Currency Exchange International Corp

TSX:CXI

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to the Currency Exchange International conference call to discuss the 2021 Q2 financial results. [Operator Instructions]I would now like to hand the conference over to your speaker today, Bill Mitoulas. Thank you. Please go ahead.

[Bill Mitoulas, Investor Relations Manager]

Thank you, Stephanie, and good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the second quarter ending April 31, 2021. Before we begin, please let me remind you that during the course of this conference call, Currency Exchange International's management may make forward-looking statements. These forward-looking statements are based on current expectations that are subject to risks and uncertainties and may cause actual results to differ materially from expectations. These risks are outlined in the Risk Factors section of our listing statements filed on SEDAR, and any forward-looking statements should be considered in light of these factors. Please also note that any outlook we present is as of today, and management does not undertake any obligation to revise any forward-looking statements into the future. With us on the call today are President and Chief Executive Officer, Randolph Pinna; and our Chief Financial Officer, Stephen Fitzpatrick. Stephen will begin with a brief comment on the second quarter financial results, followed by his latest perspective on the company's operations. Randolph will then comment on the bank performance, along with sales and business activity initiatives. After which, we'll open it up to your questions. 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 archived on the Currency Exchange International Investor Relations website page. With that, I'll turn the call over to Stephen. Stephen, please go ahead.

[Stephen Fitzpatrick, Chief Financial Officer]

