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Good day, and thank you for standing by. Welcome to the Currency Exchange International Fourth Quarter and 2021 Fiscal Year-End Financial Results Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Bill Mitoulas. Thank you. Please go ahead.
Thank you, Stephanie. Good morning, everyone. Welcome to the Currency Exchange International financial results conference call to discuss the fourth quarter and fiscal year ended October 31, 2021. Thank you all for joining us.With us today are President and CEO, Randolph Pinna; and Interim Chief Financial Officer, Alan Stratton. Alan will begin with a brief comment on the fourth quarter and fiscal year-end financial results, followed by his latest perspective on the company's operations. Randolph will then comment on CXI and Exchange Bank of Canada, the company sales initiatives and business activities, after which we'll open it up to your questions. Today's conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who 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 actual results could differ materially. Please refer to our financial statements and MD&A reports for more information about these factors that could cause these different results and the assumptions that we have made.With that, I'll turn the call over to Alan. Alan, please go ahead.
Thank you, Bill, and thank you, everyone, for joining today's call. Our annual results are an opportunity to reflect on the year just passed. 2021 was a transitional year for CXI. The challenges posed by the COVID-19 pandemic only served to strengthen our resolve to execute against the strategic plan. We undertook to accelerate our corporate payments segment after the early success stemming from the acquisition on July 29, 2020, in Montreal.In the banknote segment, we grew our business with international financial institutions that enabled us to further penetrate high-volume markets. The key strategic objective was accomplished in Q4 when Exchange Bank of Canada began to transact with the Federal Reserve Bank of New York under their foreign bank international cash services program. We believe that being part of this program will enable the bank to cultivate many more international relationships as there are a few options for foreign financial institutions to buy and sell US dollar banknotes in bulk, especially in mint condition.In the US market, CXI has been actively onboarding new clients at a steady pace all year from both domestic and international financial institutions as well as an expansion of its consumer division with a focus on agent relationships.I will begin with an overview of the results of the most recently completed quarter Q4 2021 and then discuss our performance for the full year. These results are presented in US dollars unless otherwise noted. As we have stated in the past, the currency exchange business has been significantly impacted by the COVID-19 pandemic. That said, Q4 demonstrated further progression towards a return to profitability. It marked the second quarter that we generated positive operating leverage and the third quarter of positive operating cash flow, excluding the effect of changes in working capital. While this is partly due to an improvement in demand related to international travel, it is also reflective of our persistent focus on driving growth through consolidation and diversification.Revenue more than doubled in the 3 months ended October 31, 2021, to $9.9 million from $4.9 million in Q4 2020. That improvement reflects the gradual recovery in international travel over the course of the past year as the vaccines allowed many countries to relax travel restrictions. What is also important, though, is that the company generated 15% revenue growth in Q4 2021 over Q3 2021. And the reason this is noteworthy is because prior to the pandemic, the company was subject to the effects of seasonality as most revenue was derived from consumer demand for foreign currencies tied to international travel patterns. In Q4 2019, for example, the last comparative prior period -- prior to the pandemic, we experienced negative growth of 9% from Q3 2019. Thus, the fact that the company has generated sequential growth during periods that have traditionally seen declines is a positive indicator for the company. Notwithstanding that, Q4 2021 was still 13% below Q3 2019. So we have not yet recovered to pre-pandemic revenue levels.The banknote segment represents the majority of our revenue, accounting for 79% share in Q4 2021 on a slight increase from 78% in Q4 2020. Our banknote revenue increased by 104% though to $7.9 million in Q4 2021 versus $3.9 million in Q4 2020. [Indiscernible] was equally split across our direct-to-consumer and wholesale divisions. It reflects not only the increase in consumer demand, but also the fact that in the US, the company has added 676 new clients in the financial Institution segment since the end of 2020. We have had a consistently strong pipeline of new clients that we've onboarded throughout the year. In addition, we are growing our network of agent relationships with new locations that have opened in high-traffic locations, such as John F. Kennedy Airport and Newark International Airport in the busy New York City area.We like the agency model because there is little cost commitment. We are not responsible for the staffing and daily operational aspects that we are the sole supplier for their currency. In many locations, we license our name, which increases our brand awareness with consumers. This also helps in marketing our online platform in which we sell foreign currencies direct to consumers. On October 31, 2021, we were licensed in 31 states for this platform. And as of today, we are up to 36. Our direct-to-consumer channel has benefited from stronger demand for certain exotic currencies, which we also offer through our online store. As those currencies have been trending back towards historical levels of demand, we have seen offsetting growth in currencies related to travel, including the euro and Mexican peso. The peso has been a strong currency for us all year as Mexico welcomed tourists through much of the pandemic where most countries had implemented restrictions.At our subsidiaries, Exchange Bank of Canada, the lagging recovery in consumer demand finally gained traction in the summer as the Canadian government began relaxing its highly restrictive measures that greatly curtailed international mobility. In a choreograph sequencing, the government started with the removal of the 14-day quarantine requirement for vaccinated Canadians returning to Canada in July. This was followed in August by reopening its land border to vaccinated Americans and then in September allowing vaccinated foreign nationals to enter Canada. While all travelers were and still are required to have a negative COVID-19 test prior to entering, there was a noticeable increase in demand throughout the quarter. However, the bank also had a second driver for growth in the quarter as it began transacting under the aforementioned foreign bank international cash services program. That has spurred an increase in US dollar banknote volumes with its international financial institution clients, including 1 new client in the quarter.While these transactions tend to have lower margins, the volumes are very high. We have started out slowly under the program to ensure that we have all the operational aspects worked out. But this relationship is a key competitive advantage