Q4 2023 Triumph Financial Inc Earnings Call

Good morning. It's 930 in Dallas, and we're looking forward to our time with you this morning.

Morning, It's 930 in Dallas, and we're looking forward to our time with you. This morning.

I'd like to start by thanking you for your interest in Triumph Financial.

I'd like to start by thanking you for your interest in <unk> financial.

I speak with enough of you to know what a busy time of year this is, and we sincerely appreciate you taking a moment to discuss our fourth quarter results with us.

I speak with enough of you didn't know what a busy time of year. This is and we sincerely appreciate your taking a moment to discuss our fourth quarter results with us.

With that, let's get to business.

With that let's get the business.

We had some great developments this quarter and we're carrying a lot of momentum despite a persistently challenging freight environment. As you read in the letter last evening, we are also working on some interesting opportunities and seeing positive results from our efforts and investments. We remain encouraged and optimistic.

We had some great developments this quarter and we're carrying a lot of momentum despite a persistently challenging freight environment as you read in the letter last evening. We are also working on some interesting opportunities and seeing positive results from our efforts and investments we remain encouraged and optimistic.

Speaker Change: Last evening, we published our quarterly shareholder letter. That letter and our quarterly results will form the basis of our call today. However, before we get started, I would like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. For details, please refer to the Safe Harbor Statement in our shareholder letter published last evening. All comments made during today's call are subject to that Safe Harbor Statement. With that, I'd like to turn the call over to Aaron for a welcome and to kick off our Q&A. Aaron?

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

For details please refer to the Safe Harbor statement in our shareholder letter published last evening. All comments made during today's call are subject to that safe Harbor statement with that I'd like to turn the call over to Erin for a welcome and to kick off our Q&A Erin.

Aaron: Thank you, Luke. Good morning, everyone, and welcome. I, too, hope that you found the shareholder letter informative and even thought-provoking.

Erin: Thank you Luke good morning, everyone and welcome.

Erin: I too hope that you found the shareholder letter informative and even thought provoking.

Aaron: Before turning it over to questions, I do want to reiterate the four things that I think investors should know. First, Triad Pay hit the much-anticipated target of being break-even one year ahead of schedule.

Before turning it over to questions I do want to reiterate the four things that that I think investors should know first try at pay hit the much anticipated target of being breakeven one year ahead of schedule.

Aaron: We're not calling this a mission accomplished moment, but it is encouraging to see this performance in the face of a very soft transportation market.

Erin: We're not calling this a mission accomplished moment, but it is encouraging to see this performance in the face of a very soft transportation market.

Aaron: Second, we use this letter to announce load pay as a natural extension of the payments network.

Erin: Second we use this letter to announce load pay as a natural extension of the payments network.

Aaron: This wallet is targeted towards smaller truckers, which make up 95% of the entire trucking universe, and we believe that the total addressable market for load pay will be very large.

Erin: This wallet is targeted towards smaller truckers, which make up 95% of the entire trucking universe and we believe that the total addressable market for loan pay will be very large.

Aaron: We further believe that our unique positioning for distribution will set load pay apart from any others who've come before, and we hope and expect we will see widespread adoption.

Erin: We further believe that our unique positioning for distribution will set load PE apart from any others who've come before and we hope and expect we will see widespread adoption.

Aaron: Third, we did recognize some credit expense during the quarter that was outside our normal performance.

Third we did recognize some credit expense during the quarter that was outside our normal performance.

Aaron: The majority of that was tied to the rate and freight environment.

Erin: The majority of that was tied to the rate and freight environment.

Aaron: And while we don't ever love having that happen, I would say overall, I'm pleased with how our credit performed through one of the most challenging years in recent memory.

Erin: And while we don't ever love, having that happen I would say overall I'm pleased with how our credit performed through one of the most challenging years in recent memory.

Aaron: And finally, the year ahead could continue to be difficult from a short-term or near-term earnings perspective, especially if interest rates fall as projected and transportation remains.

And finally, the year ahead could continue to be difficult from a short term or near term earnings perspective, especially if interest rates fall as projected and transportation remains weak.

Aaron: And we have the ability to adjust our strategy at the margins to offset some of those headwinds, but we will not deviate from the.

Erin: And we have the ability to adjust our strategy at the margins to offset some of those headwinds, but we will not deviate from the plan.

Aaron: If you own our stock or considering owning our stock, you need to be prepared to accept the revenue volatility that we talk about associated with our business. It would also be helpful if you're considering investing to understand we think in longer windows of time, five-year increments generally. We are not distracted by one or two or even three years of headwinds if we are seeing progress on the long-term vision.

Erin: If you own our stock or considering owning our stock you need to be prepared to accept the revenue volatility that we talk about.

Erin: Associated with our business. It would also be helpful. If you're considering investing to understand we think in longer windows of time five year increments generally we are not distracted by one or two or even three years of headwinds. If we are seeing progress on the long term vision.

Aaron: And there is no question in my mind, we are seeing progress on the long-term vision.

Erin: And there is no question in my mind, we are seeing progress on the long term vision 2023 was not a great year for earnings but it was a great year for triumph financials, we are far better as a company and far further on our journey than we were when we began the year. The plan is the same for 2024 and with that.

Aaron: 2023 was not a great year for earnings, but it was a great year for Triumph Financial.

Aaron: We are far better as a company and far further on our journey than we were when we began the

Aaron: The plan is the same for 2024. And with that, I will turn the call over for questions.

That I will turn the call over for questions.

Aaron: We will now go to Q&A. If you have joined, if you've connected via Zoom and would like to ask a question, please use the raise hand feature at the bottom of your Zoom window, or if you have dialed in, please press star nine. Once called upon, please feel free to unmute and ask your question.

Speaker Change: We will now go to Q&A. If you have joined because he is connected via zoom and we'd like to ask a question. Please use the raise hand feature at the bottom of your zoom window or if you have dialed in please press star nine once called upon please feel free to ask your question.

Aaron: Our first question comes from

Speaker Change: Our first question comes.

Aaron: Joe Vientunas from Raymond James

Raymond James: Show me in Chinas from Raymond James.

Joe Vientunas: Good morning.

Raymond James: Good morning.

Speaker Change: Good morning, Joe. So...

Speaker Change: Good morning, Joe So.

Speaker Change: I appreciate the color on non-interest expenses that you gave in the shareholder letter.

Speaker Change: I appreciate the color on noninterest expenses that you gave in the shareholder letter.

Speaker Change: Can you give a range of outcomes of how managed expenses would fare, including some of the special initiatives you're working on?

But can you give a range of outcomes.

Speaker Change: Well expenses would fair, including some of the special initiatives you're working on.

Speaker Change: And then additionally, based on your shareholder letter, it sounds like the launch of load pay is as well as what you just said is a given at this point. How much incremental expenses will that program add to 2024 and 2025?

And then additionally, based on your shareholder letter it sounded like the launch of loan payoffs.

Speaker Change: So we use that as a given at this point how.

Speaker Change: How much incremental expenses without program add to 'twenty, 'twenty, four and 'twenty 'twenty five.

Speaker Change: Brad, why don't you take the load pay question and then I'll follow up. Sure. So we have guided to a kind of a core expense growth for the year of about 5%, and we continue to think that is a good number, not considering initiatives like load pay. I think it would be a fair modeling assumption for today to think in terms of mid to high single digits for overall expense growth, including the things like load pay.

Speaker Change: Rob why don't you take the load pay question then I'll follow up sure. So we have guided to a kind of a core expense growth for the year of about 5% and we continue to think that is.

Rob: Is a good number.

Rob: Not considering initiatives like load day, I think it would be a fair modeling assumption for today to think in terms of mid to high single digits for overall expense growth, including the things like load pay.

Speaker Change: I don't know, Joe, if I totally understood the first part of the question about the variability around expenses. We have a strategy.

Speaker Change: I don't know Joe if I totally understood. The first part of the question about the variability around expenses.

Speaker Change: We have a strategy.

Joe Vientunas: that is built, as you well know, in and around creating deep payments network for trucking and the ways in which we continue to add value and monetize that.

Speaker Change: That is built as you well know in and around creating deep payments network for trucking and the ways in which we continue to add value and monetize that IP.

Joe Vientunas: I really don't think you're going to see anything happen in the year 2024 that will make us deviate from the investments in and around that strategy.

Speaker Change: I really don't think you're going to see anything happen in the year 2024 that will make us deviate from the investments in and around that strategy. So there are things like I said in the opening we can do with the margins, but theres not going to be material changes in how we think about investing or not investing as long as we're seeing progress.

Joe Vientunas: So there are things, like I said in the opening, we could do with the margins, but there's not going to be material changes in how we think about investing or not investing as long as we're seeing progress towards the long-term goal.

Speaker Change: Yes towards the long term goals.

Speaker Change: Understood. And then, you know, on the 3Q call, you noted you had $9 billion in annualized payment volume that was scheduled to come online in the coming quarters.

Understood and then you know on the <unk> call. You noted you had $9 billion in annualized payment volume that was scheduled to come online in the coming quarters.

Speaker Change: Looks like in this past quarter you added $1.3 billion in annualized payment volume.

Speaker Change: Looks like in this past quarter, you out of the 1 billion three in annualized payment volume.

Speaker Change: I understand there's fluctuations in average invoice prices can move this amount, but can you provide us an update on how much contracted volume you expect to come online in the coming quarters?

Speaker Change: Understand theres fluctuations in average invoice prices can move this amount, but can you provide us an update on how much contracted volume you expect to come online when they can.

Coming quarters.

Speaker Change: Yeah, I can take that one. So, Joe, when we onboarded the clients from last quarter, we have seen the majority of that volume come on board. There's about another $2 billion gap that is not there as a result of the continued pressures on the market that we had initially anticipated.

Speaker Change: Yeah, I can take that one so when we on boarded the clients in last quarter. We have seen the majority of that volume come on board. There's about another $2 billion gap and that is not there and as a result of the continued pressures on the market that we had initially anticipated that just their shrinkage and so on that.

Speaker Change: and so that exists it it looks you know it could continue into the into this year but the that's for the misses. Additionally there were shippers that were that are in our integration pipeline of another two billion two to three billion that we're expected to be able to go live is the last quarter of last year but they remain in the pipeline and we expect them to

Speaker Change: It looks like it could continue into the into this year and but that's where the message. Additionally, there were a shipper.

Speaker Change: That were that are in our integration pipeline of another 2 billion to $3 billion that were expected to be able to go live at the last quarter of last year, but they remain in the pipeline and we expect them to come on this very fast.

Speaker Change: Got it. So about $4 to $5 billion in annualized payment volume that's coming online.

Speaker Change: Got it so about four to 5 billion annualized payment volume that's coming online.

Speaker Change: that you have line of sight in too.

Do you have line of sight into.

Yeah.

Speaker Change: Okay, um...

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: A couple more for me here. In the shareholder letter, you noted that four factoring companies joined T-PAY, which on a percentage basis is pretty meaningful. Is there any way to quantify the aggregate size of these factoring companies, and what does the typical volume ramp look like for a factoring company joining the payment network?

Speaker Change: A couple more for me here in the shareholder letter you noted that you know for factoring companies joined T pay which on a percentage basis was pretty meaningful is there any way to quantify the aggregate size of these factoring companies and what is the typical volume ramp look like for a factoring company joined the payment network.

Speaker Change: Yeah, so one of them was what we would consider a Tier 1, which is over $100 million in NFTs.

Speaker Change: Yeah. So that so one of them was what we would consider a tier one which is you know over $100 million in F. E. R. Net funds employed and the others were smaller factors in the network that would be classified as a tier three so in terms of you know.

Speaker Change: are net funds employed. And the others were smaller factors in the network that would be classified as a tier three. So in terms of, you know, volumes are not, it's not huge. What they receive from the network, though, is different. You can't think of a factor the same way you do as a broker. The value to them is different and how they leverage the network. And so, you know, what, you know, a hundred million dollar broker is very different than a hundred million dollar factor.

Volume's theyre not its not huge what they receive from the network that was different you can't think of a factor. The same way you do as a broker and the value to them is different than how they leverage the network and so you know what you know.

Speaker Change: $100 million broker is very different than 100 million dollar factor.

Speaker Change: but that's how they're classified.

Speaker Change: But that's how that last night.

Speaker Change: Okay, I appreciate that. And the last one for me is...

Speaker Change: Okay I appreciate that and then the last one for me is.

Speaker Change: And I saw last night, Covenant Logistics called out severe weather as a potential headwind to 1Q earnings, along with normal seasonal declines.

Speaker Change: Well I saw last night covenant logistics called out severe weather as a central headwind to once you earnings along with normal seasonal declines.

Speaker Change: I understand quarter to date average transportation invoice size are up, but they do appear to be trending down.

Speaker Change: I understand the quarter to date average train transportation invoices are up.

Speaker Change: They do appear to be trending down.

Speaker Change: Do you have a sense for how 1Q Volumes will shake out for the industry?

Speaker Change: Do you have a sense for how <unk> volumes will shake out for the industry.

Speaker Change: Joe, I think it's interesting because what has happened is we are seven weeks into positive indication of average invoice amount and margin improvement for our carriers.

Speaker Change: Yes, Joe I think.

Speaker Change: It's interesting because what has happened is we are seven weeks into positive indication of average invoice amount and margin improvement for our carriers.

Speaker Change: I think the challenge that we have is we've had a head fake in this space before due to seasonality, due to weather, due to a variety of small carriers parking their capacity. And so it's a little bit too early to tell what direction we're going, but we have built our business around surviving whatever direction that is.

Speaker Change: Thank the challenge that we have is we've had a head fake in this space before due to seasonality due to weather due to a variety of small carriers parking their capacity and so it's a little bit too early to tell what direction, we're going but.

