Q4 2021 Triumph Bancorp Inc Earnings Call
Welcome to the Triumph Bancorp incorporated full quotes at 2021 and earnings Conference call. My name is one and I will be coordinating your call. Today. If you would like to ask a question. During the presentation. You may do so by pressing the star one on your telephone keypad I will now hand over to Yakov.
Luke Wyse, Vice President of Investor Relations to begin weight. Please go ahead.
Good morning, welcome to the Triumph Bancorp conference call to discuss our fourth quarter and full year 2021 financial results.
Before we get started I would 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 any forward looking statement.
If you're logged into our webcast. Please refer to the slide presentation available online, including our Safe Harbor statement on slide two.
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.
All comments made during today's call are subject to that safe Harbor statement.
I'm joined this morning by <unk>, Vice Chairman and CEO , Aaron graft, our Chief Financial Officer, Brad Boss Halliburton Bush, our chief lending officer, Geoff Brenner, our CEO of triumph business capital and <unk>, our president and COO will try it.
After the presentation, we will be happy to address any questions. You may have at this time I would like to turn the call over to Eric Eric. Thank.
Thank you Luke good morning.
For the fourth quarter, we earned net income to common stockholders of $25 8 million or $1.02 per diluted share.
By almost any measure this was a remarkable quarter.
We did have one unusual item this quarter to accrue for the cost of our strategic equity Grant, which I will discuss later in the call, which was a 23% drag on reported EPS.
Last quarter, we introduced you to the metrics that matter and try it.
During the fourth quarter <unk> processed approximately 4 million invoices paying just over 120000 distinct carriers.
That represents an increase of about 50000 distinct carriers, where 70% compared to the fourth quarter of 2020.
Fourth quarter payments processed totaled approximately $5 2 billion, a 25% increase over the prior quarter and a 173% increase from Q4 of 2020.
<unk> annual run rate payment volume for the quarter was 21 billion.
Undoubtedly the strength of the market has had a positive effect on total dollar volume.
The more important long term metric is the number of market participants who use our platform that number continues to grow as you can see on slide nine.
As important as the topline volume growth, we have as of January 11 completed our first transforming transaction and multiple thereafter.
Forming transaction as a payment between a fully try up pay enabled pay or either a freight broker or a shipper to make fully trial pay enabled payee, either a carrier or they're factoring company as of today, we have to try a pay enabled freight brokers, making payments to five <unk>.
Enabled factoring companies and our test program.
We have 11 more factors in the Q not all of these will be live next quarter, but they are in the integration Q4 2022.
To our own factory business Triumph business capital is in a great. Thank you, but has not gone live yet.
We expect to complete the TBC integration and to try and pay in the first half of 2022.
What makes a conforming transaction unique is that the entire process of presentment audit payment and cash application can be completed in an automated environment. You can think of this as the difference between pulling out a checkbook at the grocery store 30 years ago versus tapping our credit card today.
<unk> processes manual the other is automated using integrations and structured data.
That conforming transaction reflects the culmination of years of software development, the ingestion and digital transformation of tens of millions of disparate paper transaction documents the application of machine learning and artificial intelligence and the assembly of a platform to take this to market.
As you see on slide eight we view. This first conforming transaction is equivalent to the moment when Thomas Edison Mr. Watson to join him in the next room via the first ever phone call.
The complexity of this accomplishment is significant given the hundreds of data points that can apply to any given invoice on both sides of the transaction. This accomplishment has been years in the making.
I would also point out that beginning this quarter, we will rebrand the hub trend product ash triumph pay audit and you will hear us using that term going forward.
Creating a network effect requires engagement with all participants in the market brokers carriers factors and shippers in the fourth quarter. We added another three factors to the triad pay audit ecosystem, bringing the total to 69.
We also continue to add brokers to the network, bringing our total count of freight brokers to 554, who are trying to pay customers try and pay audit customers or both.
We should also remember the carriers. These are the actual truckers, who move the freight that keep our country rolling.
Making their lives better it goes to the heart of the trying to pay network.
As we have said before it is one thing to pay a carrier. It is a better thing for a carrier to register with the <unk> network.
In the fourth quarter, we added just over 12000, new registered carriers, bringing the total to just over 91000 registered carriers, a 15, 3% increase for the quarter and a 72% increase over the fourth quarter of 2020.
Now turning to triumph business capital, which also had a very strong quarter average purchases per day exceeded $60 million for the quarter and the dollar volume of invoices purchased was $4 3 billion, a 63, 8% increase over Q4 of 2020.
It's an annualized run rate of approximately $16 $1 billion in purchases average transportation invoice sizes were $2291 for the quarter.
Try and business capital purchased approximately $1 7 million invoices, eight 7% higher than the prior quarter and a 44% increase over Q4 2020.
Try and business capital ended the quarter with $1 $5 5 billion and accounts receivable, a 49, 2% increase over Q4 of 2020.
I cannot overemphasize, how remarkable the team's effort has been to achieve these results are TBC team members deserve and extended standing ovation for their performance this year.
The outlook for transportation is strong well into 2020 to everything we see and read expect strength in the transportation demand and invoice prices to continue through the first half of 2022.
Some economists are calling for a return to normal whatever that new normal looks like in 2023, while others say that we should start to have some normalization in the back half of 2022.
Like all of you we don't know, but we believe that 2022 will be another strong year for triumph business capital and try and pay and as we like to say our sales are up and we're catching all the tailwind we can for as long as they are available to be caught.
