Q3 2021 Triumph Bancorp Inc Earnings Call

Good morning, and welcome to Triangle Bancorp's third quarter 2021 earnings conference call, all participants will be in listen only mode.

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I'd now like to turn the conference over to Luke Wyse Senior Vice President Investor Relations. Please go ahead.

Good morning, welcome to the Triumph Bancorp conference call to discuss our third quarter 2021 financial results before we get started I'd like to remind you that this presentation may include forward looking statements.

These statements are subject to risks and uncertainties that could cause actual and anticipated results to differ the company undertakes no obligation to publicly revise.

For looking statements.

You can log into our webcast. Please refer to the slide presentation available online, including our Safe Harbor statement on slide two.

For those joining by phone. Please note that the safe Harbor statement and presentation are available on our website at www Dot triumph Bancorp Dot com.

Comments made during today's call are subject.

And for the Safe Harbor statement I'm joined this morning by <unk>, Vice Chairman and CEO, Aaron graft, our Chief Financial Officer, Brad Boss, Todd Ritterbusch, our Chief lending Officer, Geoff Brenner, our CEO of triumph business capital and Ed Schreiber, our President and C O L. A trial.

After the presentation, we will be happy to address any questions you may have.

Subject at this time I would like to turn the call over to Aaron Aaron.

Thank you Luc and good morning, everyone for the third quarter. We earned net income to common stockholders of $23 6 million or <unk> 94 per diluted share.

As discussed in the earnings release, we had some unusual items.

Our results this quarter, which lowered our core profitability, we do not expect these to be recurring.

Beginning this quarter, we are not going to address our community banking results in our prepared remarks, and instead, we use that time to discuss developments in our transportation financial.

Technology platform, which includes both try and pay and try and business capital.

We will continue to include all relevant metrics for our community Bank segment in our Investor presentations, Todd Ritterbusch, Luke and I are always available to answer any questions investors and analysts.

Effect of half regarding our community banking segment and if there are any unusual events. We will of course address those in our comments our Gulf of the community Bank is continued improvement of our funding mix prudent credit moderate growth and a focus on fee income.

The team has been doing that with excellence.

<unk> made some time now.

What everyone should appreciate about try them overall is that we generate enough cash to invest in a technology platform that is going to transform an industry and even while doing so we are achieving market leading profitability.

The ability to incubate a fintech.

For sea eventually valued in the billions of dollars without diluting our existing investors is extremely unique.

Related to that point, let's transition to some very important metrics as we announced a few weeks ago, we have grown try and pay to be the largest PE or and all our brokered frame.

It could be during the third quarter try and pay processed approximately $3 8 million invoices paying almost 117000 distinct carriers as of September 30th we have paid over 156000 distinct carriers in the last 12 months, which.

Frame, where 60% of all active carriers.

Third quarter payments processed totaled approximately $4 2 billion, a 22% increase over the prior quarter and a 243% increase from Q3 2020.

Try it pays out.

As old run rate payment volume for the quarter as a result was $16 8 billion.

Using only the month of September as a baseline the annualized payment volumes were $17 8 billion.

At this point I am comfortable declaring that we have established a proof of concept.

Onset in other words, we have created an ecosystem that improves the experience for all involved which is why we continue to experience such exponential growth.

But volume alone is just Fannie and proving our concept is not the same as proving our business model, we know that volume must turn into revenue.

To that end.

Annual on slide 15 of the deck, we illustrate how we are thinking about try at Pes revenue model upon the achievement of 75 billion and annualized payment volume.

We believe that over time 75 billion could generate even more fee income than the 100 million noted as more market participants join the network.

And the 75 billion in payment volume or 100 million dollar revenue number do not represent the end golf for us. It's actually just the beginning of proving the business model. We firmly believe that our value proposition is going to revolutionize presentment audit and payment in the for hire trucking.

Work stream that has a $420 billion market and growing.

Driving revenue requires engagement with all participants in the market brokers carriers factors and shippers in the third quarter. We added another six factors to the hub Tran ecosystem, bringing the total to.

66, we have not lost a factor yet since the acquisition of hub Tran.

We have three more in various stages of integration. We also continue to add brokers to the network, bringing our total count of freight brokers to 532, who are trying to pay customers <unk> customers or both.

On September 21 integrity Express logistics went live with trial pay as our latest tier one broker, bringing that total to eight out of 25.

In future quarters, we will add conforming transaction volume to our track metrics, we define a conforming transaction is one in which.

Our network factor is on one side of a transaction and a network broker is on the other.

We believe conforming transaction volume will grow rapidly throughout 2022.

Switching to try in business capital.

We had another strong quarter, we did recognize a downward adjustment to third.

Our interest income of $3 5 million or 11 cents per share on certain factored receivables. The majority of which represents a timing difference for revenue that will be recognized in future periods.

This adjustment will have minimal impact on subsequent quarters in.

In addition to this item.

