Triumph Financial, Inc. (NASDAQ:TFIN) Q1 2024 Earnings Call Transcript April 18, 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, so let’s get started. We know you likely have numerous demands vying for your attention during this busy time of the quarter. So we’d like to open by thanking you for your interest in Triumph Financial and for joining us this morning to discuss our first quarter results. With that, let’s get to business. Aaron’s letter last evening covered a lot, both about the quarter’s results and the opportunities we see that create future shareholder value through prudent and timely investments today. Reiterating as closing, we are impacted by the soft freight market, but excited about the long-term momentum we see. As referenced 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 of these 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: Thanks, Luke, and good morning, everyone. Thank you for joining us. Since I wrote such a long letter, I feel like I owe it to you to give a short opening. So I just have a few things to point out for you. First, our earnings were weaker than they’ve been historically and they’re going to remain under pressure as long as this freight recession continues. Second, there was credit noise in the quarter, but not all of that noise was a bad thing. A credit may be a headwind for us for the time being, but we are proactively managing through it. And finally, TriumphPay took more ground this quarter. We welcomed well-known names to the network. We increased volumes on an absolute basis in spite of the weakest quarter in truckload freight in my memory.
And finally, I think some investors will hopefully find value in the transaction and value map we included in this letter. It dimensions the market size and the revenue opportunity and it puts into writing what I have believed for several years. We have a lot of growth in front of us. So at this point, let’s turn the call over for questions.
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Q&A Session
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Operator: We will now go to Q&A. [Operator Instructions] Our first question will come from Joe Yanchunis of Raymond James.
Joseph Yanchunis: Hi there. Are you able to hear me?
Melissa Forman: Yes.
Aaron Graft: Good morning.
Joseph Yanchunis: Good morning. So in your shareholder letter you referenced that the pipeline for TPay was full. And you stated your confidence in TPay touching 50% of brokered freight by year end. Given that backdrop, can you provide some color on how much incremental payment volume currently contracted to come online over the balance of the year?
Melissa Forman: Yeah, Joe, what I would tell you is that we are looking at the pipeline in terms of both payment volume and audit volume, right, the non-payment volume, and that’s because that’s what creates the network transaction, right, and that’s what’s most important to drive revenue. So to give you the look into what we think we’ll see in 2024 is, we have a pipeline of $5 billion to $10 billion of additional volume that we’ll be adding. And that’s a combination of audit volume and payment volume, but all of which will be attributed to the network.
Joseph Yanchunis: I appreciate that. And kind of sticking with TPay, congrats on winning the Apex business. That seems like a big deal for the network. So all else equal, if all contracted broker and factoring volume were on the network today, what would be the level of conforming transactions for the network and what would be the kind of the financial implications of that?
Aaron Graft: So, great question. If every factor and every broker were on the network, then the math problem you’re solving for there would be taking the $110 billion of brokered freight that exists, that we call out in the letter, and then take 65% of that, because statistically or on average, that’s the amount of freight that is transacted generally from a broker and then purchased by a fact. Okay, if you remember, just a couple of years ago, we did the first-ever conforming transaction. And over the course of an entire year, and we’ve since come to call it a network transaction, we got to $1 billion, took us 12 months. You might have noticed in this single quarter, in the weakest quarter that I ever remember in freight, we did $1 billion this quarter.
So that was 40 — and that was 40% growth over prior quarters, but if you just use the math of 65% of $110 billion, you get to roughly $70 billion, and if you want to divide that by four, you get to $16 billion, $17 billion a quarter, would be the total addressable opportunity. There would additionally be some opportunity beyond that if you added shippers into the equation, but I think it’s best to talk about brokered freight. So you’re talking about $17 billion of volume and you would divide that by 1,700, that’s roughly where the average invoice is now, and then you would think about how would we monetize each individual network transaction if we had near 100% economic — near 100% adoption? Well, the answer is, the pricing would go up because the constituents who use the network would be able to entirely reengineer their back offices.
The amount of instant purchasing, the amount of auto cash application, the implications would be huge. So that’s the opportunity as it currently exists that’s the total market. We’re at $1 billion a quarter right now and so that tells you that there’s a lot of growth opportunity in front of us.
Joseph Yanchunis: Okay. I was actually more referring to what is currently contracted to come online. So if you just assume the Apex business is now fully up and running and all the other, that $5 billion to $10 billion of additional volume is currently live on the system, sorry, I wasn’t talking about the entire addressable market just.
Aaron Graft: I’m sorry, I missed, I think to do that — do that math live real time for you right now, it would be — we can make some assumptions, you’re going to see it grow. I mean, because all of the brokers that are coming onto the platform pay, all of the factors, and we just added a top-five factor, Apex is a material player in the industry, so I can’t give you quarter-over-quarter growth. So I’ll just stick with my answer. I’ve given you what the whole market is and that we keep adding people to it. And again that revenue doesn’t show up this year. That revenue shows up next year and beyond. So that’s as much color really, Joe, as I can give you at this time.
Joseph Yanchunis: All right. Thank you very much. I appreciate it. I’ll hop back in the queue.
Operator: Our next question will be from Thomas Wendler of Stephens.
Thomas Wendler: Hey, good morning, everyone.
Aaron Graft: Good morning.
Thomas Wendler: Just given the industry headwinds, is supply chain financing something we could see clients lean on? Just looking for some color around what we should be expecting for growth there if industry pressures continue?
Aaron Graft: There’s no question that everybody is feeling the stress. Arguably, the only people who are not feeling the stress, and I don’t even know that they would agree with this statement, would be shippers, right? They’re seeing contract rates fall and they’re pushing to make their freight costs as low as possible. Now, these are smart people who think long term, and I think they also think about not just what can we negotiate in the moment, but what can we get for the long-term, but they’re still going to be some of that near-termism, they’re pushing that — they’re pushing to save money, and so that’s got to fall somewhere. And so freight brokers are feeling it. Carriers are feeling it. Factors are feeling it. Triumph is feeling it.