Okay. Thanks, Bob, and thank you, everyone, for joining us today. Good morning. So I'll give you a brief overview of the results of the most recently completed quarter, our Q2 2021. And just as I usually do just as an intro, these results are presented in U.S. dollars unless we otherwise indicate. And as we've stated in the past, the core currency exchange business of CXI is typically seasonal and coincides with the peak spring and summer travel seasons in North America. However, I don't have to tell anyone that this is anything but a typical year, a typical period. Really, the last 5 quarters do not reflect that traditional seasonality. We've been significantly impacted the COVID-19 pandemic. But with that said, Q2 really represented an inflection point for the company as it was the first quarter since the COVID-19 pandemic began that we had both revenue growth in addition to revenue being higher than the comparative period in the prior year. It's small, but it is symbolic and it is a result of our successful execution against our strategic plan, which Randolph will go into in more depth in his remarks. So let's step to the Q2 performance. Revenue increased 4% on the 3 months ended April 30, 2021, to $6.6 million from $5.9 million in Q2 2021 -- or 2020. While revenue between the 2 periods is relatively consistent, the operating expenses as a percentage of revenue has improved, demonstrating progress towards the company's goal of returning to positive operating leverage. This reflects the impact of the restructuring actions that we took in 2020 to resize the business. Our banknote segment revenue decreased by 11% to $5 million, while travel-related demand remains significantly depressed from pre-pandemic levels. Some of the impacts have been mitigated by increasing our trade with international banks, principally through EBC. Despite the impact that the pandemic has had an international travel, there do remain significant volumes of banknotes that move around the globe each day, particularly in U.S. dollars. The bank is well positioned to capture some of these volumes and even a small share of that market can have a meaningful impact. The bank is in the process of identifying financial institution in other countries that may be a good fit as we seek to expand in this market. In the U.S., our retail stores have benefited from strong demand for minor currencies, and that's helped to offset some of the demand lost from travel and tourism. The company's retail footprint is smaller than it was in Q2 2020 at 35 stores compared with 46 entering the pandemic. But all the stores were closed in -- though all the stores have closed in April because of the government-imposed shutdowns in most states. While the domestic market for banknote remains below, well below pre-pandemic levels, interest in our solution from financial institutions in the U.S. continues to be strong. The company onboarded 42 new clients, representing 112 locations in Q2. And also, we've begun the integration of our CXI FX software solution with Jack Henry, which is a major software platform for the FI sector, and that will increase CXI's addressable market. We'll gain access to more than 100 institutions when that integration is completed later this year. Turning to payments. Our payments revenues increased by 115% compared to the prior year, primarily due to the Montréal-based acquisition last July and the subsequent expansion of the sales team, that's enabled us to significantly grow our client base. This segment accounted for 24% of our total revenue in Q2, up from 12% a year ago in the same quarter and 10% in Q4 2020. Our long-term strategic objective is for our 2 segments to contribute equally to our revenue. Payments as diversification. So volumes are a function of economic activity and not travel and tourism. So this helps to smooth out the effects of seasonality in banknotes stemming from tourism-driven revenue. It also provides some protection against shocks that impact travel such as what we're going through right now with the pandemic. Total operating expenses were $7.1 million in Q2 '21 compared with $7.6 million in the same quarter a year ago, a decrease of 6.5% or $0.5 million. While there were broad decreases across most expense categories, I'd like to highlight a few of them. First, salaries and benefits have declined about $0.5 million or 11% compared to Q2 2020. And while our employee base has declined by approximately 27% from the pre-pandemic peak, many of the positions that were eliminated were in our retail division, which generally have a lower average salary. Since Q2 2020, we've added employees selectively in key positions, primarily to support our growing payments segment. That includes the acquisition that took place last July as well as a new expansion in the sales force beyond that acquisition. Many of the growth roles are high-value positions that come at a higher cost, but they're directly involved in revenue generation. Another category that declined significantly was postage and shipping at 38% or $300,000. That line there is the banknote volume. However, this and other favorable variances were offset by an unfavorable variance in general -- in G&A. That category includes bank fees, which have increased the payments volumes and an exchange loss from foreign denominated balances, such as holding account that temporary holds on funds, primarily related to EBC, which has seen its functional currency with Canadian dollar strengthening relative to the U.S. dollar by approximately 10% since the beginning of the year -- fiscal year. In Q2 2020, the opposite took place, which resulted in an exchange gain and thereby exacerbating the variants that we see. We will be -- we are looking actively at mitigating these exposures by including more of those foreign denominated balances in our hedging program. They will grow as a result of our international expansion. So this is a key focus for us. I'd also like to highlight that while stock compensation costs increased in the quarter, they are consistent on a year-to-date basis. The long-term incentive program has changed for fiscal '21 to reduce the reliance on stock options in favor of RSUs and DSUs for a portion of both management and directors' compensation. We immediately had to act like stock appreciation rates and therefore, we've included them in stock-based compensation even though they will actually be funded in cash. Overall, operating expenses as a percentage of revenue has improved, demonstrating progress towards our goal of returning to positive operating leverage, as I said few minutes ago. The reduction in operating expenses combined with increase in revenue resulted in a net operating loss of $558,000 in Q2 '21 compared with $1.3 million in Q2 2020. That's a $750,000 improvement and it contributes to an improvement in our operating cash flow, which if you adjusted for lease payments, that exclude working capital changes, was negative by approximately $200,000 a month. This is a reduction from Q1 '21, which was a negative $0.5 million per month. At its peak, this burn rate was approximately $800,000 last year. So we've made steady progress. But those are us saying that we're very focused on returning to both positive cash flow and profitability. The net loss for the quarter was $925,000 compared to a net loss a year ago of $2.9 million. That improvement reflects partly the contribution of $473,000 in government grants that the bank received during the quarter as part of the wage subsidies program from the federal government. But this was partially offset by a loss of $112,000 in Q2 '21 associated with the customer that went bankrupt in 2020. This reflects a settlement that was leased with the trustee and bankruptcy around certain payments the customer made to the company in what is referred to as the preference period, which is the 90-day window prior to the declaration of bankruptcy. This settlement eliminates any further liability associated with the bankruptcy. And we are confident that we will recover somewhere between 6% and 15%, and our total paid claim on the assets are distributed, which is expected to occur in Q1 2022. It's been challenging for us to disclose very much around this because of the negotiations that are going on. I know for some of you that are listening, that was a concern, that we weren't saying enough. But that negotiation is now complete and, thus, looking at our statements now reflects the full situation. And the only variable now is how much we will recover once the bankruptcy is finished and the proceeds are distributed. In addition, the company recorded a $102,000 additional impairment charge associated with the lease of one of the stores that we closed in 2020. The landlord has claimed that the company is obliged to pay for a renewal option. And while we're still negotiating, we've recorded the full liability out of prudence. The net loss equates to a net loss per share of $0.14, an improvement from $0.27 in Q1 2021 and $0.43 in Q2 2020. Turning to the balance sheet. Although CXI incurred a loss that's reduced our retained earnings, we continued to maintain a strong balance sheet with $57 million in equity at April 30. Working capital was $46.7 million, with unrestricted cash balances of $53.5 million. Liquidity is strong, that is evident. And unrestricted cash comprises 67% of our assets. We are underleveraged, but only $100,000 of our available lines of credit we used at quarter end. So $31 million unused. The company has $2.5 million in income taxes receivable at April 30. That relates to our 2020 fiscal year. We're in the process of filing our tax returns, but one of the features of that is carrying back the losses from fiscal year 2020 to previous years in the U.S. Usually, that's not permitted, but the onetime provision in the CARES Act allows companies to do that for fiscal 2020. So in conclusion, Q2 performance was largely in line with our expectations that provides some assurance around what may happen in the future. Most importantly, there's a stabilization in the business, and it demonstrates the benefit and progress made from the resizing last year. We're taking a cautious view as to future revenue growth in the banknote segment, but we're certainly encouraged by early indicators that the mass vaccination programs are proving effective. The recent announcement of the European Union is reopening its borders to travelers that are fully vaccinated has provided a lift to -- in the airline industry. And obviously, that's a source of travel and currency purchases. In addition, it's been reported that the Canadian and U.S. governments are in discussions around developing a plan to reopen the borders. But by all accounts, we expect it to occur sometime this summer. So while present and future variants of the coronavirus continue to pose risks and the road ahead will undoubtedly have twists and turns, these signs are positive, and they indicate a tangible recovery in the travel and tourism internationally as foreseeable. While we remain confident that we will return to profitability, our objective is to ensure the long-term sustainability of the company, building diversification, scale and resiliency. Let's put this in mind that we continue to invest in the initiatives that support our strategic plan. These results in this quarter are evidence that the strategy is working. At this time, I'll turn the call over to Randolph.