But we have built our business around surviving whatever direction that is.

Speaker Change: Yeah, I think to add onto that Joe the like in our factoring business, 7% of our carriers, who were active before the end of the year have not been active in January.

Speaker Change: Yeah, I think to add on to that, Joe, in our factoring business, 7% of our carriers who were active before the end of the year have not been active in January.

Speaker Change: We don't know whether that means they've left the industry. I doubt that all of them have done so. And some of them have chosen to park their trucks because they knew the market was soft.

Speaker Change: We don't know whether that means they've left the industry of doubt that all of them have done so and some of them have chosen to park their trucks, because they knew the market was soft and.

Speaker Change: And the weather would, you know, if you're going to clear a spot load in this weather, a carrier is going to expect to be paid more because it's more difficult and time consuming. So it's hard to create a trend line, as Tim was saying, over what you've seen some three weeks into the year.

Speaker Change: And the weather would you know if you're going to clear a spot load in this whether it's a carrier is going to expect to be paid more because it's more difficult and time consuming so it's hard to create a trend line as Tim was saying over what you've seen.

Speaker Change: Some three weeks into the year.

Speaker Change: Perfect. Thank you for taking my questions.

Speaker Change: Perfect. Thank you for taking my questions.

Speaker Change: You got it. Thank you.

Speaker Change: You got it thank you.

Speaker Change: Our next question comes from Frank Chiraldi from Piper Sandler. Feel free to unmute and ask your questions.

Speaker Change: Our next question comes from Frank Schiraldi from Piper Sandler So afraid I'm on mute and ask your question.

Frank Joseph Schiraldi: Thanks. Good morning.

Frank Schiraldi: Thanks, Good morning.

Frank Joseph Schiraldi: Just wondering on the...

Frank Schiraldi: Just wondering.

Frank Schiraldi: On the.

Frank Joseph Schiraldi: and the targets you give in the near term. Now, obviously you got the EBITDA positive ahead of schedule. You talked about getting to fit, you know, targeted processing more than 50% of all transactions in that segment of the market. What does that imply? Or what are your thoughts on timing there? What does that imply maybe for, you know, any sort of guide you can give on near term profitability on triumph pay? And finally on that front, you know, any targets, you saw really nice growth in network transactions, any sort of targets you can share or thoughts you can share on continuing to ramp that up?

The targets you gave in the near term and obviously you got the EBIT EBITDA positive ahead of schedule, you talked about getting to FID.

Target approximately 50% of all transactions.

Frank Schiraldi: In that segment of the market, what does that imply or what are your thoughts on timing there.

Frank Schiraldi: What does that imply maybe for you know any any sort of guide you can give on near term profitability on on try and pay and finally on that front.

Frank Schiraldi: Any targets you saw really nice growth in.

Frank Schiraldi: Network transactions.

Frank Schiraldi: Any sort of targets you can share or thoughts you can share.

Frank Schiraldi: Continuing to ramp that up.

Speaker Change: Okay. Thank you know overall, we look at as Aaron said in the opening at five year time span and so when you think about the milestones that we laid out for trials pay as you know number one we just want to maintain EBIT profitability throughout the year and beyond but the second is having you know touching 50% of all brokerage great transactions that.

Frank Joseph Schiraldi: Overall, we look at, as Aaron said in the opening, at five-year time spans. And so when you think about the milestones that we laid out for Triumph Pay, number one, we just want to maintain EBITDA profitability throughout the year and beyond. But the second of touching 50% of all brokered freight transactions, we still have a ways to go. We're at one of three transactions today.

Speaker Change: We still have a ways to go we're at you know one of three transactions there.

Frank Joseph Schiraldi: And so, you know, we'll continue to move forward on those. How quickly that happens is certainly going to depend on the market and our organic growth that we've been able to demonstrate we're continuously doing and we have very strong pipelines. The last one that is important, and again, would be further out into that five-year plan, is to be able to hit that 50% EBITDA margin on our core business. And so, at what date we plan on doing that, we won't be able to give you that kind of direction right now, but within the next five years.

Speaker Change: And so you know we'll continue to move forward on those how quickly that happens is certainly going to depend on on the market and our organic growth that we've been able to demonstrate we're continuously doing them. We have very strong pipelines and the last one that is important and again, but that would be further out into that five year plan is to be able to hit that 50%.

Speaker Change: EBITDA margin on our core business and so there.

What data we plan on doing that we won't be able to give you that kind of direction right now, but within the next five year term.

Frank Joseph Schiraldi: And I have one more to add, and I just want to also pause at this moment and say what the Triumph Pay team did, and it's always the entire team, the Triumph Pay team doesn't operate in isolation from the rest of the enterprise during this past year was exceptional, absolutely exceptional.

Speaker Change: One more to add in and I just want to also pause at this moment and say what the try and pay team did and it's always the entire team to try and pay team doesn't operate in isolation from the rest of the enterprise. During this past year was exceptional absolutely exceptional.

Frank Joseph Schiraldi: But the overall enterprise, what everyone did to pull together in the face of a very difficult environment was exceptional. But there's one other thing I want to add to Melissa's, what she said. And at the stage we are in with Triumph Pay, we think this is still a revenue growth story, not just an EBITDA margin story. So if you look at revenue growth in 2023 in the face of a falling market, pretty impressive.

Speaker Change: And but the overall enterprise, but what everyone did that pull together in the face of a very difficult environment was exceptional but there's one other thing I want to add to Melissa what she said and at the stage. We're in with try and pay we think this is still a revenue growth story not just in EBITA margin story.

Speaker Change: So if you look at revenue growth in 2023 in the face of a falling market pretty impressive.

Frank Joseph Schiraldi: I also think about achieving that goal we laid out several years ago of $100 million in total revenue. We're at about 50% of that goal. Now, we originally thought we would need to get to $100 million of revenue on $75 billion of transactions in order to break it.

Speaker Change: I also think about achieving that goal we laid out several years ago of 100 million in total revenue were at about 50% of that goal that we originally thought we would need to get to a $100 million of revenue on 75 billion of transactions in order to breakeven what we have learned in this journey is theirs.

Frank Joseph Schiraldi: What we have learned in this journey is there's other ways to deliver value with the network.

Speaker Change: Other ways to deliver value with the network that we've been able to monetize that we didn't foresee and that is of most welcome sign.

Frank Joseph Schiraldi: that we've been able to monetize that we didn't foresee, and that is a most welcome sign.

Frank Joseph Schiraldi: So we think about full year EBITDA margin profitability for 2024. There will be volatility quarter to quarter with these investments we're making with the freight markets. We can't make any predictions related to that. Number two, we were after 50% of all brokered freight, as Melissa alluded to. And we're we're within a couple of large names of achieving that goal. And that's a that's a great be a tremendous thing to touch one out of every two transactions.

Speaker Change: So we think about full year EBITDA margin profitability for 'twenty 'twenty four there will be volatility quarter to quarter with these investments, we're making with the freight markets. We can't make any predictions related to that number two we went after 50% of all brokered freight as Melissa alluded to and where we're within a couple of large.

Speaker Change: Names of achieving that goal and that's a that's a great a b a tremendous thing to touch one out of every two transactions with three getting to $100 million in revenue roughly doubling the revenue from where it is currently and then long term. We believe just like other card networks that this business should operate at a 50% EBA.

Frank Joseph Schiraldi: Number three, getting to 100 million in revenue, roughly doubling the revenue from where it is currently, and then long term, we believe, just like other card networks that this business should operate at a 50% EBITDA margin or better. And all of that, as Melissa said, in the next five years is the vision to go and deliver. And that's about as specific on timing as we can be at this.

<unk> margin or better and all of that as Melissa said in the next five years is the vision to go and deliver and that's about as specific on timing as we can be at this point.

Speaker Change: I appreciate that. And just on load pay, I just want to make sure I understand, you know, generally when a traditional bank is getting into and you guys sort of lay out the different partners and what they generally do in these relations or in these build outs. But so are you, you know, generally I think about a more traditional bank partnering with the fintech to build out the more, you know, customer facing side of things. In this case, is it triumph that's sort of doing the whole, you know, performing the entire from, you know, customer facing side of things down to the more traditional banking, banking as a service piece? Is that fair? And then, you know, generally I've seen, you know, expenses up front and. Revenue sort of 12 to 18 months out. Is that a reasonable kind of timeframe for load?

Speaker Change: Alright, I appreciate that and.

Speaker Change: Just unload pay.

Speaker Change: I just want to make sure I understand you know generally when a traditional bank is.

Speaker Change: Getting into and you guys sort of lay out the different partners and what they generally do in these relations or in these build outs, but so are you generally I think about a more traditional bank are partnering with a fintech to build out the more customer facing side of things in this case as it is a triumph.

Speaker Change: Sort of.

Speaker Change: Doing the whole you know.

Performing the entire from customer facing side of things down to the more traditional banking banking as a service piece.

Speaker Change: Is that fair and then generally I've.

Speaker Change: I've seen you know expenses upfront.

Speaker Change: Revenues sort of 12 to 18 months.

Speaker Change: How is that a reasonable kind of timeframe for load.

Speaker Change: Indeed. So...

Speaker Change: Indeed so.

Speaker Change: We certainly use vendors, but we are doing the development. And that's a great question, Frank, and something I want to point out.

Speaker Change: We certainly use vendors, but we are doing the development.

Speaker Change: That's a great question, Frank and something I want to point out.

Speaker Change: We will, in the year 2024,

Speaker Change: We will in the year 'twenty 'twenty four.

Frank Joseph Schiraldi: I think of it as invest, over $110 million in technology.

Speaker Change: Spend or I think of it as invest over $110 million in technology now that includes our people and that includes the just tech spend away from people that is over 25%.

Frank Joseph Schiraldi: Now that includes our people, and that includes just tech spend away from people. That is over 25%.

Frank Joseph Schiraldi: almost 30% of all of our non-interest expenses. I don't think that there is another bank that I'm aware of that invests that much in technology. We're not just here using other people to build the tech and then marketing it under our name. This is built from the ground up by us for truckers because we know that there is no other bank who cares about truckers the way we care about them.

Speaker Change: Almost 30% of all of our noninterest expenses I don't think that there is another bank that I'm aware of that invest that much in technology. We're not just here build it using other people to build the attack and then marketing under our name like this is built from the ground up by us for truckers because we.

Speaker Change: No that there is no other bank, who cares about truckers the way we care about Trump.

Frank Joseph Schiraldi: So it is being built by us. We certainly use vendors as any technology provider.

Speaker Change: So it is being built by US, we certainly use vendors as any technology provider with.

Frank Joseph Schiraldi: To the second point, as we think that in the year 2024, you're going to see roughly $5 million of investment in the load pay initiative. Some of that will be capitalized. Some of that will be extended.

Speaker Change: So the second point as we think that in the year 2024, youre going to see roughly $5 million of investment in the load pay initiative some of that'll be capitalized some of that'll be expense it would be reasonable to expect revenue to start showing up in 2025, there may be some that shows up in 'twenty to 'twenty four but we're not.

Good morning. It's 9: 30 in Dallas, and we're looking forward to our time with you this morning. I'd like to start by thanking you for your interest in Triumph Financial. I speak with enough of you to know what a busy time of year this is, and we sincerely appreciate you taking a moment to discuss our fourth quarter results with us. With that, let's get to business.

Frank Joseph Schiraldi: It would be reasonable to expect revenue to start showing up in 2025. There may be some that shows up in 2024, but we're not counting on it. We think of this as a 2025 and beyond opportunity.

Speaker Change: Counting on it we think of this as a 2025 and beyond opportunity.

Speaker Change: Gotcha, Okay. Okay I appreciate that.

Speaker Change: Okay, I appreciate that.

We had some great developments this quarter, and we're carrying a lot of momentum despite a persistently challenging freight environment. As you read in the letter last evening, we are also working on some interesting opportunities and seeing positive results from our efforts and investments. We remain encouraged and optimistic. Last night, we published our quarterly shareholder letter.

Speaker Change: Yes.

Speaker Change: Sorry go ahead.

Speaker Change: Sorry, go ahead.

Speaker Change: I'm just going to confirm that, yes, we are serving as the bank sponsor behind LoadPay as well, which is important from an economic perspective because it allows us to capture the float benefit, the fees, leverage our existing systems without as much incremental cost as we might otherwise if we had to rely on another bank sponsor.

Speaker Change: I was just going to confirm that yes, we are serving as the bank sponsor behind load as well, which is important from an economic perspective, because it allows us to capture of the float benefit the fees leverage our existing systems without as much incremental costs as we might otherwise we would rely on another bank sponsor.

That letter and our quarterly results will form the basis of our call today. However, before we get started, I would like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement.

Speaker Change: And if I could sneak in just one more on the, you mentioned in the letter on loan modifications and just wanted to get a sense, I assume generally those are continuing to be on the rate side primarily. If you can share what those modifications generally look like from a rate standpoint in terms of reduction in rate. And then if you can just share total modifications and a period or growth.

Speaker Change: Okay.

Speaker Change: If I could sneak in just one one more on the you mentioned in the in the letter on loan.

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For details, please refer to the Safe Harbor Statement in our shareholder letter published last evening. All comments made during today's call are subject to that Safe Harbor Statement. With that, I'd like to turn the call over to Aaron for a welcome and to kick off our Q&A.

Speaker Change: And just wanted to get a sense of I assume generally those continue.

Speaker Change: Continue to be on the right side, primarily.

Speaker Change: If you can share what those modifications journey look like from a rate standpoint in terms of reduction in rate and then do those and then if you could just share you know total modifications.