for the bank that we anticipate will enable it to introduce its penetration in the global banknote trade in the future.Turning to our payments segment, it's revenue increased 93% to $2.1 million from $1.1 million in Q4 of 2020. It was July 29 of last year when we completed our Montreal [ Beast ] acquisition, which catalyzed a significant period of expansion. The bank hired several additional relationship managers over the course of 2021 that combined with the acquisition has enabled us to build a portfolio of 700 active trading clients at the end of the fiscal year. Exchange Bank in Canada presents a unique value proposition to small and medium-sized businesses that want the expertise and service they can get from experienced relationship manager. Many of them appreciate the security of dealing with the bank, but without the complicated structure and IPs.We are pleased with the growth in this segment and in the acquisition that we completed in 2020, which has exceeded our expectations. Payments revenue is driven by import and export activity. And as such, it suffers much less from seasonality than travel, but it isn't immune to fluctuations. Some of our customers have experienced delays caused by the supply chain disruptions, for example.While overall revenue grew by 102%. total operating costs rose 36% to $9.2 million in Q4 2021 compared with $6.8 million in Q4 2020. Variable expenses accounted for approximately 56% of that increase primarily as a result of the higher volumes. These include postage and shipping, bank fees, commissions expense and third-party technology fees. However, the postage and shipping fees were unusually high as a result of settling a matterr with an international client related to shipments in prior periods that amounted to $162,000. Normalizing for that adjustment, the increase is in line with the increase in transactional volume.Other operating costs accounted for the remaining $1 million in expense growth and about three quarters of that was attributable to salaries and benefits. $545,000 was the result of variable compensation recognized in the quarter as a result of the company achieving a significantly improved financial result for the year. There was very little variable compensation recorded in 2020 due to the poor financial performance. While the overall headcount has remained fairly flat to the prior year at 262, the company has added some positions to support strategic initiatives, including in the payments segment. In addition, the company has experienced some inflationary pressures with entry-level positions, particularly in the direct-to-consumer division.Almost all operating expense lines experienced growth over Q4 2020 as business activity continued to recover. The areas that declined from the prior year were primarily rent expense and other general administrative. This was primarily due to the permanent closure of the 12 retail locations and certain office space in Orlando and Toronto that was being surplus at October 31, 2020. The company did enter into an agreement to sublet its office space -- surplus office place in Toronto and commenced in Q4 of this year -- this past year. Generally speaking, most of our expense line items are in line with expectations. There have been some cost pressures in certain areas such as insurance expense or D&O liability premiums, in particular, increased significantly upon renewal for the second year in a row due to reduced competition to underwrite the risk following pandemic.While still positive, the operating margin of 8% is lower than the 12% we achieved in Q3 2021, but it was impacted by the variable compensation and shipping cost adjustments recognized in Q4. While it didn't impact the operating expenses, there was a significant benefit that the company recognized in the quarter. It was $3.4 million recognized for a grant in the United States that is called the Employee Retention Credit or ERC. The genesis for this credit was in the Coronavirus Aid Relief and Economic Security Act that was passed by Congress in 2020. Subject to certain limits, it provides a subsidy for the qualifying wages and healthcare costs for companies that need a gross receipts test, essentially tied to a substantial reduction in revenue as a result of the pandemic. CXI engaged external tax specialists who determined that the company did meet the criteria to be eligible for the grants. Aside from a nominal amount that relates to fiscal 2020, substantially all of the benefit recognized relates to periods in fiscal 2021. That amount is included in other receivables at October 31, 2021. And normalizing for this grant income, the company's EBITDA would have been about $770,000 in Q4 2021 versus negative $1.5 million in Q4 2020.The results translated to a net income for the quarter ending October 31, 2021, of $1.6 million compared to a net loss of $3.5 million in Q4 2020. That performance equates to $0.25 per share versus a 54% share loss in Q4 2020. For the year, revenue increased 21% to $30.3 million from $25 million. Banknotes grew 6% to $22.9 million from $21.6 million in the prior year. Considering the fiscal 2020 included almost 4.5 months of prepandemic revenue makes it difficult to do a year-over-year comparison. A clearer picture emerges when looking at the trended performance since the nadir of the pandemic, Q3 2020, when revenue bottomed at $3.9 million as the international travel declined to approximately 85% or 90% from pre-pandemic levels or by 85% to 90%, as that was a period during the lockdowns.Since then, the company has progressively grown its revenue through a combination of strategic initiatives, coupled with the gradual recovery in international travel. According to the International Civil Aviation Organization, 2021 global air passenger traffic only recovered to 51% of 2019 levels, while 2020 experienced an overall reduction of 60% compared to 2019 levels. Their current projection calls for 2022 global air passengers to recover to 70% to 75% of 2019 levels. Management's expectations, it will take until Q4 2024 before global air traffic returns to pre-pandemic patterns given the prevalence of COVID-19 variants.Payments revenue accounted for the bulk of the revenue growth in 2021, more than doubling to $7.4 million from $4 million in 2020. The majority of the growth was at the bank as the full year impact of the acquisition completed on July 29, 2020, coupled with additional relationship managers hired in 2020, '21 contributed to significant customer acquisition. However, there was double-digit growth in the US as the company increased its penetration in the financial institution sector through its one provider, one platform market strategy, which resonates with financial institutions. We are able to offer not only foreign currencies, but also check clearing and wire payments products, all from the same platform that integrates into their core banking systems to provide a seamless experience while meeting all of their compliance requirements. Although the sales cycle tends to be longer for the payments products, once onboarded, these clients have a very high retention ratio.The company's operating expense base grew by 5% or $1.3 million in the year ending October 2021 to $30.3 million, resulting in a net operating loss of $49,000. While this effectively neutral operating leverage on a full year basis, it does reflect an average of negative operating losses in the first half being offset by positive operating margins in the second half as revenue growth