In the midst of all this good news around industry tailwind in our March towards becoming the ubiquitous payments network and trucking I want to urge caution for 2022 earnings estimates wages are rising, particularly in the area of technology hiring our need for technical resources is significant.
Significant than I thought when I shared the 15% expense estimate growth for China pay on the last call.
Drive business capital will also experience expense growth above projection due to wage pressure in hiring to invest in its technology stack and.
In light of these facts, we need to adjust expectations from the last earnings call and I am using this call to level set for investors.
First we expect expenses for Q1 to be approximately $80 million, excluding any ex EG accrual.
Second by the end of 2022, our companywide noninterest expense base could be as much as 15% higher than it was in the fourth quarter of 2021, excluding the strategic equity grant.
It is difficult to predict the timing of this growth the scope and timing of our plans are very ambitious we view ourselves in the middle of a race to revolutionize payments in the trucking industry and we will invest heavily to ensure our success in reaching the finish line first.
Our team has a significant economic incentive to maintain and grow profits in the near term.
But if we did that to the exclusion of what we view as a generational opportunity we would not be working in the long term best interest of our team or our shareholders.
The second risk as a reminder is that things will not always be like this in transportation and that there are many things out of our control.
The upside of a tight freight market is that it boosts our current performance metrics. The downside is that these heady times can cause market constituents to delay implementation of efficiency measures such as joining try and pay because of the rising tide is lifting all boats, even those using legacy systems window.
Market turns and it will it will affect our short term performance, but it will also be a catalyst for participants to grab every efficiency. They can and we will be ready at that time to welcome them.
On that note as a reminder, while the last couple of years have been atypical we usually see a seasonal decline in quarterly invoice volume in the first quarter relative to the fourth quarter in.
In past years. This seasonality has ranged from as much as a 12, 7% reduction in volume to a two 7% increase in volume.
Finally, turning to the one unusual item in this quarter's numbers on our last call. We reminded investors about the strategic equity grant or the SCG, which was designed in 2019 to incentivize key team members to embrace a strategic shift.
Prioritizing growth and our market, leading transportation businesses, while deemphasizing overall balance sheet growth.
We believe then as we do know that this intense focus on what we do best would create an opportunity for us to materially grow earnings and enterprise value.
The <unk> was designed to be a real stretch requiring a minimum of $10 in cumulative earnings per share in the years 2020 through 2022 to trigger any distribution.
The results so far have been extraordinary.
Despite reinvesting in the business in ways that were not on our radar at the time, we implemented the program during the fourth quarter, we determined that the $10 threshold will likely be surpassed and that as a result, we will distribute shares.
The estimated total three year expense of the equity Grant is 11 $5 million and we reported two thirds of that amount $7 4 million as additional compensation expense in the fourth quarter net of taxes. This reduced our reported earnings per share by 23.
We will refresh our estimate of the full three year expense throughout this year, and we will record compensation expense each quarter to accrue towards those estimate goals.
Our internal projections do not change during the year, we will record an additional $1 million of compensation expense during each quarter of 2022 for the STG.
Other details can be found in our 2020 proxy statement or the equity footnote of our 10-K available on our website with that we will turn the call over to questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you turn your mind. Please press the star followed by tool when preparing to ask a question. Please <unk>. Your phone is on mute it locally on the first question will come from Bradley Brady Gailey from <unk>.
Europe is Brady your line is now open.
Hey, Thank you good morning, guys.
So just one question on the Seg.
That based on just reported EPS or any sort of.
Adjusted EPS.
Hi, Brady its Brad.
Based on reported fully diluted earnings per share.
Okay, Yes, so you all are.
Last year 2020, you're at almost seven bottoms, so clearly it looks like Youre clearly make that.
Eric.
Just to remind you the cost of the program.
Is <unk>.
Included in that so to get to $10, we would need to get to about $10 30.
To cover the cost of the program.
Got it okay.
And then Eric maybe just an update.
As you guys continue to build out.
This payments platform I know.
The ultimate interchange fee that you guys can charge or the big piece of the.
The profitability of this company longer term I know youre early on we've talked about that looking like something like 25 to 50 basis points is that still the right way, you're thinking about that kind of longer term target.
Yes. It is.
We think that.
As we've walked you through I think last quarter.
The bucket of fees.
Associated with the trial pain platform includes the subscription fee.
The network fee and the syndication fee and the subscription fee is just an annual subscription to participate in the network paid on both sides.
The network fee is a fee tied to the number of conforming transactions that we complete in it. It's graduated the size of that fee is graduated given the volume any given constituent brings into the market.
And as you saw we completed the first conforming transaction just a week ago and then the syndication fee is a fee charged on the PE side of the market.
We are.
Putting any receivables generated by the triad pay network.
Into the appropriate parties balance sheet.
Lots of parties, who are happy to hold those receivables. So if you aggregate all of those fees together the volume run rate comes in above 20 basis points.
I would say Brady, where we start is not likely where we end up but that's.
As we look at it now that's the blended.
Structure of all of those different items working together inside the network is where we believe we will.
We'll achieve a 20 basis point or greater fee structure.
Okay, Alright, that's helpful. And then so I understood the guidance on the expense base basically $80 million.
The first quarter working its way up I think I calculated about $87 million of quarterly expense as you end the year. So a fairly big increase there I know you guys are investing in the business, which is why.
