Triumph Financial Inc

NASDAQ:TFIN

Good morning. It's 9:30 in Dallas, and we're looking forward to the conversation this morning. To begin, thank you for your interest in Triumph and for joining us this morning to discuss our first quarter 2025 results. With that, let's get to business. Aaron's letter last evening discussed the quarter's results and laid out the core transaction in detail, describing it as the foundation for all our transportation businesses. Despite persistently strong freight headwinds, we are demonstrating the ability to monetize what we've built. And the underlying precursors to that revenue later in the year become clearer each quarter. That quarterly shareholder letter published last evening 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 statements. For details, please refer to the safe harbor statement published in our shareholder letter 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?

Thank you, Luke. I wrote a lot over the last few days to deliver the letter, so I'll only say a little bit before we turn over the call for questions. The headline earnings number is what it is, and the transportation market is clearly suffering from headwinds However, if you look one level below those headlines, you will see that almost every metric we report improved in our transportation businesses and especially in our Payments segment. You can also see that our credit quality improved. So this sets us up for the big question. Can Triumph grow revenue profitably throughout the remainder of this year and beyond despite market conditions?

I think the answer is yes because we have made the investments to get us in a position to do so. As hard as things are right now, what I like about it is that we have an objective test to see if what we have built creates value that is durable enough to grow in a harsh business environment. Great businesses do that, and we have built a great business. There is always the option to reduce investment in order to achieve profitability. It's not the option I prefer or believe we need at this time, but the fact remains that we have choices.

With that paradigm set in place, let's turn the call over for questions. We will now go to Q&A.

[Operator Instructions] Our first question comes from Gary Tenner from D.A. Davidson.

I wanted to ask about -- and you kind of addressed a little bit, Aaron, just in your quick remarks here, but as you talk about expenses and keeping them fairly flat in the absence of material revenue growth. As I think about the revenue outlook for the remainder of the year, it would seem that upside, if you will, to revenue would come kind of from 2 areas: one, potentially load pay in a second [indiscernible] once that gets integrated and you start generating revenue there. Is that the way that you're thinking about it in terms of where you think the revenue opportunities are as you look out over the next 3 quarters?

Well, Gary, I actually think there's a couple more. You're definitely correct on both of those. So let's talk about a few of those. First of all, we've you saw and you've tracked us for a long time. You saw how all the KPIs moved in payments. Now we have said that we were not going to monetize the C.H. Robinson relationship, and that's just one of many relationships, but that one, in particular, until the back half of the year. So you would expect to see as those KPIs move upwards, not just because of CHRW [indiscernible] because of other clients, you're going to see that happen.

In fact, one of the reasons that I'm excited about Todd leading us in our payments segment is there is a tremendous opportunity to go to our original our legacy clients and demonstrate the value we have created for them, when we started this product 4, 5, 6 years ago of how much better the technology suite, the product suite is. And so there's an opportunity to [indiscernible] from the existing customer base. The good news is current customers are paying our quoted pricing. So just organically farming inside of that customer base, it's now to do that. In addition, while factoring clearly revenue headwinds there and, of course, all the uncertainty around tariffs, that uncertainty creates opportunities for us. For example, we are seeing a lot of large trucking companies, some left us back when the run-up in freight was happening into commercial banking relationships, they're returning to the factoring market because of their inability to maintain covenants in a difficult environment. So I think between what you're going to see from our current payments clients, some of whom are paying nothing, some of whom are paying very little. What you're going to see by the fact that we are back on offense in our factoring business, what you're going to see from both green screens and load pay, which you've already evidenced, when you put all of that together, yes. I mean it's what I said in the opening. We must grow revenue throughout the rest of the year. Now one caveat I want to put on that, Gary, and for everyone, the second quarter is likely to have a tremendous amount of noise in it with the potential closing of green screens and other things. And so it's really perhaps the cleanest sight line to revenue will come in the back half of the year, and we have lots of levers to pull in order to achieve that.

And then just as a kind of follow-up second question. If I look at the conforming invoice volume, if you look at, say, second quarter last year or first quarter this year to eliminate some of the noise with the factory that would network your confirming invoice volume is up only about 3% or 4% in dollar terms, but your fees in the Payments segment were up about 12%, 13%. So does that kind of -- are those 2 good comparative factors to think about or increased or improved monetization of the payments business?

Yes, I'll take that one. So those are 2 different things really. So we charge payments regardless of whether they're conforming transactions or network transactions. And when Aaron refers to the opportunity we have with the legacy clients versus the new clients, that doesn't have to be a network transaction. So we're going to look at all of those, look at the services we provide on payments, think about the value we're delivering to the client and charge fairly for all that. And that can be disconnected from volume growth in a big way.

Yes. I just -- I would just -- to add on to that, Gary, a network transaction is a subset of the core transaction. The brokers pay us for both audit and payment, whether it's a network transaction or not. The question is on the network transaction is what does the pay pay us, which we only bill factoring companies for that. So you can grow revenue, including high-value fee income revenue away from network transactions, it's our preference to grow both.

Our next question comes from Joe Yanchunis from Raymond James.