outpaced expense growth over the course of the year. The largest category is salaries and benefits, which comprised 58% of total operating expenses in 2021. They increased about 5% or $824,000 to $17.7 million. The increase was attributable to higher commissions expense and variable compensation tied to performance, partially offsetting this were savings as a result of the restructuring actions implemented in Q4 2020, although there have been a few net new positions created to support strategic growth initiatives.Other variable costs also increased as a result of the improvement in transactional activity over the course of the year. Postage and shipping, for example, increased by 15% or $358,000. While some of this was due to the gradual recovery in demand, it was also due in part to the client mix. As the company engaged in more international transactions, those tend to incur higher shipping cost as a percentage of revenue since they require armored transport and cost to travel by air between countries. Bank service charges increased 20% or $251,000 as payments volume increased. Information technology costs increased by 9% or $119,000, largely on the higher variable costs related to third-party platforms associated with payments processing.Several operating expense categories offset each other and significant savings in rent expense and G&A as well as travel and entertainment, all declined significantly due to the restructuring actions or the pandemic impacts on travel overall. These have been offset by some increases in insurance for the aforementioned reasons, foreign exchange losses and also the decline in the losses and shortages, which primarily relates to the disappearance of low-value shipments. But in 2020 also included a theft at one of the branch locations.Other income includes $3.4 million ERC grant that I discussed earlier, in addition to almost $800,000 of the bank qualified foreign wage and rent subsidies in 2021, similar to 2020. The company recorded a loss provision earlier in the year in the amount of $112,000 compared to $1.7 million in 2020. The losses in both years stem from an unusual case involving the customer that declared bankruptcy. And unfortunately, for the company, certain amounts that received from the customer prior to being declared bankrupt were considered to be in preference and had to be returned to the trustee. While the company recognized a small additional loss in 2021 to settle the matter with the trustee, it is our expectation that we will receive a recovery when the assets of the bankrupt are distributed estimated to be in the range of 6% to 20% of that total loss of $1.8 million.Income tax expense for the year in the amount of $955,000 primarily relates to the US where the ERC grant effectively increases taxable income. The company is not currently recognizing the future tax benefit associated with losses incurred at Exchange Bank of Canada, which makes the effective tax rate look out on the consolidated results. The net loss for the year as a result was $1.1 million versus a net loss of $8.5 million in 2020. On a basic and fully diluted per share basis, this translates to losses of $0.18 per share and $1.33 respectively.Turning to the balance sheet, although [Indiscernible] excited incurring net loss that has reduced its retained earnings in 2021, it benefited from gains on the translation of its foreign operations, namely Exchange Bank of Canada, and the result is a comprehensive loss of $548,000. Combined with the increase to equity reserves for the stock option expenses, the change to net equity in 2021 was a marginal $200,000, such that the equities and net equity is largely flat year-over-year at $58 million. This equates to a net book value per share of $9.04 translated at yesterday's closing exchange rate puts the net book value in Canadian dollars at CAD11.50 per share. That is about a 10% discount to the current market value.CXI is in a strong financial position with its capital base and positive working capital of $49.8 million at October 31. Liquidity also remained strong with $66.5 million in unrestricted cash. While we had just over $4 million expanding our credit facilities at the end of the quarter, we still have approximately $27 million in unused capacity. Q4 and fiscal 2021 performance was largely in line with our expectations despite the protracted pandemic and its impact on international travel. While we remain confident that the recovery will continue, the inherent difficulty in developing reliable projections cause management to take a cautious approach and planning. Our focus continues to be on our strategic initiatives, balancing the objective of returning to sustainable profitability while also driving growth in new markets and building shareholder value in the process. At this time, I would like to turn it over to Randolph Pinna, our CEO, to provide his perspective. Randolph?
Thank you, Alan, and thank you all for joining. I appreciate your time, especially those out West that have to be up early to hear this. As you heard from Alan there, he gave a very detailed report on all the elements of change. The company has undergone a transition significantly in '21, following the Group reorganization in 2020 that was started. Even still, the company has continued to grow in all areas and executing on its strategic plan.I usually start with Exchange Bank of Canada, our subsidiary, which we are very proud of since it has made significant growth in every area. To begin with the team, including the new team that joined us from Montreal has developed into a strong front line, first line of defense sales and execution on our operational goals as well as our second line of defense, which is focused on risk and oversight. We have a strong team, both in Toronto and Montreal to allow the bank to get to profitability in 2022.The relationship with the Federal Reserve is a significant one and one that was envisioned upon the idea of creating Exchange Bank of Canada. To be able to bank with the Federal Reserve Bank of New York enables Exchange Bank of Canada to expand internationally, taking customers from select countries that foreign exchange activities. Obviously, the US dollar is the primary currency that they're searching for, to be able to sell Canadian dollars, Mexican pesos and other currencies complement this international offering.Besides banknotes, we are very focused on payments. As Alan told you, the acquisition really trusted us into seeing significant growth in the payments area. We've brought onboard and for the last 1.5 years, I've been very proud to have James Devenish, our Senior Vice President to lead our expansion both on international sales as well as with payment growth. We've added more people in Montreal as well as in Toronto, and a person in Ottawa. And we see that 2022 for Exchange Bank of Canada is really set up to grow and become a profitable bank.The reason that Exchange Bank is able to continue to develop its relationships, it is a specialized foreign exchange bank. It seeks out corporations, typically the small to medium-sized corporations that have international activities, either an importing product to materials to make their products or exporting of their products internationally, resulting in foreign exchange needs either in the current or in the forward situation. Our team has done a good job with our technology. We have an online FX platform that enables people to trade on their own or they can do the traditional call their trader, their