Q1 2023 Triumph Financial Inc. Earnings Call

Good morning, It's 930 here and a typical spring day in Texas.

Time for our first quarter earnings call, so let's get to it.

I'd like to open today, but thank you for sharing your morning with us you'll notice the set looks a little differently today, and we're proud to unveil our new desk.

Desk was constructed by Coty, and Chris that the TDK workshop, along with participants from our inaugural forged the future program. The workshop as a maker space. We've developed that is focused on community outreach through workforce development and educational initiatives.

You'll notice another difference this morning in our group here at the studio Dan Curtis, Our Chief operating officer, and try and pay will be filling in for Melissa Melissa daughter is completing her active duty service in the Navy. So Melissa will be attending a family celebration onboard the U S. S. Carl Vinson given the once in a lifetime opportunity and to celebrate her daughter service.

She wanted and of course, we wanted for her to be pressing at the special event.

Dan brings a wealth of industry experience and an informed understanding of the market dynamics facing trying to pay as well as the opportunities. We are pursuing so please join me in welcoming him today, Melissa will be back with us in the next in the studio for next quarters call.

Speaking of let's get the business.

Last evening, we published our quarterly shareholder letter that letter and our quarterly results will form the basis of our call. Today. However, before we get started I'd like to remind you that this conversation may include forward looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ the company undertakes no obligation to pump.

The revise any forward looking statements.

For details please refer to the Safe Harbor statement in our shareholder letter published last evening. All comments made during today's call are subject to that safe Harbor statement.

I'd like to turn the call over to Aaron for welcome and to kick off our Q&A Erin.

Thank you Luke.

Good morning, Thank you for joining us I hope that you found the letter we published last evening informative and helpful.

Make a few opening comments and then we'll turn the call over for questions.

Depending on your position related to try and financial I have one piece of bad news and three pieces of good news. So let's start with the bad news the freight recession is here and it's real.

Softness in the market took a toll on our earnings for the quarter.

Further I think investors should know that the market has remained soft but at the beginning of the second quarter.

If the market stays this soft for a long period of time, many companies in transportation will experience financial distress we.

We don't have any projections for how long or how deep the recession will be.

That is the bad news.

So the good news, even if the freight market stay soft investors should expect try and financial to remain profitable.

Freight is the biggest part of what we do but it is not the only thing we did.

Further we were reducing long term freight risk when the market was the frothy as two years ago.

For example, we slowed our growth in equipment finance in the last few years, because we wanted to be particular on credit.

We didn't know when the market would turn but we never forgot that the freight market is cyclical.

We expect to navigate this freight cycle just like the ones in the past.

And past experience has taught us that bad markets often present compelling opportunities.

The second piece of good news all of the ills that have caused trouble for the banking industry in the last 60 days or just generally not true of US we have ample capital and liquidity, we take very limited interest rate risk and we have avoided growth in the areas most likely to experience credit risk.

And now for the final piece of good news do not let the falling freight market confuse you on try it pays performance you will not see us use this great recession. However, long it may be to walk back our guidance on profitability in that segment to the contrary, we expect to do better.

Depending on which markers you use the truckload freight market is down between 10% to 30% over the past year and the brokered freight market is towards the higher end of that range.

In that same timeframe try and pay has grown its volume by over 7%.

Other words, we're taking market share in a falling market.

But more important than growing volume, we have improved our EBITDA margin by over 50% in one quarter.

That improvement is not episodic we always believed that the float we created in the network would be valuable we just needed a different interest rate environment to demonstrate that value.

Rate environment has now arrived.

Last quarter, we noted that try and pay with self funding as a segment for the first time for this quarter trying to pay generated excess funding investing that excess funding at the fed funds rate created interest income of over $1 5 million for the quarter.

Second certain upfront expenses and try and pay burn off over time, it is difficult and it is costly to onboard new clients, but that effort pays off over the long run.

As a result, we are more bullish than ever on the long term value of the network.

And for the team and the board and our long term investors. We think that is the best news of all.

And so with that intro out of the way, we'll now turn the call over for questions.