[Randolph W. Pinna, CEO, President & Director]

Thank you, Stephen, and good morning, everybody. I'm calling you today from the head office of CXI here in Orlando, Florida. And I too share the same optimism that Stephen has laid out, that we see even in today, I think in Ontario, there's -- the patios are now open. We're seeing signs all around that the businesses are being able to return to some sort of new normal. I usually start with exchange banks, so I'll do it again. The strategy at Exchange Bank, as you know, is to diversify our revenue streams from just banknote activity to also include payments. Payments include check processing, spot transactions and forward transactions. First, I want to start with the banknote activity. Unfortunately, all of our great customers that we've had for years and years in Canada continue to be way off, over 80% down from previous levels. That's because the Canadian government has kept a very tight lid on travel and prohibiting incoming international flights and really discouraging any outgoing flights. So the domestic international travel market in Canada continues to be down. Although we are starting to see signs of improvement because of the vaccinations, a lot of the Canadians at least have had one shot, and so we're seeing some advanced purchases of currency. And so we are seeing some interest in new travel activity, and we are optimistic that, that will return to some sort of higher level over the next months ahead. On banknotes though, where we are seeing a lot of activity is internationally. As you may know, the bank has a few clients in some FATF countries that have been trading U.S. dollars, Canadian dollars, some other currencies that they need. While their -- internationally, travel has been down around the world, these are new markets. So even their lower volumes for the bank is new revenues. And we continuing to see demand there. And we are building a new robust plan to expand and accept international banks in select countries that have a need for foreign currency. As you know, we've been working to expand this by establishing a relationship with a major central bank. We are continuing to work on that, and we're very optimistic that, that should come to fruition. Even still, we are able to sell Canadian, U.S., pesos and other currencies as needed. Moving over to payments. It's really where our focus has been. We invested. We acquired a company. We've been advertising and luckily, we've been getting some very good people to come join the bank. And so our payments business continues to grow and we see a lot of opportunity there. And as corporations, small to midsize businesses, look for a specialist wholesale bank to provide good quality customer-first focus while giving fair exchange rates and support. We will see that this business will continue to grow. Our leader of this -- of all the sales for Canada, our Senior Vice President, James Devenish has done a great job leading the team, building the infrastructure, looking at improvements in software so that we can continue to provide good quality, what we call 360 service, full service focusing on the customers' needs. So moving over to CXI. We -- as you know, we have a consumer division, I'll start there, and that's primarily banknote activity. Our online FX store has continued to see significant growth. As you may know that a major competitor in our space has ceased operations in the Americas, closing their both their wholesale and retail activities in Canada, the U.S. and South and Central America. Their online store was the #1 store in the U.S. Our online store now is a leading online presence for selling foreign currency. I'm proud to say that we now can deliver currency to 27 different states. We have 3 more state license applications in the works. Therefore, we will continue to see a positive profitable growth in that division. Another way of expanding the consumer division has been through our agent locations, through partnerships. We announced a year or 2 ago about our relationship with Duty Free Americas. We are continuing to try to expand that relationship. They have stores down on the Mexican border and that is of interest right now as well. We anxiously await for the border to reopen on the Northern border because that customer has had previously done a lot of activity. We have established some new agent relationships that will see us going into high-volume locations, maybe even select airport locations. Again, the beauty of the agent relationship is that while we provide the money, the brand, the licensing and most importantly the software, the agent provides the staff and they pay the rent. So, therefore, it is a win-win-win situation, where we have variabilized the opportunity in these retail settings where we don't have the risk associated with the rent and payroll should a downturn occur due to a virus again. The main part of our strategy has been what we call OPAP, One Platform One Provider. What this is, is where we're integrating with core systems of our customer banks. You know about the Fiserv relationship, that continues to be a profitable relationship. You've heard of our Jack Henry, Stephen just mentioned that, that integration is underway. We also have another major core software provider that we are in final stages of entering into agreement to continue our API integrations into the core. By integrating to the core, it allows the bank, which is a CXI customer to be on one platform but get all the benefits of the CEIFX system. So therefore, they can do one transaction, does the debits, credits all straight through using the API. It eliminates a lot of back-office work and most importantly, it is a seamless process that allows banks to now switch their payment activity, their wires to us by utilizing their core wire platform, which is integrated into the CEIFX system. We will see continued growth in that area, which will benefit both not only banknotes but also again, payments. Lastly, we are, just like the Exchange Bank -- internationally. Our Miami office has just in the last few months accepted a few very well-known banks in the Caribbean. And we are getting new activity our Caribbean expansion, and we are looking selectively at other banks that would want to do business with CXI in Miami. So with that being said, I want to just, again, thank everybody for their patience and understanding during this crazy time. I want to thank the employees and the entire team at CXI because we've done a lot of work through this pandemic. It's actually been some of the hardest work we've done probably in my career, getting the business and our customers back in order so that we can take advantage of what we think will be a positive rebound out of this pandemic. So with that being said, I would like to open up the floor to any questions for Stephen and I.