Thank you, Luke. Good morning, everyone, and welcome. I, too, hope that you found the shareholder letter informative and even thought-provoking. Before turning it over to questions, I do want to reiterate the four things that I think investors should know. First, Triad Pay hit the much-anticipated target of being break-even one year ahead of schedule. We're not calling this a mission accomplished moment, but it is encouraging to see this performance in the face of a very soft transportation market. Second, we use this letter to announce load pay as a natural extension of the payments network.

Speaker Change: End of period or growth.

Speaker Change: in the quarter and in the various segments. Thank you.

Speaker Change: In the quarter in the various segments. Thank you.

Speaker Change: So to your question about the modifications, yes, they are primarily around rate. They deal with credits that had variable rates, and those variable rates had risen to over 10% in most cases. We're having to realign the rate to reflect the realities of the cash flow of the underlying borrower. So it means we're taking the rates down to typically between 6% and 6.5%, which you'll see in our disclosures. The total amount of the modifications we've made so far is around $125 million.

Speaker Change: I'll take that one so to your question about the modifications, yes, they are primarily around rate they.

Speaker Change: They deal with credits that had variable rates and those variable rates had risen to over 10%. Most cases, we're having to realign the rate to reflect the realities of the cash flow of the underlying borrower. So that means we're taking the rates down to it typically between six and six 5%, which youll see in our disclosures the total Oh.

This wallet is targeted towards smaller truckers, which make up 95% of the entire trucking universe, and we believe that the total addressable market for load pay will be very large. We further believe that our unique positioning for distribution will set load pay apart from any others who've come before, and we hope and expect that we will see widespread adoption. Third, we did recognize some credit expense during the quarter that was outside our normal performance.

Speaker Change: Mount of the modifications we've made so far is around $125 million.

Speaker Change: Great. Okay. Thank you for all the color. I appreciate it.

Speaker Change: Great. Okay. Thank you for all the color I appreciate it.

Speaker Change: Of course, thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Gary Tenner from D.A. Davidson.

Speaker Change: Our next question comes from Gary Tenner from D. A Davidson.

Gary Peter Tenner: Sorry, good morning. I'm going to unmute there.

The majority of that was tied to the rate and freight environment. And while we don't ever love having that happen, I would say overall, I'm pleased with how our credit performed through one of the most challenging years in recent memory. And finally, the year ahead could continue to be difficult from a short-term or near-term earnings perspective, especially if interest rates fall as projected and transportation remains. We have the ability to adjust our strategy at the margins to offset some of those headwinds, but we will not deviate from it. If you own our stock or are considering owning our stock, you need to be prepared to accept the revenue volatility that we talk about associated with our business. It would also be helpful if you're considering investing to understand that we think in longer windows of time, five-year increments generally. We are not distracted by one or two or even three years of headwinds if we are seeing progress on the long-term vision.

Gary Peter Tenner: Sorry, good morning minutes I'm either.

Gary Peter Tenner: I wanted to ask about one of your comments in the investor letter or charter letter regarding the renewal of contracts with factors on the T-PAY network.

Gary Peter Tenner: Good morning wanted to ask about one of your comments in the Investor letter shareholder letter regarding the renewal of contracts with factors on the Tuesday network.

Gary Peter Tenner: Was there a particularly, you know, kind of large slug of renewals that came in the fourth quarter based on when folks came on board and joined the network? And can you talk about kind of in general about changes, if any, of the contracts that are more financially beneficial to T-PAY now that that value proposition is a bit more proven?

Gary Peter Tenner: Was there a particularly.

Gary Peter Tenner: And a large slug of renewals that came in the fourth quarter based on one folks came on board and joined the network and can you talk about kind of in general about changes if any of the contracts that are more financially beneficial to pay now that that value proposition is a bit more proven out.

Gary Peter Tenner: And I think you know those renewals are important just to speak to them in terms of the entire year, but as we built out the payments that were for factors they came on.

Gary Peter Tenner: Those renewals are important just to speak to you in terms of the entire year. But as we built out the Payments Network for Factors, they came on later in 2022 and into 2023. Our pricing structure associated with those contracts contemplates the growth of the Payments Network and renegotiating the pricing to include the new brokers that have onboarded within the year for the following year. We made a conscious decision given the state of the market right now and the pain that Factors are feeling with the compressed margins and rates to not increase their fees going into 2023. We wanted to be good partners for our factoring clients, but what we did, we're able to determine is that every one of them wanted to re-up their contract and continue leveraging the network, understanding that the value is there and continuing to grow for them.

Gary Peter Tenner: Later in 2022, and enter 2023, and our pricing structure associated with those contracts contemplates the growth of the payments network and renegotiating those pricing the pricing to include the new brokers that have onboarding.

And there is no question in my mind that we are seeing progress on the long-term vision. 2023 was not a great year for earnings, but it was a great year for Triumph Financial. We are far better as a company and far further on our journey than we were when we began. The plan is the same for 2024. And with that, I will turn the call over to questions. We will now go to Q&A. If you have joined, if you've connected via Zoom and would like to ask a question, please use the raise hand feature at the bottom of your Zoom window, or if you have dialed in, please press star nine.

Gary Peter Tenner: Within the year and for the following year, we made a conscious decision given the state of the market right now and the pain at factories are feeling with the compressed margins and rates and to not increase their fees going into 'twenty. Two 'twenty three and we wanted to be good partners for our factoring clients and but what we did you know where.

Gary Peter Tenner: Able to to determine is that every one of them wanted to re up their contract and continue leveraging the network understanding that the value is there and continuing to grow for them.

Speaker Change: I mean, is your sense then, so you chose not to increase the fee component, is your sense that you will, in a better environment, be able to effectively have pricing power to do so, even though you kind of

Gary Peter Tenner: So I mean is your sense, then you chose not to increase the fee component.

Operator: Once called upon, please feel free to unmute and ask your question. Our first question comes from Joe Vientunas from Raymond James. Good morning. Good morning, Joe.

Gary Peter Tenner: Is your sense that you will.

Gary Peter Tenner: Better environment be able to effectively have pricing power to do so even though you're kind of.

Speaker Change: Yeah, absolutely. And those are the conversations that we had with, oh, I'm sorry. I'm sorry, Gary.

Speaker Change: Yeah, absolutely and then those are the conversations that we had with Oh, I'm, sorry, I'm sorry.

Gary Peter Tenner: No, go ahead.

Speaker Change: No go ahead.

So... I appreciate the color on non-interest expenses that you gave in the shareholder letter. Can you give a range of outcomes of how managed expenses would fare, including some of the special initiatives you're working on? And then additionally, based on your shareholder letter, it sounds like the launch of load pay is, as well as what you just said, a given at this point. How much incremental expenses will that program add to 2024 and 2025? Brad, why don't you take the load pay question, and then I'll follow up. Sure.

Gary Peter Tenner: Yes, that's exactly the conversation that we had with our clients is that we wanted to make sure that as the environment and the market recovers, that we would be going back and having those conversations again in 2020.

Speaker Change: Oh I see yes, so that's exactly the conversation that we had with our clients is that we wanted to make sure that you know as it being by environment in the market recovers and that will be going back and having those conversations again in 2024.

Speaker Change: Great, appreciate that. And then just quick follow up. I don't think that I saw, and I'm sorry if I missed it, but the average float at Triumph State for the quarter, can you provide that?

Speaker Change: Great appreciate that and then just quick follow up.

Speaker Change: I don't think that I saw and I'm, sorry, if I missed this but the average.

Speaker Change: I try and say for the quarter can you provide that.

Hi, Matt.

Speaker Change: I think we're sitting right around $300 million in average.

Matt: I think it was roughly $300 million, yeah, I think I think where we're sitting right around $300 million in average level.

Brad Milsaps: So we have guided to a kind of core expense growth for the year of about 5%, and we continue to think that is a good number, not considering initiatives like load pay. I think it would be a fair modeling assumption for today to think in terms of mid to high single digits for overall expense growth, including things like load pay. I don't know, Joe, if I totally understood the first part of the question about the variability around expenses. We have a strategy that is built, as you well know, in and around creating a deep payments network for trucking and the ways in which we continue to add value and monetize that. I really don't think you're going to see anything happen in the year 2024 that will make us deviate from the investments in and around that strategy. So there are things, like I said in the opening, we could do with the margins, but there aren't going to be material changes in how we think about investing or not investing as long as we're seeing progress towards the long-term goal. understood.

Speaker Change: And Gary, the, you know, how that gets accounted for, you know, I think we've laid out in the letter before, one of the great things about

Speaker Change: And Gary the you know how that gets accounted for.

Speaker Change: I think we've laid out in the letter before one of the great things about.

Speaker Change: where float sits now because you're generating that float on roughly 24 billion ish in payments is we are self-funding so any supply chain finance we are doing where we are injecting liquidity into transactions in order to make them easier for network participants is being funded out of that float and then the excess float of course we just treat as if we sell overnight to the fed at current fed funds rate.

Speaker Change: We're float sits now because you're generating that float on roughly 24 billion ish in payments.

Speaker Change: Is we are self funding so any supply chain finance, we are doing where we are injecting liquidity into transactions in order to make them easier.

Speaker Change: For network participants is being funded out of that float and then the excess float of course, we just treat it as if we sell overnight to the fed at current fed funds rates.

Speaker Change: And just one quick point, the average was $340 million.

Speaker Change: And just one quick thanks, Ross the average was $340 million.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael Perito from KBW.

Speaker Change: Our next question comes from Michael Perito from K B W.

Michael Perito: Hey, good morning, guys. Thanks for taking my questions.

Michael Perito: Hey, good morning, guys. Thanks for.

Michael Perito: Taking my questions.

Michael Perito: I just had a couple. I mean, I still see a few hands up, so I don't want to take away everyone's ammo here. But just to follow up on Frank's questions around load pay, two questions. One, I was wondering if you could kind of just give us a really basic example of how you hope the technology to kind of work in the field and what the value proposition is for the consumers itself. And then secondly, behind that, just...

Michael Perito: I just had a couple I mean, there's I know I still see a few hands up so I don't want to take away everyone's ammo here, but just to follow up on Frank's question is around low PE.

Michael Perito: Two questions. One I was wondering if you could kind of just give us a really basic example of how you hope to technology to kind of work in the field and what the value proposition is to the consumers itself and then secondly behind that just.

And then, you know, on the 3Q call, you noted you had $9 billion in annualized payment volume that was scheduled to come online in the coming quarters. Looks like in this past quarter, you added $1.3 billion in annualized payment volume. I understand that fluctuations in average invoice prices can move this amount, but can you provide us with an update on how much contracted volume you expect to come online in the coming quarters? Yeah, I can take that one.

Michael Perito: I believe this is really the first time you guys are going to be doing a quote unquote kind of banking as a service type setup. Are there any kind of bank regulatory considerations, capital required, anything that we should be thinking about, just especially if low pay really starts to ramp in 25, 26, that should be on our radar?

Michael Perito: I believe this is really the first time you guys are going to be doing a quote unquote kind of bank, Kansas service type set up are there any kind of bank regulatory considerations capital require anything that we should be thinking about just especially if low pay really starts to ramp in 'twenty five 'twenty six that should be on our radar.

So, Joe, when we onboarded the clients from last quarter, we saw the majority of that volume come on board. There's about another $2 billion gap that is not there as a result of the continued pressures on the market that we had initially anticipated, and so that exists, and it looks, you know, it could continue into this year, but that's for the misses. Additionally, there were shippers that were in our integration pipeline of another two billion, two to three billion that we're expected to be able to go live in the last quarter of last year, but they remain in the pipeline, and we expect them to. Got it. So about $4 to $5 billion in annualized payment volume that's coming online, that you have line of sight to too. Okay, um... A couple more for me here.

Speaker Change: So let me take the first part of that and then Todd can answer the banking as a service piece.

Speaker Change: The first part of that, and then Todd can answer the banking as a service piece. So if you think about the use case, and we've seen this in multiple fronts.

Todd: So if you think about the use case and we've seen this in multiple fronts and Tim has certainly seen this in our factoring business is when you think about the end of the day at a factoring company when youre starting to bump up against the a C. H deadline right with different banks time that a different.

Speaker Change: and Tim has certainly seen this in our factoring business. When you think about the end of the day at a factoring company, when you're starting to bump up against the ACH deadline, right? In different banks, time that at different...

Speaker Change: But we call it roughly 4 p.m. Central.

Todd: Times, but it's call it roughly four P M central.

Speaker Change: There starts to be desperation to get dollars out the door because those truckers need that money to either fill up or whatever they need to do. And so you get really pressured towards the end of the day and certainly coming on holidays and other seasons. And so the ability to not have that deadline, but to be able to push money 24 by 7 through just what is essentially a journal entry on the books of TBK Bank, it allows you to smooth out funding. And Tim could speak about that with a lot of particularity. How I think about the application in TriadPay is we have almost 30,000 select carriers, for example. People who are not doing business. With a factoring company, but are being paid directly by TriadPay and in some cases being quick paid by TriadPay on behalf of the freight brokers we serve. The ability to smooth out funding to them and get it to them when they need it is a really big thing.

Todd: There starts to be desperation to get dollars out the door, because those truckers need that money to either fill up or you know whatever they need to do and so there you get really pressured towards the end of the day and certainly coming on holidays and other seasons and so the ability to not have that deadline, but to be able to push them.

Todd: Money 24 by seven.

Todd: Or just a what is essentially a journal entry on the books of TDK Bank.

In the shareholder letter, you noted that four factoring companies joined T-PAY, which on a percentage basis is pretty meaningful. Is there any way to quantify the aggregate size of these factoring companies, and what does the typical volume ramp look like for a factoring company joining the payment network? Yeah, so one of them was what we would consider a Tier 1, which is over $100 million in NFTs, which are net funds employed. And the others were smaller factors in the network that would be classified as tier three. So in terms of, you know, volumes, it's not huge.

