Currency Exchange International Corp (OTCPK:CURN) Q3 2022 Earnings Conference Call September 14, 2022 8:30 AM ET
Company Participants
Bill Mitoulas – Investor Relations Manager
Randolph Pinna – President and Chief Executive Officer
Alan Stratton – Interim Chief Financial Officer
Conference Call Participants
Jim Byrne – Acumen Capital
Robin Cornwell – Catalyst Research
Stephen Ranzini – University Bank
James Smith – Private Investor
Operator
Good morning, ladies and gentlemen. And welcome to the Currency Exchange International 2022 Q3 Financial Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded on Wednesday, September 14, 2022.
I would now like to turn the conference over to Mr. Bill Mitoulas, Investor Relations Manager with CXI. Please go ahead, sir.
Bill Mitoulas
Thank you, Michelle. Good morning, everyone. Welcome to the Currency Exchange International conference call to discuss the financial results for the third quarter of the 2022 fiscal year. Thanks for joining us. With us today are President and CEO, Randolph Pinna and Interim Chief Financial Officer, Alan Stratton. Alan will begin with brief comments on the third quarter’s 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’s sales initiatives, and business activities, after which we’ll open it up for your questions.
Today’s conference call is open to shareholders, prospective shareholders, members of the investment community, including the media. For those of you who may happen to leave the call before its conclusion, please be advised that the 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 the 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.
Alan Stratton
Thank you, Bill. And thank you everyone for joining us on today’s call. I will now present an overview of the results of our most recently completed quarter Q3 2022. These results are presented in U.S. dollars unless otherwise noted. And as we have stated in the past the Currency Exchange business has been significantly impacted by the COVID-19 pandemic which continues to affect international travel in many countries that they maintain restrictions on unvaccinated travelers or have onerous testing requirements that act as a deterrent.
Notwithstanding these challenges, CXI had a breakout quarter, as demand for foreign currencies increased significantly in Q3, as international travel rebounded strongly on the pent-up demand, in addition to continued growth in both our international banknotes business and payment segments.
Now the travel recovery may have been even stronger had the industry being able to restore capacity to2019 levels. This surge in demand is unprecedented in my welcome [ph] it did present some challenges for us to support operationally.
Our vaults in particular struggled to keep pace with the record volumes, resulting in some delays in processing shipments, and many employees working overtime through much of our busy season.
Revenue in Q3 grew by 137% to $20.7 million, from $8.7 million in Q3 2021. The banknote segment represented an 82% share of that revenue, an increase from 75% in the prior year. Total banknote revenue increased by 103% to $17 million in Q3 versus $6.5 million in Q3 2021. The substantial growth was driven primarily by demand for the euro, British pound, Mexican peso, and several other currencies to including exotics.
Notably, the revenue is also significantly higher than our pre-pandemic peak in July 2019, which was $12.4 million, approximately 95% of which was driven by the banknote segment. The increase reflects the company’s ability to increase its market share in the past three years through our omnichannel approach to reaching consumers and supported by the exit of a major competitor from the North American market in 2020.
During the quarter, the company on-boarded 47 new financial institution clients, representing 194 transacting locations. We continue to maintain a strong pipeline of small and medium sized institutions that find our one provider, one platform strategy quite appealing.
In our direct-to-consumer division, our agent network continued to grow with three new airport locations in each of Pittsburgh, Raleigh-Durham and Minneapolis-St. Paul opening. We now have 23 locations at international airports in the United States, which provides tremendous exposure for our brand.
Our OnlineFX platform also growth – has continued to grow as consumers have become more accustomed to having currency shipped directly to their home. When we launched the platform in 2021 virtually all of the transactions were for exotic currencies.
Earlier this year, we began advertising through social media and Google, which has had a dramatic impact on growth for travel currency demand on that platform, and now 65% of the volume done through it is for travel related demand. Also during the quarter, North Carolina became the 38th state that we service through the platform, and we intend to add other states in the future.
Turning to our Payment segment, its revenue increased 65% in Q3 2022 to $3.6 million from $2.2 million in Q3 2021. That increase was driven primarily by new client acquisition in both the US and Canada over the past year.
The company processed over 26,000 payments transactions in this quarter on $1.8 billion of volume, that represents an 80% increase in volume over Q3 of 2021. And this has been partially facilitated by our integration with Fiserv that occurred back in 2019. And earlier this year, the integration of CXIFX, our proprietary software with Jack Henry SilverLake, another premier core processing platform for the FI industry in the United States.