We look two years beyond this one should we should we continue to expect.
A material amount.
Sure.
Expense increases from here similar to kind of what you guys are seeing in 2022.
Okay.
It's an interesting question to answer Brady, because as a technology driven enterprise now.
We're going to dial that into to try and pay network. The second you solve one set of problems on behalf of your network constituents and you do it with excellence.
They open up the idea of will now can you solve this problem for me and it's sort of a land and expand strategy as you bring people into the ecosystem, which inevitably requires additional technical resources I would say this is a unique year for that level of organic growth here.
<unk>, we don't run at this level and I don't think that this will go on forever I think what Youre seeing is the intersection of a couple of different things I am very tight labor market.
Technology talent as is.
It's a sellers' market if you've got talent in.
Technologists or systems engineer or all of the things that we need to make sure. We continue to maintain the distance between us and any potential competitor and you've just got an inflationary environment. So those three together is likely what's driving this.
<unk> growth more than it would be in any given year.
Thereafter, I think this is this year is a standout as far as that topic goes and I would point out in the community Bank.
We're holding.
Operating efficiency is going to be roughly flat to where it was last year and expenses will be as well the spending is really around triumph business capital just to.
Create the technology capacity and people capacity to handle such exceptional growth, which you can see in our numbers.
And try and pay continuing to climb a mountain that no one's ever climb before so that's where all of that expense falls.
Alright, and then just.
Just one last one for me.
You backed out.
Some noise. This year you made about $4 30, a share in earnings if you look at the next couple of years it feels like youre still going to be in that four to $5.
The EPS range.
I think the market ultimately see is.
Can you pay is being able to earn well try up as being able to earn a lot more than that.
When do you think you'll see a breakout in the <unk>.
EPS towards a materially higher earnings power.
So I mean first of all for you Brady and everyone on the phone.
We delivered a $1 75, ROA and a quarter with an extraordinary.
Accrual for our bonus program that was announced two years ago that no. One thought we could get to and so if you normalize for that you're looking at an ROA thats, 215%.
But judging by the rest of the World I would say, that's a breakout and we did that while incubating try and pay which is going to continue to be a drag on earnings. If you were to take that out I think you would be close to a two 5% ROA, but we're not solving for short term profitability here, we're solving for.
Creating long term value.
So I would say the fact that we're running at a 20% return on tangible common equity while reinvesting in the business.
Is something we're very proud of materially reinvesting in the business.
We've said that 2023 is the first year youre going to see meaningful revenue growth and try and pay because we've chosen to show it to the market.
What it can do and bill for it in arrears, rather than trying to give it away upfront are severely discount the price. The wiser thing to do is allow market constituents to use it and see its benefits and then build them. After the fact.
And.
We're blessed to have the income engine to do that so if the world were to stay the same which I doubt it will and you get to an environment, where the community Bank is doing what it's currently doing try and business capital continues to do the extraordinary things, it's continuing to do and try and pay is better.
Breakeven or at that $100 million revenue run rate that we've called out on our end of our four year journey.
You would be looking at the.
The most profitable the most profitable bank in all of banking that I know us we're.
We're not that far off from that now but of course, it will make a difference when trying to pay as a net contributor.
And for it to get there we've got to continue to invest in it but.
The short answer to your question is it's 2023 and beyond when you start to see all three segments contributing to the bottom line. We've got two segments that are contributing in one segment, that's being built out.
And that will continue for all of this year.
Got it thanks Darren.
Thank you our next question will come from Ms.
MS Labs from Piper Sandler please.
Your line is now open.
Hey, good morning.
Good morning, Brad.
Hey, Thanks for taking my questions.
Just curious.
On the expense guidance back to the envelope looks like Youll spend I don't know 30 or $35 million kind of over and.
Annualized core fourth quarter expenses can you kind of break that down.
Where were some of those dollars are going and does that does that necessarily translate.
Does that translate to more revenue or is that more revenue, maybe like 2024 and 2025 as you talk about some of these sort of new new technology needs that you're uncovering for clients.
Yes, so theres broadly.
It's probably going to fall into two buckets.
And the first of which is triumph business capital and so Jeff.
<unk> why don't you speak to your expense growth in this year and kind of where you see that going and then I can take try and pay sure. So there's two components of it the first is people.
Historically, we've looked at trying to manage metrics and ratios, where you have one FTE per $2 million of monthly invoice purchases and Thats best in class.
Currently we're running closer to 1% to four which sounds really good but it's completely unsustainable.
We've not been able to hire people on par with our growth and business. So a lot of that is just human catch up.
For example in operations, we are forecasting methods based on applications fill rates capacity ratios and in the first quarter, we will need to place pretty significant catch up in terms of people and that spreads at costs across multiple departments. The second part as Aaron mentioned technology spend.
We have ambitious plans for creating a transportation portal <unk> TBC.
And then for the larger trial transportation portfolio, and Thats, a technology spend and thats going to be significant as well, so acumen and technology of TBC is going to be spend areas for us.
And Brad Thats, probably 25% to 30% of the spend for the expense growth we've called out between now and the end of the year. The remainder of that is going to be and trying to pay solid add shire speak to the things. We're thinking about there was what are the drivers of those expenses.
<unk>.
Yeah, So Brad almost an identical answer to what Jeff said, so youre going to look at people and technology ours is a little different on the people side. You are building a foundation of developers that are progressing the conforming transaction that we announced earlier.
