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Edited Transcript of CXI.TO earnings conference call or presentation 12-Sep-19 12:30pm GMT

Q3 2019 Currency Exchange International Corp Earnings Call

ORLANDO Sep 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Currency Exchange International Corp earnings conference call or presentation Thursday, September 12, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bill Mitoulas

Currency Exchange International, Corp. - IR Manager

* Randolph W. Pinna

Currency Exchange International, Corp. - Chairman, CEO & President

* Stephen Fitzpatrick

Currency Exchange International, Corp. - CFO

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Conference Call Participants

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* Robin Cornwell

Catalyst Equity Research, Inc. - President and Founder

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Currency Exchange International Third Quarter 2019 Financial Results Conference Call. (Operator Instructions)

I'll now turn the call over to Bill Mitoulas, Investor Relations Manager for CXI. Please go ahead, sir.

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Bill Mitoulas, Currency Exchange International, Corp. - IR Manager [2]

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Thank you, Maria, and good morning, everyone. Welcome to Currency Exchange International's third quarter conference call to discuss the financial results for the 3- and 9-month period ending July 31, 2019. Thank you all for joining us. With us today are President and CEO, Randolph Pinna; and Chief Financial Officer, Stephen Fitzpatrick. Stephen will begin with a brief commentary on the quarter's financial results followed by the latest perspective on the company's financial performance. Randolph will then comment on the bank's operations, sales and business activities and recent acquisitions of eZforex, 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. And 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 are 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 the factors that could cause these different results and the assumptions we have made. With that, I'll turn the call over to Stephen.

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [3]

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Thanks, Bill. And thank you, everybody, for joining today's call. As usual, I'll give you a brief overview of the results of the most recently completed quarter. It ended on July 31, 2019. And just -- as usual, these results are in US dollars, unless we say otherwise.

As we've stated in the past, the currency exchange business of CXI is typically seasonal, and it coincides with the peak spring and summer travel seasons in North America. So usually, the first and second quarters are the slower ones and third and fourth are usually stronger.

So -- and before I go into the actual discussing the numbers, the one message I think that we want to deliver to you today is that, while these financial results are not where some of you might have expected them to be and where we would like them to be, obviously, the core of this business and banknotes, both in the retail and wholesale sector is still very strong. There is high-transaction growth, high dollar value growth still in this business -- in the core business. And so our challenge is to turn that into higher profitability.

So while the first half of the year, we experienced a slower trend. In Q3, we saw slightly stronger results, though not enough to make up for the shortfall from the first 6 months of the year.

The core wholesale banknote business remains strong, as I said, with more than 10% growth in wholesale revenues year-to-date, and we're continuing to add clients and locations. Payments revenues grew 66% year-to-date and increased to 4% of total revenue compared to 2% a year ago. As banknote pricing hadn't been adjusted for several years, while operating expenses continued to rise, CXI adjusted the pricing late in Q1 and the benefits have accrued in our revenues as the year has progressed.

In Q3, year-over-year revenues and EBITDA were affected by a significant drop and -- revenues from exotics currencies, which contributed only $600,000 to Q3 revenues this year compared to $1 million in Q3 a year ago, so that's a 40% decrease. Year-to-date, those revenues are $1.5 million below the previous year. So when you take that into account, it puts a different perspective on the core business, which is what I was alluding to a few minutes ago. So excluding the effect of these currencies, which do fluctuate significantly, revenues increased 10% over year-to-date 2018. The results of year-to-date 2019 are more comparable against the same period in 2017, if you were to go back and look, which -- in that year the pattern of results was very similar to this year.

Revenues increased 7% compared to Q3 2018 to $12.4 million from $11.5 million. And year-to-date, those revenues are 5% over the previous year. Total trade volume in dollar terms increased by 21% over year-to-date 2018 and 15% over Q3 last year. That's attributable to growth in wholesale volumes for high-volume existing clients, particularly in EBC, growth in payments volumes and growth in check volumes.

Q3 revenue growth remains slower than we had expected, and particularly, in our retail business, but that's driven by the declines in the exotics revenues and the -- and some delay in achieving our expected revenues from new stores. Core revenue in the retail business remains strong with volumes growing year-over-year both in major and minor currencies, excluding exotics, albeit at somewhat lower profit margins.