Thank you Nate.

On to Q&A, if you have dialed in today and we'd like to ask a question. Please use the race and feature on the books and hope you'll see them window once called upon please feel free to ask your question. Our first question comes from Matthew Olney from Stephens. Thank you Matthew.

Hey, Good morning can you guys hear me okay.

Or do you find that.

Okay, great. Thanks for taking the question.

We previously talked about.

Tpa was gonna add.

I think it was for new brokers that were pretty good size on the system sometime in late fourth quarter early first quarter.

Given the market headwinds that we're seeing right now it's not easy to see kind of the benefits of these new brokers can you just talk more about the onboarding process and the adoption of the Tpa product within those do have brokers and how that compares to some of your internal expectations.

So in Q1, we signed one tier one to audit and went live as well as one tier one or tier two and audit.

We also went live with four tier twos in the first quarter and our pipeline of both tier ones and tier twos for payment audits and network remains strong we expect to bring more on in the second quarter as well as the third quarter.

And we can see the clear path of growth for this year based on that the tier ones and tier twos that we have in integrations right now.

And not to add to that since I was the one who made that prediction.

The tier ones that we thought would be on the core on the network by this quarter a few of those have slid to next quarter.

So that volume is yet to come and that's why we're encouraged that we're able to grow EBITDA before even that volume comes because it proves that we're monetizing the network at a rate that exceeds what our original expectations were so the pipeline remains full and we continue to work as Dan said I'm, bringing those law.

Large brokers and all brokers frankly onto the network.

And just as a follow up to that Aaron.

Why do you think some of those are sliding is it more market conditions.

It more something else any color on kind of why some of those tier ones that split in the tier two.

Well.

Tier ones haven't become tier twos and you know those are our own calculations, we we consider a tier one broker in a normalized market if someone with more than 500 million of purchase transportation spend.

The reason they slide it's just and I think we've alluded to this in the past and integration with try and pay is difficult technical.

It requires a lot of resources because it's not just something you can flip on with a switch and that's why that upfront cost as real we'd been bearing that cost and not like we alluded to that cost burns off over time, and so we have the technical resources stood up to complete the integration on our side, but of course, we need our broker or payoff.

So we're entering the network to have the technical resources available on their side and there's just always a competition.

You have enough resources ready to do this because when you go live with payments you can't kind of get it right you have to get it absolutely right and tech projects, just often times missed their deadlines, but the pipeline remains and you know as.

As soon as we're able to announce the next one which I think will be this quarter. We will of course announce it and every time, we do that just brings more volume into the network.

That's helpful.

Just one more on <unk> here.

Just about the various fee components for Keybanc.

The fees are a smaller number of today within key pay but I'm curious about the types of fees. They're currently running through the system today versus the types of fees that we could see as volumes ramp up whether its syndication fees description feed network be any colors on the feed today versus more of the fees on the come thanks.

So we currently have subscription fees and our newer.

Brokers that have signed onto our network and onto our invoice and payment audit processing. We also have network fees for factors now running through the system, we have our traditional quick pay revenue.

Quick pay revenue share as well, which is the predominant source of our revenue still but again, we have transitioned.

New clients to a subscription fee basis or re pricing some existing clients to subscription fee have our first network fees running through from a factor perspective, and we are recognizing more interest income than we have previously by creating our own funds.

Okay.

Helpful. Thanks, guys I'll step back.

Thank you. Our next question comes from Gary Tenner D. A Davidson thank you Gary.

Thanks, guys good morning.

I wanted to ask.

Aaron it's something you've talked about in the past a little bit as it relates to kind of the sell through of the value proposition to the large brokers in a slower.

Growth environment or interfere recession type type of type environment. So can you give us a little more as we're kind of starting to see this evolve how those conversations have changed.

And you know what there's some degree of increased receptivity.

So that value proposition.

Absolutely and that that's a great question, Gary I would say, there's three things that we are talking about now that werent talked much about a year ago or a year and a half ago. When freight was on fire number one.

In a softening market everybody wants more efficiency and so that discussion of efficiency in the back office.