By geographic segment, the US Representative 77% or $15.8 million of the revenue in Q3 2022. And this was an increase of 158% from the $6.1 million generated in Q3 2021. Canada grew to $4.8 million in Q3 from $2.6 million in the prior year, an increase of 86%. And part of the reason for the growth in the US being higher is due to the direct to consumer channel, which has higher margins but also then the wholesale channels.
However, Exchange Bank is the predominant wholesaler of choice for money service businesses that operate in airports and high tourist locations in Canada. And this segment rebounded strongly after the federal government in Canada removed the requirement for negative COVID 19 test on entry into the country on April 1, and we saw demand continue to grow throughout the summer. Both Canada and the US still require foreign nationals to be vaccinated in order to enter their respective countries, which is a barrier to achieving pre-pandemic travel volumes.
Our revenue grew by 137%. Total operating expenses rose 74% to $13.3 million in Q3 2022, compared with $7.7 million in Q3 of 2021. Variable expenses accounted for approximately 60% of that increase, led by the higher volumes.
Postage and shipping represents the largest component of our variable costs, which grew over – just over 300% to $2.8 million from 700,000 in prior year. As a share of banknote revenue they have increased to 16.7% from 10.5% in Q3 2021, and this is due to a few factors.
Firstly, the number of shipments from our vaults increased three fold over Q3 2021. And to put that into perspective, our vaults process to combine 170,000 orders in Q3 2022, compared with 43,000 in Q3 2021.
Secondly, shipping costs as a proportion of revenue for exchange banks transactions with the Federal Reserve Bank of New York tend to be higher, as these are high volume, low margin transactions. However, most of those shipments go direct, reducing our internal processing costs.
And lastly, but not least, shipping costs have not been immune to the inflation and high cost of fuel, which peaked during the quarter. Fortunately, fuel costs have since receded, and the company has renegotiated contract with a key logistics provider in July, which provides some additional volume based rebates.
Bank fees increased 45% to 4 – 587,000 in Q3 2022 from 404,000 in Q3 2021. However, as a proportion of the payments revenue, they’ve actually decreased from 18.3% in Q3 2021 to 16.1% in Q3 of this year. And this is due in part to the fact that company offers EFT or ACH payment options to its clients that are sending payments to or from the US and Canada. Fees for those transactions are negligible compared to the cost of sending wire transfers. And lastly, commission’s expense and third party technology fees make up the remainder of the variable expenses as a track closely to the volumes as well.
Our fixed and semi-fixed operating expenses grew by 40% to $2.2 million, or $2.2 million over Q3 2021 to $8.1 million in Q3 2022. Salaries and benefits is the biggest component of that, and excluding the sales commissions and incentive compensation grew by approximately 650,000 over the quarter in the prior year. And this reflects growth in our employment base to 320 from 272 last year, in addition to the impacts of inflation on wages, payroll taxes and benefits.
For the first time, the company made broad based adjustments to wages for its employees, notably our retail and hourly based staff outside of our annual cycle. Due to the competitive environment, our starting wage has risen to almost $20 an hour in the United States. This has been necessary to retain and attract high quality talent that has made CXI known for our customer service.
Part of the year-over-year increase is also driven by the reinstatement of the company matching contributions on the employee retirement savings plans that had been suspended during the pandemic until late in 2021.
Turning to other fees, legal and professional costs experienced growth of 52% to $1.1 million versus 700,000 in Q3 2021. And this includes some short term spending increases, as the company invests in the use of external partners to recruit key positions, given the tight labor market, the implementation of Oracle NetSuite that we began in May of 2022, and consulting for certain compliance related projects. However, there have also been some general increases in audit and tax fees that are commensurate with the growth of our business and complexity as we operate in more states.
Overall, our expenses are in line with our expectations, given the increased volume and inflationary environment. As a result of the revenue growth outpacing expense growth, the company generated positive operating leverage of 35%, a significant improvement from the 12% generated in Q3, 2021 and 23% in just the prior quarter Q2 of 2022.
Adjusting that for the lease payments that are recognized on our IFRS 16 as capital leases, the operating margin was 33%. And this is significantly better than the margins generated just prior to the pandemic. And it does reflect the fact that our bank has started to achieve scale and is contributing to the growth in operating income.
