Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Triumph Financial Inc (TFIN, Financial) has achieved a network engagement of just under 47%, with significant partnerships such as C.H. Robinson and ArcBest contributing to this growth.
- The company is focused on long-term value creation, investing in technology and network density despite short-term earnings pressure.
- Triumph Financial Inc (TFIN) has a clear strategy to fix expenses at approximately $97 million per quarter, allowing for disciplined talent management and additional technology investments.
- The company has seen substantial growth in payment volume and network engagement, with a 40% year-over-year increase in fee growth.
- Triumph Financial Inc (TFIN) is building a robust network that connects many participants in the trucking industry, aiming for 80% market density in the long term.
Negative Points
- Earnings are currently under pressure due to factors beyond the company's control, such as the transportation recession.
- Revenue growth in the TPay segment has slowed down this quarter, despite being above 50% year-over-year in the previous three quarters.
- The company is not currently charging for all the services offered, impacting short-term revenue potential.
- There is a significant expense growth, with a 6% quarter-over-quarter increase and a 40% year-over-year increase, which could impact profitability.
- The integration of new partners like C.H. Robinson is expected to be completed by the third quarter of next year, indicating a delay in realizing the full benefits of these partnerships.
Q & A Highlights
Q: The revenue growth in the TPay segment has been kind of chunky historically, and it was above 50% year-over-year the last three quarters, but it slowed down a bit this quarter. What needs to happen for us to see an acceleration in revenue there?
A: Melissa Forman-Barenblit, Executive Vice President, TBK Bank, SSB, and President, TriumphPay: You just nailed it, it's those three things. The transportation recession is creating an issue for short-term earnings. However, Triumph is growing through those headwinds. While we've had payment volume growth and network engagement growth, we've also had expense growth. Our expense growth quarter-over-quarter was just under 6%, but year-over-year same quarter was 40%. This growth is mainly in our fee side, which is crucial for controlling market volatility.
Q: What strategies are you implementing to become more effective at generating more revenue from your invoices, and what are some of the challenges you're seeing?
A: Melissa Forman-Barenblit: The difficulty in building this network is the connectivity. We are building density in those connections, which is when monetization can start. We are currently at about 21% to 22% of the factoring portfolio being connected through the network. The real value comes from ensuring that whatever is available on the broker side is usable and consumable on the factor side.
Q: What's the threshold of density needed to see the exponential effect of the network?
A: Aaron Graft, President, Chief Executive Officer, Vice Chairman of the Board, Founder: We expect to cross over 50% by the end of this year. Long term, we aim for 80% density. Somewhere between 50% and 80%, factoring companies will start to see more than half of their transactions come through with the opportunity to connect to the network, allowing them to adjust their staffing models to recognize the efficiencies.
Q: Can you talk about the conforming volume and what the addition of C.H. Robinson does in terms of pulling up the conforming penetration rate?
A: Melissa Forman-Barenblit: C.H. Robinson's volume to a network-enabled and connected factoring company would represent 20% to 25% of their entire purchase volume. This is substantial as it allows for validations and cash applications through the network on an additional 20% to 25% of their portfolio.
Q: Can you provide more color on the economics of the C.H. Robinson deal and how it relates to other customers?
A: Aaron Graft: We would never disclose pricing for any individual customer. When Robinson is fully onboard, we expect to charge $5 per conforming transaction, with part of that borne by the factor and part by the broker. This pricing is included in our analysis and thinking about achieving our market promises.
Q: How should we think about price increases in 2025 for TPay customers given the increasing density?
A: Aaron Graft: Revenue will continue to go up as we onboard more volume and increase density. We are not charging full freight at this time as we are in the density building phase. However, as density increases, we will adjust pricing to reflect the value delivered.
Q: Can you provide more details on the factoring as a service and its economic benefits to Triumph?
A: Tim Valdez, President, Factoring Division: Factoring as a service allows customers to utilize our technology, platform, and expertise to create different products and upgrade their technology. This service addresses a real economic expense in the industry, and we expect to share in the benefits of the savings achieved.
Q: Given the freight recession, how confident are you that 2025 will be the year to fully monetize the factors?
A: Aaron Graft: We are certain that pricing adjustments will reflect the value delivered. We will show factoring companies the volume changes and have discussions about fair pricing. The goal is to create fans, not just customers, by delivering commensurate value.
Q: Can you provide more color on the network transaction fees and how much of TPay revenue comes from them?
A: Aaron Graft: We disclose the volume of network fees for the quarter, but we are not monetizing them at $5 per transaction right now. We are in the density building phase and not charging full freight at this time.
Q: Can you provide perspective on the downturn in the freight industry and its impact on the factoring business?
A: Tim Valdez: We are seeing stabilization in the spot rate market, which is a majority of the small carriers. The duration of the cycle matches the up cycle, and we are at the tail end of it. However, we are not prepared to say we are done with the downturn yet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