banker and discuss their trade and execute on foreign exchange trades.The domestic banknote business in Canada continues to remain soft. The Canadian government has been very cautious with their approach to the pandemic and continues to discourage both incoming foreign people as well as discouraging the people to travel out of the country. We are seeing a resurgence of this now with the vaccination rates and the loosening of restrictions around the world. And so we also see that Exchange Bank of Canada will be able to see a return of profitability in domestic forward and currency markets as well as we are seeing new customers coming on board in the future. Our pipeline remains quite full.Turning to CXI. The Currency Exchange International, as you saw in the fourth quarter is already gearing up for a very strong 2022. Our strategic plan, as Alan highlighted, has 4 elements of it. And the biggest is what we do best, which is servicing financial institutions, one provider, one platform. This is a relationship scenario that banks across the United States look forward to. To enable this, we have, as you know, you've heard before, we've integrated with some core software systems. Fiserv was where we broke the ice with this and integrated into their wire exchange. We've been using this relationship for several years. It continues to be a profitable investment and encouraged us to do more of them. We did a press release around the Jack Henry systems that they operate, and we have successfully integrated into 1 of the 2, and we are just finishing the second integration. We've also done several other integrations with other systems. These integrations allow for a seamless straight-through process of international payments, which is a top focus of our company.We will continue to see growth in new banknotes, checks and wire transactions because of our integrations to core up banking operating systems. Above and beyond that, we are expanding our international payments with some corporation selectively as well, just like Exchange Bank of Canada. Additionally, the banknote business continues to be our biggest revenue maker, and it will continue to be so for the next few years. International expansion, although CXI does not have a relationship directly with the Federal Reserve, it does deal with pesos, euros and obviously still can sell US dollars or buy US dollars. The accepting of select financial institutions from select countries has continued to grow, and we see a very big pipeline in both Exchange Bank and CXI with select international customers. The domestic banknote business, unlike Canada, has been coming back quite strong. The travelers coming into the country still reduced, although the outbound has been quite strong, and we anticipate 2022 to continue on that trend as the world continue to really relax their restrictions. It was very encouraging to see the UK really announced their changes in their views.Lastly, the consumer division, both our online store as well as our company-owned retail locations continue to be above expectations. That is, as Alan pointed out, not just because of exotic currencies, but because of that slight return of international travel. We are, as we said, hiring select people, one, including a digital online manager to really take the online store to the next level. We are licensed in 36 states and continuing to add state licenses in relationship to both this ability to sell in multiple states as well as a national provider of foreign exchange that we have teamed up with, and we will be selling to all of their locations and all the states that we're licensed to do so.The biggest catalyst in our consumer division is the agent relationships. Being one that still does travel. I am proud to see our brand on display when I went through JFK to see the CXI brand. We don't pay any rent for payroll. We have added airport locations under that model in Newark, in Charlotte, in JFK, Chicago and Portland, and we have several more airports coming soon, either between our own co-branded CXI-branded airport agent locations as well as a large operator of airports that uses their own brand that we has been a long-term customer of CXI. CXI will be servicing the majority of all international airports in the United States, either directly through the agent relationship or through our customer relationship we have.Most importantly, the pipeline is full for both businesses, both on the payments side as well as the banknote side. We have a strong management team at CXI. The bulk of our executive team here in Florida has not had any change in leadership for the last 10 years, and we're very proud to be working together with our team in Canada as we see ourselves getting to a strong return of profitability in 2022. And with that, I open it up for any questions.
[Operator Instructions] Your first question comes from the line of Robin Cornwell with Catalyst Research.
Thank you for that very detailed update. Also thank you for the extra time to review the financials by releasing it day early. That was very helpful. So I think the first question I have is really a housekeeping with Alan. The tax rate, I didn't quite understand the reason for the big tax in the quarter. Could you maybe expand on it?
Certainly, Robin. The largest impact for the tax rate was recognition of the employee retention credit. What it does for the IRS purposes is it reduces our compensation expense by the $3.4 million. And so that drives a $3.4 million increase to taxable income in so -- that's the largest element. And because Exchange Bank of Canada had losses in 2021, there was no -- which we aren't recognizing a benefit for. There was no offset there. And so it looks lumpy on our financial results, the tax expense is higher than the net income before tax.
Okay. That's terrific. And the -- you mentioned the variable expense, it's [ $400,000 ]. just looking at the notes here, is that variable expense is a recurring expense, right, because it's like bonuses...
That's -- yes, that's largely a part of it is it's bonuses and as such. And we had a true-up in Q4 as we looked at the full year results and, of course, taking into consideration the significant improvement from 2020, even on the consolidated results were quite profitable. It certainly, I think, warranted some variable compensation, and we met the targets to pay some out. So that was the difference. And when you look at 2020 because the performance was so poor, there was very little the variable compensation. So if we were to go back and say, well, some of that variable compensation could well be related to prior periods, we could normalize it for that because Q4 took a disproportionate share of the expense to book it for the year.
Okay. That's great. And the other thing that surprised me a little bit was the strength in the fee income in the quarter. I think it was around $673,000. It just was interesting because that seemed to jump up quite a bit. Was there anything specific that relates to that?
That's primarily just the fees that we charge around to recover both banknotes and shipping expenses. And so as you've seen shipping expenses go up, the fees that we charge back to our clients for that have also gone up.
I see. Okay. That's terrific. Randolph, I wondered if you had some interesting comments on your expansion of your business. But when you were talking about the increase in travel in the US, not so much in Canada. Is that kind of reflective of what's happening in your first quarter?