Is finding far more receptivity today when margins are compressed than it was a year ago.

The second thing and this is interesting is.

A year and a half ago, the large brokers some of them or all of them probably didn't need a lot of balance sheet health now there are cases in which we can step in and provide financing for them alongside what they're doing to provide liquidity to allow them to achieve their goals that conversation wasn't happening a year and half.

Half ago, and then the third and this this has become a very loud conversation is broad.

The increase of fraud and transportation has been dramatic organized crime has gone up their transportation, because it's such a big and fragmented industry and so the ability to use what we do to mitigate fraud is a topic of every conversation, we're having and so as a result of those three things.

And just more time more proving out the network are those conversations are certainly advancing.

And then when you talk about the financing part to the brokers do you mean them wanting to not use their own balance sheet to fund kind of a quick pay piece of it or are you talking about direct financing or other kind of credit needs to do.

To the brokers.

Yeah. So first of all every broker is different there are some brokers, who would never need our balance sheet and some who do it depends upon how they've constructed themselves.

First part you alluded to the quick pay revenue we have said since the beginning we are happy to grow the quick pay program for freight brokers and they can hold that balance on their balance sheet, and we will charge a fee to.

To the network to administer that program for them or if they want us to hold it on our balance sheet and we remit a profit sharing back to them, we're happy to do that.

As to the second part of your question and this is something I think investors should understand when we talk about our freight brokerage freight market is $135 billion market. That's actually a misnomer as I think about what try it pays long term value proposition is 135 billion is what.

<unk>.

Great broker spend to purchase transportation in an average year.

Upstream of that spend those same companies have 150 to 160 billion of accounts receivable on behalf of the clients they serve.

As try and pay has grown and as their needs have changed our ability to help them.

On the accounts receivable part of the business is a future gross growth prospect for try and pay and so this quarter I think youll see us step in and provide financing for a few brokers not all of them need this but a few need it.

And it's a topic that we're a conversation we're having now that we certainly werent, having as regularly two years ago.

Sure.

Next question is from Joe Young Chinas Raymond James Thank you Jay.

Good morning.

So I wanted to start on expenses.

And the <unk> expense guide a minimal sequential growth.

Based on the reported $89 3 million from the first quarter or do we need to adjust for any certain one timers.

And then also in the past you've given us.

Expense goalposts for the December quarter, and I was wondering if you could provide that at this time.

The run rate expenses from here.

Yes, you should think about that as based on the 80.

$89 5 million that we reported in Q1 as far as the goalposts exiting the year that it's really hard to say at this point because we are going to be very nimble about that.

We are <unk>.

Restraining some.

Expense growth that we might otherwise have had.

<unk> in the near term just given the state of the freight market and the pressure that's put on our revenues. So if our revenues stay flat or decline further from here as a result of the great recession, you will see those expenses held flat if on the other hand in the in the back half of the year or whenever we see a.

Return to revenue growth and a healing of the freight market.

Our expenses are likely to start turning a little bit higher so I know that makes it a little bit difficult for you to model, but we are going to be nimble and thoughtful about adding expenses from here.

I appreciate it and then in your prepared commentary you discussed that by moving to supply chain financing solutions from triumph business capital Your Tpa and will ship 10 million EBIT <unk>, what's the timing on this transition and do you have a sense of kind of revenue and expense components of this EBITDA.

So the timing on this transition is in the second quarter.

The.

That business produces a high.

That business produces a high return and we will be moving that.

Full operation and business into T pay this quarter again, we expect on an annual basis for it to create about $10 million in EBITDA and look to grow that over time.

And Joe we will call that out for you we want to be transparent about that that's not organic revenue that's not part of the EBITDA walk forward. So when that shows up in the next quarter, we'll call. It out for you on the revenue and expense. So you can separate that from organic margin that's coming into the business.

Appreciate it.

And then just a couple more from me here.

It was blended interchange fee or are you currently signing up new customers on Tuesday.

This trend moving forward.

Then.

As we think about the truck stop paying client acquisition.

Blended interchange fee do you expect that.