Quoted to add an additional $1 $5 million to our 2021 bonus pool to reward a much broader group of team members across the company for what is shaping up to be a fantastic year.

The year to date catch up adjustment in Q3 was just over $1 1 million and contributed to our total noninterest expense.

For the quarter being a bit higher than the guidance, we provided in our second quarter earnings call.

The tax effected impact of this decision was about <unk>.

Average purchases per day at triumph business capital exceeded $55 million for the quarter and the dollar volume of invoices purchased.

We elect $3 5 billion, a 78% increase over Q3 2020.

That's an annualized run rate of approximately $14 billion in purchases.

Average transportation invoice sizes were $2195 for the quarter.

Try and business capital purchased approximately.

<unk> $1 5 million invoices and increase of approximately 134000 over the prior quarter and a 49% increase over Q3 2020.

Triumph business capital ended the quarter with $1, four 8 billion and accounts receivable of 55% increase over.

Over Q3 2020.

Finally, I'd like to take a moment and comment on the strategic equity grant.

We disclosed an incentive program and our 2019 proxy that covered a significant portion of our senior leadership team.

We call this the strategic equity grant or the Seg.

The purpose of this grant was to encourage unity among our team as we repositioned the business away from the growth in the community bank and towards a transportation and Fintech focus.

For an organization to be effective at change management, it requires focus communication and thoughtful incentive practices.

<unk> was.

<unk> was built around one of my core beliefs that far too many banks focus on growing assets rather than profits.

The seg set a target for $10 of cumulative earnings per share for the years 2020 through 2022 should we hit that metric it would represent EPS growth in the 98%.

<unk> tile of the historical EPS growth achieved by all banks, we modeled in a very large peer group and doing this even while continuing to invest heavily in our transportation Fintech platform.

This was very much a stretch goal at the time, we created the Seg program. Our belief was that we would.

Continue to buy back common shares improved the quality of our deposit funding mix and limit balance sheet asset growth, primarily two factored receivables at TBC.

We have fulfilled many of those expectations, including buying back to 95 million shares at a blended cost of 34.

Dollars per share prior to the pandemic.

As of the end of this quarter, we have earned cumulative EPS of $5 86.

Since January one 2020.

In a future period, where we determined that some level of payout is likely an inception to date catch up of the accrual to cover.

The cost of the SCG grant would occur in that period, and then the remainder would be expense quarterly through the end of 2022.

Further details can be found in our 2019 proxy statement or the equity footnote of our 10-K available on our website with that we will turn the call over for questions.

Yeah.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

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So first question is from Brad Millsaps of Piper Sandler. Please go ahead.

Hey, good morning.

Morning, Brad.

And it looks like you guys continue to build.

Momentum in the transportation side of the business and I appreciate that.

As your color that you provided in the deck and I know you don't have a crystal ball, but.

And does that guidance.

Good morning, just.

What is what.

What is your timetable.

To achieve the did the $100 million of revenue I know you.

You know things can shift quickly and just kind of curious you know what.

What are your Crystal ball says in terms of getting to that goal.

Yeah.

You're right that it's.

Difficult to make a precise prediction on something that's never been done before but I'm going to say three years.

Hopefully sooner than that but let's just use three years is the number to hold us too and.

For all listening for people to understand that $75 billion in payments and.

It's millions in revenue is not what we view to be a mature business model, that's just a way point onto.

And what I think eventually is going to be a business that will generate $500 million of income as it gets fully integrated into this industry. So the timing on which all of that happens is hard to predict.

Licked.

Over the next three years, our goal would be to complete the metrics. We've laid out for the first stage, which would be 75 billion in payments and $100 million in revenue and understand that the further you go along with 75 billion in payment run rate the more factors.

That integrate that hundred million revenue on 75 billion goes up as more market participants use the system. So we were just putting that out there to give.

What I think investors need to see what would be a major milestone of course $100 million revenue business, but that.

That is by no means the end game that we're playing for.

And it's a plan that's helpful. Thank you is the plan still in 2022 to sort of.

For lack of a better term you'll give the service away for free or would you suspect you'll start to see.

C.

I see more of a pick up in.

And our revenue.

I think really revenue does not become meaningful until 2023.

It's going to be revenue growth in 2022.

But as we've talked about previously we are not giving this product away for free.

People fully understand how.

Yes.

<unk> efficiency to their business model and mitigate fraud, everyone is going to want to use it and the price. We're charging is a price that is going to be accretive to their business model, but I think we have to demonstrate that to them in the year 2022 and get paid.

Paid for it in the year 2023, so that has not changed.

And then maybe final question for me as you do ramp up.

Should we think about the efficiency of that business I mean, I know you've made a tremendous amount of investments to this point to get the product where it is.

Just kind of curious.

How do you think about the incremental spend.

The revenue does ramp.

We have I think as I've said in the past the bulk of the spending or the run rate for trying to pay to achieve these goals exists today.

However, I would say over the next.