In Q1, the company added 1 new branch location, which brings the total branch network to 44 across the United States. And in light of the overall decline in retail revenues that we've seen in the first half of the -- first 3 quarters of this year, we've curtailed plans to add stores in 2020, and we're undertaking a detailed analysis of the retail business line. Since Q3 of 2018, we have seen an increase in the number of transactions because of adding 4 new stores, 384 new customer relationships with 1,200 -- over 1,200 new transacting locations, with some 8% increase in transactional activity since July of last year. And in the notes of the statements, you'll see that we have disclosed payments revenue separately, they're still below the 10% threshold for disclosure. But it's important to us that you see how that business is developing as it's a key part of our strategy.

So moving to expenses. We had higher expenses, largely because of investments that we're making and growing the business, and to continue to establish the bank in Canada. Overall, operating expenses increased by 18% since Q3 last year and 16% year-to-date. The one positive -- a positive aspect of that though is that the rate of growth is slowing down. It was 23% -- in the first quarter it was 23% over the first year, and this quarter or year-to-date 16%. So you can see that we are working hard to get these expenses more in line with revenue growth. We -- while revenues might tend to be lower in the first of the year, we typically incur indirect operating expenses evenly over the fiscal. And so compared to Q3 2018, a combination of business growth, investment and strategic initiatives, and that investment led to increased salary cost as we hired almost 30 people in the last 12 months to support strategic initiatives.

Legal and professional fees increased about 11% over the previous year. However, that -- we are looking at that line, managing that line very closely. And for your benefit, it is below what we have budgeted. There were increases in rent related to new branch locations, postage and shipping costs were higher due to higher volume, higher-transactional activity. However, of note, with regard to posting and shipping we're -- we -- as we've said before, we continue to focus on that expense line with -- and it does increase with volume as I've said. But we have recently renegotiated our shipping contracts in Canada, which will result in savings for the balance of 2019 and then in -- for the full year 2020. The contracts in the U.S. are also under review.

So overall, we continue -- CXI continue to progress against its strategic objectives in the third quarter. We opened our Montréal processing center in January, it's fully operational now. And the completion of the acquisition, which Randolph will refer to, in Canada is -- it continues to be delayed, but we will address that. We -- our -- I want to talk for a moment about our operating leverage. The ratio of operating expenses to total revenue for the 9-month period ended in July for Q3 was 86% compared to 78% a year ago. However, that ratio is affected by the increase in revenues from -- or the decrease in revenues from exotics this year. It has improved since Q1, the ratio was 97% in year 1. Some of that is seasonality, but some of that is also just slowing down the rate of growth of expenses, that I alluded to earlier.

As a result of all of this, our net operating income or EBITDA in Q3 decreased 17% or $590,000 from the prior year and 33% year-to-date, it's $2.1 million compared to $4.3 million a year ago. So as a result, our diluted earnings per share decreased to $0.34 from $0.51 a year ago.

Turning to our balance sheet. We continue to remain financially strong, well capitalized. Over $64 million in cash as of July 31, 2019, and the mix of cash involved to the cash in bank accounts has changed in the direction of cash in bank accounts. We're managing our inventory much more tightly. Total assets are $82 million versus $87 million a year ago. Accounts receivable decreased $8 million since July 31, 2018. However, I want to say that this is a fluid number and it relates to timing of transactions. All significant items in accounts receivable at July 31, 2019 were subsequently received in August. We carried $3.1 million in short-term debt at year-end, and through our line of credit a significant decrease -- I should say, July 31, so a significant decrease compared to July a year ago at $13 million.

We used our intercompany loans strategically to fund short-term borrowings and leverage as a natural hedge against inventories for the bank, and that's lead to improved performance on our hedging as well.

Finally, on Monday, CXI announced the acquisition of eZforex.com. That -- the deal closed after the market closed on Friday September the 16 -- September the 6. And we announced it on Monday. eZforex is a Longview, Texas-based, privately-held foreign currency and technology business, which has wholesale banknote, FY customers located throughout the U.S. Our management believes, we believe that this is a transaction that will be accretive to our annual EBITDA results, starting in 2020. It's expected that approximately half of the staff of eZforex will be retained.