Todd: It allows you to smooth out funding and Tim can speak about that with a lot of particularity, how I think about the application and try it. They it is we have almost 30000 select carriers. For example people who are not doing business with a factoring company, but are being paid directly by try and play and in some cases being.

Todd: Quick paid by try and pay on behalf of the freight brokers, we serve the ability to smooth out funding to them and get it to them when they need it is a really big thing.

Speaker Change: And, you know, Tim, any other thoughts around where the value prop, like even from our own factoring clients, as we roll out load pay to them, what else would you consider? Yeah, I think you hit on the biggest part is, you know, the ability to fund 24 hours a day, seven days a week without any sort of time constraints. The operational efficiencies within the factoring group is really important. The ability for having visibility quickly and easily for our clients is also an added benefit from that program. So load pay in general just creates a portal for us.

Speaker Change: And you know Tim any other thoughts around where the value prop like even from our own factoring clients as we rollout load paid to them what what would else would you consider yeah. Yeah. I think I think you hit on the biggest part is the ability to fund 24 hours a day seven days a week without any sort of time constraints the operational efficiencies within the factory group is really important.

What they receive from the network, though, is different. You can't think of a factor the same way you do as a broker. The value to them is different, and how they leverage the network. And so, you know, what a hundred million-dollar broker is very different than a hundred million-dollar factor, but that's how they're classified. Okay, I appreciate that.

Speaker Change: The ability for having visibility quickly and easily for our clients and it's also an added benefit from that program. So low pay in general just creates a portal for us.

And the last one for me is... And I saw last night that Covenant Logistics called out severe weather as a potential headwind to 1Q earnings, along with normal seasonal declines. I understand quarter-to-date average transportation invoice size is up, but they do appear to be trending down. Do you have a sense for how 1Q Volumes will shake out for the industry? Joe, I think it's interesting because what has happened is we are seven weeks into a positive indication of average invoice amount and margin improvement for our carriers. I think the challenge that we have is that we've had a head fake in this space before due to seasonality, due to weather, due to a variety of small carriers parking their capacity.

Tim: Outside of the Fed, it gives us flexibility across the entire enterprise.

Speaker Change: Outside of the fed gives us flexibility across the entire enterprise.

Tim: When you think about a trucking company or carrier owner operator on the road, you know, they may have an emergency on a Saturday or on the 4th of July. They have a breakdown, a blowout. Today's solutions don't afford them the ability to get paid quickly without having to do some sort of money code type transaction. Load pay is going to allow them the opportunity to see what their pending payments are within triumph pay and then select that they want to be paid now and not have to wait till the next business day to receive those funds. They'll receive it instantly and can solve whatever problem is that they're trying to address. And that's huge for a trucking company, for a carrier and a driver. Not being stuck on the side of the road, waiting for funds to be able to fix their problems so they can get back on the road and be on time is a big deal.

Speaker Change: When you think about attracting company air carrier owner operator on the road you know they may have an emergency honest Saturday or on the fourth of July they have a breakdown of blow out.

Speaker Change: Today's solutions don't afford them the ability to get paid quickly without having to do some sort of money code type transaction low pay is going to allow them the opportunity to see what their pending payments are within trial pay and then select that they want to be paid now and not have to wait until the next business day. They received it was fun.

Speaker Change: The instant land can solve whatever problem is that they're trying to address and that's huge for prior tracking company for a carrier and a driver not being stuck on the side of the road waiting for funds to be able to fix their problems and they can get back on that rather than be on time is a big deal.

And so it's a little bit too early to tell what direction we're going, but we have built our business around surviving whatever direction that is. Yeah, I think to add to that, Joe, in our factoring business, 7% of our carriers who were active before the end of the year have not been active in January. We don't know whether that means they've left the industry, but I doubt that all of them have done so.

Tim: And one final thing, and then we'll turn it to Todd to speak about banking as a service. There's far more to this than just the timing.

Speaker Change: And one final thing and then we'll turn it pathologist sorry go ahead and to speak about banking as a service just there's far more to this than just the timing.

Todd: The way the whole...

Speaker Change: Like the way the whole.

Todd: Wallet is designed the way we allow carriers to offload into a variety of products.

Speaker Change: Wallet is designed the way we allow carriers to offload into a variety of products.

And some of them chose to park their trucks because they knew the market was soft. And the weather would, you know, if you're going to clear a spot load in this weather, a carrier is going to expect to be paid more because it's more difficult and time-consuming. So it's hard to create a trend line, as Tim was saying, over what you've seen some three weeks into the year. Thank you for taking my questions. You got it.

Todd: You think about who are we competing with?

Speaker Change: Think about who are we competing with I mean, that's where you're competing I mean, 97% of the payments, we pushed out the door or well over 90% are being a C. H to a bank account.

Todd: I mean, that's where you're competing. I mean, 97% of the payments we push out the door, well over 90% are being ACH to a bank account.

Todd: I have met no bang.

Speaker Change: I have met no banks.

Todd: really care that much about their truckers who have one to five trucks. I mean, they give them okay service, but they would never build a banking or wallet experience on behalf of a small trucker. And so there's things we're doing in the way you can move money in, the way you can move money out, the way things you can see in the user interface.

Speaker Change: That really care that much about their truckers, who have one to five trucks I mean, they they give them okay service, but they never it would never build.

Operator: Thank you. Our next question comes from Frank Chiraldi on behalf of Piper Sandler. Feel free to unmute and ask your questions. Thanks. Good morning.

Speaker Change: Our banking our wallet experience on behalf of a small trucker and so there's things we're doing in the way you can move money and the way you can move money out the way things you can see in the user interface.

Todd: that no one's ever done before and we're competing against.

Speaker Change: That no one's ever done before and we're competing against.

Frank Joseph Schiraldi: Just wondering on the... and the targets you give in the near term. Now, obviously, you got the EBITDA positive ahead of schedule. You talked about getting to fit, you know, targeted processing more than 50% of all transactions in that segment of the market. What does that imply? Or what are your thoughts on timing there?

Todd: Banks who probably aren't that invested in staying.

Speaker Change: Thanks, Sue probably arent that invested in Spain.

Todd: The bank for a small trucking company. Of course, if it's a large fleet and publicly traded, of course, they're going to have sophisticated treasury management services. And we would not pretend that load pay is particularly valuable in that scenario, although we can see some things perhaps way down the road where we can be valuable with that. But we're competing against just standard bank accounts, which were never built and are not tweaked.

Speaker Change: The bank for a small trucking company of course, if it's a large fleet in publicly traded of course, they're going to have a sophisticated treasury management services and we would not pretend that load PE is particularly valuable in that scenario. Although we can see some things perhaps way down the road, where we can be valuable with that.

Frank Joseph Schiraldi: What does that imply maybe for, you know, any sort of guide you can give on near-term profitability on triumph pay? And finally, on that front, you know, any targets. You saw really nice growth in network transactions. Any sort of targets you can share or thoughts you can share on continuing to ramp that up? Overall, we look at, as Aaron said in the opening, five-year time spans.

Speaker Change: But we're competing against just standard bank accounts, which were never built and are not tweaked.

Todd: with the trucker in mind. And that's how we do everything. How do we help truckers thrive? That's part of our mission, because if they thrive, we thrive. And so there's a lot more to this than just the timing. But maybe just to finish up, make sure we hit your question, Todd, you can speak about banking as a service and what we're thinking about. Yeah, your question about regulatory considerations is a good one. The biggest difference between providing banking as a service capabilities and doing regular traditional banking is the involvement of these third party vendors. And what is crystal clear is that you cannot lay off any of your compliance responsibility to any of those third parties. So that means that from a compliance perspective, we have to invest a lot of time and energy in making sure that we've got everything covered ourselves or anything that is being done on behalf of a third party keeps us in compliance with the requirements. So yes, that is a significant thing for us, but we think we've got it under control.

Speaker Change: With the trucker in mind and that's how we do everything how do we help truckers thrive that's part of our mission because if they thrive we thrive and so theres a lot more to this than just the timing, but maybe just to finish up make sure. We hit your question part even speak about banking as a service and sharing with you.

And so when you think about the milestones that we laid out for Triumph Pay, number one, we just want to maintain EBITDA profitability throughout the year and beyond. But the second, of touching 50% of all brokered freight transactions, we still have a ways to go. We're at one of three transactions today.

Speaker Change: Your question about regulatory considerations is a good one.

Speaker Change: The biggest difference between providing banking as a service capabilities and doing regular traditional banking is the involvement of these third party vendors and what is crystal clear is that you cannot lay off any of your compliance responsibility to any of those third parties. So that means that from a compliance perspective, we have to invest.

And so, you know, we'll continue to move forward on those. How quickly that happens is certainly going to depend on the market and our organic growth that we've been able to demonstrate we're continuously doing, and we have very strong pipelines. The last one that is important, and again, would be further out in that five-year plan, is to be able to hit that 50% EBITDA margin on our core business.

Speaker Change: A lot of time and energy in making sure that we've got everything covered ourselves or anything that is being done on behalf of a third party keeps us in compliance with the requirements. So yes that is a significant thing for us, but we think we've got it under control.

Speaker Change: So just one quick clarification question. So for LoadPay, it's going to be a LoadPay mobile app that these truckers will download and then they will have BIN numbers with TPK bank accounts with you guys that the money will flow in and out of, correct?

Speaker Change: So just one quick clarification question, so for low pay it's going to be a low paid mobile app that these truckers will download and then they will have big numbers with TDK Bank Bank accounts with you guys that the money will flow in and out of correct.

And so, at what date we plan on doing that, we won't be able to give you that kind of direction right now, but within the next five years. And I have one more to add, and I just want to pause at this moment and say what the Triumph Pay team did, and it's always the entire team; the Triumph Pay team doesn't operate in isolation from the rest of the enterprise. It was exceptional, absolutely exceptional, this past year. But the overall enterprise, what everyone did to pull together in the face of a very difficult environment, was exceptional. But there's one other thing I want to add to Melissa's, what she said.

Speaker Change: Is that the right general? That's correct. Okay. All right. Great. And then just really appreciate all that. Thanks for spending a few minutes on it. And then just lastly for me, and then I'll step back, just, you know, I'm sure someone else will maybe ask a couple more specifics about some of the credit migration you guys saw, but I have kind of a bigger picture questionnaire. And, you know, I think, um,

Speaker Change: That is that the right general approach.

Speaker Change: Alright, Great and then just really appreciate all that thanks for spending a few minutes on it and then just lastly for me and then I'll step back just Oh I'm sure someone else will maybe ask a couple more specifics about some of the credit migration you guys saw but I've kind of a bigger picture question here and you know I think.

Speaker Change: The balance sheet obviously hasn't grown for a while. I mean, you guys talk about kind of your five-year plan here. What's the five-year plan for the balance sheet? How should we start? As we start to – we're obviously probably not doing it today, but in the near future, we'll start thinking about 26. We'll start going out further. We'll start going out further.

Speaker Change: You go to the balance sheet, obviously hasnt grown for a while I mean, you guys talk about kind of your five year plan here what's.

And at the stage we are in with Triumph Pay, we think this is still a revenue growth story, not just an EBITDA margin story. So if you look at revenue growth in 2023 in the face of a falling market, pretty impressive. I also think about achieving that goal we laid out several years ago of $100 million in total revenue. We're at about 50% of that goal.

Whats the five year plan for the balance sheet, you know how should we start as we start to you know, we're obviously probably not doing it today, but in the near future, we'll start thinking about 'twenty six to start going out further like.

Speaker Change: How should we continue to think about the bank balance sheet? Does it continue to shrink? Do you think it continues to hold flat? I mean, it feels like as the EBITDA gets better at T-PAY, you know, the earnings of the bank, I don't want to say becomes less valuable, but it, you know, it doesn't, it's not serving the same purpose as it was kind of historically when you were just building that up from the ground up. Just would love some updated thoughts there, if you're willing.

Speaker Change: How should we continue to think about the bank balance sheet does it continue to shrink do you think it continues to hold flat I mean, it feels like as to EBITDA gets better at Tpa.

Now, we originally thought we would need to get to $100 million of revenue on $75 billion of transactions in order to break even. What we have learned on this journey is there are other ways to deliver value with the network that we've been able to monetize that we didn't foresee, and that is a most welcome sign. So we think about full-year EBITDA margin profitability for 2024. There will be volatility quarter to quarter with these investments we're making in the freight markets. We can't make any predictions related to that.

Speaker Change: The earnings of the Bank I don't Wanna say becomes less valuable, but it you know it doesn't it's not serving the same purpose as it was kind of historically when you were just building that up from the ground up just would love some updated thoughts there if youre willing.

Speaker Change: Tremendous question. Very fair question.

Speaker Change: Yeah, No tremendous question very fair question.

Speaker Change: So.

Speaker Change: No.

Speaker Change: Remember that as we go out and we seek to be a counterparty,

Speaker Change: Remember that as we go out and we seek to be a counterparty for freight brokers over 25 of which do over $1 billion of transactions and some much larger than that.

Speaker Change: for freight brokers, over 25 of which do over a billion dollars of transactions and some much larger than that.

Number two, we were after 50% of all brokered freight, as Melissa alluded to, and we're within a couple of large names of achieving that goal. And that's a great be a tremendous thing to touch one out of every two transactions. Number three, getting to 100 million in revenue, roughly doubling the revenue from where it is currently, and then, long term, we believe, just like other card networks, that this business should operate at a 50% EBITDA margin or better. And all of that, as Melissa said, in the next five years is the vision to go and deliver. And that's about as specific on timing as we can be at this.