Titan informing transaction is very strong as we will be adding additional factors and brokers and that takes that takes integration. So it's not only developers writing code and doing those things, but engineers and so on and working with those individual companies to bring that on.
So that can be labor intensive upfront, it's actually good for us in the moment, because it's customize its unique for us to get involved with it.
They won't have multiple parties doing at the same time so what's in the Q is really strong but that takes people and then again technology on top of that all of the things we need to do to build the foundation around systems and it's tough to really be a world class payment network.
Again, it takes technology investment and those people just in different buckets.
Okay, great. Thank you and then.
I think a coupon that we can get some of the segment data just curious at trial.
It looked like fee revenues were maybe just up slightly linked quarter.
Can you kind of talk through kind of how that will continue to build.
In 2022, maybe I thought you would've seen another step up just to continue to process more volume, but it could be a timing thing with.
Folks getting on the network and so I'm just kind of curious how that how you see that number building through the year.
It will build through the year, Brad but materially it shows up in 2023 I mean, there are things. We are doing now for legacy clients that are getting built for but the bulk of this growth in volume youre going to see this year as we said previously it's getting billed in arrears because it makes it more.
Much easier in the sales process, when you're engaging with a shipper with a broker with a factor to say hey use this.
And we will bill you at the end of the year based upon how much you used it because our experience has been anyone who uses it never stops using it because they see the value proposition and that was much easier than hey, we're going to charge you every month, our upfront and.
And so we think longer term youre going to see significantly more fee revenue because we've allowed people to build it into their everyday working operating process and then budget for it in the next year based on how much they like it. So that just brings us to the same answer that Youll. You may you I'm sure you will see some revenue growth in 2022.
But 2023 is when I would start measuring that if I were you and I would measure 2022 by volume growth by how far how much penetration did we create because the more tier one integrations, we do the wider the moat gets between us and anyone who we try to follow us.
Okay and just on that I think you mentioned, the Brady something north of 20 basis points last quarter, I thought not to split hairs, but something more in kind of the mid mid teens, but at a time.
Get it all out is it are you feeling better about something.
North of 20 now going forward.
Well it will depend upon the amount of syndication fee you're charging that's the that's the outlier that's hard to predict if youre getting almost no syndication fee of the broker quick pace than you would be in the mid teens.
Tend to believe these brokers want to offer quick pay as a solution back into the market and we won't be syndicating that on their behalf, perhaps even to the factoring industry.
And if you do that.
That.
Drives the overall blended base higher and so the real answer is we don't know.
We can see how the elements come together, we know it will be in the teens, but syndications take off like we think they might add scale and that will push you over 20 basis points, but.
We're all a little bit in a wait and see.
Timing here because it has not been done before.
And so we're just trying to give you the hash marks of where we think we can land.
Got it very helpful. And then maybe just a final question kind of away from the factoring business.
Just any more color on an update on the litigation with USPS I know that's been hanging out there for a while.
The big number and that you felt in the past that you feel like you guys are going to come out whole, but just kind.
Kind of curious if you could add any more color beyond what you put in the in the press release.
Yes, I mean the.
Youre dealing with the United States government the post office in the legal system. So the combined.
The effect of having the three of them as part of this process means a lot of people have to be involved and as we all know no litigation moves fast.
We continue the further we go in this to be more resolute in our belief that we will recover 100% of those misdirected funds.
And if that changes we will update everyone. It is our sincere hope that this is completed this year and we just you can only make the judicial system go as fast as you can make it go.
And Thats really there is no material update beyond that.
Okay, great. Thank you guys.
Thank you. Our next question comes from Matt Olney from Stephens. Please Matt Your line is now open.
Hey, Thanks, good morning, and thanks for taking my question.
Try and pay we're now at $21 billion of payments in the fourth quarter.
Any color on what that number was in December or more recently just trying to appreciate the ramp in the near term and I think we last had to go out there of $25 billion by the fourth quarter of 'twenty. Two is that still a good goal for us to think about.
Yes, Hey, Matt This is Ed.
So if you go back to the fourth quarter, we ran $16 8 billion of annualized payment volume. That's the average for the quarter. We came in if you just want to look at the last month in December It was approaching 18 and as Aaron mentioned earlier it hit 21 annualized so again.
<unk> for the quarter.
Some of that just.
<unk> fourth quarters work and just growth in the industry and then a fair amount of that is just our own clients, giving us more volume and the wins that we had talked about as we go through the year.
Hard to say right as you look at where volume is going to be but the numbers that we had talked about before getting into the mid twenties approaching maybe 30 billion annualize arent out of reach for US those are the goals we set for ourselves when we look at what's out there and what's in the pipeline that we should kind of around the same thing we've been doing the last year or so with that type of growth.
I expect that in the immediate future.
Yes.
And just to clarify he said Q4, I think what Ed was saying, we exited Q3 at an $18 billion run rate. We exited Q4 at a $21 billion run rate, we will hit 25 billion. This year.
Can't tell you exactly when.
And all of the different things that will require for us to get there, but we called our shop and we're going to hit it.
Okay. Thanks for that and then and you mentioned in your prepared remarks that the strong industry tailwind.
Has slowed some of the conversion of customers over to <unk>.
They now do use with the rising tide lifts all the boats.
Is that something youre seeing today or something you are concerned you could see at some point. This year just looking for any more commentary on that topic.