Turning to the other expenses, the most notable change versus the prior year was the growth in interest expense, which increased $269,000 to $430,000 in the quarter from $161,000 in Q3 2021. That growth reflects the increase in borrowings to fund growth and working capital, primarily the banknote inventories given the higher volumes.
Average outstanding borrowing in the quarter was about $30 million compared to $17 million in the prior year. In addition to the increased borrowings, the interest rate on the company’s primary lending facility has increased, as the Federal Reserve has increased rates during the year.
During the quarter, the company renewed its credit facility with its primary lender under favorable terms. Most importantly, as we secured an increase to our credit line by $10 million, raising it to $30 million from $20 million with an additional accordion feature for a further $10 million to support working capital needs in the future.
We still maintain a credit facility with a private lender totaling $20 million to provide additional capacity for both CXI and Exchange Bank of Canada. And this private lending facility carries an interest rate of 6%, which is quite reasonable in the current environment.
The net income for Q3 2022 was $4.6 million, compared to a net loss of $120,000 in Q3 2021. And this performance translates into earnings per share of $0.70 on a fully diluted basis. I don’t believe the company has ever generating earnings per share of this high in any given quarter at this point.
Turning to the performance for the nine months ended July 31 2022. Revenue grew 127% to $46.5 million from $20.4 million in the comparative period in the prior year. And that improvement reflects the impact of the recovery in international travel coupled with the success and driving our various strategic growth initiatives.
Banknotes accounted for 81% share of revenue in the nine months ended July 31, 2022, an increase from 73% in nine months ended July 31, 2021. Now that revenue increase of 140% to $37.5 million from only $15 million in the prior year. Almost half of that growth was driven by the strong performance in Q3, which represented 55% of the year-to-date banknote revenue.
This is disproportionately high relative to historical norms. For example, going back to Q3 of 2019, it represented about 41% of revenue in the nine months ended July 31, 2019. The 2022 performance reflects the impact of the Omicron variant and related COVID-19 restrictions on demand in the first half of 2022.
Relative to the nine month period ending July 31, 2019, banknote revenue has increased approximately 25%. And that’s an indication of the company’s growth and market share since the pandemic began.
The payment segment has generated revenue of $9 million in the first nine months of the year, an increase of 65% from the $5.5 million generated in the first nine months of 2021. And this reflects our ability to consistently add new clients in both the US and Canada.
During – despite the tremendous growth in banknotes [ph] payments represent a 19% share of revenue on a year-to-date basis. We are very pleased with the growth in this segment, since we developed a clear strategy around payments. We believe there’s a lot of opportunity to increase our market share in this space moving forward.
By geography, the US accounted for $34.9 million of our revenue in the first nine months of the year, an increase of $19.5 million from the same period in the prior year. At 75%, it share of revenue was consistent with last year. That reflects our ability to grow at the same rate in Canada where the banks revenue increased by 128% to $11.6 million compared to $5.1 million in the prior year. We were very pleased with the bank’s revenue growth and overall financial performance this year, which has been driven by both the payment and banknote segments.
Exchange Bank of Canada began operating under the Federal Reserve Bank of New York’s Foreign Bank International Cash Services program or FBICS for short in Q4 of last year, and this has been one of the catalysts driving trade in the US dollar banknote segment with foreign institutions.
Operating expenses grew by 56% in the nine months ended July 31, 2022 to $33.2 million from $21.3 million in the prior year. And variable expenses comprised $7.1 million, or 59% of that increase.
Postage and shipping represented about $4 million of that increase for the same reasons that I mentioned previously. Sales commissions accounted for approximately $1.7 million of it. And that is generally around the revenue growth and also new client acquisition.
Other incentive compensation increased by approximately $0.9 million. And then there is the bank fees that increased by about $0.5 million or 43%. Again, lower than the actual growth rate for the payments revenue.
Other fixed and semi fixed operating costs accounted for the remaining $4.8 million in expense growth, with $2.9 million of that attributable to salaries and benefits, 600,000 of that driven by high roll [ph] taxes, benefits and so forth, including that company matching benefit that I spoke about on the retirement plans.
The $2.3 million balance of the variance in these costs relates to that incremental growth in the headcount and the inflationary increases, which as I mentioned, in previous calls, the company had maintained a wage freeze during 2020 and 2021 in response to the impact of the pandemic on our business.
Outside of salaries and benefits, most of our other operating expense categories have increased due to a combination of inflation, and the higher business volume. The legal and professional fees, as I previously mentioned have increased by about 800,000 in the nine month period ending July 31, 2022, for much of the same reasons.