It would not be unreasonable to see that expense run rate increased by 15% as we continue to add team members who are engaged.

There's sort of a two phases to this recruitment process. There's the initial sales phase, where we engage with freight brokers engage with factors engage.

Cage with shippers.

Integration phase once those any of those constituencies elects to become a fully conforming triad pay participant and then theres a follow up phase and this is the part no one should miss that the ability to monetize things around the core transaction the core transaction.

<unk> been a network transaction, where you have parties on both sides, the pay or and the payee or fully integrated try and pay entities, which we think should be a frictionless transaction, but theres a additional things you can do around that core transaction that creates additional value for.

For a market participant and we're going to need talented team members and additional development to go in and be able to deliver that additional value and sort of a second wave. So long winded way, but I'm trying to give you the way management thinks about things.

And I would say in that 15%.

<unk> range would be a pretty good growth estimate for the year 2022 over our 2021 run rate for this segment Ed would you add anything else to that.

Just.

We'll spend Q4 kind of stabilizing the key leadership position to drive it forward and then to your point the 15.

Growth with more or less tie with.

New wins, new brokers factors coming out of the network to handle the integrations and just the client volume that goes with that.

<unk> finished with Brad is we're weeks away from the completion of the conforming transaction the actual programming.

On the product itself and so the next thing to happen is to begin integrations with some of the first factors to join the system.

And <unk>.

Maybe in Q4, but more likely in Q1 of next year conforming traction will start happening.

And thats the kpis, everyone should pay attention to but it's not as if that that technology is 90% plus built.

So there's just not any big spend big additional spends to be made to the expense base.

<unk>.

To keep.

Product moving along the timeline, we've given you.

Okay, that's great and to be clear is it 15% for that segment or 15%.

Consolidated.

Or that segment.

Okay. That's all thank you. Thank you I appreciate it I'll hop back in queue.

The next question is from Michael.

The <unk> of Raymond James Please go ahead.

Hey, good morning, Thanks for taking my questions.

So it was good to see the growth in both the brokers and the <unk>.

Factors.

I think part of making this work is to get the larger.

Freight brokers.

Michael The top 20, and then the larger factoring companies I think the top 10 represent about 75% of the industry, where do you stand with those efforts and negotiations because that really seems to be kind of the linchpin to get the yes.

Yes.

Network up and running and once the conforming transaction software's was put into place.

Is that.

Once you get those two pieces are kind of off to the races. If thats the way to think about it.

Definitely Michael and there's a slide in the deck that shows the number of freight brokers and factors in the top 25, who are integrated so let's just start with.

It seems like brokers, so we disclosed integrity Xpress logistics just went live on trial pay.

But we don't have even all of it.

Something to understand that all investors need to understand when someone goes live at that size, we don't get 100% of the volume day one.

We're going to still see volume coming from them and be NSF for example.

As we fully ramp into the.

The payments that they do on a quarterly basis, but.

Think about the top 25 broker so we've got eight.

Who use.

Try a PE.

And a couple of them, who use try and play plus hub trend and at the end of this year, it's all going to collapse and attract pay and it'll be a little simpler to explain but we've got nine.

Additional tier one brokers, who are hub trend enabled which that is a warm handoff from them to move from.

But to fully utilizing the triad pay ecosystem for their payments. So you can imagine we are in various stages of discussion and so that only leaves eight prospects out there who don't either use trying to pay or hub trend and you can imagine we're talking to them and I would say that there's very.

An extensive amount of dialogue presentation. All the things you would do and you would think you would be doing in an enterprise sales process.

On that side of the equation on the factoring side of the equation. If you take the top 20 factors 11 of them already have hub train integrations.

And.

From there you're going to see next year.

May even announcing as early as the fourth quarter, we're going to start announcing the waves are factors that are in the queue to integrate with trying to pay and I would say that line is building and it's building within the top 20 and it is certainly building outside the top 20, and I think it will actually.

Italy go faster because you can aggregate more.

The top 20 factors aggregate more volume than the top 25 freight brokers and so we felt very good about.

That segment coming along and so once you have those two <unk>.

Integrated then you pretty you Ya.

And all are in a great position for the 170 billion plus a brokered freight spend to start driving conforming transaction volume.

To a significant piece of all payments being done and all the time that's happening we've got another piece of our team who are out talking to the shipper.

Community as we try to take the same discipline. The same thing we're doing and we start integrating with additional shippers. So stage. One is the freight broker adoption in the top 25 in the factory and adoption in the top 20, and Youre going to see you're going to see movement in that every.

Quarter for the foreseeable future.

Okay. That's helpful and then just on the $100 million.

Revenue target is that a is that a quarterly run rate goal or is that kind of like the cumulative target and I assume that.

It doesn't really include the.

The.

Brokered shipper market, that's just the brokered freight market correct.

There is not much included in here on the shipper side for that this is we're really trying to break this down into.

The just the brokered freight market, primarily and so.