Andrew joined the network at it looks like in the first quarter. It was about 13 basis points.

At the same rate would imply this transaction would add about $1 million in annualized.

Revenue.

My thinking about that correctly.

I'll take that one.

So I was.

I think youre doing.

The math correctly on what these clients were.

Where things are now I would say again, we talk about when you use interchange fee, we think about subscription fees network fees and.

All the fees, we charge on both sides of the transaction.

B.

I think long term, we have to distinguish between a network transaction and our non network transaction. We made 23 billion in payments in the quarter and we charge fees for that for network transactions at roughly the size of the market today.

If you think on a fully conforming or a network transaction, it's over $5 right, There's where today's pricing is that's borne by both sides of the transaction not just by one side of the transaction that's roughly what it is that will move you know.

It depends on different volume scales, but that's a good proxy for you.

As it relates to the loan pay customers, who are coming on their historical pricing with low pay bears no resemblance to what we do at try and pay because that wasn't a network that was just a payment provided mechanism and so theyre going to come in at generally our full retail pricing that we're bringing on new customers.

How that translates downstream into overall interchange fees or or network fees as we think about it on total volumes, we need to come back to you on that I can't give you a specific number projecting forward.

At this time, because again it will depend a lot on growing network transactions. That's the one number that grew on an absolute basis in a quarter, where every other number fell and when you see that number goes up the fee per transaction goes up because we're delivering more value. So you have to kind of build some other you know.

Functions into that set about how much of our total volume becomes network transactions to answer that question with the level of precision I would like to answer it for you.

So I just don't think we have.

Our components are kind of back into that so maybe you can help me out could you break down the subscription networks.

Tpa generated in the first quarter.

No no if we have that.

And I don't know that we have those exact numbers.

Silos to prepare to give to you today.

We will come back we will go back if that's you know something the market wants to understand we will go back and look at that and see if we can deliver that back to everybody to help them understand.

Again, it depends a little bit on legacy clients new clients.

It's not just a one and done number.

So we're not going to give you those specific components right now, but we will go do our work and come back with an answer that we think answers both what we did historically and what we intend to do in the future and we will share that with the market.

Joe if I could add to that there is a piece of that that you can see today. When you look at our segments reporting on our letter that we sent last night the interest income that $2 $7 million that you see in the payment segment that would be the quick pay a part of that then.

Noninterest income that you see the $3 nine 4 million dollar number is going to be a combination of all of the other fees, but we have not broken it down more granularly than that.

Alright, well, thank you very much and I'll hop back in the queue.

Thank you. Our next question comes from Timothy switch Satcom K BW. Thank you Timothy.

Good morning on for Mike Thanks for taking my question.

I just have.

I just have one quick one about you mentioned, how onboarding is very technical it takes some time.

And can you kind of help us break down maybe what the cost is for a broker who is signing up for T pay and I don't necessarily mean, just like kind of the tax then they need to do but also like total manpower needed things like that and what percentage of the of our costs are borne by trial versus the broker.

For large brokers, who have custom built P. M. S's like we're talking to the very largest brokers its a seven figure expense and for some of them it could approach $2 million and it depends upon how they.

How they allocate resources internally, it's no small decision, we do not generally bear any of that cost that is their cost to onboard which they can goes into their calculation of the long term value proposition of the network to their operations.

Our smaller brokers, who are on and off the shelf Tms It has a much lower number and happens much quicker.

Okay. That's helpful and I don't even know if this is like a reasonable question you guys have a good answer but no is there is this great recession lasting no spot rates, maybe go a little bit lower volume decreases.

Like the floor of where factoring volume could drop for U N would there be any willingness on your side to maybe take a little bit of market share volumes dropped.

Tim why don't you start with that one so.

So Tim it's it's a it's really difficult to predict because the challenge we run into is historically been through these cycles, you know five or six times in my career in the factoring space and so it's really difficult to understand when something's going to and what the impact is we are certainly above the 2019 levels.

And hope to maintain that but it's so unpredictable and don't really know where it's going to where it's going to land.

The other thing.

