Q3 2022 Results Earnings Conference Call
October 20, 2022, 08:00 AM ET
Company Participants
Aaron Graft - Founder, Vice Chairman, and Chief Executive Officer
Melissa Forman - President, TriumphPay
Geoff Brenner - Chief Executive Officer, Triumph Business Capital
Brad Voss - Executive Vice President and Chief Financial Officer
Conference Call Participants
Matt Olney - Stephens, Inc.
Gary Tenner - D.A. Davidson & Co.
Brad Milsaps - Piper Sandler & Co.
Joseph Yanchunis - Raymond James & Associates
Presentation
Unidentified Company Representative
Good morning. I'd like to welcome you to Triumph Bancorp's third quarter 2022 earnings conference call. We're so glad you could join us this morning. I'd like to start by thanking all of you for your input following last quarter's call.
As you may remember, last quarter, we moved to this new video format. Many of you provided some fantastic feedback for us around this medium. As you can see, we took it to heart. And as a result, we're trying something a little different today, as we continue to explore this method of communicating with you, our shareholders. Today is just another step on that journey, and we'll continue to tweak this around the edges as we go forward.
The lights are bright this morning. We're live to the world, and so this is all pretty new to us. Hopefully it all goes well.
On that note, one of the benefits around doing something different like this is it gives us the opportunity to bring you alongside us with us on this adventure. We appreciate your partnership. And thank you again for joining us this morning.
Today I'm joined by Aaron Graft, our CEO; Brad Voss, our CFO; Melissa Forman, our President of TriumphPay; Geoff Brenner, our CEO of Triumph Business Capital; and Todd Ritterbusch, President of TBK Bank.
Last evening, we published our quarterly shareholder letter. That letter and our quarterly results will form the basis of our call today.
However, before we get started, I'd like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statements. For details, please refer to the Safe Harbor statement in our shareholder letter published last evening. All comments made during today's call are subject to that Safe Harbor statement.
With that, I'd like to turn the call over to Aaron for a welcome and to kick off our Q&A. Aaron?
Aaron Graft
Good morning. Thank you for joining us. As you saw on our letter, our earnings this quarter were below expectations. There were a few contributing factors to that. First, we began to see a slowdown in freight. Second, this quarter's results reflect revenue associated with our general factoring and equipment finance portfolios that we sold last quarter. But more importantly, from a long-term perspective, we have made material progress on our payments network, and we've done that despite freight headwinds, specifically, our invoice volume increased 6.6%. And even more importantly, our network transaction volume increased 21.7%.
Regardless of headwinds in freight or market volatility and whether it last quarters or years, we're committed to our revenue goals and to being EBITDA positive in TriumphPay in 2024. And if you couple that with the profitability of our banking and factoring segments, we have a lot to be excited about.
With that introduction, we will turn it over for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Matt Olney from Stephens.
Matt Olney
The TPay payment volumes, Aaron, you mentioned those were pretty flat this quarter. And appreciate part of this is going to be the lower invoice prices that are out of your control. But then I'm curious how you're thinking about the ramp of TPay volume over the next few quarters. Just trying to appreciate where some of the larger customers are in the queue of TPay integration, but also TPay adoption.
Aaron Graft
Matt, it looked like a really great question, but we could not hear it. We're trying to figure out. I'm not sure if you were on mute or if we had you on mute. I can hear you guys. Can you guys hear me?
[Technical Difficulty]
Matt Olney
My question is, on your point, Aaron, about TPay payment volumes. You mentioned they were pretty flat this quarter. The number of invoices was up, but the payment volume was flat. Obviously, that's out of your control to some degree. I'm curious how you're thinking about the ramp of TPay volume over the next few quarters. Just trying to appreciate where some of the larger customers are in the queue of TPay integration and TPay adoption.
Melissa Forman
When we look at TPay volume, you're right. There are a lot of contributors that are out of our control, like the average invoice price. But one thing I do want to point out is that we have increased transaction volume 6.6% quarter-over-quarter, which is a huge improvement in spite of the headwinds, and so we're excited about that. Our conforming transaction volume has also increased by over 21%. Another point that has just been an impressive feat by our team considering what we're seeing in the market.
When you think about tier one or the larger freight brokers coming on board, you're right. We don't have one that's in our sights for to go live in Q4. So, we wouldn't expect that to happen, but they are lined up in the integration process. And our pipeline is very robust when it comes to those larger customers. They take longer to get onboarded. Right now, it's peak season for all these freight brokers. So they're focused on getting through the holidays.
And in the meantime, we're adding the smaller brokers and getting them in play for the network as well. So we added 18 last quarter net new freight brokers. We're excited about what we see in our pipeline. The integrations team is quite busy at bringing them all on board. But to your point, Matt, tier ones are going to be more of first half of next year.
Aaron Graft
Yeah, that's exactly right. Matt, specifically, and I know you're thinking about it from a model perspective, and I think any investor would, when we called out the $15 billion in volume, and that's an approximate number, which just like what we saw with TriumphPay pay this quarter, as the freight market moves, that number is going to move. Ideally, we would be able to express that number to you not as a volume number, but as a revenue number. And we have some thoughts around that. But we're early enough in this process that making a revenue projection and the timing of it, we're not ready to do. But to be specific, Schneider does not count in that $15 billion. Schneider was already a client for payments. We just added audit capability, which allowed them to do network transactions.
The $15 billion we called out, the bulk of that we expect to come on in the first half of next year because, as Melissa said, the fourth quarter for freight brokers is an exceptionally busy season, and most of them go into quote freezes as a result of that.
So I can't tell you the exact timing of when it will happen, but I can say we expect the bulk of that volume to come on in the first half of next year. And beyond that there are a whole lot of smaller brokers and longer-term conversations that are happening. And I go back to what I said in the opening. We're very excited about the pipeline. And frankly, these headwinds in freight have created an opening for us to discuss the value proposition for TriumphPay in an entirely different way than we did before because it's not just about how can I cover these loads in the tightest freight market we've seen in my career. Now, people are worried about how do I get more efficient, which has been played right into the TriumphPay story. So I hope that's helpful.
Matt Olney
As a follow-up, I think you mentioned conforming transactions, was one of the highlights in the quarter. I think it was at 22%. But remind us where you think that the level of conforming transactions can ultimately go and what's the path to get there? Or said another way, once you achieve that $75 billion of payment volume, what percent of those do you think will be conforming?
Melissa Forman
There's a lot of factors that go into play there. And when you look at our brokered freight payments today, we're at over 34% of those payments are network, are conforming enabled, which means the payee on the receiving end of those transactions can get access to the data that we provide in the network. That's a huge feat. And our goal is to have all of our payment volume be conforming, as we look to integrate, do deeper integrations with our freight brokers. Our team is working hard to get that done.
Where we think that the biggest point of transition for the network is going to be when we can provide factoring companies and carriers at least 15% of their payment volume that they receive and process as conforming transactions, that's really going to be where it moves the needle and allows them to be able to make meaningful changes to their day to day processes and allow them to innovate and create more efficient ways to do business. We're delivering about 5% now and we can see that with Triumph Business Capital, and what they receive from TriumphPay and through conforming transactions. And again, we expect that 15%, that's when real development, real process changes can happen within those organizations to create that value that we're talking about that the network will provide. ...
]]>