Yeah. So.
Any business.
Is going to be resistant.
To change in a time in which.
They're beating their industry benchmarks right. It's the only the businesses that have great forward vision that say, hey, notwithstanding the fact that we're earning a higher ROE than we've ever earned we still want to invest to be better. Most businesses. We find are gosh, we're earning a high ROE, let's not do anything to mess this up for <unk>.
Al.
That being said, we still have a very full pipeline.
The second thing that all of this is done.
Is the technology capacity of the constituents, which with whom we need to integrate specifically the freight brokers they're stretched.
Theyre holding on for Dear life much the same way that try and business capital was as we went through the craziest surge in freight we've ever seen.
So I don't necessarily view it as a headwind to what we're doing we're just pointing out that the.
The industry right now is.
Better than it ever has in history, earning its cost of capital and doing so well above that and so the sales cycle.
In an environment like this where people are already.
Our short Tech talent, you really have to fight hard to get large companies to come across and integrate and we are fighting hard and getting large companies to come across and integrate I believe that the second the headwind show up and everybody start scrambling for efficiency and they look over at their colleagues who are participating in conforming transaction.
And therefore, not having to handle tens of thousands of phone calls a month because those have now been dropped into the network. There will be a very fast me to follow to get into that.
To get into what we're doing because theres be tremendous cost savings for them. So we're just pointing out kind of where the industry is right now if you work in and around trucking and are making money you've missed your calling.
Because this was the time you should.
You should be.
Doing exceptionally well and we'll still get some integrations then, but we think when the headwinds come we think they'll come faster.
Yeah, Okay, great point, thank you.
Thank you. Our next question comes from Steve Moss from B Riley Securities business, Steve. Your line is now open.
Hi, good morning, maybe.
Maybe just following up on the on the ads for tier one brokers just kind of curious here.
How does the pipeline look maybe over the next six months in terms of any claims that may be going live here.
Some in the second half of 2020.
Yes, it's always a dangerous game to tell you an exact quarter when a when a tier one broker, especially is going to go live because they are things can change for them, but let's just level set we've got eight tier one freight brokers, who use try and pay to make payments we have another nine.
Nine who use try and pay audit for part of their audit functionality. So we you have some level of integration with 17 of the 25 largest tier one freight brokers.
Will.
We fully expect let me say it that way, we fully expect to integrate multiple tier one freight brokers in the year 2022.
I don't think any of those will happen in the first quarter, but we do think those will happen throughout the year as to the number and the timing of when those will happen exactly.
It would be it's impossible for us to give you that much clarity.
Other than to say, we believe we will exceed the $25 billion payment run rate. This year as we've said and we think you'll continue every quarter to see integrations happen then the tier ones will follow probably in between quarters to three quarters four of this year.
Okay.
It's helpful. And then just maybe on the factoring side of the business.
Obviously first quarter is seasonally weak, but invoice prices and supply chain disruptions.
Appear quite.
Quite significant kind of curious.
Where are.
Input prices today give any color there and just wondering if that level if the pricing still remains strong, which I assume you say it will.
If that probably helps.
Sequential quarter increase to drive a sequential quarter increase.
Yes, Steve this is Jeff.
Look we're 12 working days into the year, but we do have data on those 12 working days and thus far into January the average invoice size remains very strong.
As strong as it was in Q4, we are seeing average daily purchases decline a little bit in line with seasonal expectations.
Track the industry, there's a million reasons why.
Non contract Truckers' drive a less in January .
Theres weather issues Theres produce slows down and Theres, just a number of reasons, but.
We are seeing that the average invoice price is holding strong utilization is down just a little bit as we would expect in January .
Yes in fact, its a short sample period, but I think just the actual number is 2454 for transportation invoice, which is the highest we've ever seen I would be very.
Cautious about using that to extrapolate forward for what the full year. It looks like because I don't think the full market is engaged I think a lot of trucks are parked but.
But I've never seen that in January I've never seen that ever $2454 blended transportation invoice over a two week period, and we're just a small sample set.
A very large player in the industry.
<unk>.
It does not appear that the spot market is weakening it appears utilization is down which as Jeff said was totally predictable so.
I don't know if $2400 invoices are good for the market frankly, it's kind of like $100 oil.
It makes people profitable in the short term, but I don't know that its healthy for the entire ecosystem.
We think something in the 2000 range and above it for a long period of time is really good for drivers. It's obviously very good for our business and it's hopefully something that those who are shipping goods through Interstate commerce can afford to pass along and I think frankly, that's what youre seeing that as a driver.
In this inflationary growth, we're seeing is it's showing up in shipping and especially in trucking.
Alright, Thank you very much I appreciate all color.
Thank you and the next question comes from Joe Jen Tuna from Raymond James Please Joe Your line is now open.
Hi, there.
I know you guys just said that truck utilization is experiencing a seasonal slowdown in the first quarter, but.
If you look at the.
Last few quarters. It looks like you are really taking market share.
I guess when do you expect that to kind of slow down and is that a concern that some of the factory company.
With respect to Brian .
Well, so let's be precise on what we're talking about first of all I don't think any factoring company is threatened by trying to pay in fact try and pass 69 factoring companies, who use it services, including five who are now live doing fully conforming <unk>.
<unk>.
And we are a service provider to factoring companies.
And so the market share, we're taking and try and pay is not excluding anyone.
