our primary focus. The international book, if you will, was not that large, and we do not see the value in trying to have those customers go to CXI at this time.
Okay. Thanks. Maybe, Gerhard, just I'm assuming going forward, EBC and the Canadian operations will be accounted for just as discontinued operations for the next few quarters here. Is that the way we should think about it? I know you're going to give an update.
You are correct. Starting in the second quarter, we will have discontinued and continued operations. In the first quarter, we will obviously have this subsequent event. You're correct.
Okay. That's great. That's it for me. Thanks.
Thank you. Next question will be from Harris Perlman at Essex E Capital. Please go ahead, Harris.
Hey. Good morning, guys. Thanks very much for holding the call. I wanted to follow up on what one of the earlier questioners asked, which is, I think, just trying to get at the question of, will the shutdown of the EBC business effectively result at the complete carve-out of all of the Canadian losses, or could there be some leakage? Because I think some companies show segment financials, and then there is a corporate overhead line item, which you do not do. You have a US and then just a Canada side. For example, Gerhard and Randolph, are your compensation costs split between the US and the Canadian segments, or are you simply on the US side? I guess this is the kind of question that a lot of shareholders are keen to answer. Thanks.
I'll let Gerhard answer financial questions.
Yeah. Harris, you are correct. We do have transfer pricing in place between the US and Canada for CXI and Exchange Bank of Canada, and it goes both ways. We will have a more detailed analysis of that stranded cost that you're referring to in our first quarter update.
Okay. Thanks very much.
Thank you.
Thank you. At this time, gentlemen, we have no other questions registered. Please proceed.
Okay. Thank you very much for your time this morning. I know some have reached out for a regular update call that we have done with shareholders. Please do reach out to Bill or Gerhard should you have a follow-up question. We can only provide what is currently in our press release. As expected, we will be providing a more wholesome financial update as part of our first quarter results. I would like to go ahead and close the meeting now and just thank you for your support and understanding of the situation.
Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.