So let me kind of tackle Gary's question a little bit differently here. So with revenue from C.H. Robinson expected to come online in the back half of the year, -- you get the wraparound benefit from clients upgrading your next-gen audit, you had accelerating adoption from Factoring-as-a-Service and load pay I mean, can you help us understand how we can think about like the revenue split between the first half and the second half of the year? Just all else equal, static freight market, no benefit from green screens. Is that something that you can help with?

I mean that is a tough thing, Joe, for I mean you know it's not our historical practice to give revenue guidance segment by segment. I mean we give expense guidance. But as to like going specifically in each of those that's [indiscernible]

I'm just saying it's consolidated -- on a consolidated basis [indiscernible] kind of balance of the year, something in that realm?

Well, so here's what I would say. The transition -- the revenue from our transportation businesses right now is $206 million, I think, as we have reported in this quarter. That number between now and the end of the year must go up materially in order for us to continue to invest the way we've invested. I would expect that factoring and the largest contributors on a gross dollar basis there would be between Factoring and Payments for sure. LoadPay comes more towards the back half of the year. Intelligence, like we have a really, what I think is an extremely compelling plan and intelligence and what we're going to go do. But you don't get that close to the second quarter, like that ramp goes on into next year. So if I can answer your question well, I think the bulk of the revenue growth is in factoring.

I appreciate that. And then over the last 2 quarters, you called out an annualized benefit of about $4 million from upgrading legacy contracts to your next-gen audit platform and by cross-selling brokers on your payments platform. Can you help us understand the remaining financial opportunity for migrating your partners to the next-gen audit? How long are these new contracts? And can we expect additional price increases when they come up for renewal?

Yes. We're still in the early stages of the next-gen audit migration. And I would expect that you'll see that play out over the course of the next several quarters. So without giving you specific numbers, you can assume that it's well less than 50% of the opportunity that we've captured that we will capture over the course of the next year.

Our next question comes from Matt Olney from Stephens.

Want to follow-up on the Factoring-as-a-Service discussion and definitely appreciate that the growth importance of this yet not monetizing a portion of that until the back half of the year. Can you just help us think about some of the longer-term KPIs and goals that we should consider within our forecast within this the next few years?

Sure. So the first thing is to understand why is there just one customer using it currently. And I mean it's -- when you build a product like this, which is a very high-touch product, right? It's something that every minute of the day has to be acting in a certain way. You want to make sure you get it right. So -- and once you get it right, then you start monetizing it. So that is the phase we're in, and we are seeing the growth happen. In the back half of the year, we will be adding another FaaS clients. So that will bring us to 2. In the year 2026, we will add a few more. And I think the onboarding of those will be way easier than numbers 1 and numbers 2. As to what you're going to see, I wrote in the letter our factoring segment generates $144 million in revenue in this quarter, which is a very low quarter for us. If you go back -- we've had quarters in that segment. for many of the quarters. But I specifically said that in the journey to that we would see our Factoring segment at least double, I stand by that. And I do mean at least double. And so that revenue that you see, in fact, a lot of that will show up there. As we get [indiscernible] we break it out between what is organic [indiscernible] we can. But I mean that's where all that revenue will live is in that segment or the most part of that revenue will live in that segment.

Okay. I appreciate that. And then I guess on the green screen side, I totally get the strategic importance of kind of what this brings to the company and how we can monetize the data? What else can you tell us about just the financial impact of green screens and it's not something that's currently in my forecast, so trying to get additional debt. So what else can you share with us about the impact of the brand screens?

Really not a lot, Matt, that we can share at this time. We have submitted all the regulatory ratios and so forth. We do expect to close it in the second quarter. But for the time being, it's still a privately held a and we just don't think it's appropriate to share a lot of financial information at this time. We will, however, assuming that we get that closed in the second quarter, we'll have a lot more to say about that in our next call.

And so Matt, I don't know that this helps your model, but what we can answer to you is this, right? Like when you sum up what the industry is spending right now with products that are within the purview of what we intend to do in intelligence, you're well over $600 million that I can calculate and it's probably even higher than that. So this -- there is a significant demand for intelligence to help brokers do the things that we laid out in the letter. And so that is the industrial logic of doing this is that we already have this data. right? We capture this data in both our Factoring and our Payments business in a more granular way than anyone in the industry. The second part of that is we know that there is a big addressable market in that people desire this data and they desire it to be delivered in a better way than it's currently being delivered. So the timing of us getting that onboarded and that ramp, like I said, second quarter is going to be noisy back half of the year. It takes a while for that -- those things to come into play. But those are the big markers for why. I mean, look, we're sitting here, we understand we could go buy back a significant part of our own shares right now. And we talk about that. We talk about it as a management team, talk about it as a Board, just with the dollars we're spending towards green screens. We believe firmly that delivering this product at the margins that we expect to deliver at will deliver more long-term shareholder value than buying back shares at these prices. And that's not a decision that's made lightly. It's not a decision that's made in isolation. And it's not a decision that's made without a lot of thinking about are we positioned to do this, and we firmly believe that we are positioned to do this.