Speaker Change: They're outsourcing payments to us, which makes us a very large financial counterparty too.

Speaker Change: They're outsourcing payments to us, which makes them a very it makes us a very large financial counterparty to them.

Speaker Change: So I don't see any time in the near term where we're willing to just go it alone on fees in transportation because we could not stand face to face with a publicly traded freight broker and say we can weather a downturn.

Speaker Change: So I don't see anytime in the near term where were willing to just go it alone on <unk> bees in transportation, because we could not stand face to face with a publicly traded freight broker and say we can weather a downturn.

Speaker Change: Because we're not going to go out and raise equity from private equity or venture capital. We don't need that. We don't want to dilute our investment.

Speaker Change: Because we're not going to go out and raise equity from private equity or venture capital, we don't need that we don't want to dilute our investors.

Speaker Change: So it's important for us to be able to weather the storm like we weathered the storm in 2023. I mean, like I said, it wasn't a great year for earnings, but we still made $1.68 a share. And so, you know, what, almost $30 million after tax in the face of a very difficult environment, even while dealing with some credit issues.

Speaker Change: So it's important for us to be able to weather the storm like we weathered the storm in 2023, I mean like I said it wasn't a great year for earnings, but we still made a $1 68, a share and so you know what almost $30 million after tax in the face of a very difficult environment, even while billing.

Frank Joseph Schiraldi: I appreciate that. And just on load pay, I just want to make sure I understand, you know, generally when a traditional bank is getting into, and you guys sort of lay out the different partners and what they generally do in these relationships or in these build outs. But so are you, you know, generally, I think about a more traditional bank partnering with fintech to build out the more, you know, customer-facing side of things. In this case, is it Triumph that's sort of doing the whole thing, performing the entire customer-facing side of things down to the more traditional banking, banking as a service piece? Is that fair?

Speaker Change: With some credit issues. So that's important number one is just to be a strong financial counterparty.

Speaker Change: So that's important, number one, is just to be a strong financial counterparty.

Speaker Change: to your constituents who are very large players and need to make sure that you can handle their business well.

Speaker Change: To your constituents, who are very large players and need to make sure that you can handle their business well.

Speaker Change: How I think about the bank beyond that is like that the value, look at our total cost of funds.

Speaker Change: How I think about the bank beyond that is like that the value look at our total cost of funds is roughly one 4% that measures up against.

Speaker Change: is roughly 1.4%. That measures up against almost, I mean, there's very few banks that can outperform that. That's a benefit of not just relentlessly pursuing balance sheet growth.

Frank Joseph Schiraldi: And then, you know, generally I've seen, you know, expenses up front, and revenue sort of 12 to 18 months out. Is that a reasonable kind of timeframe for load?

Speaker Change: I mean, there's very few banks that can outperform that that's a benefit of not just relentlessly pursuing balance sheet growth.

Speaker Change: and that liquidity and that low cost of funds allows us to inject liquidity into the network. Now, I'll grant you that's different than Visa doesn't do that. MasterCard doesn't do that. But at this stage, the ability to inject and use our balance sheet to facilitate transactions to empower the network is really valuable.

Speaker Change: And that liquidity in that low cost of funds allows us to inject liquidity into the network now I'll Grant you that's different than visa doesn't do that Mastercard doesn't do that but at this stage the ability to inject and use our balance sheet to facilitate transactions to empower the network is really valuable.

Indeed. So... We certainly use vendors, but we are doing the development ourselves. And that's a great question, Frank, and something I want to point out.

We will invest over $110 million in technology in the year 2024. Now that includes our people, and that includes just tech spend away from people. That is over 25%, almost 30% of all of our non-interest expenses.

Speaker Change: and I don't see that changing in the next few years so what I can say with certainty is you're not going to see any new lines of business for us the lines we serve are the ones we serve and we want to do that with excellence you're not going to see balance sheet growth

Speaker Change: And I don't see that changing in the next few years. So what I can say with certainty is youre not going to see any new lines of business for us. The lines. We serve are the ones. We serve them, we want to do that with excellence youre not going to see balance sheet growth.

Speaker Change: You're going to see us continue to really focus on the right hand side of the balance sheet and a very strong liquidity position and deposit base and try to be conservative and thoughtful on credit because we need to maintain a revenue base.

Speaker Change: Youre going to see us continue to really focus on the right hand side of the balance sheet and a very strong liquidity position and deposit base and try to be conservative and thoughtful on credit because we need to maintain our revenue base.

I don't think that there is another bank that I'm aware of that invests that much in technology. We're not just here using other people to build the tech and then marketing it under our name. This is being built from the ground up by us for truckers because we know that there is no other bank who cares about truckers the way we care about them. So it is being built by us. We certainly use vendors as any technology provider.

Speaker Change: I mean there is a reason we can invest 110 million dollars in technology next year it's because we have a very strong and durable revenue base to do that and to do that and still make profits as an enterprise and so I'm not willing to put us in a position where we put any of that at risk in the near term and so I think you should expect a static balance sheet you should expect us to compound capital as a result of not growing our balance sheet and you should expect us to be very focused on the right hand side of the balance sheet and making sure that we're doing things that protect the deposit franchise and then make smart loans and we generally do there were some things this quarter and I'm not even distracted in the equipment finance

There is a reason we can invest $110 million in technology next year, just because we have a very strong and durable revenue base to do that and to do that and still make profit as an enterprise and so I'm not willing to put us in a position where we put any of that at risk in the near term and so I think you should expect a static balance sheet, you should expect us to <unk>.

To the second point, we think that in the year 2024, you're going to see roughly $5 million of investment in the load pay initiative. Some of that will be capitalized. Some of that will be extended. It would be reasonable to expect revenue to start showing up in 2025. There may be some that shows up in 2024, but we're not counting on it.

Speaker Change: Impound capital as a result of not growing our balance sheet and you should expect us to be very focused on the right hand side of the balance sheet and making sure that we're doing things that protect the deposit franchise and then make smart loans and we generally do there were some things this quarter and I'm not even distracted in the equipment finance.

We think of this as a 2025 and beyond opportunity. Okay, I appreciate that. Sorry, go ahead.

Speaker Change: Part of the business, like the provisions we made there, when you look at that in the context of that whole portfolio and that team, that's not distracting to me.

Speaker Change: Part of the business like the provisions we made there when you look at that in the context of that whole portfolio and that team that's not distracting to me that.

I'm just going to confirm that, yes, we are serving as the bank sponsor behind LoadPay as well, which is important from an economic perspective because it allows us to capture the float benefit, the fees, and leverage our existing systems without as much incremental cost as we might otherwise if we had to rely on another bank sponsor. And if I could sneak in just one more on the loan modifications you mentioned in the letter on loan modifications and just wanted to get a sense; I assume, generally, those are continuing to be on the rate side primarily. If you can share what those modifications generally look like from a rate standpoint in terms of a reduction in rates,

Speaker Change: I mean, that's just going to ebb and flow, but every time we take a credit loss, we need to turn that into tuition, and it is not lost on us. I'll just end with this, that when you trade at the PE multiple at which we trade, we need to not be on this call talking about credit, right? What the investors are looking for is to see the payments network grow and for the way we generate the rest of our revenue to be done in a safe and sound manner, and that's how we think about it.

Speaker Change: I mean, that's just going to ebb and flow.

Speaker Change: But every time, we take a credit loss, we need to turn that into tuition and it is not lost on us I'll just end with this that when you trade at the P/e multiple at which we trade we need to not be on this call talking about credit right, but the people what the investors are looking for is to see the payments network grow and for the.

Speaker Change: The way, we generate the rest of our revenue to be done in a safe and sound manner and that's how we think about it.

Speaker Change: Yeah, no, that's all totally fair and really thorough, Aaron. Thank you. So, I mean, just to kind of put some numbers and summarize it, I mean, so the balance sheet will stay in this $5-plus billion range for the foreseeable future, and you guys will hope to be compounding capital and continuing to invest in all your initiatives for the next handful of years, minimum.

Speaker Change: Yeah, No that's all totally fair a really thorough erin. Thank you. So I mean, just to kind of put some numbers and summarize it I mean, so the balance sheet will stay in this five plus billion dollar range for the foreseeable future and you guys would hope to be compounding capital and continue to invest in all your initiatives, but you know for the next handful of years minimum.

Frank Joseph Schiraldi: And then, if you can just share total modifications and a period or growth, in the quarter and in the various segments. Thank you. So to your question about the modifications, yes, they are primarily around rate.

Speaker Change: Absolutely, Yeah and right now.

Speaker Change: Right now, we have about $200 million in excess capital. We have internal buffers over regulatory minimums.

Speaker Change: We have about $200 million in excess capital over we have internal buffers over regulatory minimums.

Speaker Change: So that number should go up absent the use of capital for M&A or to repurchase shares and at our current valuation I don't see that being something that we will act upon and so M&A for us would be using that capital to do that without diluting our shareholders will be done if we think we can do it in a way that's valuable for the long term to the payments network. That's how we think about the use of our excess capital.

Speaker Change: So that number should go up absent the use of capital for M&A or to repurchase shares and at our current valuation I don't see that being something that we will act upon and so M&A for us would be.

They deal with credits that have variable rates, and those variable rates have risen to over 10% in most cases. We're having to realign the rates to reflect the realities of the cash flow of the underlying borrower. So it means we're taking the rates down to typically between 6% and 6.5%, which you'll see in our disclosures. The total amount of the modifications we've made so far is around $125 million. Great. Okay. Thank you for all the color.

Speaker Change: Using that capital to do that without diluting our shareholders will be done if we think we can do it in a way that's valuable for the long term to the payments network. That's how we think about the use of our excess capital.

Speaker Change: Using that capital to do that without diluting our shareholders will be done if we think we can do it in a way that's valuable for the long term to the payments network. That's how we think about the use of our excess capital.

Great. Thank you guys very much for taking my questions. This morning appreciate it.

Speaker Change: Great. Thank you guys very much for taking my questions this morning. Appreciate it.

Speaker Change: Yes.

Frank Joseph Schiraldi: I appreciate it. Thank you. Our next question comes from Gary Tenner from D.A. Davidson. Sorry, good morning.

Speaker Change: As a reminder, if you'd like to ask a question feel free to use the phrase icon.

Speaker Change: As a reminder, if you would like to ask a question, feel free to use the raise icon.

Speaker Change: Raise hand icon at the bottom of your Zoom window.

Speaker Change: Raise hand icon at the bottom as you seen window.

Speaker Change: Our next question comes from Thomas Wendler from Stevens.

Speaker Change: Our next question comes from Thomas Wendler from Stephens.

Thomas Wendler: Hey, good morning, everyone.

Gary Peter Tenner: I'm going to unmute you there. I wanted to ask about one of your comments in the investor letter or charter letter regarding the renewal of contracts with factors on the T-PAY network. Was there a particularly large slug of renewals that came in the fourth quarter based on when folks came on board and joined the network? And can you talk about, in general, changes, if any, of the contracts that are more financially beneficial to T-PAY now that that value proposition is a bit more proven? Those renewals are important just to speak to you in terms of the entire year. But as we built out the Payments Network for Factors, they came on later in 2022 and into 2023.

Thomas Wendler: Hey, good morning, everyone.

Speaker Change: Good morning.

Thomas Wendler: I just want to go back to LoadPay here for a second. Distribution seems to be a pretty big focus for you guys and a bit of an edge you have. Have you reached out to any of these power users and gotten any preliminary feedback on the distribution of LoadPay?

Thomas Wendler: Just wanted to go I don't want to go back to a low to pay here for a second distribution seems to be a pretty big focus for you guys a bit of an edge. You have have you reached out to any of these power users and gotten any preliminary feedback on the distribution a little bit.

Thomas Wendler: Yes, we have we wouldn't talk about it with investors unless we had talked about it with customers first.

Speaker Change: Yes, we have. We wouldn't talk about it with investors unless we had talked about it with customers first.

Speaker Change: Okay, thank you. And then just going back to credit, I know you guys are not terribly big focus here, but the equipment finance and liquid credit balances both saw a decrease last quarter just due to tighter credit box. Can you give us an idea of how you're thinking of how to use loan categories moving forward?

Speaker Change: Okay. Thank you and then just.

Going back to credit I know you guys are not terribly big focus here, but.

Speaker Change: The equipment finance and liquid credit balances both decrease last quarter, just due to tighter credit box do you have an idea of how you're thinking about these loan categories moving forward.

Gary Peter Tenner: Our pricing structure associated with those contracts contemplates the growth of the Payments Network and renegotiating the pricing to include the new brokers that have onboarded within the year for the following year. We made a conscious decision, given the state of the market right now and the pain that Factors are feeling with the compressed margins and rates, to not increase their fees going into 2023. We wanted to be good partners for our factoring clients, but what we were able to determine is that every one of them wanted to re-up their contract and continue leveraging the network, understanding that the value is there and continuing to grow for them. I mean, your sense then, so you chose not to increase the fee component, is your sense that you will, in a better environment, be able to effectively have pricing power to do so, even though you kind And those are the conversations that we had with, oh, I'm sorry. I'm sorry, Gary.