Also noteworthy is that travel, entertainment spending increased by 143% or 218,000, as the company has embraced a return to in-person meetings and events. While we have adopted a flexible approach to working remotely, we are creating more opportunities for our employees to spend time together, as we feel that is important to building relationships and creating a distinctive culture.
On the IT side of the house, those costs have grown by about 33% or 338,000 from the prior year, as we continue to invest in our infrastructure, including our proprietary platforms, and cybersecurity protection.
Overall, our operating expense growth has been consistent with our expectations, as revenue has outpaced growth this year, our operating leverage has increased 29% in the nine months ended July 31, 2022 from negative 4% in the prior year.
Outside of the growth in interest expense for the same reasons that drove our quarterly increase, the other income and expense have been consistent with the prior year. Income tax expense has grown in line with the – the taxable income, and our effective tax rate is closely matching the statutory tax rates are various permanent and timing differences largely offset the benefit of applying unrecognized tax loss carry-forwards to the bank’s taxable income.
The company generated net income of $7.4 million in the nine months ended July 31, 2022, compared to a net loss of $2.8 million in the prior year. This translated into earnings per share of $1.13 on a fully diluted basis, a significant improvement from the $0.43 per share loss in the prior year. And this also represents an annualized return on our equity of about 15%, which is quite respectable.
Turning to the balance sheet, there has been a significant increase in cash holdings to a $114 million from $67 million at October 31, 2021. And approximately $81 million of those cash holdings represents our banknote inventories, up from $44 million at year end and $65 million at April 30, 2022.
Given the unpredictable nature of demand and the significant increase in volumes, we held higher inventory balances of certain currencies during the quarter to mitigate the risk of running out. We have been investing in additional resources and will be undertaking an expansion in one of our vaults to accommodate higher volumes.
We are also reviewing inventory at consignment locations relative to demand and reducing those levels that don’t meet turnover thresholds. Thus, we anticipate that our average inventory levels may decline, although we are susceptible to high peaks, especially as our trade in international banknotes continues to grow. As a result of the growth in inventory, the company had almost $31 million in outstanding lines of credit at the end of Q3, with an additional $20 million in available capacity.
The remainder of our working capital balances at July 31st were in line with norms. There has been growth in holding account balances as a result of growth in the business volumes, and those are offset by funds and bank accounts.
Embedded in other current assets resides $3.2 million in outstanding receivables related to our employment retention credit claim from 2021. We did receive $140,000 in July that related to our 2020 claim. This is encouraging as we know that the IRS is taking six to nine months to process these refunds. We are therefore hopeful that the balance will be forthcoming before we close out our fiscal year.
Lastly, it’s worth noting that the company’s net equity position at July 31, 2022 was $65.6 million, up from $58 million at October 31. It’s also approaching the $66.3 million in net equity that we had at January 31, 2020, the last reporting period prior to the pandemic.
The significant revenue and earnings growth in 2022 provides us with confidence that our business model is sound and the company is financially sustainable. Once again, our strategy has been a key factor in the turnaround, and we will continue to focus on its execution.
While there are various risks that may impact future results, such as high energy prices, inflation, Russia, Ukraine conflict and potential for future COVID-19 variants, we believe that CXI is well positioned to weather fluctuations in demand and to continue its o grow.
At this time, I will turn the call over to Randolph Pinna, our CEO to provide his perspective.
Randolph Pinna
Thank you, Alan. Good morning, everybody. I appreciate everybody’s time today to getting on the call, especially those out west, I know it’s quite early there. As usual, I’d like to start with Exchange Bank of Canada. The most noticeable thing here is that the bank is now consistently generating profitable monthly results. I attribute that to the team, primarily we have a strong leader with sales team and as well as a strong team on our second line of defense of oversight and compliance and risk.
Its profitable growth is driven by the three main areas of the business, which is first, of course, banknotes. That domestic banknote activity in Canada has really rebound in all provinces, especially Quebec, and Ontario. The banknote business continues to grow because of the surge in demand, and as well as that we are continuing to add new customers.
Our pipeline is full with domestic potential clients and we continue to plan on expanding domestically in Canada. Internationally, the banknote business has also grown as Alan pointed out, strongly driven because of the Federal Reserve Bank of New York’s relationship and the demand for US dollars to buy or sell. And this business is going to continue to grow as we selectively look at new countries that where in which this bank can safely expand and grow its international banknote business.