You know that.

I Couldnt tell you the day, we get to 75 billion is it 100 million annualized on that day, I actually think it might hit $100 million annualized slightly before that but it seemed like a nice round number to land on is we're all making some predictions about the future here.

So.

So.

At 75 billion in volume, which were at $17 8 billion.

Run rate in September.

I assume everyone on this call I expect that number will be higher next quarter and higher the quarter after that.

You should you should be seeing.

To me Youre going to start seeing the seeds of this $100 million net.

Next year, when we start reporting to you network fees because network fees are tied to conforming transactions and conforming transactions are tied to fully integrated freight brokers and factors handling invoices in a frictionless manner.

And that kicks off in Q1 try and business capital, we will certainly be live and a few other factors will be live at that time as well so you'll start to see the seeds of that growth.

Over time.

But I think youre going to see it next year, when we get to $75 billion and $100 million in revenue I can't.

Precisely tell you, but youre going to start to see the stair steps along that progress.

Guinea next year.

Okay, and then when do you think.

The network profitability.

Well at $100 million revenue.

Revenue run rate if you look at our current expense rate in triumph business Theyre trying to pay and even if you.

Even if you increase of 15%, it's pretty profitable I couldnt do that math.

On the fly here, but what I would say is we've given you what our expense growth projections are for Tpa, let's call.

At roughly 15% over the next year.

And then have you.

You can come back to you, but we can do the math on.

Where along that spectrum that $100 million, how much revenue you need to cover that and beyond.

But it wont be all the way to $75 billion, we should be.

Delivering.

EBITDA positive results well before $75 billion in annualized payments.

Okay. That's helpful. Thanks for taking my questions.

The next question is from Brady Gailey of <unk>. Please go ahead.

Hey, thanks.

Hi, guys good morning.

Maybe to ask the question, a little differently and bigger picture.

What do you see as the.

The efficiency ratio for Tpa.

I know you have that'll probably go down over time as this business grows and grows but.

No.

Like a $100 million in revenue.

How much of that do you think.

So the bottom line and maybe not even at that level, but just bigger picture longer term. What do you think is the efficiency ratio for tpa.

Yeah, Great question Brady, so at $100 million I think a fair assumption for your model.

As a 50% efficiency ratio or if we're going to talk like a fintech, 50% operating margin at that size.

Ultimately.

At scale from there this should be a 75%.

The efficiency ratio should be 25% or lower or the operating margin should be 70.

75% or higher because this is software as a service I mean, it's at its core.

And so the scalability is pretty powerful so that's what you should be looking for.

As we approach maturity, but.

At at that first wave point of $100 million revenue, let's just.

It's about a 50% efficiency ratio.

Alright, that's helpful. And then as you said you are the $100 million does not include any benefit from the from the shipper's market is there any way to frame, what the revenue or the payment opportunity could be from the shipper side.

We have lots of thoughts on that Brady, but theyre not developed enough to put out there at this time.

What I would invite you to look at is it's 250 billion in payments being made.

Theres a frame audit component to that.

And.

So the freight audit pieces of fee income piece of.

What happens in that world and there are players in that space and some of those players, but not all are banks, who are equipped to make the payments on behalf.

They're afraid audit and pay clients.

As we go.

Forward in that space you can be sure that is something we intend to do because we think as we pull more payments into the try and pay ecosystem ultimately youre going to touch every carrier out there, we've paid 60% or more of all active trucking companies.

And I would suspect sometime.

Time in the next 12 months that number will be in the 99 percentile and so once you've touched every trucking company out there, including the large fleets, who primarily hall on the shipping space.

And you have profiles built for them inside the payments network the ability to talk to.

Shippers about the transmission of funds.

On their behalf in two known carriers integrated carriers with the trying to pay ecosystem and if those carriers have factors. The factors are certainly going to be integrated into the trying to pay ecosystem.

I think youre going to see the opportunity to monetize.

Is that at scale, it's a basis points at scale business, which we love right because it's so powerful and you can become so entrenched in everyone's business and we can add.

Removes a lot of friction about how funds gets transmitted between shippers and carriers.

But I can give you all of that content.

Context, I'm not prepared at this moment to say these are the metrics you should look at in the shipper market for how we're monetizing it.

There will be a form of subscription fee there will be a form of network fee and there will be a syndication fee and the syndication fee is of course, where we <unk>.

For carriers, who.

Want to get quick paid.

Where the shipper doesn't want to hold the quick pay receivable on their balance sheet, we will find a home for that receivable it likely will not live on the balance sheet or try and pay because trying to pay as an asset light business.

It likely won't even live inside of triumph business capital the place it will most likely end up.

Living in we will charge a fee to put it there is in the hands of the factoring community who are prepared to own. These kind of receivables just by the very nature of their business and so we end up becoming I think you've heard me say this before where a toll way not a parking lot.

And so we will charge a fee for getting that receivable to the.

The place where it should belong the balance sheet, where it is best situated.