Speaker Change: Yeah, so on the liquid credit front, we shared that we have taken the lessons learned from the loss that we experienced in the fourth quarter there, and we're applying those lessons. So yeah, we're going to be looking at new credit opportunities and liquid credit very carefully. But we continue to feel that when the right market conditions exist, and when we see the right credits, we have to be prepared to act. So you could see a time when we step back into that space, if that were to occur. Do we see that coming right now? No, there are no indications that we would move into that kind of environment right now, but you never know. When it comes to equipment finance, we feel that we're at really the depth of the transportation equipment cycle at this point. And so we're dealing with the fact that we're at that depth. And we've prepared ourselves to make sure that in the event that the transportation recession lasts a significant period longer, we're ready for that. Our appetite to lend into the equipment finance space is still there, but we've got to have the right risk-adjusted returns there. And you've got to have strong borrowers. And so the production that we expect in equipment finance is lower for the next quarter or two than it's been historically, but we hope eventually it returns to normal.

Yeah. So on the liquid credit front, we shared that we have taken the lessons learned from the loss that we experienced in the fourth quarter, there and we're applying those lessons. So yeah, we're going to be looking at new credit opportunities in liquid credit very carefully, but we continue to feel that when the right market conditions exist and when we see the right.

Speaker Change: We have to be prepared to act. So you could see a time when we step back into that space. If that were to occur do we see that coming right. Now no. There are no indications that we would move into that kind of environment right now, but you never know when it comes to equipment finance, we feel that you know we're at really the depth of the transportation equipment cycle at this point so we're dealing.

Speaker Change: With the fact that we're at that depth and we've prepared ourselves to make sure that in the event that the transportation recession lasts.

Significant period longer we're ready for that.

Speaker Change: Our appetite to lend into the equipment finance space is still there, but we've got to have the right risk adjusted returns there and you've got to have strong borrowers and so the production that we expected equipment finance is lower for the next quarter or two than it's been historically, but we hope eventually it returns to normal.

No, go ahead. Yes, that's exactly the conversation that we had with our clients, and we wanted to make sure that as the environment and the market recovers, we would be going back and having those conversations again in 2020. Great, I appreciate that. And then just a quick follow up. I don't think that I saw you, and I'm sorry if I missed it, but the average float at Triumph State for the quarter, can you provide that?

Speaker Change: All right, I appreciate you answering my question.

Speaker Change: Alright, I appreciate you taking my question.

Speaker Change: and our next question will come from Joe Yanchunas.

Speaker Change: And our next question will come from Julian genus.

Joe Yanchunas: A for Dave might follow up here.

The aim for taking my follow up here.

Joe Yanchunas: Several quarters ago, I believe you discussed

Julian Genus: Several quarters ago, I believe you discussed taking Teekay International deal, you know, Canada or Mexico.

Dave: taking T-PAY International to either Canada or Mexico. Is that something you're still considering? And if so, could we expect that to occur in the next couple of years?

Julian Genus: That's something you're still considering and if so should we expect that to occur in the next couple of years.

Dave: And then, additionally, are there any updates you could provide about your plans to monetize some of the transportation data that you aggregate?

And then.

Julian Genus: Additionally are there any updates you can provide about your plans to monetize some of the transportation data about your aggregate.

I think we're sitting right around $300 million on average. And Gary, the, you know, how that gets accounted for, you know, I think we've laid out in the letter before, one of the great things about where float sits now because you're generating that float on roughly 24 billion ish in payments is that we are self-funding, so any supply chain finance we are doing where we are injecting liquidity into transactions in order to make them easier for network participants is being funded out of that And just one quick point: the average was $340 million. Thank you. Our next question comes from Michael Perito from KBW. Hey, good morning, guys. Thanks for taking my questions. I just had a couple.

Speaker Change: Great questions. I'll take the first one. In terms of international payments, we are making payments in Canada and in Mexico, and we are in active development on being able to take that to other regions of the world. And so you would expect to see that happen this year in 2024 as we support our growth and the Shipper Strategy.

Speaker Change: Great questions I'll I'll take the first one in terms of international payments, we are making payments in Canada and in Mexico.

Speaker Change: And we are in active development on being able to take that to other regions of the world and so you would expect to see that happen. This year in 2024, as we support our growth in the shipper strategy.

Speaker Change: And it's important to understand.

In the end and it's important to understand.

Speaker Change: that I think in the next, it may be in the next 12 months, it might be slightly longer than that. I firmly believe Triumph Pay will be touching one out of every two transactions in brokered freight. And so you could look at that and you could say, well, man, that's a large penetration of the market. How big is your total addressable market? The other thing I would want you to remember is we touch 1% of transactions in the shipper market, and it is a far larger market than the brokered market. And we cannot serve the shipper market at scale unless we do international payments. And so Todd and our team is, in addition to banking as a service, there's a large workflow tied to that. We've got to be able to do North America and ultimately international.

Speaker Change: I think in the neck. It may be in the next 12 months it might be slightly longer than that I firmly believe try and pay will be touching one out of every two transactions in brokered freight and so you could look at that and you can say well man that's a large penetration of the market how big is your total addressable market.

Speaker Change: The other thing I would want you to remember as we touch 1% of transactions and the shipper market and it is a far larger market than the brokered market and we cannot serve the shipper market at scale, unless we do international payments and so Todd.

Michael Perito: I mean, I still see a few hands up, so I don't want to take away everyone's ammo here. But just to follow up on Frank's questions around load pay, two questions. One, I was wondering if you could kind of just give us a really basic example of how you hope the technology will kind of work in the field and what the value proposition is for the consumers itself. And then, secondly, behind that, just...

Speaker Change: And our team is in addition to banking as a service there is a large workflow tied to that we've got to be able to do North America and ultimately international.

Speaker Change: The second thing you asked about is data. And so let's talk about that and just kind of how we look at the world.

Speaker Change: The second thing you asked about is data and so let's talk about that and just kind of how we look at the world.

Speaker Change: I look at there are four buckets of revenue in and around

Speaker Change: I I look at there are four buckets of revenue in and around.

Michael Perito: I believe this is really the first time you guys are going to be doing a quote-unquote kind of banking as a service type setup. Are there any kind of bank regulatory considerations, capital required, anything that we should be thinking about, just especially if low pay really starts to ramp up in 25, 26, that should be on our radar? The first part of that, and then Todd can answer the banking as a service piece. So if you think about the use case, and we've seen this on multiple fronts, and Tim has certainly seen this in our factoring business. When you think about the end of the day at a factoring company, when you're starting to bump up against the ACH deadline, right? In different banks, at different times of the day, different... But we call it roughly 4 p.m. Central time.

Speaker Change: are enterprises that now sits and then where we want to go. Number one is financing revenue, right? And that's easy enough to understand. That's just loans and factored receivables on our balance sheet. And that gets a certain multiple.

Speaker Change: Our enterprises. It now sits and then where we want to go number one is financing revenue right and that's easy enough to understand that's just loans in factored receivables on our balance sheet and that gets a certain multiple.

Speaker Change: Number two is float revenue, and you can see that in Try and Pay to the extent we have excess funding, we're able to monetize that float depending upon what the interest rate environment.

Speaker Change: Number two is float revenue and you can see that and try and pay to the extent, we have excess funding, we're able to monetize that float depending upon what the interest rate environment as well.

Speaker Change: The third bucket of fees would be...

Speaker Change: The third bucket of fees would be.

Speaker Change: What we call fees, network fees, and this would be very much like interchange fees in a Visa and MasterCard network, and you see the growth that we've called out there. The one thing we haven't talked about, but I promise you we will be talking about in the future, is the final bucket of fees, which is data. So if you touch one out of every two transactions in brokered freight, the question you have to ask yourself is how can you make that valuable for your network constituents? How can we be valuable? Because it's got to start there. If we just talk about monetizing it without thinking about the value proposition.

Speaker Change: What we call fees network fees and this would be very much like interchange fees and of visa and Mastercard network and you see the growth that we've called out there.

Speaker Change: The one thing we haven't talked about but I promise you we will be talking about in the future is the final bucket of fees, which is data. So if you touch one out of every two transactions and brokered freight. The question you have to ask yourself is how can you make that valuable for your network constituents, how can we be valuable because it's got to start there. If we just talk about them.

There starts to be a desperation to get dollars out of the door because those truckers need that money to either fill up or whatever they need to do. And so you get really pressured towards the end of the day and certainly on holidays and other seasons. And so the ability to not have that deadline but to be able to push money 24 by 7 through just what is essentially a journal entry on the books of TBK Bank allows you to smooth out funding. And Tim could speak about that with a lot of particularity. What I think about the application in TriadPay is we have almost 30,000 select carriers, for example, people who are not doing business. With a factoring company, but they are being paid directly by TriadPay and, in some cases, being paid quickly by TriadPay on behalf of the freight brokers we serve.

Speaker Change: Monetizing it without thinking about the value proposition.

Speaker Change: You don't have a great business. And so we really want to think about how can we be valuable to the people who use our network, to the freight brokers, to the carriers. One way in which that's happening is the licensing of our payments data in our partnership with Highway, which is generating, I believe, over a million dollars in run rate revenue to help ferret out fraud, to ferret out ghost carriers who never intended to haul the load that they bid on on a load board, but instead intended to double broker it or steal it. So we're already doing that, but not at scale.

Speaker Change: You don't have a great business and so we really want to think about how can we be valuable to the people who use our network to the freight brokers to the carriers one way in which that is happening is the licensing of our payments data and our partnership with highway which is generating I believe over $1 million in run rate revenue to help bear.

Speaker Change: Fair it out fraud to ferret out those carriers, who never intended to haul the load that they bid on a load board, but instead intended the double broker it or steal it so we're already doing that but not at scale.

Speaker Change: And so if you think about.

Speaker Change: And so if you think about.

Speaker Change: data. Obviously, that commands probably the highest multiple of any of those four buckets of fees because it's the most scalable.

Speaker Change: Data, obviously that commands probably the highest multiple of any of those four buckets of fees because it's the most scalable.

Speaker Change: And we think there is an enormous market for delivering data to our constituents to help them reduce friction, to help them identify capacity that's helpful to them, and to mitigate fraud. And so it's in the longer term roadmap, but it is definitely something, Joe, that we are working on.

The ability to smooth out funding to them and get it to them when they need it is a really big thing. And, you know, Tim, any other thoughts around where the value prop comes from, like even from our own factoring clients, as we roll out load pay to them? What else would you consider? Yeah, I think you hit on the biggest part is, you know, the ability to fund 24 hours a day, seven days a week without any sort of time constraints. The operational efficiencies within the factoring group are really important.

Speaker Change: And we think there is an enormous market for delivering data to our constituents to help them reduce friction to help them identify capacity that's helpful to them and to mitigate fraud and so it's in the longer term roadmap, but it is definitely something Joe that we are working on.

Speaker Change: Perfect. Thank you very much.

Speaker Change: Perfect. Thank you very much.

Speaker Change: Fair enough.

Speaker Change: Fair enough.

Speaker Change: Thank you.

The ability to have visibility quickly and easily for our clients is also an added benefit from that program. So load pay, in general, just creates a portal for us. Outside of the Fed, it gives us flexibility across the entire enterprise. When you think about a trucking company or carrier owner operator on the road, you know, they may have an emergency on a Saturday or on the 4th of July. They have a breakdown, a blowout.

Time, thank you.

Speaker Change: I believe what we just heard are there are no further questions. We thank you for joining us. We wish you all a prosperous 2024 and we'll talk to you soon. Thank you.

Speaker Change: So I believe what we just heard a there are no further questions. We thank you for joining US we wish you all a prosperous 2024 and we'll talk to you soon thank you.

Speaker Change: Goodbye.

Speaker Change: Goodbye.

Today's solutions don't afford them the ability to get paid quickly without having to do some sort of money code-type transaction. Load pay is going to allow them the opportunity to see what their pending payments are within triumph pay and then select that they want to be paid now and not have to wait till the next business day to receive those funds. They'll receive it instantly and can solve whatever problem is that they're trying to address.

And that's huge for a trucking company, for a carrier, and for a driver. Not being stuck on the side of the road, waiting for funds to be able to fix their problems so they can get back on the road and be on time is a big deal. And one final thing, and then we'll turn it to Todd to speak about banking as a service. There's far more to this than just the timing.

The way the whole... Wallet is designed the way we allow carriers to offload into a variety of products. You think about who we are competing with? I mean, that's where you're competing. I mean, 97% of the payments we push out the door, well over 90% are being ACH to a bank account. I haven't met any bang companies that really care that much about their truckers who have one to five trucks.

I mean, they give them an okay service, but they would never build a banking or wallet experience on behalf of a small trucker. And so there's things we're doing in the way you can move money in, the way you can move money out, the things you can see in the user interface that no one's ever done before and we're competing against. Banks who probably aren't that invested in staying. The bank for a small trucking company, for example.

Of course, if it's a large fleet and publicly traded, of course, they're going to have sophisticated treasury management services. And we would not pretend that load pay is particularly valuable in that scenario, although we can see some things perhaps way down the road where we can be valuable with that. But we're competing against just standard bank accounts, which were never built and are not tweaked with the trucker in mind. And that's how we do everything. How do we help truckers thrive?

That's part of our mission, because if they thrive, we thrive. And so there's a lot more to this than just the timing. But maybe just to finish up, make sure we hit your question, Todd. You can speak about banking as a service and what we're thinking about. Yeah, your question about regulatory considerations is a good one. The biggest difference between providing banking as a service capabilities and doing regular traditional banking is the involvement of these third party vendors.

And what is crystal clear is that you cannot lay off any of your compliance responsibilities on any of those third parties. So that means that, from a compliance perspective, we have to invest a lot of time and energy in making sure that we've got everything covered ourselves, or anything that is being done on behalf of a third party keeps us in compliance with the requirements. So, yes, that is a significant thing for us, but we think we've got it under control. So just one quick clarification question. So for LoadPay, it's going to be a LoadPay mobile app that these truckers will download, and then they will have BIN numbers with TPK bank accounts with you guys that the money will flow in and out of, correct? Is that the right general idea?