[Operator]

[Operator Instructions] Your first question comes from the line of Robin Cornwell with Catalyst Research.

[Robin Cornwell, President and Founder]

It's -- that was a very good quarter. Your revenues were well above my expectations, but then that was a COVID forecast, just like yours is probably as well. But I'm really quite curious, Randolph, that they were very encouraging. And 2 parts to the question, I guess. One is, was it surprising to you how active the quarter was? In -- sorry, in banknotes, specifically.

[Randolph W. Pinna, CEO, President & Director]

Was it surprising? It was refreshing to see how Mexico, Costa Rica, the Dominican Republic would be the 3 currencies that we've always traded before, but they were actually at the top beating the euro, which used to be our #1 exchange. So the fact that those countries had opened early, and I can confirm when I fly through the airports already, the #1 destination is Mexico. And so that was refreshing to see that there is -- it's an indication to me that there's a big pent-up demand to return to international travel. And the first place that most of the Americans have been going is to those warm spots like in Mexico or Costa Rica. So that was nice. I'm not sure if that's what the question you were asking, but that's what I -- what was surprising to me is the high amount of focused international travel.

[Robin Cornwell, President and Founder]

Well, that's exactly what I was thinking. And the -- I guess the second part of the question is, from your perspective, because you're located in Florida and Florida's been out of restrictions for a lot longer than we have. We're very...

[Randolph W. Pinna, CEO, President & Director]

Definitely, yes. Yes. Yes.

[Robin Cornwell, President and Founder]

So you probably have a different perspective of what it looks like for Americans traveling. I know they're starting to travel to the Caribbean and Mexico, like you're saying, what about overall travel like Europe, things like that? What is your sense of what Americans are doing?

[Randolph W. Pinna, CEO, President & Director]

Well, there has been an increase in activity because of my personal family life. You may know that I traveled to Europe probably every month. I am a dual citizen. So I've never been on a restriction because of that. And I can tell you on my last flight, the plane was about 70% full, whereas just 4 months ago, the plane would have literally, you can count 25 or 30 people on the whole plane. So I've noticed already an increase in international travel. It had been loosening up over the last few months. Again, I've seen it in the last few months significantly increased, are the planes full? No. But domestically, they are. In Europe, my connecting flight from Amsterdam to Germany was completely full, 100%. And they're not doing middle -- holding middle seats or anything, they're at full capacity. So I am optimistic. And again, it could be tainted because I am here in Florida where you don't even need a mask anymore to go to the grocery store. But I do see that. And we're seeing it in the stores and our bank branches, that there are an increase now of people buying for summer trips. So schools are just letting out right now in the states. And so we have optimism for a good summer, but we don't know. It is still under restriction in Canada. It's still locked down. I know the patio has just opened, but it's still -- you're still -- Canada is still about 4, 5 months away from where we are now, but we're hopeful that next month, they will open the order and that should start -- really kick start the international travel.