We will achieve operational efficiencies because of the overlap in the market. There's no overlap in customers other than one. When I say it'll be accretive to EBITDA results, we don't expect it will be accretive to net income or earnings per share in 2020 because of the breakdown of the transaction is. Of the $4.25 million approximately $2.9 million is intangible assets. And so that has to be amortized over 5 years. So that results in it not being accretive to earnings immediately. The transaction price of $4.25 million also included a $1 million in cash on hand at eZforex, which effectively reduces the net purchase price, the net cash outlay to $3.25 million for us. Since incremental working capital is not needed to support the acquisition and nor is financing, we paid for it out of our cash resources. So I'd be happy, Randolph and I will be happy to take questions on that acquisition. But at this point, I'll turn the call over to Randolph for his overview.

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Randolph W. Pinna, Currency Exchange International, Corp. - Chairman, CEO & President [4]

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Thank you, Stephen. And good morning, fellow shareholders. Thank you for getting up early, especially those of you out west, who -- some of which I'll be seeing next week, when I'm out in Calgary and Vancouver. So I appreciate you getting up early and listening to our call.

As I have always done on these calls, I'd like to start with one of the most important investments that our business and we, shareholders, have made, which is in creating what I believe will be Canada's next great bank. Exchange Bank of Canada is focused on being a wholesale foreign exchange bank for corporations and financial institutions across Canada. As you know and as we clearly see in our results, the cost of building a great bank in Canada are very clear and continue to drain the profits of our group. However, these investments are strategic and are required to continue to allow Exchange Bank to grow. The good news is Exchange Bank is continuing to grow. Our banknote business has grown about 9% over last year, as we do have a good market dominance in the banknote space. As you know, we've been focused on growing payments, international payments, which is taking Canadian dollars converting them into foreign funds and sending them overseas. We do that through a wire transfer, possibly through a SWIFT, or we do that through our Global EFT network, where we EFT debit and then in America, for example, we would ACH credit a transaction.

To do this -- it has allowed us to capture market share. We have grown our payment business 56% over last year's payment activities at Exchange Bank of Canada. So investments are starting to show. We are continuing to invest in the bank. We are going to be hiring a Senior Vice President of Sales based here in Toronto to help accelerate the growth both in banknotes and in payments.

We have about 100 active trading payment clients and corporations. We are contemplating -- we're hoping that we'll be adding another 400 corporate payment clients hopefully soon. To do that, however, we have recognized, management sees the need to have an automated onboarding process, because every one of those corporate payment clients that we want to take on need to go through a rigorous review, have a complete file and therefore, be onboarded, so that they can be accepted, monitored and reviewed and managed and hopefully, growing the relationship. This investment is ongoing. However, the good news is the majority of the work has been done already. We actually hired -- and as you've seen in the cost, we hired several contract workers that we brought in on a specific purpose to assist us with our review of current business as well as the potential new businesses coming. Those contract workers have now completed their work, and we are on the homestretch to be ready to take on these customers that we've contemplated getting into the business from Québec as well as the additional organic growth that our sales team and our new sales person will be assisting us with.

We also have another very good relationship with our wholesale bank that has helped our business free up cash. This wholesale bank is based in Europe and has provided what's called inventory on consignment to us. So therefore, we are -- been able to -- at favorable pricing. So we've been able to free up cash, both at the bank, both vaults in Montréal and in Toronto have this bank's assets within our vault to utilize. It's basically a preshipment of the currencies. When we were ordering from overseas, the shipping price cost us both money and therefore, by them preshipping, hence, the inventory being put in our vault allows them to ship larger blocks of currency and allows us the ability to buyback currency without having to wait for it to come over the ocean. And this has not only have improved our ability to manage our inventory, have better availability of inventory, but most importantly, it frees up capital within our group so that we can do other strategic transactions. An additional focus of the bank is we are currently only doing spot payments. That means we are buying a currency for delivery within a day or 2 days. A forward transaction is very commonly used by a lot of import, exporters, manufacturers, et cetera, because they have transactions that are happening in the future. They know they will have an obligation to pay for, let's say, they're buying a tractor from overseas. They know that in 1 month or 2 months they need to pay for this tractor in euros. And so they want to walk in at today's favorable rate. And so that forward initiative requires us to have a wholesale bank, which we have, or several. And it allows us to lock in for our customer this trade. But to do a forward initiative, we have to go through an entire change management initiative to ensure that we cover all the risks and all the elements of operational control as well as any compliance considerations, and we're well underway with this. And in CXI, we have already -- had succeeded with a pilot program, and CXI is now offering forwards fully. Exchange Bank of Canada is on the home stretch of hopefully being able to launch its pilot program and begin to expand its international payment offering by offering forwards.