Also domestically in Canada is the payment business. Our primary businesses with small to medium sized business corporations, and that business is continuing to grow, as we expand our outlook, as well as the team, both in Quebec and in Ontario, with future plans to expand out west.
Moving over to CXI, the first thing I’d like to announce is that we have finally identified and agreed for employment of a new Chief Financial Officer. Allen [ph] is very strong and based in Toronto, we’re very happy with his work so far. But this new chief financial officer is for the group, and he will be based in Orlando, Florida starting in October. We will be making a separate announcement of that at the appropriate time.
CXI, as you saw had record volumes. This is driven as Alan pointed out because of our strategic plan. As you may recall from previous calls, I’ve outlined that is not only just a consumer expansion, but it’s also our core business at financial institutions.
But before I skipped over, I want to make sure that we understand the consumer division is made up of three major areas. First, our company owns stores. We’ve grown that store. We had our most recent store opened in Boca Raton, Florida. And we’re now over 36 stores. That is down from pre-pandemic levels because we did have to shutter some stores as we reevaluated our total strategy and looked at minimum thresholds in which we would operate our own brick and mortar locations. That retail business did exceed our expectations both from travel demand, as well as continued demand for exotic currencies.
Additionally, in the consumer division, we have our agent locations. The most notable expansion there’s where we struck a deal with the local retail operator, as well as the airport authority in which a favor – very favorable arrangement has been made where CXI operates as the wholesaler providing its inventory, its brand, its software and its oversight, whereas the local retailer maximizes the flows of the airport. This business continues to grow for us, and we are excited to see our brand available in many popular US airports.
Lastly, our online store. As Alan pointed out, we’re now available to sell to 38 different states, representing over 70% of the United States population where we have a home delivery network in which we can deliver usually by FedEx to people’s residences. The online store not only has a direct to consumer aspect, it also works with banks where in which the banks can have on their website, the opportunity to have their clients order and not have to go to the bank branches and have us ship on behalf of the bank to the client’s home.
So the online store is a strong part of our consumer division. And we have secured an experienced digital online manager who’s based currently in Texas, and he has experience in growing the online store through relationships such as travel sites, where in which they will be online referrals to our store to complete any international transaction, ensuring that the client gets currency.
The core bit – of the CXI, as you know is with financial institutions. Our OPOP [ph] strategy, one provider one platform is successful, and it’s continuing to grow. One of the key elements of the OPOP strategy is the integration with banking core systems such as Fiserv and Jack Henry, as Alan pointed out. We do anticipate we’re underway already with additional integrations, as the integrations allow for straight through process of international payments. Our focus, as you know is to diversify our revenues to include not only the growth in banknote, but to diversify so we have an increase in payment activity.
Of course, CXI also operates internationally. This is mostly banknotes services, although there is some payment demands as well. The CXI will continue to focus on its international expansion, since there’s a lot of new customers available to the company in markets such as the Caribbean and South and Central America.
Overall, I’ve really – just very pleased with the results of the organization. I want to big – give a big thanks to our vendors who’ve helped us through this. And most importantly, our employees who’ve worked long hours, especially over July of the summer, we’ve had, as Alan pointed out, overtime, as the volume did expect – exceed our expectations. And I want to big – give a big thank you to the entire team for rolling up the sleeves, working long hours, even on weekends, to ensure that we were able to best maximize the flow that occurred this high season.
And with that, I would just want to go ahead and open up the floor. If you could please respect the fact that there are other people that may want to ask questions. So if you could just keep your questions to one or two at the most. And if you do have more than that, please reach you to ask additional questions. So with that, I’ll turn it back to Michelle to open up the floor for any questions you may have. Thank you.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Jim Byrne of Acumen Capital. Please go ahead, sir.
Jim Byrne
Yeah. Good morning, guys. Congrats on the great quarter. Just a few questions for me. Can you – Alan, you mentioned some shipping delays and overtime. Could you quantify any of those impacts on Q3 results? Were there timing impacts that potentially push some of that into Q4? And have you been able to deal with those now? Like are they still ongoing you know, with issues with the operations?
Alan Stratton
Good question, Jim. So from a timing perspective, it didn’t push any revenue into Q4. It just really created some bottlenecks with inventory levels in the vaults. That’s the primary one and there were some small additional vault losses, but it wasn’t really anything material around that, just around the currency.
But generally speaking, it’s more of an operational concern. It hasn’t had a large impact on our financial results.