[Audio Gap]

With the incremental annual revenue you guys have been talking about for upgrading clients. And I think that number you guys mentioned in the letter was $2.4 million. Was that $2.4 million? Is that only from the clients you upgraded and cross sold? Or does that also include the completely new partners you guys have added. It was all in the same paragraph, so I'm not sure.

That was only the clients that we had upgraded in cross-sold.

Tim, you're telling me right. I didn't write very clearly. I'm sorry, I should have added another paragraph.

It's great letter. I just wanted to clarify. And Aaron, you also talked about you're shifting your focus to monetizing the payments. Can you talk -- and you've been talking about this for a few quarters. But can you kind of talk about the strategy on getting the pricing you're looking for from customers and how these discussions have gone with customers who are on their legacy contracts as they reach their term? And like how many of them are upgrading before that legacy contract is up?

I don't know that we could give you a specific number on that, and Todd may follow up with specifics. But from where does the confidence come that we can move people forward. It's that all the new clients we're onboarding are being onboarded at the pricing we quoted to you for both audit and pain. So if that's where the market is, if the market wasn't there, we wouldn't be able to charge that for new clients. So now it's just time to go back. And one of the things I think we have not done as well as we should have, and it's just because we're busy is giving the data back to our customers and payments in a dashboard format that just helps the C-suite understand how much they are saving, how much brain damage they have offloaded on to us how much we are protecting them from fraud with all the things we do. Like I think we have we have sold or under spoken about that. And that's something that Todd is going to do a great job of helping us do. I mean what the product was for someone who's paying the rates 4 years ago and what the product is today, it's almost not even comparable. And so it's time to go back and talk to people about that. What else would you add to that?

So I would say even before I took on this new responsibility, there was a team that was working on repricing these legacy clients. And even without all the resources that I think they need to have to have these conversations, they were having success in those conversations. So we're refining the approach a little bit. We're maybe reprioritizing which conversations we have when and we're going to put more resources towards having those conversations, but the early indications from those first conversations [indiscernible]

. Great. That was really helpful. I'm going to switch topics here real quick, but it's good to see some of the improvement in the credit metrics. And I think you conveyed some confidence in continuing to see improving NPAs going forward. what gives you that confidence given all the we've seen and rates might not be coming down. We might have some issues regards to tariffs and that could really impact I would assume the equipment finance portfolio as well. Could you just provide some more color there and maybe some details on what you expect for that provision expense?

Yes. I'll jump in there. So first of all, what we saw in the first quarter was the product of past efforts. So nothing that happened in the first quarter was the result of what we really did in the first quarter so much as the stage we have set, recognizing that we had credit stress building in the equipment finance portfolio for example, from the freight recession. So we have been working on that for some time. We saw the -- some of the fruits of that benefit in the first quarter, but there's still more to do. I would say we're only about 40% of the way through working through the credits that we have to work through. And we've already set aside what we think we need to set aside to complete that process. So we're really optimistic about what we see in the second and third quarter based on sort of a steady state environment, not assuming a recovery from the great recession or anything like that. Now you layer in the tariffs, the potential for a deeper recession, and we have to look deeper at our portfolio at the sectors and geographies that are most likely to be affected by those things. And I don't want to downplay that at all. We can all come up with very dire scenarios where we'd have a lot of work to do there. But I would say relative to a lot of other organizations and the economy as a whole, we have less concentration in those areas that would be most effective.

Yes. And just to follow up, Tim, it's what we've said for years that the greatest risk when you are exposed in transportation on a -- to profitability is the revenue volatility that comes from so many of our assets reprice every 36 days, right? Like that's that's what happens. So revenue volatility is -- that's out of our control. Now we've talked about -- it's our job to grow revenue. So we're not going to use that as an excuse. You just got to go add more volume and do the things you've been doing. But the other thing I would say, and I said on executive loan committee. -- like every asset in the bank of size that is classified, I can tell you the name of. And I know the story behind it, and I know the resolution plan. That's the benefit of not being a $30 billion bank. I think I know Todd knows several of us know that portfolio. We know the lumpy assets that are in there and we know what the resolution plan is. Moreover, in equipment finance, those loans amortize down very quickly. And here's a news flash. We've been in the bottom of a freight cycle for now over 3 years. So many of those loans. In fact, probably the majority of those loans were originated and have seasoned at a time in which it's been really hard in freight. Can tariffs make it even worse, maybe, but these aren't loans that we're dealing with that were made back in 2020 and early 2021 when it seems like trucking was forever going to go up. And I know that because I see them. And Todd sees them. And so we can't tell you quarter-to-quarter exactly when and what will happen, but I, along with Todd, I firmly believe the credit will not be something that is a material topic of conversation for this institution towards the back half of this year. What we're going to be talking about is, did you grow revenue? And did you do it at a margin that's accretive to the bottom line, and we fully intend to do that. That's good to hear. It will be good to see things turning around to the back half of the year.

There are no further questions at this time. Thank you.

Thank you, everyone, for joining us. Hope you have a great day, and we'll talk to you next quarter.