Michael Perito: That's correct. Okay. All right. Great. And then just really appreciate all that.

Michael Perito: Thanks for spending a few minutes on this. And then, just lastly, for me, and then I'll step back, just, you know, I'm sure someone else will maybe ask a couple more specifics about some of the credit migration you guys saw, but I have kind of a bigger picture questionnaire. And, you know, I think, um, the balance sheet obviously hasn't grown for a while. I mean, you guys talk about kind of your five-year plan here. What's the five-year plan for the balance sheet? How should we start?

Michael Perito: As we start to – we're obviously probably not doing it today, but in the near future, we'll start thinking about 26. We'll start going out further. How should we continue to think about the bank balance sheet? Does it continue to shrink?

Michael Perito: Do you think it continues to hold flat? I mean, as the EBITDA gets better at T-PAY, you know, the earnings of the bank, I don't want to say become less valuable, but it, you know, it doesn't, it's not serving the same purpose as it was kind of historically when you were just building that up from the ground up. Just would love some updated thoughts there, if you're willing. A tremendous question.

Very fair question. So, Remember that as we go out and we seek to be a counterparty for freight brokers, over 25 of which do over a billion dollars of transactions and some much larger than that. They're outsourcing payments to us, which makes us a very large financial counterparty too. So I don't see any time in the near term where we're willing to just go it alone on fees in transportation because we could not stand face to face with a publicly traded freight broker and say we can weather a downturn. Because we're not going to go out and raise equity from private equity or venture capital. We don't need that.

We don't want to dilute our investment, so it's important for us to be able to weather the storm like we weathered the storm in 2023. I mean, like I said, it wasn't a great year for earnings, but we still made $1.68 a share.

And so, you know, almost $30 million after tax in the face of a very difficult environment, even while dealing with some credit issues. So that's important, number one, to be a strong financial counterparty to your constituents, who are very large players and need to make sure that you can handle their business well. How I think about the bank beyond that is that the value, look at our total cost of funds, is roughly 1.4%. That measures up against almost, I mean, there's very few banks that can outperform that. That's a benefit of not just relentlessly pursuing balance sheet growth, and that liquidity and that low cost of funds allow us to inject liquidity into the network. Now, I'll grant you that's different than Visa does not do that. MasterCard doesn't do that.

But at this stage, the ability to inject and use our balance sheet to facilitate transactions to empower the network is really valuable, and I don't see that changing in the next few years so what I can say with certainty is you're not going to see any new lines of business for us the lines we serve are the ones we serve and we want to do that with excellence you're not going to see balance sheet growth, You're going to see us continue to really focus on the right hand side of the balance sheet and a very strong liquidity position and deposit base and try to be conservative and thoughtful on credit because we need to maintain a revenue base. I mean there is a reason we can invest 110 million dollars in technology next year it's because we have a very strong and durable revenue base to do that and to do that and still make profits as an enterprise and so I'm not willing to put us in a position where we put any of that at risk in the near term and so I think you should expect a static balance sheet you should expect us to compound capital as a result of not growing our balance sheet and you should expect us to be very focused on the right hand side of the balance sheet and making sure that we're doing things that protect the deposit franchise and then make smart loans and we generally do there were some things this quarter and I'm not even distracted in the equipment finance, Part of the business, like the provisions we made there, when you look at that in the context of that whole portfolio and that team, that's not distracting to me. I mean, that's just going to ebb and flow, but every time we take a credit loss, we need to turn that into tuition, and it is not lost on us.

Unnamed Speaker: Some of that will be capitalized, some of that will be expended; it would be reasonable to expect revenue to start showing up in 2025. There may be some that shows up in 2024, but we're not counting on it.

Unnamed Speaker: We think of this as a 2025 and beyond opportunity. Gotcha. OK. I appreciate that. Sorry, go ahead.

Unnamed Speaker: I'm just going to confirm that yes, we are serving as the bank sponsor behind Lodepay as well, which is important from an economic perspective because it allows us to capture the float benefit, the fees, and leverage our existing systems without incurring as much incremental cost as we might. Otherwise, we would have to rely on another bank sponsor. And if I could sneak in just one more on the loan modifications, you mentioned in the letter on loan modifications and just wanted to get a sense, I assume generally those are continuing to be on the rate side, primarily, if you can share what those modifications look like from a rate standpoint in terms of reduction in rate. And then do those, and then if you can just share, you know, total modifications and the period or growth in the quarter in the various Thank you.

I'll just end by saying that when you trade at the PE multiple at which we trade, we need to not be on this call talking about credit, right? What the investors are looking for is to see the payments network grow and for the way we generate the rest of our revenue to be done in a safe and sound manner. And that's how we think about it. Yeah, no, that's all totally fair and really thorough, Aaron.

Michael Perito: Thank you. So, I mean, just to kind of put some numbers and summarize it. I mean, the balance sheet will stay in this $5-plus billion range for the foreseeable future, and you guys will hope to be compounding capital and continuing to invest in all your initiatives for the next handful of years, at minimum. Right now, we have about $200 million in excess capital. We have internal buffers over regulatory minimums.

So that number should go up absent the use of capital for M&A or to repurchase shares, and at our current valuation, I don't see that being something that we will act upon, and so M&A for us would be using that capital to do that without diluting our shareholders will be done if we think we can do it in a way that's valuable for the long term to the payments network. That's how we think about the use of our excess capital. Great Thank you guys very much for taking my questions this morning. I appreciate it. As a reminder, if you would like to ask a question, feel free to use the question mark icon. Raise the hand icon at the bottom of your Zoom window.

Unnamed Speaker: So to your question about the modifications, yes, they are primarily around rates. They deal with credits that have variable rates, and those variable rates have risen to over 10%. In most cases, we're having to realign the rate to reflect the realities of the cash flow of the underlying borrower. So that means we're taking the rates down to typically between six and six and a half percent, which you'll see in our disclosures. The total amount of the modifications we've made so far is around $125 million. Great. Okay. Thank you for all the color.

Gary Peter Tenner: I appreciate it. Thank you. Our next question comes from Gary Tenner from D.A. Davidson. My more sorry, good morning minutes on mute there.

Operator: Our next question comes from Thomas Wendler from Stevens. Hey, good morning, everyone. I just want to go back to LoadPay here for a second. Distribution seems to be a pretty big focus for you guys and a bit of an edge you have. Have you reached out to any of these power users and gotten any preliminary feedback on the distribution of LoadPay? Yes, we have. We wouldn't talk about it with investors unless we had talked about it with customers first. Okay, thank you.

Unnamed Speaker: Wanted to ask about one of your comments in the investor letter or charter letter regarding the renewal of contracts with factors on the T-PAY network. Was there a particularly, you know, kind of large slug of renewals that came in the fourth quarter based on when folks came on board and joined the network? And can you talk about, kind of, in general about changes, if any, of the contracts that are more, you know, financially beneficial to T-PAY now that that value proposition is a bit more proven? You know, those renewals are important just to speak to you from in terms of the entire year. But as we built out the Payments Network for Factors, they came on later in 2022 and into 2023.

Thomas Wendler: And then just going back to credit, I know you guys are not terribly big a focus here, but the equipment finance and liquid credit balances both saw a decrease last quarter just due to a tighter credit box. Can you give us an idea of how you're thinking of how to use loan categories moving forward? Yeah, so on the liquid credit front, we shared that we have taken the lessons learned from the loss that we experienced in the fourth quarter there, and we're applying those lessons. So yeah, we're going to be looking at new credit opportunities and liquid credit very carefully. But we continue to feel that when the right market conditions exist and when we see the right credit, we have to be prepared to act. So you could see a time when we step back into that space if that were to occur. Do we see that coming right now?

Unnamed Speaker: Our pricing structure associated with those contracts contemplates the growth of the Payments Network and renegotiating those prices, the pricing to include the new brokers that have onboarded within the year for the following year. We made a conscious decision, given the state of the market right now and the pain that factors are feeling with the compressed margins and rates, to not increase their fees going into 2023.

Unnamed Speaker: And we wanted to be good partners for our factoring clients. But what we did, you know, we were able to determine is that every one of them wanted to, you know, re-up their contract and continue leveraging the network, understanding that the value is there and continuing to grow for them. But I mean, is your sense then that you chose not to increase the fee component? Is your sense that you will, you know, in a better environment, be able to effectively have pricing power to do so, even though you kind of, Yes, absolutely. And those are the conversations that we had with... Oh, I'm sorry. I'm sorry, Gary.

No, there are no indications that we would move into that kind of environment right now, but you never know. When it comes to equipment finance, we feel that we're at the depth of the transportation equipment cycle at this point. And so we're dealing with the fact that we're at that depth, and we've prepared ourselves to make sure that in the event that the transportation recession lasts a significant period longer, we're ready for that. Our appetite to lend into the equipment finance space is still there, but we've got to have the right risk-adjusted returns there, and you've got to have strong borrowers.

And so the production that we expect in equipment finance will be lower for the next quarter or two than it has been historically, but we hope eventually it returns to normal. All right, I appreciate you answering my question, and our next question will come from Joe Yanchunas. Dave might follow up here. Several quarters ago, I believe you discussed taking T-PAY International to either Canada or Mexico. Is that something you're still considering? And if so, could we expect that to occur in the next couple of years?

Unnamed Speaker: No, go ahead. Yeah, so that's exactly the conversation that we had, you know, with our clients is that we wanted to make sure that, you know, as the environment and the market recovers, that we would be going back and having those conversations again, you know, in 2020. We appreciate that. And then just a quick follow up. I don't think that I saw it, and I'm sorry if I missed it, but the average float at Triumph Pay for the quarter. Can you provide that?

And then, additionally, are there any updates you could provide about your plans to monetize some of the transportation data that you aggregate? Great questions. I'll take the first one.

Unnamed Speaker: Roughly $300 million. Yeah, I think we're sitting right around $300 million on average. And Gary, the, you know, how that gets accounted for, you know, I think we've laid out in the letter before, one of the great things about where float sits now, because you're generating that float on roughly $24 billion-ish in payments, is that we are self-funding. So any supply chain finance we are doing, where we are injecting liquidity into transactions in order to make them easier for network participants, is being And then the excess float, of course, we just treat as if we sell it overnight to the Fed at current Fed funds rates. And just one quick point: the average was three hundred and forty million. Thank you. Our next question comes from Michael Perito from KBW. Hey, good morning, guys. Thanks for taking my questions. I just had a couple.

In terms of international payments, we are making payments in Canada and in Mexico, and we are in active development of being able to take that to other regions of the world. And so you would expect to see that happen this year in 2024 as we support our growth and the Shipper Strategy. And it's important to understand that I think in the next 12 months, it might be slightly longer than that. I firmly believe Triumph Pay will be touching one out of every two transactions in brokered freight. And so you could look at that, and you could say, well, man, that's a large penetration of the market.

How big is your total addressable market? The other thing I would want you to remember is that we touch 1% of transactions in the shipper market, and it is a far larger market than the broker market. And we cannot serve the shipper market at scale unless we do international payments. And so Todd and our team are, in addition to banking as a service, there's a large workflow tied to that. We've got to be able to do North America and, ultimately, international. The second thing you asked about is data. And so let's talk about that and just kind of how we look at the world.

Michael Perito: I mean, I still see a few hands up, so I don't want to take away everyone's ammo here. But just to follow up on Frank's questions around load pay, two questions. One, I was wondering if you could kind of just give us a really basic example of how you hope the technology will kind of work in the field and what the value proposition is for the consumers themselves. And then, secondly, behind that, I believe this is really the first time you guys are going to be doing a quote-unquote kind of bank answer service type setup. Are there any kind of bank regulatory considerations, capital required, anything that we should be thinking about, especially if low pay really starts to ramp up in 2025-2026? First part of that.

I look at there are four buckets of revenue in and around are enterprises that now sits and then where we want to go. Number one is financing revenue, right? And that's easy enough to understand. That's just loans and factored receivables on our balance sheet. And that gets a certain multiple.

Number two is float revenue, and you can see that in Try and Pay, to the extent we have excess funding, we're able to monetize that float depending upon the interest rate environment. The third bucket of fees would be... What we call fees, network fees, and this would be very much like interchange fees in a Visa and MasterCard network, and you see the growth that we've called out there. The one thing we haven't talked about, but I promise you we will be talking about in the future, is the final bucket of fees, which is data. So if you touch one out of every two transactions in brokered freight, the question you have to ask yourself is, how can you make that valuable for your network constituents?

Unnamed Speaker: And then Todd can answer the banking as a service piece. So if you think about the use case, and we've seen this on multiple fronts, Tim has certainly seen this in our factory business. When you think about the end of the day at a factoring company, when you're starting to bump up against the ACH deadline, right? And different banks time that at different times, but we call it roughly 4 p.m. central time. There starts to be a desperation to get dollars out of the door because those truckers need that money to either fill up or whatever they need to do. And so you get really pressured towards the end of the day and certainly on holidays and other seasons.

How can we be valuable? Because it's got to start there. If we just talk about monetizing it without thinking about the value proposition, You don't have a great business. And so we really want to think about how we can be valuable to the people who use our network, to the freight brokers, to the carriers. One way in which that's happening is the licensing of our payments data in our partnership with Highway, which is generating, I believe, over a million dollars in run rate revenue to help ferret out fraud, to ferret out ghost carriers who never intended to haul the load that they bid on on a load board but instead intended to double broker it or steal it.

Unnamed Speaker: And so the ability to not have that deadline but to be able to push money 24 by 7 through just what is essentially a journal entry on the books of TBK Bank allows you to smooth out funding. And Tim could speak about that with a lot of particularity. What I think about the application in Triad Pay is we have almost 30,000 select carriers, for example, people who are not doing business. With a factoring company, but they are being paid directly by Triad Pay and, in some cases, being paid quickly by Triad Pay on behalf of the freight brokers we serve.