So your question was would we take market share we are standing by what we told the market, where where people have our word we said to them factoring market.

We our market position is roughly 15% of the market and that's what we intend for it to be now the market has strunk right. As it is contracted I do think you will see us backfill.

A significant amount of that lost revenue with the supply chain financing, we are providing to the brokerage industry.

Because that opportunity is try and pay grows our reach is much further and frankly.

The the credit risk profile is not materially different and so if we see growth it will be there it will not be going after us taking market share I mean, we're going to be in the market and competitive in factory, we're going to deliver a great product a great service, but we're not going to use this opportunity to compete.

Against our very network constituents will be a friendly competitive I mean, it will be a competitor, but were not going after them, but I do think you can see some of that revenue come back through the supply chain financing opportunity, we provide to the brokerage market.

Yes, Kathy answer that.

Thank you guys.

Okay. Our next question comes from John Rau at Wells Fargo. Thank you John .

Hi, This is John on for Joe Charles Good morning, Good morning.

Good morning.

I guess.

Yes.

One other quick question on the trial.

Net interest income that was generated this quarter from the excess funding.

The segment is that something that we could see as sustainable quarter over quarter or is that more of like a one time thing that was impacted by.

Some factors this quarter.

No we would expect as volume goes up float goes up so it was not episodic you've just seen us bring on significant amount of volume and bring all the payments back into the network. The one thing that may happen is as try a PE has opportunities to provide supply chain financing to net.

Work constituents, we may not be in an excess funding position such that Youre getting fed fund rates on those excess balances. If that is true you should expect the revenues, we will generate on those funds to be much higher than fed fund balances.

Okay. Thank you.

And then I guess, just looking at the trend in invoice prices could you talk about kind of the.

The trend throughout the quarter like what was the what was the average for like February or March and kind of how does that compare to what youre seeing today.

I know, it's kind of hard to.

Predictor of things moving around so quickly, but just a little bit more color on that.

Last few months <unk> been seeing in that.

John We had had a yeah.

Fairly decent.

Core or excuse me a fairly decent month in January and then we saw a falloff in February and March and a lot of that had to do with the average price of fuel it sort of a drop as well so the prices in general just container dropped throughout that first quarter.

It has maintained some level of.

Volatility, but it is still fairly soft where we sit today.

I think average invoice prices month.

To date for April the best real time data. We can give you is just under $800. They could go up they could go down we make no predictions on that we will tell you and I think Tim would tell you this is that level.

It's pretty close to where most truckers would struggled to breakeven to run.

Truckload, because we don't we don't have that we generally have more long haul truckload exposure, we have some shipper exposure and our blended portfolio, which is helping holding us higher than what the spot market alone is done and eventually and I've been through a couple of these cycles and tim's been through five of them eventually.

Low prices will be the solution to low prices I mean, we went from 12000 clients. It try it and our factoring division. They are having roughly 10000. Some of those people have left the industry altogether, others have leased on with much larger carriers it could get worse from here.

Would not surprise us we may if we could predict that we would be in a different kind of business.

But what we know is inevitably people will still buy things capacity leaves the market and the market will tighten and of course in our business. That's a very profitable thing and fuel is a great unknown, it's 20% to 30% of the cost and we never know what OPEC is going to do we all know there's just things that are.

Out of our control and our job is to be valuable and profitable, whether invoices or 1700 and $80 or $2400.

And frankly five years from now I think we're going to look back at this and say yeah. It wasn't fun to see our earnings contract for a season, but I think the opportunities that will give us as an enterprise for the future will far outweigh any near term contraction in our earnings.

Okay. Thanks, that's very helpful. And then I guess, just one more quick one for me.

There is some talk of.

Seeing some better risk adjusted returns in the community Bank last quarter I'm, just kind of wondering if that's still something that youre seeing today or we should expect a growth in the community bank still in 2023.

That one so yeah, we were seeing better economics, better risk adjusted returns in the fourth quarter, we've sort of seen a plateauing and returns that are available with new deal flow and so I wouldn't say that we're more excited today about the pricing than we were in the fourth quarter, but we continue to monitor it. So if we do see better risk adjusted.