Obviously, your questions are going to say, what's going on with that acquisition you announced a year ago. Well, I just explained to you, we want to ensure -- management is focused, the Board is focused on ensuring that we have the resources, we have the automated systems, we have the entire team ready to take on those transactions. We feel we're very close to this, and we are hopeful that all stakeholders will agree with us and we can continue to move forward.

So I'm going to move now to the core business, that's CXI. CXI, as you know, operates 2 successful business lines. A wholesale business, which has over 17,000 transacting locations, and a retail business, as Stephen said, has 44 company-owned stores. What most of you should know and if those that don't I will explain it here, we also have another probably 50 or 100 locations that are, what we call, partner locations. They are locations where we are providing the full service very often inventory, sometimes not. Where they -- these partner locations operate like our own retail stores. The beauty of these -- this partnership relationship is that we don't have the costs and the headaches related to payroll. The costs related to rent. Of course, the offset is we don't get to share in a 100% of the profit. There is a revenue share. And this model though is now being seriously considered as our expansion within retail. We just announced or you may have heard that we've opened our newest store, was in Hawaii. We are -- and we have contracts with 2 more stores that will be company-owned stores, 1 in Manhattan and the other one in Philadelphia. The Philadelphia location will actually complete our goal. Our retail strategy has always focused on being one of the core markets where all the incoming foreign tourists come and where the outgoing -- the Americans are leaving, the top 10 as reported by the tourism district in the U.S. So New York, Boston, Washington, D.C., Miami, LA, San Francisco, all of those locations we've always had. Philadelphia was the last location that we did not have a store. So we're proud to be opening in Philadelphia soon in downtown. However, going forward, at least in 2020, we, as a management team, and our Board has supported us that we will not be signing any new leases until a full review of our retail business operations, including this partnership, concept is fully reviewed. So if -- and when we grow our retail it most likely will be through partnership locations, and we have some exciting opportunities already well in the works.

So moving from retail, I would like to go into our core business, which is wholesale. As you know, the number one type of client we wholesale with is financial institutions. I'm very proud of our experienced management team that have been with the company practically since inception. They continue to report that they have a very full pipeline. These banks are not only wanting to use CXI for their cash needs, but as we are now fully available providing foreign check clearing, foreign wire transfers and now even forward transactions, we have a very good pipeline to continue to grow our core business of financial institutions. To diversify from financial institutions, as you may know, we have a couple of gaming customers, where we landed and have already onboarded the majority of a large Las Vegas gaming group. Their 7 brands of resorts in Vegas have been onboarded. And we are now looking at some of their other markets, like Atlantic City, New Jersey. We will continue to selectively grow this business. The gaming sector is a high -- is deemed in our client's terms as a high-risk business. So compliance has been very thorough in reviewing the controls that our customers have within their cash cages and at their resorts. And we will selectively grow this once our entire management team and risk office is comfortable with these potential customers. Also, as you may have heard, we have a few customers in the islands, being Miami is like the Manhattan to the islands. And we have a couple of customers there, and we may selectively accept some other well-established financial institutions, one of which may be a subsidiary of a Canadian financial institution. So we will continue to look at that.

While doing our growth, our focus, as you can see, has been on cost growth. How can we continue to grow without adding more people. That is a process review situation, where we have identified one of our most experienced people, some of them worked with me at FCE to -- have worked within our organization to identify areas of process improvement. We are well underway with this and we will continue to focus on growing our top line revenues while maintaining and controlling our costs. So therefore, the funnel, as one of our Board members likes to call it, will widen, and we'll finally get more money dropping down to the bottom line, which eventually will go into all of our pockets. So that focus will continue and it's an ongoing process, and it's part of our management team culture.

I do want to mention that while the exotic earnings -- exotic revenues are way down. It's very clear. We are seeing in both retail and wholesale a softening on the inbound foreign currency transactions in the United States. I called it on one of my other call. I nicknamed it the Trump effect. But there is a clear effect that a lot of foreign tourists are either not coming or when they come they're just spending less money, and that has resulted in softer banknote activity on the inbound side for both the wholesale and retail. We do anticipate that the -- that people have become -- are becoming more numb to the Trump effect. And we think that, that trend is only temporary. And we do anticipate continued growth in cash.