So we're already doing that, but not at scale. And so if you think about data, obviously, that commands probably the highest multiple of any of those four buckets of fees because it's the most scalable.

And we think there is an enormous market for delivering data to our constituents to help them reduce friction, to help them identify capacity that's helpful to them, and to mitigate fraud. And so it's on the longer-term roadmap, but it is definitely something, Joe, that we are working on. Perfect. Thank you very much. Fair enough. Thank you. I believe what we just heard is that there are no further questions. We thank you for joining us. We wish you all a prosperous 2024, and we'll talk to you soon. Thank you. Goodbye.

Unnamed Speaker: The ability to smooth out funding to them and get it to them when they need it is a really big thing. And, you know, Tim, any other thoughts around where the value prop comes from, like even from our own factoring clients, as we roll out load pay to them? What else would you consider? Yeah, I think you hit on the biggest part is, you know, the ability to fund 24 hours a day, seven days a week without any sort of time constraints. The operational efficiencies within the factoring group are really important. The ability to have visibility quickly and easily for our clients is also an added benefit from that program. So load pay, in general, just creates a portal for us outside of the Fed; it gives us flexibility across the entire enterprise. When you think about a trucking company or carrier, owner-operator on the road, you know, they may have an emergency on a Saturday or on the 4th of July. They have a breakdown, a blowout.

Unnamed Speaker: Today's solutions don't afford them the ability to get paid quickly without having to do some sort of money code transaction. LoadPay is going to allow them the opportunity to see what their pending payments are within Triumph Pay and then select that they want to be paid now and not have to wait until the next business day to receive those funds. They'll receive it instantly and can solve whatever problem it is that they're trying to address. And that's huge for a trucking company, for a carrier, and for a driver. Not being stuck on the side of the road, waiting for funds to be able to fix their problems so they can get back on the road and be on time is a big deal. And one final thing, and then we'll turn it over to Todd to speak about banking as a service. There's far more to this than just the timing.

Unnamed Speaker: Like, the way the whole... Wallet is designed the way we allow carriers to offload into a variety of products. You think about, who are we competing with? I mean, that's where you're competing.

Unnamed Speaker: I mean, 97% of the payments we push out the door, well over 90% are ACH to a bank. I have met no bank that really cares that much about their truckers who have one to five trucks. I mean, they give them okay service, but they would never build a banking or wallet experience on behalf of a small trucker.

Unnamed Speaker: And so there's things we're doing in the way you can move money in, the way you can move money out, the way things you can see in the user interface that no one's ever done before, and we're competing against banks who probably aren't that invested in staying, the bank for a small trucking company. Of course, if it's a large fleet and publicly traded, of course, they're going to have sophisticated treasury management services. And we would not pretend that load pay is particularly valuable in that scenario, although we can see some things, perhaps way down the road, where we can be valuable with that. But we're competing against just standard bank accounts, which were never built and are not tweaked with the trucker in mind. And that's how we do everything. How do we help truckers thrive?

Unnamed Speaker: That's part of our mission. Because if they thrive, we thrive. And so there's a lot more to this than just the timing. But maybe just to finish up, make sure we hit on your question, Todd. You can speak about banking as a service and what we're thinking about. Your question about regulatory considerations is a good one. The biggest difference between providing banking as a service capabilities and doing regular traditional banking is the involvement of these third-party vendors.

Todd Ritterbusch: And what is crystal clear is that you cannot lay off any of your compliance responsibilities on any of those third parties. So that means that, from a compliance perspective, we have to invest a lot of time and energy in making sure that we've got everything covered ourselves, or anything that is being done on behalf of a third party keeps us in compliance with the requirements. So, yes, that is a significant thing for us, but we think we've got it under control. So just one quick clarification question. For Lodepay, it's going to be a Lodepay mobile app that these truckers will download, and then they will have BIN numbers with TPK Bank bank accounts with you guys that the money will flow in and out of, correct? Is that the right general?

Unnamed Speaker: That's correct. OK. All right, great. And then just really appreciate all that.

Michael Perito: Thanks for spending a few minutes on it. And then just lastly, for me, and then I'll step back, just I'm sure someone else will maybe ask a couple more specifics about some of the credit migration you guys saw, but I have kind of a bigger picture questionnaire. And I think

Unnamed Speaker: You know, the balance sheet obviously hasn't grown for a while. I mean, you guys talk about kind of your five-year plan here. What's the five-year plan for the balance sheet? You know, how should we start as we start to, you know, we're obviously probably not doing it today, but in the near future, we'll start thinking about twenty-six to start going out further. How should we continue to think about the bank balance sheet? Does it continue to shrink?

Aaron P. Graft: Do you think it continues to hold flat? I mean, it feels like as the EBITDA gets better at T-PAY, the earnings of the bank, I don't want to say become less valuable, but it's not serving the same purpose as it was kind of historically when you were just building that up from the ground up. Just would love some updated thoughts there, if you're willing. Oh, tremendous question, very fair question. So.

Aaron P. Graft: Remember that as we go out and we seek to be a counterparty for freight brokers, over 25 of which do over a billion dollars of transactions and some much larger than that. They're outsourcing payments to us, which makes us a very large financial counterparty to them. So I don't see any time in the near term where we're willing to just go it alone on fees in transportation because we could not stand face-to-face with a publicly traded freight broker and say, "We can weather it." Because we're not going to go out and raise equity from private equity or venture capital. We don't need that.

Aaron P. Graft: We don't want to dilute our investment, so it's important for us to be able to weather the storm like we weathered the storm in 2023. I mean, like I said, it wasn't a great year for earnings, but we still made $1.68 a share.

Aaron P. Graft: And so, you know, what? almost $30 million after tax in the face of a very difficult environment, even while dealing with some credit issues. So that's important, number one, to be a strong financial counterparty to your constituents who are very large players and need to make sure that you can handle their business well. How I think about the bank beyond that is that the value of looking at our total cost of funds is roughly 1.4%. That measures up against almost, I mean, there's very few banks that can outperform that. That's a benefit of not just relentlessly pursuing balance sheet growth. And that liquidity and that low cost of funds allows us to inject liquidity into the network. Now, I'll grant you that it's different than Visa doesn't do that, and MasterCard doesn't do that. But at this stage, the ability to inject and use our balance sheet to facilitate transactions to empower the network is really valuable. And I don't see that changing in the next few years.

Aaron P. Graft: So what I can say with certainty is you're not going to see any new lines of business for us. The lines we serve are the ones we serve, and we want to do that with excellence. You're not going to see balance sheet growth.

Aaron P. Graft: You're going to see us continue to really focus on the right side of the balance sheet and a very strong liquidity position and deposit base and try to be conservative and thoughtful on credit because we need to maintain a revenue base. I mean, there is a reason we can invest $110 million in technology next year. It's because we have a very strong and durable revenue base to do that, and to do that and still make profits as an enterprise. And so I'm not willing to put us in a position where we put any of that at risk in the near term.

Aaron P. Graft: And so I think you should expect a static balance sheet. You should expect us to compound capital as a result of not growing our balance sheet. And you should expect us to be very focused on the right-hand side of the balance sheet and making sure that we're doing things that protect the deposit franchise and then make smart loans. And we generally do. There were some things this quarter, and I'm not even distracted in the equipment finance part of the business, like the provisions we made there. When you look at that in the context of that whole portfolio and that team, that's not distracting to me. I mean, that's just going to ebb and flow. But every time we take a credit loss, we need to turn that into tuition, so it is not lost on us.

Aaron P. Graft: I'll just end by saying that when you trade at the PE multiple at which we trade, we need not be on this call talking about credit. What the investors are looking for is to see the payments network grow and for the way we generate the rest of our revenue to be done in a safe and sound manner. And that's how we think about it. Yeah, no, that's all totally fair and really thorough, Aaron.

Michael Perito: Thank you. So, I mean, just to kind of put some numbers and summarize it. I mean, the balance sheet will stay in this five plus billion dollar range for the foreseeable future, and you guys will hope to be compounding capital and continuing to invest in all your initiatives, but, you know, for the next handful of years, at minimum. Absolutely. Yeah, and right now, we have about $200 million in excess capital. We have internal buffers over regulatory minimums, so that number should go up, absent the use of capital for M&A or to repurchase shares. And at our current valuation, I don't see that being something that we will act upon. And so M&A for us would be using that capital to do so without diluting our shareholders.

Michael Perito: We'll be done if we think we can do it in a way that's valuable for the long term to the payments network. That's how we think about the use of our excess capital. Great. Thank you guys very much for taking my questions this morning. I appreciate it. As a reminder, if you would like Scott to ask a question, feel free to use the Raise icon. Raise the hand icon at the bottom of your Zoom window.

Unnamed Speaker: Our next question comes from Thomas Wendler from Stevens. Hey, good morning, everyone. I just want to go back to Lodepay for a second. Distribution seems to be a pretty big focus for you guys and a bit of an edge you have. Have you reached out to any of these power users and gotten any preliminary feedback on the distribution of Lodepay? Yes, we have. We wouldn't talk about it with investors unless we had talked about it with customers first. Okay, thank you.

Unnamed Speaker: And then just going back to credit, I know you guys aren't terribly a big focus here, but the equipment finance and liquid credit balances both saw a decrease last quarter just due to a tighter credit box. Can you give us an idea of how you're thinking of how to use loan categories moving forward? Yeah, so on the liquid credit front, we shared that we have taken the lessons learned from the loss that we experienced in the fourth quarter there, and we're applying those lessons. So yeah, we're going to be looking at new credit opportunities and liquid credit very carefully. But we continue to feel that when the right market conditions exist and when we see the right credit, we have to be prepared to act. So you could see a time when we step back into that space if that were to occur. Do we see that coming right now? No, there are no indications that we'd move into that kind of environment right now. But you know, we'll never know.

Unnamed Speaker: When it comes to equipment finance, we feel that we're at the depth of the transportation equipment cycle at this point. And so we're dealing with the fact that we're at that depth. And we've prepared ourselves to make sure that in the event that the transportation recession lasts a significant period longer, we're ready for that. Our appetite to lend into the equipment finance space is still there, but we've got to have the right risk-adjusted returns there. And you've got to have strong borrowers.

Unnamed Speaker: And so the expectation that we expect in equipment finance is lower for the next quarter or two than it's been historically, but we hope eventually it returns to normal. All right, I appreciate you answering my question. And our next question will come from Joe Yanchunas. Avery Day might follow up here.

Unnamed Speaker: Several quarters ago, I believe you discussed taking T-PAY International to either Canada or Mexico. Is that something you're still considering? And if so, could we expect that to occur in the next couple of years?

Unnamed Speaker: and then, Additionally, are there any updates you could provide about your plans to monetize some of the transportation data that you aggregate? Great questions. I'll take the first one.

Unnamed Speaker: In terms of international payments, we are making payments in Canada and in Mexico, and we are in active development of being able to take that to other regions of the world. And so you would expect to see that happen this year in 2024, as we support our growth and the sugar strategy. But you know, and, and, and it's important to understand that I think in the next, it may be in the next 12 months, it might be slightly longer than that.

Aaron P. Graft: I firmly believe Triumph Pay will be touching one out of every two transactions in brokered freight. And so you could look at that, and you could say, well, man, that's a large penetration of the market. How big is your total addressable market? The other thing I would want you to remember is that we touch 1% of transactions in the shipper market, and it is a far larger market than the broker market. And we cannot serve the shipper market at scale unless we do international payments. And so Todd and our team are, in addition to banking as a service, there's a large workflow tied to that. We've got to be able to do North America and, ultimately, international.

Unnamed Speaker: The second thing you asked about was data, and so let's talk about that and just kind of how we look at the world. I look at, there are four buckets of revenue in and around our enterprises as they now sit, and then where we want to go. Number one is financing revenue, right? And that's easy enough to understand. That's just loans and factored receivables on our balance sheet. And that gets a little more

Unnamed Speaker: Number two is float revenue. You can see that in Triumph Pay, to the extent we have excess funding, we're able to monetize that float depending upon the interest rate environment. The third bucket of fees would be what we call network fees. And this would be very much like interchange fees in a Visa and MasterCard network.

Aaron P. Graft: And you see the growth that we've called out there. The one thing we haven't talked about, but I promise you we will be talking about in the future, is the final bucket of fees, which is data. So if you touch one out of every two transactions in brokered freight, the question you have to ask yourself is, how can you make that valuable for your network constituents? How can we be valuable? Because it's got to start there. If we just talk about monetizing it without thinking about the value proposition, You don't have a great business. And so we really want to think about how we can be valuable to the people who use our network, to the freight brokers, to the carriers.

Aaron P. Graft: One way in which that's happening is the licensing of our payments data in our partnership with Highway, which is generating, I believe, over $1 million in run rate revenue to help ferret out fraud, to ferret out ghost carriers who never intended to haul the load that they bid on on a load board but instead intended to double broker it or steal it. So we're already doing that, but not at scale. And so, if you think about data, obviously, that commands probably the highest multiple of any of those four buckets of fees because it's the most scalable.

Aaron P. Graft: And we think there is an enormous market for delivering data to our constituents to help them reduce friction, to help them identify capacity that's helpful to them, and to mitigate fraud. And so it's on the longer-term roadmap, but it is definitely something, Joe, that we are working on. Perfect Thank you very much. Fair enough, time. Thank you. So I believe what we just heard, and there are no further questions. Thank you for joining us. We wish you all a prosperous 2024, and we'll talk to you soon. Thank you. Goodbye.