Jim Byrne
Okay, thanks. And I see you’re now up to 23 airport locations through the agency model. Is there a – an end goal in mind? Are you hoping to get to 50, 60, 70? What – where do you think that number can go in the future?
Alan Stratton
Randolph, if you would like to that that….
Randolph Pinna
Yeah, thank you, Alan. Yeah, I – Jim, we don’t have a specific goal. Airports have always been a retail area that we have shied away from due to the regulatory requirements to be a retailer in an airport. And so we have two solid partners that have developed a strong relationship with us and we support their growth. They are, too – if you’re asking if that business line will continue to grow, we do anticipate that. They are bidding on other airport locations. So you have significant airports like San Francisco that still to this day, don’t have currency exchange. And so we will support them.
But we are not actively ourselves pursuing additional retail stores. In airports, we are leaving that to our several operators that we have to expand that. And so we’re pleased with what they’ve done so far. And I do confirm they are working on additional airport locations. But that is not the centerpiece of our consumer expansion. Our OnlineFX, our own company stores, and the agents, of course, all make up our overall consumer division, which is being led by one of our most experienced executives in the organization. Did I answer your question, Jim?
Jim Byrne
Yeah, no, that’s, that’s helpful. Randolph, thank you. And maybe just last one for me. You know, we’re kind of kind of six weeks into the quarter here for Q4. How are things shaping up from a demand perspective, and any commentary or any commentary on margins and kind of expenses here so far in the quarter? If you have any guidance that would be helpful….
Randolph Pinna
Yeah, well, Jim, so we don’t provide any specific guidance, per se, I can confirm that the summer has been very busy. And as you probably can imagine, if you have kids, you know that August, which is the start of our fourth quarter still had kids on vacation. And so the – flow that we saw during our third quarter, definitely has been continuing, you know, but now kids are back in school. So it is expected that it would go back to the normal slow period after the busy summer.
And as far as an efficiency ratio, we could have been even more efficient in the third quarter. Again, volumes, you know, we’re double what we expected originally when we started the planning session of the year. And so we are focused on improving our efficiency, we could have done a little better.
And so in the fourth quarter, that same focus remains. And so I would like to think that we can, but, you know, there are a lot of costs, this inflationary environment, everything from insurance, to payroll to gas, everything’s been going up. We’ve been adjusting a quarterly, so we strive to keep that type of efficiency ratio.
Jim Byrne
Okay, I’ll pass the line. Thanks, guys.
Randolph Pinna
Thank you very much, Jim.
Operator
Your next question comes from Robin Cornwell of Catalyst Research. Please go ahead, sir.
Robin Cornwell
Good morning, and congratulations again, on just an outstanding quarter. I see your – your leverage has finally come through and in major quantities. That’s terrific. My question is, on the calculations on the banknote, according to what I can calculate, if you exclude the global banknotes, it looks like your overall volumes are about 20% or so above peak levels, then, over the last few years, and my curiosity is really is that can you expand on that, was it the wholesale side or the direct to consumer that has driven that business to this record level?
Randolph Pinna
It’s both Robin. And it’s really the end consumer that’s driving it. Our wholesale clients are all dealing with end consumers. And so it’s just been that strengthened demand coming through from all channels. There hasn’t been any one in particular. We’ve been adept at growing our market share in all channels. As I indicated, we had a major competitor left in 2020 that also had wholesale and retail presents.
So everything we’ve done seems to have translated into stronger results across the channels, but I think is just lifted by the overall final strength of the recovery around international travel this season.
Robin Cornwell
Okay. And Randolph the follow up question is the duty free stores and mirror – duty free America, is that still part of your agency current plan or is that changed?
Randolph Pinna
No, no, of course. We appreciate our relationship with DFA. As you probably know, they’re a Florida based organization with strong owners and leaders. We value that relationship. That is – that’s been one of it. And then to the question Alan was answering, the overall fact is we’ve got more and more customer locations. And of course, the consumer demand is what drives everything in the banknote side, and that is growing.
So duty free continues to be a good customer of ours. We continue to hope to expand with them that we unfortunately because of the pandemic and their needs to really cut costs during the lockdowns over the last two years, we were not able to add the southern border. We do service all of the northern border locations between US and Canada. And we’re now striving this year to get the pilot going with their Mexican border locations.
We’re starting with just about four or five. But that’s still underway. There they are focused on their core business of duty free. And this add on service of currency exchange is part of our relationship and we hope to continue to grow that as an additional agent location expansion opportunity.