[Robin Cornwell, President and Founder]

I know this is a little bit forward, but the -- you're trying to get into 1.5 months of your next quarter. Has activity continued in the banknote payments? Has it continued to increase a little bit?

[Randolph W. Pinna, CEO, President & Director]

Again, we try not to give any guidance, but I had just said that we are seeing some advanced orders for expected summer travel. So yes, I'm optimistic that this -- the third quarter, which always is anyways our strongest quarter, we'll continue that normal trend of being probably -- hopefully, the fourth will even be better, but I'm confident our third quarter will be a strong third quarter as it always historically has, stronger than it was.

[Robin Cornwell, President and Founder]

The other question I had was seasonality. Have you seen any seasonality in the payments business? Or has that just been pretty continuous climb?

[Randolph W. Pinna, CEO, President & Director]

Well, our payment business, and in fact, we've really started trying to get a more analytical approach in looking at what industries that we're servicing and mapping that out, it's relatively young for our team to really understand any specific seasonality. But typically, the payment streams are pretty smooth because these are businesses that are importing, exporting buying product or something to be part of their manufacturing or they may manufacture something then they sell it internationally. And so we don't see the lumpiness like you would see in the banknote activity. In the payments business, like we bought the acquisition we did, there are some customers that are way off because they were importing, let's call it, wines or something for restaurants and that business fell way down, but some of the customers were in manufacturing of like gloves or masks or anything like that, that business is double than what we expected. So on a net-net, the acquisition ended up being a little above where we thought it would be. So we're very pleased with it, and it reinforces the fact that these monthly payments are regular business activity payments. And that's why very focused and doubled down on growing that business, both in the U.S. and Canada. And so we are, as I said, we've really tightened the belt as best we can to become efficient, but we are hiring in select areas to fulfill our strategic plan, and it is working. So we are running an ad right now, in fact, looking for some more people that would ideally start in our fourth quarter because we're not out of the woods yet. So we're trying to lay the groundwork for a very, very strong 2022. And we are executing on that plan.

[Robin Cornwell, President and Founder]

Okay. And finally, I think in the last conference call, we discussed that some of the locations in the U.S. were permanently closed. Some of the bank had closed their branches. Has that kind of leveled off or ended?

[Randolph W. Pinna, CEO, President & Director]

I would think so. We are seeing banks buying other banks and merging. So when that happens, typically, there's -- again, you might see some branches getting closed. However, for us right now, we're actually seeing more activity because we're adding new bank customers and we're seeing some of the bank branches that were temporarily closed reopening. And so we're seeing that both in Canada as well as in the U.S., that some of our clients that went dormant are now starting to wake up. And so I think it's -- on a net, it's probably smoothed out. The downturn, we had one major bank that went from 1,200 branches across the country down to less than 800, but they're done. So that's the amount of cutting they've done. And so you might see a little bit here or there, but we expect our transacting locations numbers to continue through, again, new customer bank locations as well as we've really identified some great agent locations that were anxious to get open. And so you'll see us have a wider net and nice -- what's really nice is the big competitor that was always across the way or in the airports is no longer there. So we are now the #1 bank provider, wholesaler and consumer provider in the United States.

[Operator]

[Operator Instructions] Your next question comes from the line of Peter Rabover with Artko.

[Peter Rabover]

Randolph, congratulations on a nice quarter. I was -- so I might have missed the first few minutes. So first question is, what was the growth in payments and how was that going on? I guess the bigger question is, I was wondering if you could take us through a typical, I guess, transaction, how the revenue is recognized on the payment side. Just to kind of give the investors an idea of what that business looks like. And I'd appreciate that.