The returns on the right credits will be ready to step in.

Okay. Thanks, that's all for me.

Okay. Thank you. Our next question comes from Jay unchanged from Raymond James Ken. Thank you Jay.

Thanks, Mary you said a couple of months.

Uh huh.

We were up for me.

Kind of going back to Matt's question on the <unk> 'twenty.

22 call you announced the $15 billion in annualized payment volume is being integrated into <unk>.

I understand that the market downturn has caused the number to change.

What percent of that volume has already been realized.

Less than 30%.

Okay.

And.

Spot rates aside.

So Joe you could either say, that's bad news or good news Aaron you can say Aaron's lousy at predicting timing all on that things took longer or the good news is we're growing EBITDA in spite of not yet having that volume. So that's that's where we are.

No absolutely I'm, just trying to understand the volume kind of moving forward yes.

And then no.

Do you see that.

As of last week CH Robinson, good golfer spot rates fuel would trough this month.

Obviously, that's just another prediction that's out there, but one of the things I was hoping you could help me with this how volumes changed throughout April they were down pretty handedly.

The first quarter.

Yeah. So I think the one of the most interesting things when you get to a point where rates are at the level. They are as carriers are very selective on what they haul when they hall and if it's not an ideal scenario felt park assets and they also look at.

Using the most efficient.

Pieces of equipment. So if they have older equipment they'll sit on the fence and they'll just pulled back capacity when it gets to a point, where we are today, Joe So I think it's.

There's definitely some opportunities here coming up we hope, but it's really difficult to make any sort of prediction about it.

And we would expect Joe that as long as rates stay low utilization will stay low.

People don't like driving.

And losing money to do so and so when you build a model to try to predict our future earnings you can't just plug.

Fought rates and you have to think about utilization, which I know you all.

Have followed us long enough to do that but.

Point is the drivers are getting paid less so they're driving less and those two things work together.

I appreciate you taking my questions.

Got it.

Thank you and my next question is from Brad Millsaps from Piper Sandler companies. Thank you Brad.

Hey, good morning.

Thanks for taking my question you guys have addressed most everything just had.

Quick follow up question on the bank and I apologize if you addressed it but.

Just curious how much longer you can kind of hold deposit rates.

As low as EUR on your last quarter. You said you were just really <unk>.

Exception pricing kind of on a one off basis, but.

Obviously very low relative to the industry.

Indeed, some of the funding but.

Just curious what kind of pressure point that could be out there.

Yeah go ahead, Tom sure, yes, so we're continuing to manage deposit rates through exception only for the time being.

Don't really expect to change that at any point in the foreseeable future. We feel really good about where we stand we haven't seen an uptick in the number of rate exception request the levels that we're receiving for rate exceptions have remained the same with that said we do expect continued pressure. So you know we're going to see where so far bill.

Well, what the top of the market is on rates will continue to have to make rate exceptions through time to retain our deposits and we'll do so when warranted based on the relationship that we have with the client. So I do expect that you'll continue to see.

Deposit cost of funds or deposit costs rise.

May rise a little faster than what <unk> seen over the course of the last couple of quarters.

We will try to contain it as much as possible, but we're not going to let a big deposit outflow occur from our core deposit base.

Brad.

Alluded to Todd and the team are doing a great job with that.

Couple of things are in our favor.

First of all our deposit costs will go up there is no question. We have performed well I think we will continue to perform well relative to peer, but I don't think anyone should extrapolate from the last quarter and you know that we can hold it forever at that level of discount to what the fed funds.

The rates have moved the things in our favor number one it's a very fragmented deposit base. We don't have concentration liquidity concentration for example, number two we are growing noninterest bearing deposits by virtue of the float we grow in the network and number three and this has been our refrain and it will continue to be our.

Refrain.

We are not a prisoner to growing assets. Our belief is we should grow the things that make us the <unk>.