And it wont sit on our balance sheet.

But those are the those three components of fees that we've that we've talked about subscription network and syndication they will apply in the shipper space just not in quite the same ratio as they.

We'll in the brokered freight space.

Alright.

Paul.

Finally for me Aaron.

Thanks for the heads up on the strategic equity grant Yeah. It sounds like you guys have a have a shot at making that which would be great for shareholders.

Can you just talk to us about the magnitude of what.

Expense that quick.

You guys did it.

Yeah, and it has to be self funded Brady. So if we had a $10 a share it's roughly going to be 30.

So we got to get to $10.30 of cumulative EPS for it to even trigger because we had to deliver $10 of net.

EPS to our shareholders in order to hit it and of course at the time, we thought <unk> was going to be a closed loop payments network, which would be very profitable.

And we thought we would have bought back more shares neither of those two things turned out quite the way, we anticipated, but I think actually for the good of all.

It's how it's gone, but because of the strong tailwind and because of how what an awesome job triumph business capital is doing and the community bank, we might actually make at the top end would be if we deliver $12 of EPS.

It would be a 60 <unk> expense so we'd have to earned $12.

Dollars 60 to hit the very top end of the range. So the minimum impact to EPS is 30, the maximum impact that I could be off a penny, but roughly is 60, but it has to be self funded from earnings.

And it's very plausible we could hit it but we're also in an environment where freight.

While it is really good right now we've lived through cycles before and so things could happen next year, our corporate tax rate could change we may need to make an additional investment in <unk>, which is the long term.

<unk> to win big.

So we're not at a place where we feel confident that.

Enough to start accruing.

For it but we thought it was appropriate for investors to be aware that it's out there.

In the event the next quarter or two we decide that's an appropriate thing to do.

Got it thanks for the color.

The next question is from Steve Moss with B Riley Securities. Please go ahead.

Good morning.

Good morning Donald.

A lot about trying to pay here, maybe just one last thing there.

Just kind of curious Aaron is what are you thinking for payments volume.

As you exit 2021.

$17 8 million I think what it was for September just kind.

What do you think is coming onboard here and how to think about that in the short term.

Yes, it's so lumpy, it's really hard to make predictions.

In that short of time frame because I mean every time you would need to understand you don't just tell a tier one freight broker.

Hey, we're going to integrate with you on November 3rd and be ready for us to show up at noon.

I can say, it's a months long process, which is great. It's painful on the integration side, it's great for the long term viability of the business because it's so sticky so we have inside the pipeline.

Enough volume to push us well over $20 billion.

Can't tell you exactly when it will fall there will be additional growth in Q4 will it be enough to push us over 20.

Hard to say, probably I'm going to say probably not that's probably into the first part of next year, but if it ends up being in Q4.

Sure Don.

Me too much for it because we're just trying to get it done as fast as we can get it done which also requires us to be dependent on the integration capabilities of the freight broker themselves. We can't do all the integration ourselves.

It's a dance that we have to do with them. So that's why.

I can't give you specific timing.

But I will tell you. It will go up we will hit $20 billion in the next couple of quarters.

And that's as much as I can tell you at this time.

Okay. That's helpful. And then maybe just on your last comment there with additional investments and trying to just kind of curious as to.

We're looking at and maybe any color.

You can give you perhaps it's really to the shipper supermarket you were talking about but it was kind of curious of what you know additions you are maybe contemplating.

Right.

Yeah. So this is Ed Shriver, I'm, just kind of speak to where that foundation looks like.

What we're really spending our time and adding resources tends to be around the foundation. So if you look at when Aaron just mentioned getting to $20 billion.

And to build something thats going to hold 75 to 100 and north of that so we're trying to put as much in place now to do that as we know it will be heavy on boarding over the.

Next year, so everything from.

Customer service to resiliency around the network to fraud risk and mitigation all the things that mature companies and payment companies have to do to put that in place to have longevity, that's really where the expense side is coming up with a 15% will grow over time as just.

So metal growth as you add more companies, we need to bring on more developers more people to integrate so we are hoping we have a gearing ratio.

Somewhere in the middle of 'twenty, two that really ties to revenue growth and volume growth and the expenses followed that but in the meantime, we're building a strong foundation to support long term and one thing to add.

And if you were to sit in our meetings here.

We have the luxury and I pointed this out in the early part of the call.

We are generating top decile profitability for all banks, while reinvesting heavily in to try and pay and if we think about the long term.

The value of trying to pay and you think about this business that can generate $500 million in income plus.

What you should be doing now.

Our U can is painted any costs associated with integrations, we need to recognize those now higher than developers now do those things now rather than.

Term validating evergreen revenue sharing.

Because we are cash poor triumph is not cash poor we generate a lot of money the community bank and TBC are shareholders in try it pays success and try it pays future because they generate a substantial amount of profitability.

It allows us to do these things fast with excellence with the best people available and not have to give away future revenue. So.