Let me look at what else we wanted to talk about. Oh, I did want to talk about the expense growth on things like IT. So you noticed, we spent significant money this year on information technology. Cyber security has been identified by our risk offices, while it's just in the media itself, as being a major threat to all organizations that are dependent on web-based software, like CXI is. So we have invested into additional firewalls, additional security and even additional cyber security humans that are involved with the monitoring and ensuring that our systems will remain safe and secure for our customers and the data that we have within there. We did also have, unfortunately, some unanticipated losses. We do budget for the fact that we know that people are trying to steal cash through our shipping model or through fraudulent transactions. We have identified some areas that needed to be tightened up, one within the shipping. But we did have a significant loss of about $190,000 in the quarter that did affect all of our bottom line. And this has resulted in us appointing a full-time fraud and security officer, one of the people that worked his -- worked with me for almost 20 years. He was at the old business, and he's based in Miami. And this individual is a very trustworthy, experienced individual. He's been with CXI since day one. He was one of the 36 that when we broke away from the Bank of Ireland that came with. And I'm very proud that -- his name is [Gus Martinez], and he's in this role. And we have undergone an entire process of our -- review of our processes and ensure that we will identify, hopefully, preidentify any areas of weakness and strengthen those.

Other areas, you see our legal and professional costs are very high. We'll focus on, hopefully, reducing those costs. A lot of those costs are related to things like getting a third-party opinion, valuations, due diligence with this transaction that we did with eZforex. So some of these costs are nonrecurring. We may have some of them again, if we are to do another transaction, which is possible. And so therefore, we are focused on that line item because it is a very big cost. However, I do want to ensure all of the shareholders that we are spending our earnings very diligently. And that these professionals, while they are quite expensive, because they come from big-name shops that deserve that fee, are giving us value. There assistance with management reviews, assistance with management's growth is valuable, and we will selectively continue to do this. However, it is a focus of the entire group that we need to ensure that these professionals are used only when they really are needed.

So let's talk about what else is new. Well, at the retail level, we are launching our FX online, which is a home delivery product in the United States. It started with -- our first version was we're allowing customers to reserve foreign currency online for pickup at these retail stores. This has been very successful, very well received, and it's now being expanded to allow for home delivery. So if you don't want to come to our store, we can ship it to your home. It's actually the address of the credit card used to pay for the home delivery. This now allows us to expand without having to open additional retail stores. And this -- so this is being launched just initially in a couple of states. And then as we've proven that it's successful, we will expand it to those states that we are properly licensed in. Unfortunately, shipping from Florida to our -- another state is considered money transmission not a currency exchange. So we are restricted to those states that we're licensed in.

CXI is also taking advantage of the work that Exchange Bank of Canada is doing with the automated onboarding. So this system is a group-wide initiative, where we will be able to have a better onboarding, faster onboarding system, where customers can actually apply online, some upload their documents. And it'll allow us to accelerate our growth. And when -- if and when we onboard new customers, like eZforex, it allows for us to quickly onboard them. And comfortably with -- compliance risks are very comfortable with the fact that we've had an automated tool assisting the teams that are involved.

So now lastly, ending with eZforex. The owner of eZforex has been a friend and a customer of mine for, I don't know, 25 years minimum, if not more. He -- him and his wife have chosen to retire. They for over 20-odd years grew their business, eZforex, out of Texas, and they have a great team of people. Our intent is to be closing their facility in Texas in a few months when their lease expires. We will not be renewing it. And the processing of their customer activity will be routed to either Miami or Los Angeles, based on the locations of their customers. They were and have been a customer of CXI. So every one of those employees, our employees know very well. We have a great relationship. And unfortunately, we didn't take all ten, because several people are not wanting to leave Longview. And it's been a friendly transaction. So there's no severance cost or anything for us to deal with. And therefore, the 5-or-so people that we are taking are well received and will assist in our continued growth. And we're very proud of this relationship. As Stephen said, we do expect synergies. There's a lot of duplication. They have a compliance department. They have legal and professional fees. There's a lot that by merging the 2 groups -- companies, we can save there. And then the owner will be staying on for a while to assist with the transition, but his goal is to retire. And so there'll be another further reductions in costs as time proceeds. And they'll becoming more and more accretive as we finish the integration. But the business has been -- from a software point of view, has been integrated. They -- there -- the work we have been doing over the last few months has integrated the eZforex.com platform, which is a very nice, well-designed platform. So the customers there will not need to jump onto our software and learn a new software. They are -- can continue to do that, but using the CXI banknote API that we have. We integrated their software platform with our CXI platform. So therefore, our management teams don't need to rekey anything. It goes through our rigorous system which ensures that we've checked, like, [indiscernible] lists and the FBI lists and all the different lists. All those transactions have been scrubbed using our advanced software system. So therefore, it is seamless, the customers are ready, and we are now proud owners of another money service business called eZforex. And we will continue to operate it that way for some foreseeable future.