[Randolph W. Pinna, CEO, President & Director]

Yes. Okay. So I'll let Stephen speak to the specific number, the percent, I forget the percentage, it is quite nice, but walking you through a payment transaction. So we have 2 payment types of transaction, CXI typically gets its payments from banks. So that's a little bit of a different workflow than at Exchange Bank. I'll start at Exchange Bank just because that is really fueling the highest amount of growth. And so Exchange Bank establishes a relationship with a corporation typically in areas where our strongest presence is, in Ontario and Quebec. So let's say, in Quebec since that's where our payments -- the bulk of our payment scheme is based in Montréal. And so they established a relationship with a business that's based locally. However, sources materials for manufacturing or something like that. So they have to make a payment there. So how does the actual money flow is if it's a spot transaction, we will debit their account and then we credit the -- where they're paying the money to. The profit is generated between that buy and the sales. So we will source those currencies from our correspondent bank, a major either a New York bank or a Toronto Bank or it could even be some -- one of our other relationships. But typically, it's done that way where we buy at a lower price, sell that currency at the higher price and book that spread right now. We do offer forwards, which means this person knows in 3 months that they're getting their materials from overseas. And so they would like to lock in on the exchange rate today because they've already built that into their pricing model to build the product that they're selling. And so they want to lock in that exchange rate, so they know their guaranteeing their margin. And then -- so we wouldn't book that profit now, and that's the beauty is we can see our future revenue growing because that forward when the profit has actually -- hits the income statement on the third month, when they're actually doing the trade and we're settling that forward contract that they entered into. And again, it's done the same way. Sometimes, we will actually have margin on that. So they'll have prepaid some of that amount that they're getting in 3 months. But again, we booked the revenues at the date the day the transaction really settles. So they pay us for the full amount, we wire the money, the transaction is complete, the profit is generated. At Exchange Bank, it's -- I mean, sorry, at CXI, it's pretty much the same thing except that our customer is the bank. The customer is the business. So they do the same thing. The only difference is that we book everything up front. We don't do forwards too much in the U.S. yet. We've been doing just spot transaction. I mean we are the wire processor of the banks. So the bank would debit the corporation's account, credit CXI's account, CXI, same thing, goes into the international -- interbank market, buys the currencies we need to wire and wires them out. And then we book that revenue straight away. So hopefully, Stephen will agree. I explained that clearly enough and decent enough for the people on the call. Peter, did that answer your question? And now let me speak to the physical like how much we're up in payments and stuff like that. But as far as how does the money flow, that's the way it works.

[Peter Rabover]

Yes, yes, that was great. I really appreciate you giving us the detail.

[Stephen Fitzpatrick, Chief Financial Officer]

To answer your question about growth, the revenues were up 115% compared to the same quarter. A year ago in the first quarter, they were up 82% over the same quarter. So -- and that's reflective, that difference between 115% and 82% is reflected in hiring salespeople and leveraging their skills. So it's a nice business for us.

[Peter Rabover]

Yes. That's great. I think in your press release, you guys said your -- you have the capacity to add 20 -- onboard 20 to 30 new customers a month. Do you guys have like a per customer revenue number that you could share or something that you're targeting or that's been going on? Just wonder if you could give, I guess, the investors in the market something to think about.

[Stephen Fitzpatrick, Chief Financial Officer]

We don't really have that metric, to be honest. The payment clients, they range. And there are some that are gaining business every day and work there every day and some that are transacting once every month or 2. So it's, on average, doesn't tell you very much, to be honest to you there. We aim for higher-volume clients, but there are -- our salespeople are in the market. They know a lot of these clients, have dealt with them before. And so it's more around making sure that whatever we do is profitable and then it's priced properly. So we have controls in place around that, but we don't look at it as much on a per customer basis.

[Randolph W. Pinna, CEO, President & Director]

Okay. That's great. But Peter, we do both the head of sales in the U.S. and the head of sales Canada, we do an annual review of our entire customer list and shed all the ones that are on the low end. We do have a revenue -- an annual revenue expectation for clients so that -- because keeping a client, there's cost to servicing a client on our books. And then it's by customer type, right? So our money service business has the highest cost because they're deemed a high-risk customer. And so we have to do enhanced due diligence, enhanced monitoring of that. And so we saw ourselves close 7 clients in the last year, and I know because of the pandemic, it might have seemed unfair. But we -- when -- if a client is so marginal, we always offer to keep the service, but they have to pay a monthly fee to remain having access to our software. And some clients are paying that fee and some have gone dormant and they can always reapply. But we do, do an annual sweep of our customer base to confirm that they're profitable, and that's the key, but they do vary as Stephen says.

[Peter Rabover]

Great. What percentage of the payments revenue would you say those recurring fees are?