Well, as you know, we can't give any forward guidance. But as you saw in the fourth quarter, we saw what we -- again, we've -- as Alan pointed out, we've taken a conservative approach and feel that it will take at least '22 and most of '23 to get back to pre-pandemic levels. So spreading that over the 3 years, you had us seeing higher than what we expected in the fourth quarter. And I was just commenting that with England, making its declaration, Denmark, there's a lot of countries around the world now are finally putting up their arms and saying we have to live with this pandemic instead of trying to keep everybody at home, is encouraging. So that was just my optimism around the fact that I think it will -- that trend of having higher-than-expected banknote sales is likely to continue, especially knowing the airports that -- the new customer locations that we've opened that we never had before because the world's largest nonbank foreign exchange company, as you know, fell down during the pandemic. And while they did get recapitalized and reopened, their directive from their new owners was to exit the Americas. So they closed their Canadian, US, Mexican and Caribbean operations. And that has enabled us to -- for CXI to be the new largest nonbank foreign exchange provider. And so that, coupled with the fact that the world is finally reopening, and we're seeing robust demand in the quarter -- the fourth quarter, and it's very likely that, that trend continues in the '22 year.
When you say the largest nonbank FX provider, is that North America or...
That...That's -- there's no industry group that's out there that officially rates one or the other. That's -- in banknotes, I'm confident to tell you that we are the largest nonbank provider of banknotes in the United States and top most likely in Canada as well for banknotes activity for sure because between our own locations and agent locations, we have hundreds of our own locations. And then, of course, through our customers that are many bank branches, which are in the count over 20,000 now is -- would make us the largest...But...That's just a title. It's really about efficiency, making sure we're getting the right margin and keeping our costs under control, which is part of our strategic focus. I highlighted when I was highlighting the strategic plan, the 4 main drivers, there is a fifth one that is around ensuring the company has the infrastructure to support the strategic plan and that involves like we've -- we're implementing sales force that's going to improve our efficiency. We're looking at other systems to upgrade and through technology and focus on efficiency is going to be the correct recipe, is having the right number of retail locations and customer locations at the right margins and ensuring an efficient operating structure to maximize that. Did that answer your question, Robin?
Yes. Yes. That's very impressive. Now just a quick question on the Duty Free America. I know it's not on your biggest, I guess, part of your plans going forward, the agents. But is the Canadian border, you were last -- the next converter was in place -- is the Canadian border now...
No, it was...No, no...You have it vice versa. We started with the Canadian border. But unfortunately, as you can imagine, a duty-free store was hit just as hard, if not harder than CXI that both them and us are extremely -- are totally dependent on international travel. Luckily, we have a diversified payments and other checks and so forth, where they didn't. So they actually closed -- since the borders were closed, they closed all those locations on the northern border and due to the extreme turmoil that such a reduction in revenue, they paused the Mexican border, unfortunately, because we have been encouraging to open that with our services because it would provide revenues that they cut their staff. So tightly, they felt they couldn't add another service since they've really cut their operating costs. So Duty Free America is a great example of an agent that still has huge potential for us. The Canadian locations, most of them have reopened. They did not reopen every one of them, but they do anticipate reopening all of their locations on the northern border, and they still have a resolve to add currency exchange to their Southern border locations, which is one -- just one -- the big airport operators, we have 2 -- that is a very encouraging long-term agent relationship because they are experiencing and running retail operations at airports, which we're not. We are very experienced at servicing those operations and airports because of our long-standing customer has a very similar name to us. And so between those 2 new agent relationships, opening up select airports, and they have expansion plans, we're going to see a nice -- our consumer division will continue to impress the group as a diversified channel of revenues.
How many airports do you think you have now or now you have now in...
Well, yes. So I'll tell you the airports, keep in mind that each airport, they have multiple desks. So I just flew through JFK just recently, and there was 5 desks. Of course, there's only 2 open. They -- how they do it is they have multiple locations based on which gates are active and then their staff rotate from desk to desk. And so I'll just tell you the airports, which I rattled off before, which is Portland, Chicago O'Hare and Chicago Midway, the JFK Airport, which is the Delta terminals and the Newark International Airport, Charlotte. And I believe that's it. Again, those are branded CXI. So if you go through and you would think it's our employee at the desk because they are using the CXI brand just like our own company-owned stores. The other airports like Miami and there that customer is opening in Atlanta this week, I think Boston is in February next week, and so we're getting some other airport locations. And again, those are the ones that I can comfortably talk about, they're seeking to get some of the other airports that are still not having currency exchange service. And so we -- our consumer division is only going to open select company-owned locations. We did open one just recently in Palo Alto, California, which is south of San Francisco, which is that other major operator that's their own location that they closed. And we have a customer in Texas that opened several of new -- or that new locations that were ex the competitor, the old competitors locations. So our consumer division on all fronts has seen a good return.
Great. And just a couple of other necessarily quick ones, but is Mexico potential for your banknote operation?
Yes. Well, we currently -- our Exchange Bank of Canada has several relationships with established financial institutions in Mexico. Our compliance and risk team, in fact, recently did their annual due diligence where they spend a few days and talk with all the team, look at the Vault and they do a full oversight as they should do for high-volume customers. And so the Mexico is -- while it's a higher-risk jurisdiction, we have taken a higher due diligence approach to it, but we do enjoy trading. And that, as Alan pointed out, the Mexican peso for both Exchange Bay and CXI has been about the top currencies for sure, one of the top 2 or 3 currencies traded. Obviously, CAD and US are the top for Exchange Bank, but Mexico would be right there next to that.
Great. And the last one is, are there any acquisition opportunities that you see?
The -- one of my directives as Chief Executive is to always consider accretive opportunities that are strategic that would add either new technologies or new relationships as well as team members. And so that is a focus as well. And as we saw with the last few -- a couple that we've done, we had relationships with them. And so that's an area that is more comfortable to look at is at existing relationships and to see if that could evolve into a potential acquisition. So until something is concrete, we wouldn't talk about that. So I just confirm that it is still part of our strategy. It's not those 4 pillars I told you, but M&A hangs over the top of that, that I absolutely the Board and I would absolutely consider a strategic relationship at the right price.