Robin Cornwell
Okay, terrific. Thank you. And exotic currencies, was it significant – in the past has been sometimes significant. Has it – was it this quarter, relative to total revenue?
Randolph Pinna
I’ll let Alan be – if he has – yeah, go ahead, Alan. I was going to say. The travel demand is the number one reason for our increased banknote revenues on a group wide basis. But go ahead. Alan, I am sorry.
Alan Stratton
Yeah, no, I think the exotics always represent sort of a call it the cherry on top. It’s nice extra business, but we can’t plan for it. What we have noticed is despite the volatility in markets, and crypto assets, and so forth, we’ve continued to see strength in underlying core exotic currencies, being primarily Iraqi dinar and Vietnamese Dong. So, in that – that as one of the benefits of our retail network is being the channel, especially OnlineFX that we can reach more consumers through that.
So we haven’t noticed a precipitous decline in that. It’s continuing to be strong this year. And so we continue to service that market. But as Randolph indicated, the growth is primarily all really related around the travel related demand.
Robin Cornwell
Okay. Finally, Randolph, can direct to consumer be introduced in Canada or is there something limiting/
Randolph Pinna
We have made a choice and we have not considered yet to venture into consumer direct transactions exchange, Bank of Canada’s business license was predicated on being a B2B or bank to bank or bank to business bank. And so the consumer expansion would either require CXI to expand side by side with EBC in Canada, or EBC to update its business plan to show that the consumer activity is now part of – now a much more mature bank of its plan.
At the moment, we have chosen not to venture into the retail or consumer direct space, because all of our customers which are financial institutions, as well as money service businesses operate in that space. And unlike America, where there’s not a lot of retail, consumer locations and candidates quite full, the licensing requirements to become a currency exchange in Canada is a bit easier. And as a result, there’s a lot of what we would call Mom and Pop, some of which are our customers that do that space.
So we at this time are focused on Exchange Bank of Canada being what it is, which is a wholesale B2B Bank, specializes in foreign currency exchange and foreign exchange payments for corporations and financial institutions, both in Canada and international.
Robin Cornwell
Okay, great. Thank you. That’s all for me.
Randolph Pinna
Thanks, Robin.
Operator
Your next question comes from Stephen Ranzini of University Bank. Please go ahead, sir.
Stephen Ranzini
Good morning. Randolph and Alan, fantastic quarter, congratulations, I’ve got two questions…
Randolph Pinna
Thank you.
Stephen Ranzini
The number of states in which you’re currently licensed is 38. How many open applications do you have for licenses in additional states at this time?
Randolph Pinna
There are two or three that are active right now. And I want to just clarify to make sure that there’s no missing information given to the public. Certain states, we don’t have a licensing, we have an exemption from the state regulator. So we typically try to not require – get a license if we – if our business model, which is shipping currency over the state lines, which in many states is considered money transmission.
Luckily, there are several states that don’t consider that money transmission and don’t require a money transmission license. And so therefore, that’s our first approach. As we expand, we do you know, have the goal of hopefully getting in to be able to service almost every state. We do have some national contracts with big brand names, that I can’t say right now. But – so we do want to expand. So to the question, we have, I think, two maybe three, new state applications for money transmission license underway.
Stephen Ranzini
Thank you. My second question is by your payments business, which includes you mentioned ACH and Wire Activity. Could you also handle merchant card type business processing under Visa, MasterCard or other payment brands? And if so, which licenses do you have in which kind of license?
Randolph Pinna
We do not currently, do any of – you know, a Visa, MasterCard, or network like that. We’re also not doing DCC, which is called Dynamic Currency Conversion, which is typically around point of sale machines or ATM machines. So our foreign exchange focuses directly with executing on payments for financial institutions or corporations, as well as forward contracts on foreign exchange. But we’re not yet expanded into getting into the digital online marketplace in terms of processing, some network exchange like that.
Stephen Ranzini
And do you see that as a potential business opportunity with your current customer base? Or would that have to be a complete de novo effort?
Randolph Pinna
Well, there are opportunities like DCC comes to mind, the Dynamic Currency Conversion, that – that’s a an add on that we could offer to select financial institutions. But as far as targeting a Discover card, or MasterCard type of network integration, that’s not at the top of list. Our current integration needs are focused with existing payment flows, which is typically a financial institution, core operating systems, as well as some other unique integration opportunities. But right now, we don’t have a network integration such as a MasterCard or Discover card.