[Stephen Fitzpatrick, Chief Financial Officer]

The fees, there's -- most customers don't need to pay a monthly service fee because their activity is profitable. But it's a small percentage. I would -- I could probably say there's a dozen or maybe a little more that are paying a fee just to keep their account open. Again, we would either close a client or they're going to trade enough activity with us that it makes sense that they don't have to have a monthly fee.

[Peter Rabover]

Okay. Great. Sorry, I'm just going to keep monopolizing the time a little bit, I apologize. But -- so maybe on the cost side of the payments business, could you -- I know you guys had invested a lot of time and effort and into building out this business. It's great. Obviously, you're growing 115% a quarter, so it's obviously paying off. I'm just curious where -- are there -- has the bulk of the expenses of the investment in that business that's been done and it's more of a harvesting the -- I guess, the growth now or the profits? Or is there -- or are we still kind of in the middle of innings of spend on that side of the business?

[Randolph W. Pinna, CEO, President & Director]

So that's a good question. And the majority of the heavy lifting or costs associated to the infrastructure has been spent. We've refocused our strategy to share the rewards of our customers' revenues with the salespeople. So they're on a higher commission, on a lower base. So that allows for a good -- we're aligned that way. And so that's good. You will see a little more cost. As I said, James Devenish identified a software improvement that will cost some money. We're actually putting most of -- hopefully, most of that cost into '22, but it is going to increase productivity amongst the sales team by at least 25% or so, we expect. And so we'd be able to get more out of each of our relationship bankers. So you will see a bit more investment. We continue to focus on straight-through process where we have that statistic of STP, trying to get everything straight through the less manual steps, the better. So you will continue to see us improve our system, but the majority of our investment has been done. And so we will see more profitability from payments. And the nicest thing, unlike banknotes where you have to have a dual control in the vault, so you have shipping costs that as our banknotes rebound, you'll see our shipping costs go back up again and unfortunately, the shipping providers like FedEx are continuing to annually increase their prices. And so you will see those costs. In payments, you do have dual control between the front office and the back office. However, it is a lot cheaper. So the efficiency, the profitability of a payment transaction, more of the revenue goes to the bottom line, whereas in banknotes at least half of the revenue goes towards the cost of ensuring that, shipping that and processing the cash. So the cost for payments is much more favorable and another reason why we have doubled down on our diversification of our revenue streams. At Exchange Bank, the payment costs are with the integrations. The most expensive integration was with Fiserv where we literally had what I call the quarter-of-a-million-dollar cover charge just to get into their development sandbox, to integrate with them, whereas the Jack Henry relationship was much cheaper. And we, in southern one, it's all about the API. And now that we've built our APIs before, it's a lot cheaper to do the next integration. And so we have 2 that we're working on. Jack Henry is already well underway, the second one is about to start and we actually have a third one lined up for '22. And this is a part of our strategic plan of what we call OPAP, which is where we're integrating to other software systems where there's flows of activity, we tie into utilizing our API.

[Operator]

[Operator Instructions] Your next question is from Jordan Steiner with LionGuard Capital.

[Jordan Steiner]

I'm just wondering if you could comment a little. I know you don't give forward guidance, but for the quarter that ended, cash burn, much improved, $200,000 a month. What was the cadence of that? Did it start off closer in February to $500,000 a month level and then improved to the point where we're almost flat in April?

[Stephen Fitzpatrick, Chief Financial Officer]

Yes. Yes. February was more or less a continuation of what we had seen in the first quarter. And in March, as we went through the quarter, it improved. It averaged down at the $200,000 in the quarter.

[Jordan Steiner]

So I guess, what you're saying it did not. Sorry, sorry.

[Randolph W. Pinna, CEO, President & Director]

No, no. I think February is always our worst month because we make money on what we call trading days. You pay your monthly rent, everything is a month, you have a full month and you have less trading days in February. So historically, February is always a bad month, anyways, not a bad month, but it's a lesser-revenue month. So sorry, go ahead.

[Jordan Steiner]

Yes. So at the AGM, you mentioned spring break felt like the first time things were getting slightly back to normal, starting to travel in the U.S. Did it just continue to normalize from there back to life pre-COVID or moving in that direction?