It's doing is making payments that were already going to happen more efficient.
With respect to triumph business capital, which does compete especially in the larger end of the factoring industry. I mean, if you look at most.
The receivables in that portfolio.
While we have a lot of small clients the bulk of our portfolio is the larger and what we would call nearly bankable client base.
So most of those clients most of that volume in triumph business capital. The majority of the factoring industry as it currently exists wouldn't compete for it's too large and too thinly priced for them.
You could argue most of these clients. We have are almost ABL light I mean, we treated as a factoring discipline, but from a yield profile. It's more like ABL then it would be a when we think about the independent factoring company. So our competition with the independent factoring companies who are going to be.
To try and pay constituents, we believe will become less and less I think try and business capital will continue to grow because trucking is growing.
And we need time business capital to do that we also are working on some things in triumph business capital.
A prototype that we intend to probably roll out to the factoring industry as a whole that we think will help them in their engagement with their customers. So Mike I cant you could speak to the factoring industry to get their opinion I think they see us as a formidable competitor who does what we say we'll do.
Who plays at the top end of the market.
Kind of away from where the bulk of other factoring companies play for <unk>.
And one last thing and I think investors should not missed this we are growing market share in a growing market.
The brokered freight market is not static brokerage freight is taking more over the road of the over the road trucking enterprise every year more growth happens there than in the direct shipper market.
So we address both the brokered market and the shipper market.
But if the whole pie is growing and we're taking a larger share of that pie.
That's a really good.
For us that's really.
We're in a really good spot.
And Thats, where we feel like we are and again the growth and try and pay the thing that matters. The most frankly from a payment investor viewpoint, the growth and try and pay is growth that's not exclusive of growth per factoring companies or freight brokers. It just rides those very rails to get to.
We wanted to get which is ultimately a $100 billion in payments in the next few years.
Got it that makes sense.
And then just kind of focused again on the payments network. I believe you previously stated that you expect will become profitable at some point 2023, and then reach annualized payment volume of $100 million in 2024.
Your thought process changed at all in the past.
You might not this target.
The only change in the thought process is the further you go and what we're doing and let's just put a stake in the ground. We have completed a conforming transaction, it's never been done before and we put the screenshots of the raw data into the slide deck.
Because for US that's a really big deal right.
That's all.
A leap forward that hasnt happened. So we actually the technology is built to make conforming transactions work. What we're now building is how do we take this and make it ubiquitous right all the way to every convenience store you walk in you carry your visa card because you know they are going to be able to.
Do a conforming transaction with you when you swipe your card.
So.
The change.
We still see that as the addressable market, we still see the opportunity in the long term for hundreds of millions not just a 100, but hundreds of millions in revenue and the ability to build a business that has just in trying to pay itself that has a multiple billion dollar enterprise valuation Mike.
Only change since we addressed you last time is we need to spend.
I don't know $10 million.
So more of this year to get the talent in the door to make sure we maintain the distance between us and any would be competitor. That's the only thing thats changed the long term profitability the operating efficiency of our payments business at scale is going to be.
60, 70% operating margins that.
That view is unchanged. It's just we need to go fast we need to win this race, we need to be excellent and we need to demonstrate value to the market as a whole and I need to hire some more people to do so and I just happened to be trying to hire at a time when everyone else is trying to hire tech talent. So.
That's why that's why we wanted to reset the expense guidance for this year, that's not in perpetuity. It's just.
This part of our journey.
Got it so it sounds like the the profitability target could get pushed out by maybe a quarter or so.
Yes.
Yes, when you are incubating.
Doing what we're doing for us to Miss a quarter on profitability targets.
Trying to build a payments network, we're not good enough to call out with that level of precision. So yes. Whenever your number is we could definitely be off a quarter or so we're way more interested in the long term value proposition of having everyone use this.
And if we get that right then everything else is going to get sorted out.
No that makes sense and if I could just sneak in one more.
Yes.
<unk>.
Currently in the queue to join the payments network. So I was wondering when do you expect we're trying business capital to go live on the network and then also with the payment.
Network now live on a test basis, if you take a step back is there anything you would have done differently during the initial build out.
Oh, that's a hard question that.
Yes.
Is there anything you would have done differently I think had we know and then what we know now we would have saved some dead ends, but our team is remarkable and.
<unk>.
I should call them all out by name, but then I would be telling the whole world. We all they're really talented people on our organization and you all would try to steal them but.
We have just some great people, Mike <unk> and his team.
I understand we closed on hub trend June <unk> of last year, and you had to get through all of that and he had to keep that team together and what they were doing.
To integrate with US and then in about four months, we went from hub trend existing as an audit product.
Turning it into a fully functional open loop payments network I mean, the trap team then.
It is just exceptional to have done that for months. So there are probably some things that the margins. We would have done differently, we've already gone back and corrected many of that but.
To get it done that fast anyone who lives in the technology World would tell you that's.
That's highly unusual.
So.
Yes, I don't know that we would do anything differently and then as far as triumph business capital. It was not first in the queue and Theres a couple of reasons first of all let me go back to what we've said before the goal of trying to pay us to not make sure try and business capital is the most dominant factoring company that's ever existed because that's a self serving goal.
The goal of trying to pay is to reduce friction for everyone involved in the carrier payment process. It just so happens to be easier technological lift to integrate factoring companies, who use off the shelf factoring management systems, what we call an fms that into.
Gration is easier.