So we think a lot about that so that can spike some short term expenses, because we're paying for something now rather than giving someone an evergreen revenue share.

Three years from.

From now five years from now investors, who take the long term view with us are going to love that decision.

But that's a reason why you may see short term spikes and try it pays expense.

On expenses, because we're trying to build this in a way to protect the most value.

Well down the road.

Okay, Great and then maybe one on factored receivables here.

Good growth on the purchase volume side as well just kind of curious.

What are your thoughts for that market going forward and how we kind of think about purchase receivables, obviously invoice prices.

I think probably remain strong and I'm curious on that aspect of your thoughts as well.

Yes, Steve This is Jeff Renter, I think from our viewpoint the capacity is going to continue to be tight.

Everything from driver shortages to class eight backlog orders stretching now 11 months and you've probably seen on the news 100.

Chips off the long Beach long Beach Port so.

We're looking at 2022 is perhaps the entire year will be tight capacity.

Which is obviously good for our business because rates will stay high.

Right and then just in terms of the.

The number of invoices.

Did you guys purchase was that continues to grow.

Kind of curious on the growth there is that you have.

Any color.

Yes, so over the past two and a half years, our business has doubled.

And our goal obviously is to keep growing.

So we're looking for significant growth in 2022, as well I can't really give you.

You a number right now, but we expect to continue to grow aggressively.

Alright, great. Thank you very much.

The next question is from Thomas Wendler of Stephens. Please go ahead.

Hey, good morning, guys. Most of my questions have been.

Answered and I really appreciate all the color around trying to pay a couple of nitpicky things for me.

I said that $3 5 million revenue and subject to the timing adjustment you mean idea of when that's going to be recognized and then also I think there was a $3 6 million charge off and factored receivable forgive.

Give me a little color around that as well it would be great. Thank you.

Hi, Thomas This is Brad I'll take the first part of that question.

$2 5 million, a $3 5 million adjustment relates to our deferred revenue accounting on factored receivables. So if you think about the way that that works when we buy.

By a receivable at a discount.

Our factoring system reporters that invoice at face value.

$2000 invoice.

$2000 receivable and we booked that discount as an upfront fee and reality.

Over to buying of the zero coupon bond, we havent really earned that fee until we collect from.

The better.

Earned it entirely until we collect from the better so each balance sheet date, we have to estimate the balance of those fees that are on earned based on the average age of the receivables and the average projected time to collection.

Report that deferred revenue is reduction in our factored receivables balance and a change in that from period to period runs through interest.

Income in the third quarter, we made a correction to that report that.

Drives that calculation thats, what resulted in $2 5 million adjustment to bring that balance up to where it should be.

It is a timing issue, but substantially all of that revenue should be earned in the current quarter and the fourth quarter.

Given the speed at which these receivables turn.

But we will not likely be noticeable on our income statement because that gets offset by deferring revenue on new receivables that we purchased during during this quarter. So as long as that portfolio is growing.

There will be a very modest drag to the to that.

The extent of maybe a penny a share.

There on on earnings that will happen on an ongoing basis, but all of those all of those revenues will be will be collected and will just be replaced by.

Deferred revenues the other $1 million of that is a reversal of the accrued.

Accrued income on to factor receivables that were deemed uncollectible and charged off most.

That actually does relate to the.

Charge offs that you just mentioned of Jeff you want to give some color on what that was about sure.

It was a onetime breakdown on our part.

Accruing for revenue that part of the organization new would be uncollectible when it wasn't communicated.

Lately, that's our people process and technology.

<unk> Miss on our part and all three of those elements have been corrected.

And the charge offs itself I think he was.

The charge off was related to a non transportation factoring relationship, which youre going to see not very many of those around here going forward.

There was a relationship that was acquired.

Going back to purchase a couple of years ago. So it didn't never performed it had been fully reserved and we tried to be we try to work it out for some time.

That's great color guys. Thank you.

The next question is from Jared Shaw of Wells Fargo. Please go ahead.

<unk>.

Hey, guys. Thanks for the time.

Just a couple of follow ups just on the.

At that time to collection item around the timing have you seen a change in the time to collection on on invoices overall is that more of a changed your macro view is that been slowing down at all.

But it really has and it's been pretty consistent over time.

That was.

As I mentioned a.

A correction in our report there was a filter on that report that.

I have been there and then we caught it during this quarter and corrected it. So we're still collecting on average was 37 days or so.

That will bounce around a little.

Little bit thats been fairly consistent over time.

So Jared let me be clear for you and everyone listening the $3 5 million is our fault.

The $2 5 million of deferred revenue, it's going to get collected it's just the way. The report was running on a small segment of these factor relationships it wasn't deferring it.

<unk> and its like pennies, but these pennies of add it up.

That's nothing to do with the industry. It's our fault, we caught it we fixed it we recognize that youre not going to see it in the future quarters and there is a reason the yield on the factored receivables was lower this quarter. It will go back up next.