[Randolph W. Pinna, CEO, President & Director]

Yes. It definitely feels that way. Let's put it this way. You don't need to wear mask anymore when you go to Universal Studios. So the door has been wide open. We're actually in high season here. Hotels were -- over our Memorial Day weekend, this last thing where we literally saw no vacancy signs at many hotels. And so -- unfortunately, most of these people are from New York, Connecticut, Texas and all these other places, but there were some Canadians, there were some Brits because they own homes in Florida. So we are -- we definitely -- sitting here in Florida, I see I have some optimism that the trend will continue as it normally does. Spring break, you normally would kick off and you get busier, busier, busier all the way to the peak summer season, which is early July and August. And it tapers back down because the kids go back to school and so forth. So our fingers are crossed as my kids would say.

[Jordan Steiner]

Okay. That's Promising. I was just wondering if you could comment on -- a little bit on the agent locations, specifically with the airports, how that opportunity is evolving.

[Randolph W. Pinna, CEO, President & Director]

Well, all the airports -- so the world's largest airport operator was Travelex. And I don't know if they still are. So Travelex is not dead as a company. Their bondholders took over and reorganized the business and put more capital in it keep it afloat, but they -- it was under the mandate that they exit the Americas because that was an area that they were less profitable than their Euro and Asia divisions. So they left, they were in almost every airport. The only other airport operator is our customer. And they are active in picking up 1 or 2 more airports. And then the people that were running those airports for that company that went out of business, they are keen on being our agent and reopening those airports. And so we already have, for example, we got Chicago O'Hare and Chicago Midway Airport through an agent relationship there, and there's some -- we are -- that haven't happened. And because there's negotiation going on as we speak, I'm a little hesitant to announce all the things that we think are going to be open for this summer. But we do -- I can confirm that we are very focused on our growing our agent relationships, and we -- our pipeline is quite attractive.

[Jordan Steiner]

Sounds good. And then I guess just finally, the banknote cost savings we've been looking for from the direct relationship with the central bank, how are those discussions going?

[Randolph W. Pinna, CEO, President & Director]

Very good. I'm very optimistic there. We're not -- the final paper or anything hasn't been signed or anything, but we are definitely in the final steps of this process. And this relationship and what's really exciting about it is that it will immediately reduce our sourcing costs. And on an annualized basis, that could be, with the volumes even during the pandemic, as if looking over the last year, we still do a lot of U.S. dollar-CAD, the U.S. dollar-peso and so this will lower our sourcing costs on existing flows. And we are accepting a few more well-known banks internationally currently if they're in the Eurozone. And so we will see new revenues so we're very excited about that. In one of -- the focus is one of the key -- and it was in the original application when the Bank of Canada was being formed, that establishing 1 or 2 key central bank relationships is a long-term strategic benefit. And so we're very optimistic that our work will pay off.

[Jordan Steiner]

Okay. And I guess just finally, on the M&A environment, now that it sounds like our cash burn is pretty much behind us, hopefully, we can be a little more aggressive with the excess cash on the balance sheet. So any thoughts, any views of going to work and doing more deals like the one you get in Montréal offer?

[Randolph W. Pinna, CEO, President & Director]

We absolutely -- our strategic plan does include -- it's always on Stephen and in my mind -- of opportunities that are accretive that would allow us to add new revenues and not only revenues as we saw with the team we've got in Montréal. We've brought a great team of people. They're very strong. They've really helped our growth. And So there's -- that's absolutely of interest. Is there an imminent transaction? No, but I can confirm that we are in discussions, that there are opportunities that exist. And we're not looking to do a transformational buying a company our size or bigger, but these little smaller tuck-ins are very comfortable and we've got experience now. We've done -- we did eZforex, and then we did one in Montréal. So we've done a few in the last couple of years and would be very happy if we can find another team to add and work with to grow our network.

[Operator]

[Operator Instructions] There are no additional questions at this time.

[Stephen Fitzpatrick, Chief Financial Officer]

Okay. Thank you, Karen. We did have one question that was asked via e-mail prior to the meeting. And so in the interest of answering the question for the broader group, I will. The question revolves around the new line of credit that we have with a private lender. And it was really around the pricing on that and whether it was market-driven. Yes, it was. This is a subordinated debt facility in the bank. So there are lenders ahead of this lender. And so the rate that we negotiated, we were talking to others at the same time. So we know at the market that the rate was competitive.

[Randolph W. Pinna, CEO, President & Director]

That's correct. If no other questions, I just want to thank everybody again your support of CXI, for your time today to hear us out. As always, if something comes afterwards, if it's a question where we can answer or know the answer, please let Bill, Stephen or I know, and we're happy to talk to you as best we can. So thank you again and have a good weekend.

[Operator]

Thank you. This concludes today's conference call. You may now disconnect. Speakers, please hold the line.