I think that concludes all of my notes that I wrote down to talk to you today. But of course, there's probably questions you have, so I'd to have Maria open up the line so you can ask Stephen or I any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Robin Cornwell of Catalyst Research.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [2]

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Thank you for that rather complete update for the business. First one is just on the tax rate. It seems to be very high this quarter, Stephen. And it -- I think that's 30%. I was looking more at 25%. Is there an explanation for that?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [3]

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Well, the simple answer is the algebra. That -- we had a small adjustment in the -- on the Canadian side in the bank, related to an adjustment from the Q2 number. So that ended up increasing the rate for the -- in the effective rate in the quarter.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [4]

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Was that the permanent increase, or?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [5]

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No. It was just an adjustment, it was an adjustment.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [6]

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It was onetime. Okay. That was important.

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [7]

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If we're not -- we won't be at a higher than standard corporate rate.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [8]

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Okay. So that brings me to the next question, and that's extraordinary items in the quarter. And I wonder if I could just run through a couple. So we have onetime as the tax increase. Then we have the losses, $190,000. Now I shouldn't say that's extraordinary, but it -- can you help us to understand whether that could recur? Or have you, I think as Randolph said, got that under control?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [9]

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Well, yes, the $190,000, I think was more of a total number that Randolph referred to. The specific loss that led to that was about $165,000. And it was something that we don't think is repeatable. We've isolated why it happened. So I don't -- our normal loss rate is well below that. And so we look at it as a onetime aberration that we will -- and we've addressed it as Randolph said. We've also -- I mean we always have some losses. But it made us think again about the way they both -- increasing our focus in that area. So as Randolph said, we appointed an executive who will be -- who's responsibility in addition to the IT side will be making sure we lock everything down.

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Randolph W. Pinna, Currency Exchange International, Corp. - Chairman, CEO & President [10]

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That's correct.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [11]

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Okay. And now the cost of the eZforex transaction. Can you give us any idea of what maybe onetime costs were on that?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [12]

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They're not all in yet, the bulk of it.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [13]

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Just for the quarter.

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [14]

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Yes, I know. Well, in the quarter, I would estimate around $70,000 perhaps in the quarter, legal fees. There were some small accounting fees plus another CAD 15,000 to CAD 20,000. So all told, it would be less than $100,000 in the quarter.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [15]

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Okay. And those -- and there may be some in the fourth quarter as well?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [16]

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Yes. And there will be more for the month of July.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [17]

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Okay. Is there any other extraordinaries that you would consider extraordinary in the quarter?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [18]

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Well, we -- yes, we have some contract expenses in the bank. It was in the neighborhood of $50,000 to $60,000 a month. And that work ended in August -- at the end of August. The contract resources where -- finished their work and are gone now. So that have -- we have been incurring that through the 2 quarters through Q2 and Q3. In Q4, those will go away.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [19]

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Okay. And now going forward, on the eZforex transaction, you were saying the accretion. You wouldn't -- you have accretion but then you have the amortizations. Can you just walk us through that so that we can see on an EBITDA basis accretion?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [20]

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Yes. I guess what I'm saying is that the -- on an EBITDA-per-share basis, it's accretive. But because we have to amortize, the structure of the transaction is such that we have -- we will be amortizing approximately $2.9 million of the price. It's an intangible asset. It's related to the value of the customer relationships. So that will be amortized over a 5-year period starting in September of this year. So starting in full year 2020, we -- that impact is about $580,000 a year in amortization. So that affects net earnings. But on a cash flow basis, this transaction will be accretive rather in EBITDA.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [21]

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Can you -- go ahead.

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [22]

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No, go ahead.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [23]

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Can you give us any idea what the accretive amount would be or any sense?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [24]

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I would like to, but I've been advised, I really can't. I guess what I can say is that there -- the -- this company was profitable. And -- but the -- but we will -- through the synergies that Randolph referred to, 2 of the 3 executives that were there will no longer be there, and we kept only half of the staff. So there are savings to be had there. So the operating model that it will have with us will be significantly different than the one that existed prior to the acquisition. So the reason I say accretive is because, I mean, I know what the numbers are, fortunately I don't say that flippantly. But I'd say it's accretive because the benefits to us as a result of those synergies are going to be -- will be positive.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [25]

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So their business was a [margin] business, so not dissimilar to your wholesale business?