But that's how we had to recognize that adjustment.

So we're not seeing anything in the industry that suggest a slowdown or a decrease in average invoice sizes. All that happened is we found something.

<unk> people working really hard sometimes make mistakes, we found where two pieces.

Quarter, our business, we're not communicating well, we fixed it and.

We're ready for the next quarter.

Okay.

Yeah.

Youre talking about the brink.

Bringing on the freight brokers in the new the new factors what.

Percentage of the wallet share do you think your Youre getting now and then as you look at your aspiration.

<unk> of all goals does that assume that you're getting 100% of those.

Walnuts yours.

Yeah. So that is a very astute question, we are designing the pricing to encourage network participants to use the network for everything all.

So the whole point of.

Using flat pricing rather than per transaction pricing it delays our profitability.

But in the long run it strengthens the network and if the network gets stronger everyone wins. So that's number one our goal then if that being true would be to try to get.

That 3% of the wallet share now there are going to always be people, who due to their own internal processes procedures strategies et cetera choose not to use try and pay to make 100% of their payments or and on the factoring side of course, they are using try and paying only I mean the primary.

100, <unk> pay on the factoring side.

Is the receipt and the frictionless presentment audit and payment of conforming transactions, which requires a network broker to be on the other side of the transaction will not all brokers are trying to pay.

Participants someday.

I hope to get them all may not yet every one of them, but I hope I hope that we have most of them. So.

There is that piece and then of course, a factor can use the audit feature of our technology, which is currently known as hub trend.

And transactions that are not fully conforming transactions to help them with presentment.

Valued audit.

And the way, we're pricing that invites that factoring company to use that tool for every transaction, whether they do or not is going to be their choice, but the pricing is set so that it doesn't penalize them for using it to add value on 100% of their transactions.

Okay.

Thanks, and then just finally for me.

Just to clarify on slide four page four.

Triumph business capital purchase $3 5 billion of invoices.

Pay paid invoices of $4 $2 billion does that $4 2 billion include the TBC $3 5 billion or is that just a $4 2 billion from outside of the trial.

Ecosystem.

There would be.

Roughly a 14% overlap.

Ryan If you believe try and business capital is probably 14% of the entire factoring industry.

And so to the extent those $4 2 billion in payments went to factoring companies, which statistically we would.

Say, 50% of that went to factoring companies are $2 1 billion.

That $2 1 billion try and pay with our try and business capital would have been the recipient of about 14% of that.

Okay.

Great. Thank you.

Again, if you have a question. Please press Star then one.

The next question is from Gary Tenner of D. A Davidson. Please go ahead.

Thanks, Good morning.

Couple of questions in terms of the fees that you laid out.

<unk>.

Then the comments you just made about kind of how you're.

And again, some flat fees, we know youre doing that in 2022 as you kind of proving the business model.

As youre getting to these.

Agreements.

With with factors and brokers.

They're a date where the feed.

C model flips.

Uniformly or is it some 12 month period or something until that flips. So in other words January one 2023.

Is this the pricing that's in place or is it staggered.

Yeah, I think the idea and of course every negotiation is different but the idea is January 2020.

Three this is how the pricing works right the subscription fee should be set for a year and the expectation should be that the subscription fee will go up over time at some percentage equal our cost of living type percentage increase.

And that that is designed.

And to recover processing costs and encourage them to utilize the network for all invoices, because it's a flat subscription model.

The network fee.

As obviously a percentage of the conforming transactions and what that network fee actually ends up being will be negotiated.

<unk>.

Whenever we're going to land with as the network fee in 2023, we can't materially move that in 2024. The market has to have transparency in pricing for factors broker shippers. They have to know what it's going to be in order to trust us and to see the benefit in their own business. So how you see the network.

Work fee going up is not the actual fee per transaction materially, but its the number of transactions and as we add other value components to that experience certainly if we can add value we want to get paid for that value.

And we think we can add value, but it's not going to the network fees not like okay. It's this this.

And then we're gonna change at 30% next year, that's just not how you run a payments network and cause people to trust and utilize the network.

And then the syndication fee is really us getting paid for placing receivables where they go.

Right and I think when this whole thing started off everyone.

One thought the syndication fee will try I'm, just going to use that to grow its own factored receivable portfolio. While the answer is no we're not.

In fact, we're going the other way we're going to solicit.

Freight factors, who were in our network to have them hold this quick pay to generate revenue on.

Year, Alex sheet, so theyre not just paying the network to make their business more efficient they are doing that but they're also getting revenue from the network.

Which we think is going to engender, a tremendous amount of loyalty for anyone who integrates with us so that fee that syndication fee will move over time.

But that will really move to the benefit it'll it'll be part of a holistic discussion of if somebody is going to provide working capital into the ecosystem and we don't think that somebody should be trying to pay because of what <unk> is.

We think we'll be solving.

They're more what does a willing party who wants to inject liquidity into the system.

