Triumph Financial, Inc. (NASDAQ:TFIN) Q4 2023 Earnings Call Transcript January 24, 2024
Triumph Financial, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Luke Wyse: Good morning. It’s 9:30 in Dallas, and we’re looking forward to our time with you this morning. I’d like to start by thanking you for your interest in Triumph Financial. I speak with enough of you to know what a busy time of year this is, and we sincerely appreciate you taking a moment to discuss our Fourth Quarter results with us. With that, let’s get to business. We had some great developments this quarter, and we’re carrying a lot of momentum despite a persistently challenging freight environment. As you read in the letter last evening, we are also working on some interesting opportunities and seeing positive results from our efforts and investments. We remain encouraged and optimistic. Last evening, we published our quarterly shareholder letter.
That letter and our quarterly results will form the basis of our call today. However, before we get started, I would like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statements. For details, please refer to the safe harbor statement in our shareholder letter published last evening. All comments made during today’s call are subject to that safe harbor statement. With that, I’d like to turn the call over to Aaron for a welcome and to kick off our Q&A. Aaron?
Aaron Graft: Thank you, Luke. Good morning, everyone, and welcome. I too, hope that you found the shareholder letter, informative and even thought provoking. Before turning it over to questions, I do want to reiterate the four things that I think investors should know. First, TriumphPay hit the much anticipated target of being breakeven one year ahead of schedule. We’re not calling this a mission accomplished moment. but it is encouraging to see this performance in the face of a very soft transportation market. Second, we used this letter to announce LoadPay as a natural extension of the payments network. This wallet is targeted towards smaller truckers, which make up 95% of the entire trucking universe. And we believe that the total addressable market for LoadPay will be very large.
We further believe that our unique positioning for distribution will set LoadPay apart from any others who’ve come before, and we hope and expect we will see widespread adoption. Third, we did recognize some credit expense during the quarter that was outside our normal performance. The majority of that was tied to the rate and freight environment. And while we don’t ever love having that happen. I would say overall, I’m pleased with how our credit performed through one of the most challenging years in recent memory. And finally, the year ahead could continue to be difficult from a short-term or near-term earnings perspective, especially if interest rates fall as projected and transportation remains weak. And we have the ability to adjust our strategy at the margins to offset some of those headwinds, but we will not deviate from the plan.
If you own our stock or considering owning our stock, you need to be prepared to accept the revenue volatility that we talk about associated with our business. It would also be helpful if you’re considering investing to understand, we think in longer windows of time, five year increments generally. We are not distracted by one or two or even three years of headwinds, if we are seeing progress on the long-term vision. And there is no question in my mind we are seeing progress on the long-term vision. 2023 was not a great year for earnings, but it was a great year for Triumph Financial. We are far better as a company and far further on our journey than we were when we began the year. The plan is the same for 2024. And with that, I will turn the call over for questions.
Operator: We will now go to Q&A. [Operator Instructions] Our first question comes from Joe Yanchunis from Raymond James.
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Q&A Session
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Joseph Yanchunis: Good morning.
Aaron Graft: Good morning, Joe.
Joseph Yanchunis: So I appreciate the color on non-interest expenses that you gave in the shareholder letter, but can you give a range of outcomes of how non-interest expenses would fare, including some of the special initiatives you’re working on? And then additionally, based on your shareholder letter, it sounds like the launch of LoadPay as well as what you just said is a given at this point. How much incremental expenses will that program add to 2024 and 2025?
Aaron Graft: Brad, why don’t you take the LoadPay question, and then I’ll follow up.
Brad Voss: Sure. So we have guided to kind of a core expense growth for the year of about 5%, and we continue to think that is a good number, not considering initiatives like LoadPay. It would be a fair modeling assumption for today to think in terms of mid to high-single digits for overall expense growth, including the things like LoadPay.
Aaron Graft: And I don’t know, Joe, if I totally understood the first part of the question about the variability around expenses. We have a strategy that is built, as you well know, in and around creating the payments network for trucking and the ways in which we continue to add value and monetize that. I really don’t think you’re going to see anything happen in the year 2024 that will make us deviate from the investments in and around that strategy. So there are things like I said in the opening, we can do with the margins, but there’s not going to be material changes in how we think about investing or not investing as long as we’re seeing progress towards the long-term goals.
Joseph Yanchunis: Understood. And then on the 3Q call, you noted you had $9 billion in annualized payment volume that was scheduled to come online in the coming quarters. Looks like in this past quarter, you added $1.3 billion in annualized payment volume. I understand there’s fluctuations in average invoice prices can move this amount. But can you provide us an update on how much contracted volume you expect to come online in the coming quarters?
Melissa Forman: Yeah. I can take that one. So Joe, when we onboarded the clients from last quarter, we have seen the majority of that volume come onboard. There’s about another 2 billion gap that is not there as a result of the continued pressures on the market that we had initially anticipated, but just their shrinkage and so that exists. It looks — it could continue into this year, but that’s where the miss is. Additionally, there were shippers that are in our integration pipeline of another $2 billion, $2 billion to $3 billion that we’re expected to be able to go live in the last quarter of last year, but they remain in the pipeline, and we expect them to come on this first half.
Joseph Yanchunis: Got it. So that $4 billion to $5 billion in annualized payment volume that’s coming online that you have line of sight into?
Melissa Forman: Yeah.
Joseph Yanchunis: Okay. A couple more for me here. In the shareholder letter, you noted that four factoring companies joined TPay, which on a percentage basis is pretty meaningful. Is there any way to quantify the aggregate size of these factoring companies and what does the typical volume ramp look like for a factoring company joining the payment network?
Melissa Forman: Yeah. So that — so one of them was what we would consider a Tier 1, which is over $100 million in NFE, our net funds employed and the others were smaller factors in the network that would be classified as a Tier 3. So in terms of volumes are not — it’s not huge what they received from the network that was different. You can’t think of a factor the same way you do as a broker. The value to them is different in how they leverage the network. And so a $100 million broker is very different than a $100 million factor. So that’s how they’re classified.
Joseph Yanchunis: Okay. I appreciate that. And then the last one for me is, we saw last night, Covenant Logistics called out severe weather as a potential headwind to 1Q earnings along with normal seasonal declines, understand quarter-to-date average trend transportation invoice sizes are up, but they do appear to be trending down. Do you have a sense for how 1Q volumes will shake out for the industry?
Brad Voss: Yeah. Joe, I think it’s interesting because what has happened is we are seven weeks into positive indication of average invoice amount and margin improvement for our carriers. I think the challenge that we have is we’ve had a head fake in this space before due to seasonality, due to weather, due to a variety of small carriers parking their capacity. And so it’s a little bit too early to tell what direction we’re going. But we have built our business around surviving whatever direction that is.
Aaron Graft: Yeah. I think to add on to that, Joe, the — like in our factoring business, 7% of our carriers who were active before the end of the year have not been active in January. We don’t know whether that means they’ve left the industry, I doubt that all of them have done so. And some of them have chosen to park their trucks because they knew the market was soft. And the weather would — if you’re going to clear a spot load in this weather, a carrier is going to get — expect to be paid more because it’s more difficult and time consuming. So it’s hard to create a trend line, as Tim was saying, over what you’ve seen some three weeks into the year.
Joseph Yanchunis: Perfect. Thank you for taking my questions.
Aaron Graft: You got it. Thank you.
Operator: Our next question comes from Frank Schiraldi from Piper Sandler. Feel free to unmute and ask your question.
Frank Schiraldi: Good morning.
Aaron Graft: Good morning.