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Stephen Fitzpatrick, Currency Exchange International, Corp. - CFO [26]

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Yes. They were -- they are in the wholesale banknote business. We are -- we know their clients. We've been there service provider for many years, as Randolph said. So in terms of knowing the client base and knowing what their volumes are, their expectations are and the types of clients, the same types of clients that we have. Their banks, interest banks, credit unions, corporate credit unions. So the business model and a supply model that we are very familiar with has no working capital implications for us because we are already funding the -- we already had working for those volumes. So it's a nice deal. And the fact that $1 million of it comes right back to us. It lowers the acquisition cost effectively and makes it even more attractive to us.

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Randolph W. Pinna, Currency Exchange International, Corp. - Chairman, CEO & President [27]

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Yes. And it should be noted, by the way, Robin. We were not the only wholesaler to the business. So one -- the due diligence shows that he was using us and another wholesale provider. So CXI as a wholesaler now will get 100% of the wholesale activity to eZforex to get, it is being kept as a separate entity. We like that structure. It has its brand. If you notice the unaudited statements show that, that business is continuing to grow. The owner is excellent at marketing. He will continue to not only market and grow the business that he's still going to help lead, but he -- now we're going to use his skills to assist us in doing that same, helping us grow CXI as well in the United States. And again, he will be leaving I think after 1 year. And so this business will be continued then to be more accretive, both at the EBITDA level and to the bottom line as well over time. And so again, I've known the owner and the team very well. And we feel this is a great little tuck in. And it actually invites us to consider some of our other good customers that may be in a similar situation. And so we are reviewing that.

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Robin Cornwell, Catalyst Equity Research, Inc. - President and Founder [28]

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Okay. And one last comment would be, the Canadian banks, of course, are very good at making acquisitions and making shareholders aware that they have adjusted earnings, which excludes all amortization intangibles. So just to the investors, I find their quite sensitive to the adjusted earnings as opposed to reported earnings. So just for future reference, that's -- that seems to be the way investors look at our major banks. That's all from me.

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Operator [29]

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(Operator Instructions) I'm showing no further questions at this time, sir.

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Randolph W. Pinna, Currency Exchange International, Corp. - Chairman, CEO & President [30]

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Okay. Maria, thank you. And thanks, everybody, for being on the call. And one thing I didn't -- my notes here are a bit scribbled because that's how I work. I did forget to point one thing out because we, especially me, like to look at total volume exchange. And one of our shareholders, he had to ask me on the last time, he says, your volume keeps going up but you're -- it seems that you're making no money on it. And I did some homework and realized one reason why our total volume, not transaction volume, but the U.S. dollar value of the amount of money that we've touched has been growing significantly. As you know, we have the remote image capture product, where we are clearing Canadian checks in U.S. because, as you know, there's lots of Canadians that have homes down in Florida and in California all over, all the warm spots of the U.S. And they write checks, sometimes we like it when they write them in Canadian dollars, and they give them to their bank to clear. And we clear it and get foreign exchange. But as you probably can imagine, especially for the Canadians that have homes in the states, they use a U.S. dollar-denominated Canadian check. And so that is still a volume, however, we do not. The rate is one. So it's one to one. So there's no foreign exchange. So when you calculate our revenue to the total volume exchanges, you would -- it gives you an indication that our margins -- our profit margins are shrinking. So we do need to exclude that out in our thinking when we look at this is to realize we do get fee income. You noticed our fee income continues to grow. And so we are getting compensated for this work. However, the delusion is that our margin shrinking, look, they're changing more money but not -- and the exchange rate they're using it's getting less and less. It's -- and that's not true. So just keep that in mind that we are very focused on everything we do. We do for a profit. And the U.S. dollar clearings do go through our totals, however, the income from that is recognized in our fees. But again, I appreciate all of your support, your questions, everything to date. I will be visiting as many of these shareholders over the next few weeks to talk one-on-one. If there's other questions that you have, and that I'm allowed to answer, I will. And I will be very happy to field any questions you may have. So thanks again for your time today, and we look forward to seeing you again soon. That's it, Maria.

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Operator [31]

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Thank you, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.