Our capital provider.

What is the market rate at which they would hold that receivable that they know is good that they know is not fraudulent to try and pay a servicing.

And so that fee will be figured out within.

And that grid that I just shared with you.

Okay. So just a quick follow up on that Erinn is youre talking about doing.

Kind of placing.

Some of these.

Factored receivables with the factors versus trying to holding it you've also got this portion of the slide that talks.

About quick pay interest income for whats funded by trying to pay should we assume that's going to be a fairly de minimis.

Because you're going to try to work.

That.

Out of the out of your balance sheet.

Okay.

Very good Gerry Yes, you nailed it looked for a season.

Try and pay will hold these receivables we are part of a bank and I think going forward, that's how we're going to look.

For the foreseeable future.

As we really think about this fintech business model, we're creating which I think needs to be in a bank, but it doesn't necessarily need to be the balance sheet.

As things you can do as a bank beyond being a balance sheet that delivers value that frankly, the market pays a much higher revenue multiple on <unk>.

That you know that that's where we're headed so we are willing to use our balance sheet to hold these receivables at 10 and 11% yields it makes a lot of money.

But it would be short.

Short sighted of us to try to hold all of those ourselves over the long term the better thing to do is to go to the other capital providers, who joined the network factoring companies first and offer them to hold it and we charge a revenue share for placing it with them and that's where we're headed so there will.

Balance sheet component for a while but the end game. We're playing for is that most of those receivables get placed into the hands of people who want to be the parking lots for that receivable and where the tollway.

Great. Thanks for that and then just one follow up on expenses you kind of highlighted the expected.

B.

Growth in expenses.

Expenses for the payments segment.

I think it's probably pretty fair to assume the bank segment.

We will get little or no growth in expenses over the next 12 months lets say or through 2022.

What's the kind of.

Driver, we should be thinking about in terms of factoring segment I mean, obviously volume is an issue.

But you know at some point.

When spot rates come in an English prices come down is are there other offsets.

In terms of the expense yeah yeah.

Yeah, I'll I'll go first and then I'll, let Jeff finish up I mean, the one.

Keith was a standout this quarter as we accrued a bonus.

For the staff, who work in factoring but across the enterprise for what is in.

By all accounts is an unbelievable year. When you look at all the wins that have been stacked up and try and pay the fact that year to date ROA is 2%.

Thing that when our ROE is over 20% all the while incubating a fintech I mean, that's so we felt it was appropriate to reward our teams. So that was a one time deal.

But Jeff and his team have some operation there are some things they're doing to create even more operational efficiencies and TBC.

<unk> well even get.

That will even get stronger or faster or more fulsome when TBC integrates with tpa beginning in the first quarter of 'twenty four youre going to start to see a lot of touchless transactions network transactions, which will be a really great thing to see Jeff what else would you say as far as what you are ready.

To do if invoices go up or down as we move throughout the.

This next year, well I mean, I think on your point Erinn.

If I look at our volumes today and the staff, we have with typical efficiency ratios I.

I would say, we're understaffed and we need to add people.

But as you noted there is efficiencies.

That things were implementing the thing I'm really looking forward to is if we can raise and this is why TBC is highly incentive to do it if we can get to the world, where we have conforming transactions I can see the volume go up.

And I can vendor break that curve. The typically applies with the people I have to follow it with so.

We're all obviously.

Seasons running as fast as we can towards the conforming transactions and from a TBC perspective, Theres, a theres a selfish motives, it's going to make us more efficient.

So if I were to boil that down over the next 12 months and the factoring segment there should be.

Little or modest.

Increase in an expense.

I mean does that is that too simple.

I think well I would say Gary look.

Youre going to see operating leverage improve in the factoring segment in 2022.

Can't tell you where invoice sizes.

Obviously, they are going but if they stay where they are I mean, the number of millions of dollars of ft of NFA net funds employed handled per employee at triumph business capital is what now Jeff.

It's twice the most efficient number we've ever seen so I mean, we.

We have 366 Ftes handling one 3 billion.

You would expect that to be closer to $6 50 in a normal world right. So.

I would I don't think Gary.

And as we evaluate what how TBC goes forward.

A lot of this growth that is going.

Get pushed to other factoring companies out of try a pace, that's not going to all end up at TBC.

I don't think Youll see the head count reduced materially and I don't think you'll see it increase materially I think I think the FTE, which is 65% of all spending out there. So if that doesn't move materially I don't think.

Youre going to see expenses move materially I think a safe thing to assume as an incremental growth in expenses.

And the 2% to 3% range, but.

Agility has to be the name of the game when you're on a revenue volatile business like we are.

So I would use 2% to 3%.

And.

If it changes, we'll certainly you know if the if the winds change for the market, we will certainly make sure everybody knows that.

Great. Thanks, guys.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Aaron graft for closing.

Housing remark.

Thank you all for joining US today, we hope you have a great day and we'll talk soon.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.