And we wanted to get it live and so we decided to go live with third parties all the while we've been building the custom integration that has to be done for triumph business capital, which runs on its own.
<unk> proprietary platform, it's not the only factoring company that does so theres a couple more and we're also working with them. So.
That's the long answer the short answer is we expect try in business capital to be live in the first quarter of 2022.
A months or a couple of weeks away from that and then we have several other factoring companies, who will go live and of course, we need more freight brokers to go live and Youll start to see US report as the Kpis in each.
And each quarter the number of conforming transactions that were done and you should see pretty exponential growth coming off. These first few quarters because the denominator is so small.
But we think that will continue to grow throughout the year.
Got it that makes sense and congrats on a good quarter.
Thank you. Thank you then the next question comes from Garik <unk> from Wells Fargo Securities. Please go ahead. Your line is now open.
Hey, guys good morning.
<unk>.
I guess one question just on the on the tech build out.
What do you think when you're talking about the hiring what are we talking about in terms of like Ftes. How many people do you actually need when your when Youre looking at that broad based hiring hiring goal.
Yes, I think the.
In the in the Tech space I think we're adding between 15 to 25 people.
Who are a variety of roles from UX too.
The user experience to systems engineers, we need more more engineering to help us go faster on integrations.
We've got some some technologists and data science hiring.
And that whole pool of people to sit within different places in the organization is 15% to 25 people.
Yes.
And then that would be then plus the people you need for TBC.
Just sort of the.
The capacity build out.
Correct.
Okay.
And then when you look at the tech the broader vision of Tech and what you want to.
Develop and bring out what do you think how much of that is going to be purely in house versus partnering with either fintech or large tech providers or software providers, what's the spend sort of in house versus.
Outsource.
Yes.
While we use consultants for rifle shot projects.
I would say 80% of what we spend is internal.
Yes.
We view the role of a consultant to come in once something is built and help you optimize it like if youre hiring outsiders to build what you think is the Golden Goose, then you really don't understand the Golden Goose as well as you should understand it so.
<unk> lives here they are on our team they are incentivized as you should.
B and protected with equity grants like the SCG to protect our intellectual property. If we were using third parties to do all of this I would be extremely worried about someone just being able to hire that firm and recreate what we're doing so we <unk>.
Most all of this lives inside the try an ecosystem.
Okay.
And then shifting a little bit in the past you've talked about.
Ultimately using less of the balance sheet.
As everything else grows can you give an update on your thoughts of partnering for the actual <unk>.
<unk> risk or however, you want to describe.
That partnership, especially I guess in light of this quarter, we saw a reduction in deposits.
The expectation for rates to go higher do you think that that's going to accelerate the desire.
To bring in partners to help either funded or hold that.
Uh huh.
Actual balance sheet risk.
Yes.
Great question.
Yes.
First thing it's been interesting to watch the sell off in tech pull us with it. So I guess to that end, we have done the job of convincing the market that our future is as a tech company, which which we would say it is that being said.
If the fed goes up 200 basis points. This year trough will make a lot more money than we otherwise would have because of the way our balance sheet is positioned so we don't fear the rising rate environment, perhaps as much as a tech company, who makes no money.
That being said, we do think over the long run for the network to be effective try unbalanced triumph bancorp cannot be the balance sheet for the payments network and I think youll start to see us.
Place.
The assets that are generated by the try and pay network back into the ecosystem in the first place we're going to offer them as to the factoring industry themselves because they are the balance sheet for the fall.
Sure on the PE side of the model and so we will go to the factoring industry and work with them. If they are integrated with trying to pay to say here, our receivables being generated from broker quick pace.
Would you like to hold these on your balance sheet. They have already been verified by the network and if to the extent they have the capacity to take those they will.
Stuffing those into try and business capital or growing our balance sheet more is inconsistent with our long term plan, we're not in a rush to go balance sheet light, we think inevitably we will get lighter as we go.
And so thats why frankly, not seen total assets grow and benefit to that inside a bank is we don't have the funding stress like our 16 basis point cost of funds is is pretty healthy.
Yes, we should be delivering this year.
Indication opportunities back into the payments network to the factoring industry to other third party capital providers.
And.
I don't think Youll see our balance sheet grow it's not going to disappear overnight, but we're in a long term March two.
More streamline balance sheet more tech heavy.
Product set than we've ever been.
Okay. That's good color and then I guess.
On deposits if we once we see rates go up what is your expectation for beta.
Your deposit base.
Yes.
Mike.
Working projection right now is that it's pretty low at least at first.
As we move into this what looks like a rising rate environment.
We're in a situation that's pretty atypical with the amount of liquidity that the banking system. In general has our competitors are all flushed with liquidity I don't think any of us are going to be in a rush to be the first ones to start to raise deposit rates. So I think early on it's going to be fairly low.
Longer term.
Remains to be seen.
And the other part I would point out here is is don't overlook the growth of float from triad pay.
Flow and try and pay the timing difference between when we invoice the party for whom we are making the payment on behalf of to actually making the payment into three to five day lag depending on a variety of different things at scale.
We will generate hundreds of millions of noninterest bearing deposits.
Number is.
I think close to $90 million as of the end of this year, which is a noninterest bearing deposit that will have no beta in a rising rate environment, because it's just functionally how it's done so as triumph pay grows as one of the reasons. We believe <unk> pay should live in a bank if not a typical community bank, but in a bank.