Your next question is from Peter Rabover with Artko Capital.
Good morning, Peter. a long time from the previous caller.Yes, I just wanted to expand on the last question. Can you maybe like talk about your capital allocation strategy, especially now that you're free cash flow positive and you're kind of in that cash base and as you said, you have $27 million in new capacity in your debt and the stock still went well below any -- intrinsic value below book value, so just start from how you're thinking about that?And...The acquisitions on the board that you wouldn't consider buyback.
So I can let Alan talk a little more further on it, but just at a high level, the Board and management is very focused on the return of our capital deployed. That is something that we've been focused on and it remains a top focus that we want to ensure every dollar that's out there is generating a minimum return and ensuring that the surplus capital we have, yes, absolutely an accretive transaction is quite inviting. And so as Robin was asking, is there one in the works? And I can only just comment that it is part of my job, and I am actively talking to some of the people we know, and we would be comfortable in that there's a good value. And so we're focused on return on our capital and equity. -- and we'll do that through adding new relationships as well as control on costs. But Alan, did you have anything to add further? Or does that sum it up?
I think that was pretty good. I would just reiterate to Peter, that we're not out of the pandemic yet, and we're in a growth phase. So our view is to ensure we have sufficient capital to get through this period. But as we see getting to the other side, absolutely, we want to ensure that this company is capital efficient. And so that is an area that we will be putting more attention to this year. And as we do that, we'll be able to communicate, I think, accordingly. So it's definitely on our minds. But I think we're just still a little premature to be doing anything. And then of course, what it does do is it gives us the ability if we do identify an appropriate acquisition to be able to fund something that could be a nice tuck-in.
Okay. My -- and look, this is all -- these are all great answers. I'm not disputing it. But as you said, you probably have not a single-digit million in cash, excess cash, and you get $27 million in I think you said borrow capacity and the entire market cap for the company is like right now [Indiscernible] or something like that. So I'm just -- I guess my thought is even like a $5 million to $10 million buyback would probably opportunistically wouldn't be danger to the overall business of the company but would be high risk for the long term. So that's why it does...
Well, actually, I would just sort -- maybe I should correct you, because we don't have $27 million of surplus cash. So...
No, not surplus cash, you said borrow capacity, right...
That's capacity, right? We would never want to use [ 30% ] of our borrowing capacity and put the company at risk, but a lot are deployed in the business. So it is the surplus cash at any point in time would be much less. And so I think it's -- we are being prudent at the current time. But as I said, we'll be examining that in the months ahead. So...
Peter, the Board does consider every quarter what we should do in the topic of the buyback has come up. But as Alan is pointing out, we're not out of the woods yet. Well, I'm optimistic for the future. We are very disciplined and value the fact that we are strong on our balance sheet and our borrowing capacity is there for peaks like this coming summer could be quite busy. And -- but again, if there was a transaction between our cash that we have and the fact that we could probably get even more debt on our books to make a transaction, that is our top focus. And of course, you're suggesting buying our own stock, which is considered quarterly. But at this stage, in the next month, we're not going to be doing a buyback in my opinion.
I guess look, these are all good detailed answers, and it clearly sounds like you're thinking about it. And I guess my first back is with $27 million in capacity and my other comment was that you have talked about that you have some cash that's excess cash, not working capital cash, but I don't -- if I -- I would just push back on a comment that putting the company at risk to do buyback is kind of not logical...
So Peter, one other thing too is that all that borrowing capacity is our short-term facilities and what we would like to see is a committed long-term facility before we would have comfort in doing something like that. So we need to have that sustained EBITDA to service debt to go out and do something with senior lending rates. So I think the key is we get the debt facilities in place, combined with the profitability that then allows us the comfort level to be a little more open with the excess capital if we get there. So those are all the things that we want to tackle this year now that we see getting to that other side of the pandemic.
Okay. That's a Okay. I have like -- I guess, it's 2 questions, but really one big part. And I think, Randolph, you've been around for multiple decades, so you've probably seen it. So -- and kind of the same topic but a different one. So one, how are you guys tackling inflation, both from the expense side, which is obviously wage inflation, I think you just saw the number is more than 4% in the US. And then obviously, now that you're kind of more as a single retail entity in the US, how are you going in from the revenue side in terms of your costs -- or sorry, your fees...your pricing...
So unfortunately, we are -- the whole world is recognizing this inflationary period. And so our expenses are going up as you heard the director liability expense was nutty for on renewal, but it's something you have to have. And so as a result, that's why I was saying -- answering Robin about how that balance between the right price for the customer and the right operating efficiency is a focus. And so we are -- and then it's a new calendar year, and this is the usual time that we look at our pricing relationships and ensure that the costs are covered in the margin, including the expected profit from those transactions. And you are correct that especially in the consumer division that with less competition that there is ability to widen margins there. Our wholesale relationships, some are contractual. And so it's not an easy just flip the switch and you have a new price across the board. We have to go relationship by relationship. Obviously, our own locations are easy and vast and I'm sure we've done that. So I need to keep it focused on the year-end and what we're doing in '22, as we said, is we're very focused on both our top line and our cost structure. And we have a very disciplined approach to this. Hopefully, that answered your question.
Yes, it does. So I think my second parter is more -- is a little bit more nebulous, but more related to your experience. Look, I think we're entering a new kind of economic regime that we haven't had in a long time. But we have seen with rise in interest rates, kind of a turnover and how people start thinking about economics and exchange and trade flows and travel. So I'm just kind of curious what do you think what are the opportunities? And how do you see business in this like new high interest rate environment going along? Is there more trade, less trade? What are you -- as you're growing your payments division et cetera. So I'm just more curious on that.