Most money for our investors and so when you're in a position to not have a bunch of loan growth that you need to go fund regardless of the costs you can be more disciplined that's why we're doing it we don't have any magic. It's just as a result of those things the fragmentation to float we create and the fact that we're not just going to.

To always trying to be growing our asset base gives us the ability to what we hope to do is to continue to outperform our peers as it relates to deposit beta.

Great that's helpful and Geneva, and I know there are a lot of moving parts that have you tried to address this in some ways but.

Any predictions I know in the past you've given on total revenue this year at triumph business capital just kind of curious I know, it's tough with all the moving parts but.

Just curious if you could could offer any color or guidance there around kind of how you're thinking about revenue this year.

You know if I tried to do at my CFO would tackle knee number two I wouldnt be telling you the truth because I have no idea.

Eventually what is going to happen.

Is the market will capitulate and enough capacity will leave the system and shippers will burn through their excess inventory.

Great will get tight and it will happen waste sooner than anyone thinks.

Whether it happens this year or next year I have no idea.

So we've.

We've given you expense guidance and we will we could that's something we can control as you saw on the letter we know it.

We are willing to take revenue volatility that is the risk we take we try not to take credit risk liquidity risk interest rate risk.

So if that's the nature of your business.

Then this is the time in which you should not be making predictions.

What I will predict is we're going to be profitable no matter what happens because we're so well positioned relative to any peers and because we have such a growth engine in try and pay that needs what we're doing.

And that really.

I'm not trying to not answer the question I just couldn't possibly answer it for you Brad that's as good as I can do.

No problem stuff for us too.

And then maybe finally a are you are you pretty much done with all your capital actions in terms of obviously you had the ASR, but how should we think about.

Periodic buybacks going forward and I think as this quarter.

Further thoughts and taken out those higher cost just the burbs debt that you have it seems like if you are.

If you are looking for ways to generate earnings that there'll be a pretty simple one that's it for me. Thank you.

Yeah, No and I'm glad you asked that question about capital because I think that's something investors.

Wonder about so.

As a reminder.

The capital that was required to complete the ASR left the building last quarter like that capital went out the door were not done with the ASR that we are in the market right now and we'll find out sometime in the second quarter, you know I'm sure wouldn't surprise me if they are in the market buying today right. It would be a good opportunity for them.

So after the end of this quarter, we would have over $130 million of excess capital.

There are only two uses for that number one.

We want to make sure were positioned and at least have the authorization to do so that should our shares fall because people are concerned about near term earnings and missing longterm opportunities you should expect we will be in the market because we believe in what we're doing and we can see it.

The second thing that we would do is because of the distress.

The freight markets because venture capital funding and that has dried up there are opportunities for us to partner with and best in and perhaps even acquire companies, which augment what try and pay is doing and so we continue to look at those opportunities. Those are the two things as we think about this excess capital, which will continue to grow.

ROE we expect over the year of how we would use those funds.

And Brett I'll answer your the second part of your question about the Trust preferreds.

Simply put no we're not going to call. Those are the that would number one put about a $10 million a hole in our capital base because we've got.

Got those securities carried at a discount from when we acquired the banks that originally issued them number two it's valuable tier one capital that can't be replaced in this market that structure as you all well know just does not exist anymore and we will continue to benefit from that going forward and then the third thing and I think this gets lost on some people as we do remain asset.

Sensitive as a bank overall and those are floating rate liabilities some of our only true floating rate liabilities. So in a scenario where interest rates start to go back down.

Having those floating rate liabilities on our balance sheet is actually beneficial to us so youre not going to see those going anywhere anytime soon.

Great. Thank you.

Thank you there are no further questions on this line at this time, so I will now hand over to the phone line.

Thank you Melinda.

Thank you at this time, if you'd like to ask a question. Please press. The Star then one on your Touchtone phone you may remove yourself from the queue at any time by pressing star and to once again that is star and wanted to signal for a question on the phone today and we'll touch just briefly to assemble our queue.

And we go to our first question from the line of a private Investor P. M. Kumar. Please go ahead. Your line is open.

Hi can you hear me.

Yeah.

Okay.

And I had a question for you.

In the letter you mentioned.