Stephen Ranzini
All right…
Randolph Pinna
Due to grow in that market, we do have a very strong product manager that has been with us now almost a year. And he’s continuing to identify opportunities to profitably add new product and service.
Stephen Ranzini
Thanks so much, and good luck on the next quarter.
Randolph Pinna
Thank you, Steve. Appreciate it.
Operator
Your next question comes from James Smith, a Private Investor. Please go ahead, sir.
James Smith
Hey, good morning, everyone. Thanks for taking the question. Two quick questions. One, now that you’ve got the debt refinance done, and it sounds like you’ve got the new CFO joining shortly, can you please give an update on capital allocation priorities? Obviously, the banks profitable, which is great to see. So how are you thinking about surplus capital?
And then the second question is around, have you hired or got dedicated headcount on the CEWS [ph] program within EBC, which I know was an item that came up on a prior call? Thank you.
Randolph Pinna
I’ll let Alan answer the first. And I’ll address the international expansion, second, so go ahead, Alan, please.
Alan Stratton
Sure. Thank you. So to your first question around capital I say, I wouldn’t call debt financing done. We’ve achieved I think a major step forward and being able to expand our existing primary facility with CXI. We still need to get a dedicated facility, long term facility for the bank and that will be dependent on the bank closing out this fiscal year with solid earnings that will enable it to get a new line of credit probably early next year.
Secondly, is the most important thing for our businesses managing liquidity, and ensuring we have enough liquidity and the peaks that we see with inventory and settlement of transactions require that we have enough capacity to manage those. And so what we’re looking for is to make sure we have enough capacity plus a cushion for all of our peaks. And that will probably mean we’ll need some additional debt capacity, before we would be in a position to repatriate capital – drew anything out else other with capital, because at that – at July 31, all $65 million of our equity was being used in the business, every dollar of cash was in the process of being used, even though a lot of it is settlement related or high quality liquid assets that could be deposited in a bank account, but they aren’t needed to fund the business.
What we know is that we have our think the ability to lever our balance sheet. And that will eventually allow us to be more flexible with our capital in the future. And one of the key things that we are focused on is identifying potential M&A targets. And we think our capital position is well suited to be able to do more transactions.
And so that’s where we’re at today with it. I don’t have we don’t have clarity for you on any things specific around capital at this time, though.
Randolph Pinna
Thank you, Alan. Yes, the there is a strong focus on the capital is return on capital deployed and analyzing, as Alan said, in his startup call, part of the call was around looking at our inventory on consignment to ensure that the inventory turnover ratio is ideal, and so forth. So capital is a focus of ours, and the return on equity is a key driver.
As far as your question for international expansion. Currently, the international expansion is broken up into two businesses. First, I know you asked about CEWS [ph] I’ll get to that next. CXI has been successfully operating with clients, financial institutions in the Caribbean, and then started to expand that business with other select countries.
The leader of CXI is Chris Johnson has been with the company but I think at least 15 years, about 15 years. He’s a strong leader, and he is continuing to invest into his sales team with a focus, as well on international expansion.
Exchange Bank of Canada is led by James Devenish. He’s a strong experienced sales leader. And he too, is focused on the international expansion and is recruiting for a dedicated person to really maximize that CEWS [ph] relationship, that the CEWS relationship is not the only piece of our international expansion. We also of course sell other foreign currencies to institutions out of the country, as well as we look to expand our capability to sell Canadian dollars in bulk just like we can sell us dollars.
And so the international expansion plan for both businesses is definitely underway. And we are still recruiting to hire people, not just for international sales, but also domestically, but internationally is definitely a part of our key strategy. Did that answer your question?
James Smith
No. Thanks very much. Both and best of luck.
Randolph Pinna
Cheers. Thank you.
Operator
Mr. Pinna, there are no further questions. I will turn the conference. Back to you, sir, for closing remarks.
Randolph Pinna
Okay, great. Well, we finished up on time. So I appreciate everybody’s time today. Again, a big thank you to all of our, our team, the employees, the directors, our vendors, and all of you shareholders on the line. We really appreciate your support, your understanding as we went through the toughest time our business has ever endeavored. But we’ve come out on the other end now stronger, leaner, and ready for significant growth in the years ahead. So again, I give a big thank you to everybody involved all of our stakeholders. Thank you.
Operator
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines. Thank you.
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