Okay. So the travel is really dependent on the economy and the people being brave enough if you want to use that word to travel. I can tell you that what I've seen out in the market and not just from our own locations but our customers are telling us the same thing that there's strong pent-up demand, especially in Canada since they've been really locked out more than ever. So when the world feels it's safe enough to resume, it could bounce back heavily strongly, meaning there could be -- as we saw in the fourth quarter, there could be above expectations on that activity. But it's unknown. And a lot of people are still very scared and a lot of countries are still very restricted. And so that's why Alan and I are both hesitant to get too far ahead of ourselves on the optimism that can be seen. The payments business luckily is more around trade. And while the importers of French wines and the Italian wines for the fancy restaurants, that business is down, but people that are in automotive or in pharmaceutical or anything like that, their business is way up. And so our payments business, we are very confident we'll continue to grow. And not only do we have our traditional rails, but our online foreign exchange, the big fact that people can trade and book a trade at 2 in the morning with our online system positions us to continue to grow.So -- and James Devenish, our Senior Vice President, has brought in an experienced product owner to help diversify the rails if you want to use that for payments on how we get new business in the payment area. And so we will continue to do what we're doing best, which is a proven model of paying good people a lower base, but a good commission. And so you're going to see that model is continuing to work, and it makes me happy to see our top salesperson in the AIF is doing very well because he -- all his hard work is bringing us a lot of new revenues and he gets a put. And it's a fair relationship. But we did move more to a variabilizing approach to it and trying to reduce our fixed operating costs and allowing the expenses to go rise or go down. If volumes go up, they get more; if volumes go down, they get less and that approach is great. And the only challenge is if we're making tons of money, they will be, too, but that's not the challenge. That means that our strategic plan is working. Yes, does that answer your question?
So I mean, I just wanted to hear your experience of what happens with foreign exchange flows in the rising interest rate environment?
Interests haven't -- the interest rates, I don't -- for us, as a business, while we have some debt, it doesn't affect us too badly. People themselves, I don't think it's going to affect travel. I mean the banknote business is highly travel related. I mean like in Mexico, some of it is business because everybody pays -- even though the peso is local currency, dollars are very strong in Mexico because a lot of people just want dollars. And so there's some economic activity based on dollar cash. But the majority of our revenues year-over-year has always been because of travel or speculative. And on certain types, speculative trading those exotic currencies do increase because people start wanting to take a different position and a different currency. But the interest rate -- the rising interest rate market really is not a significant issue for us because we're not heavily on debt. And our customers, their travel is not really predicated on what the interest rate is.
Okay. Great. Well, I don't want to...Call too much.So maybe...
Okay. No problem. We appreciate the questions. Thank you, Peter.
Your next question is from Jordan Steiner with LionGuard Capital.
So just a quick question, I guess, to start on the payments. Now that we've lapped the Montreal acquisition. Is this a clean company? Is this all organic because it looks like payments revenue almost doubled. And then let's say it is mostly organic or all organic of that, what would you say just a rebound in existing relationships in business versus new business driven by new sign-ups?
So I want to make sure I understand your question. So the acquisition, obviously, was a big catalyst from previous payment levels to partly where we are, but it's not just the acquisition. While we got a great team, and we're very proud to have kept all of those people, and we have a strong leader in Quebec, James and our team, we went out and ran ads and we were looking to see where else we can get people. And luckily, we did get some more people in both Ontario as well as in Quebec. And so between the growth and the fact that the acquisition did what it was meant to do and actually more plus the new customers from the new relationship managers has really been the driving force is why our payment revenue grows. As far as, say, what we call in the currency at our retail division was what we call same-store sales year-over-year, so you're saying are the customers doing more or less from the year when we acquired them, let's say. And as I said to Peter, some are doing more, the ones that are in the automotive or pharmaceutical or a more business-type payments are more active than previous years. And then the ones that are -- that we're doing import export of products or like wines and so forth to restaurants. Those guys are still down because all the restaurants have been, for some reason, the center of everybody's focus on trying to stop the pandemic is don't go to a restaurant. So they've been down. So it's based on really the company and what the industry they're in. And as far as banknotes go, as I said, our same-store sales are higher than expected. Again, that's easier when in 2021, 21 is starting to see a return. And so they are up over previous years. But we're not at 2019 levels, as Alan said.
I just want to make sure I got it. So look, if I'm looking at payment stand-alone for the last year, Q1, Q2, let's call it, $1.6 million, Q3, Q4, let's call it, $2.1 million. So a good step up. I don't think there are acquisitions there. So it's probably a mix of return to some normal international trade, but that step-up of about $500,000 from the first half to the second half of the quarter. Is that all new clients from the way you're sounding it?
Yes, that's correct.That would be -- the team, both in Montreal, and we have a few guys in Ontario are driving new customer relationships. And again, our Exchange Bank of Canada is a specialist foreign exchange bank and we develop relationships for a long term. We don't not only take a client, they do a couple of trades and goodbye. So these are most likely going to be all recurring relationships and hopefully growing. Very often, these new relationships don't give us all their business. They start routing stuff with us to see that we do a good job, and we are very focused. Our Head of Payment operations. Wade Bracy, he's been with our group since CXI started and been working with me prior in the old business. He's done a great job ensuring accuracy efficiency. He's -- with our largest correspondent bank. We've done an initiative of a straight-through process that we could actually get it from our online system right into their system with just a couple of clicks and it's not repaying or anything. And so he's done a great job to ensure efficiency and what comes with that efficiency is good accuracy and customer support. And so we anticipate our payment business to continue to show significant growth, both in Canada as well as in the US, as I told you, with the OPOP, the one provider, one platform, we are integrating. And again, that comes in, in an automated system from their core into our process straight to the processing bank. And so we expect a significant growth in international payments on both sides of the border. And unlike travel, those volumes aren't so crazy month-to-month. And so it's a more reliable long-term revenue stream.