Pay audit in 10 states Amy annualized volume.

So we're 20% of deep brokered freight market in the U S.

So.

The remaining 80% of the volume and the market is that two legacy payment processing manual checking in payment.

They're similar things.

Similar to trends pay to customers that are using and if yes can you talk about the competitive positioning of time pay.

Thank you.

Yeah.

Great question to our knowledge there is no one in the market that is doing payments.

On behalf of the brokered freight market like we do there are other providers legacy providers, who do audit services for brokers.

And I don't know I don't know that any of them are publicly traded and so I wouldn't be able to speak to the volume of audits that they're doing.

All I can tell you is when you look at audit and payment for US we touch one out of every five transactions in brokered freight there is no one else doing payments at scale and there are other audit provider companies.

Yeah, I can think of five off the top of my head, there's probably more than that I would believe.

That we are among the largest if not the largest and audit services to brokered freight, but I am not certain we I'm not certain that we are the largest.

Okay. Thank you.

Follow up question on that so.

Right now the volume that we touch.

Got to hit about 20%, where do you peg that to go in the next 235 years.

Like what percent of market share what do you think.

Based on your current conversations with customers.

And that experience and all the future.

Improvements like where do you think.

And I know nobody has a crystal ball or just roughly where do you think the expectation.

Yeah, well, so we'd love to have all of it but where we we know that that would be.

Impossible, so how I think about it and Dan will jump in and correct. What if if he thinks I said any of it.

You know we can have different perspectives on this because Dan ran a large freight brokerage, but the top 30 freight brokers.

Fish.

Those are over $500 million in spend they control roughly 40% of the market okay.

Top 1000 freight brokers control, 90% of the market. So once you get below the top thousand you've got another seven or 8000 freight brokers, who are the long tail of the industry and we have some of those as clients.

Return to the.

The tier ones, we are integrated with I believe is it 18 now with the.

The one that went live so 18 of the top 30 use us for audit payment or both.

We have already told you that.

Throughout the rest of this year, you will see additional tier one brokers come onto the platform and so the density of penetration at the tier one level.

Is going to go up and again, that's 40% give or take of the market.

My own belief is what the tier one brokers do if they recognize the efficiencies and the economies of scale and all the value propositions that we're doing for them the tier twos and tier threes are going to follow.

Because the thing is they all use.

The same carriers to haul their loads whenever a new tier one or tier two broker comes on we have paid 97% of their carriers, 95% of their carriers were also able to tell them Hey, some of these carriers you've paid we don't think they're actually hauling your load like that is valuable information that the industry has not had.

The ability to get at scale.

So what the tier ones do I think the rest of the market follows and along the way, we're adding those mid sized brokers in each one of them matters.

And what else would you add to that yeah.

Yes, I think that our pipeline and what we are currently in conversations and an integration with we believe we can move that.

Percentage up.

30 to 40% to 50% over time, our internal targets on a two year basis approach those numbers, we have the proper.

Path to get there we can see the growth that's coming for the balance of this year and as we start to recognize the amount of freight that we touched through audit through payments through the network as a whole that number will move towards that towards that 50% ultimately.

Hope that helps.

Thank you if I may ask one more question.

Thank.

You are saying that the team is looking.

In conjunction with clients say anything that the team Ken.

Acquire.

That would that would strengthen the network as a whole.

You often that the team's planning to build internally at opportunity areas that would strengthen the network.

Okay.

Okay.

Yes, we.

We're not prepared to talk about those now but we have.

Things that we think about as money moves from the shipper to the broker to the carrier the carrier spend.

There are things we can do.

And when we're ready to talk about those things the market will here.

Thank you Alan and thanks, Tom.

And once again, if you'd like to ask a question from the phone today. Please press Star then one on your Touchtone phone and we'll pass again just briefly.

It appears we have no further signals I'll now turn today's program back over to our presenters for any additional or closing remarks.

Thank you all for joining US we look forward to seeing your next time have a great day.

Yes.

Thank you. This does conclude today's program. Thank you for your participation you may disconnect your lines at any time.

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