Because the value of the float you create on handling all of these payments.
Great. Thanks, Sharon this is Todd Ritterbusch, one other point about deposit balances you noted that balances came down a little bit in the fourth quarter that was <unk>.
<unk> attributable to.
Three short term decline in mortgage warehouse balances, but we actually expect the mortgage warehouse balances to rebound from here and to continue to grow this year and those balances are noninterest bearing and always will be those are servicing deposits related to escrow and P&I and so forth. So.
We are expecting continued deposit growth this year overall.
Okay. Thanks, a lot.
Thank you. Our next question will come from Gary Tenner from D. A Davidson. Please Gary your line is now open.
Thanks, Good morning.
Question on the spend as it relates to CVC I mean, obviously trying to pay gets the bulk of kind of attention externally but.
On CBC, which obviously very profitable and growing company, how do you kind of balance the spend there given that we're kind of presumably near or at peak invoice prices spot rates et cetera.
When the when the market normalizes on those fronts, how do you kind of manage that.
Spend that youre undertaking.
Yes, Hi, this is Jeff I think what you got to consider us.
When the rates normalize we still taken on 51% more clients than we had in Q4 of last year. The number of invoices, which are independent of the actual rate amount that's up by 40% those are real volumetric pressure points on an organization so regardless of what happens.
With the average invoice sizes, we have to service those clients and we have to manage those those invoices, which are now pacing at about 25000 invoices a day. So it's just sheer volume pressure and.
I think we won't we'll look to be as efficient as we possibly can I don't want to hire one FTE I don't need but the reality is right. Now is we need a lot just to catch up with the volume that we've that we've taken.
And then thanks for that and then over time, you talked about TBC kind of Onboarding to try and pay platform here in the first quarter.
As more participants are active on the platform does that is.
Does that expand the capacity on a per FTE basis that current business capital.
Given the the.
Overall efficiency of big I'm trying to pay network.
Yeah, absolutely I mean, when you look at the impact of a conforming transaction were not implemented yet, but we understand how it works and there's absolutely efficiencies are that we will look to seize.
We will also have to manage.
Percentage of our business and that at least for some period of time as nonconforming. So those two things blend together, but yes, I mean, the short answer is of course.
Try and pay takes on more participants in the network TBC being one of them, we will look for those efficiencies to flow to us for sure.
Gary just to pick up on what Jeff said this is what internally or at least I referred to as at some point in the next two years you crossed the chasm and what I mean by that is it.
For a season of time.
You are going to have.
More and more brokers pushing conforming transactions through the network and when a conforming transaction happens and as a materially faster less human intervention.
Experienced for the factoring company in any factoring company, who doesn't engage and conforming transactions has no chance of staying up with the FTE staffing ratio that Jeff alluded to because it's giving them a tool.
<unk> produces a tremendous amount of manual processes, but until you get to the point, where we're ubiquitous right word 90%, 80%, 90% of all payments and brokered freight that end up with factors are made across the network you're going to have a subset of your team that has to be there to do the manual process.
For these other payments, which has to be done in real time, I mean cash application outside the payments network is exceedingly difficult, taking very large invoices very large payments and trying to go out and figure, which 'twenty 300 dollar invoice from 4000 clients you had haul though for for a very large freight broker has to be done.
And so there's a tension as we approach the factoring industry of Oh, My Gosh, if everyone did this it would change the world.
Everyone Someday may do this but during the interim period not everyone is doing it yet and so factoring companies are integrating and seeing the conforming transactions that are happening, but you are probably a year or two away until they're really able to say okay. So much of my volume is coming for.
Sure coming through in the form of a conforming transaction that I can change my staffing network, which goes back to the reason why we didn't want to charge factors in 2022.
Even materially in 2023, when they are able to reduce their.
It's not even reduced their staff count strength staffing counts, what's happening is they're growing market share so allowing them to grow on the same number of staff that they currently have you need more volte.
Volume flowing through is conforming transactions and at some point you will cross the cap where most are payments are being done in a format that they're coming through as structured data in a conforming transaction and at that point, if youre not onboard and youre going to get totally left behind.
And so I.
I suspect that crossing moment happens out in 2023 at some point, maybe early 2024, but when we look at our pipeline.
It's not multiple years away like we are starting to dial in on it and once you get to a $100 billion of payments.
You will have the volume that inevitably you will be very close to having crossed over where.
Transactions are expected to come through as conforming transactions, that's not it's not a happy surprise when it does it's how you expect to get paid which ultimately completes that transition to what we hope to get to grocery stores don't take checks anymore why don't they take checks because they know how inefficient it is but I remember.
We're going to the grocery store with my mom and her pulling out the checkbook now no one does that because it's so much more efficient to use our payments network and Thats ultimately what we believe happens to this industry and we think it's going to be good for everyone involved.
Great color. Thanks.
Thank you as a reminder to ask any further question. Please press the star followed by one on your telephone keypad now.
We currently have no further questions I will hand over back to Iran for any final remarks.
Thank you all for joining us today.
I will say again this was a remarkable quarter. We also know that there is still a lot of problems out there in the world people battling COVID-19 and the supply chain problems that are out there is hard on a lot of people and so.
As much as trials can be involved in helping that we're trying to do so but until we speak again take care of yourself and thank you for your time and attention today have a great one.
This concludes today's call. Thank you so much for joining you may now disconnect your lines.
Okay.