Okay. Great. And I think you guys gave the number of corporate clients in that division for the quarter ended October. Could you give that number again as well as the number a year ago?
Alan?
Yes. So in this fiscal year, we had 700 -- a portfolio of 700 corporate clients. And at the end of last year, then we were about half that...
I was going to be curious, and mostly organic growth, that's excellent. I'm not sure if people really grasp that. So it's good to highlight. Okay. Just turning to the airport business. So I'm just wondering, I guess, for you, Randolph, what sort of contribution you had in the quarter? I know it's still ramping, but I'm just trying to get a handle on that. And then for Alan, how does -- I know because it's a JV structure, it's a little complicated, but where would this be running through on the financials?
Go ahead, Alan.
Yes, all of the relationship with the agency, it just shows up as banknote revenue much like our wholesale and consignment and direct-to-consumer revenues.
Yes. until a particular revenue line exceeds 10% of our total revenues, we don't break it out. I'm not sure how long your shop has been following us, but as you may know that we hadn't broken out payment revenue until we got to that threshold. We started disclosing it in our MD&A because it was getting close. But now with the pandemic shrunk our revenues on banknotes all while payments had continued to grow. And so now you see it broken out. So in the event that the agent relationships, it wouldn't just be airports, even though we do show that airports is a unique division of our consumer division, we do that because the prices and airports are higher than our own company-owned locations, and that's because of the -- I wouldn't call it JV joint venture, but it's because of the revenue share model that exists -- that they are a little bit different in the sense that they're called CXI airports. But if and when you'll see those revenues broken out will be when our agent relationships exceed 10% of our total revenues. And fortunately, they're not there yet, but they have potential. These are some of the biggest airports in the United States, and there's more coming, as I said, we -- I can comfortably say that you'll see in '22 that there will be a few more airports opening up, helping expand that agent revenue base.
That's good. I was just trying to understand if you run it through on a net basis to you guys or a gross basis and then there's mark at the end somewhere given the way...
Yes, it's just like our own stores. It's just like our own stores. It's revenue from the relationship. We have never -- unlike some other companies that I've noticed that show total revenue minus the commission that's paid to the airport and the airport operator, we always have showed just our portion of revenue. The only thing that has the commission is the salesperson who doesn't get a cut of that revenue, but that's under their payroll and their benefits, as Alan pointed out. And as I just told, I guess it was Peter, you'll see that grow if and when all these airports really boom, you're going to see that the sales commissions are high because these people are making a very low base pay. And it's fair because we're all aligned with that model of having variabilized costs at a low fixed pace, and it's all based on how much revenue the clients do. And so if heaven forbid, another fit towers falls or something, it allows both the employee -- the salesperson and the company to suffer together as opposed to having a big base, and they're living fine and the company is bleeding. So it's the right model.
Jordan...I was just going to say, so now that I better understand your question, is we recorded on a net basis.
With no rent, correct?
Correct.
Right. We don't pay any rent, no payroll. We only -- what's reported, what Alan records on the GL is the our CXI's revenue. And the only thing I was pointing out is part of that revenue is owed to the sales team that ran got and implemented and is running that -- those relationships.
Okay. Great.And it's starting -- is it starting to have an impact in the reported financials for the quarter ended? Or is it too soon?
There was some revenue in the fourth quarter. The first quarter, it would be more because you'll have the full run rate because some of these airports just opened a few months ago. And so that -- I think like Newark was the last one in the fiscal year and that only had a few weeks of revenues, whereas I think Chicago was open the full time. So some of them were fully adding revenues in the fourth quarter, whereas a couple of them just came onboard in the last, I don't know, it came weeks before the end of the fiscal.
Okay. Got it. Final question for me. Just on the direct access to the US Fed and the savings you're generating. I guess that's up and running now. I'm trying to understand the accounting on that, would that be a boost to your revenue as opposed to an expense line reduction just given it helps your spread?
It's a reduction of cost of goods sold because we used to source hence, cost of goods, the dollars at a premium to the commercial bank and now that the Exchange Bank can get it from the Central Bank directly, there are fees. It's not that free money, but it's not -- it wasn't a variable cost, whereas before we paid 10 and up to 15 to 17 basis points for mint currency. And so we had -- our pricing had to reflect the fact that every dollar we lost 10 basis points or 15 or 17, depending on what we were getting basis points. Now it's a fee as opposed to based on how many millions dollars. And so that would be a reduction in our cost of goods sold.
Which we note forming cost sales. So it is net you were seeing, Jordan, it's basically an effect, improves our spread, and that gives us the competitive advantage to be able to go in the high-volume business. Previously, we could be cost competitive at.
Okay. Good. I know that's sort of figure as you don't really report a COGS in your financials, but the net revenue reflects the COGS, which is what the roundup is saying. I appreciate that color.
At this time, there are no additional questions. I'll turn it back over to management for closing remarks.
Okay. Thank you, everybody. As a big shareholder of CXI, I know just as bad as everybody else how it's not comfortable for us to post another loss for the year. However, it has been a quite turbulent 2 years, and I'm proud of our executive team and the Board of Directors support and guidance through these turbulent times, but I'm proud to say that our company is strong, both sides of the border, and we have good opportunities ahead, and I thank all of you for your support. And if you have any further questions, Alan and I are available to answer anything that we can, and we look forward to talking to you in the months ahead. Thank you.
Thank you. This concludes today's conference call. You may now disconnect. Speakers, please hold the line.