Q2 2023 Triumph Financial Inc Earnings Call

Speaker 2: Good morning. It's 9.30 here and a beautiful day in Texas. We're looking forward to discussing our second quarter earnings with you. I'd like to open today by thanking you for sending the call and sharing your feedback with us to help us continue shaping and developing this communications process.

Speaker 2: We appreciate it and keep the suggestions coming. Also, you'll notice Melissa is back with us at the table today and she has a lot of great things to talk about in Triumph Pay. With that, let's get to business. In our results, the second quarter continued to present a challenging freight environment. However, there is a lot to be excited about at TFIN.

Speaker 2: when the analysis moves beyond the headline.

Speaker 2: 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.

Speaker 2: 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 today 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? Right here.

Speaker 2: Good morning. Thank you for joining us. I hope the letter published yesterday afternoon was helpful. I have a few comments before turning this call over to investors for questions and they are as follows. How you view this quarter entirely depends on your horizon. If your investment horizon is short, you can see the

Speaker 2: then our earnings are not welcome news. There is a freight recession and all of us who are exposed to the freight market face the same headwind.

Speaker 2: And that problem is compounded by the fact that our funding costs are going up. This is true of almost every bank, and it will continue to be true until the Fed changes direction. Those factors combine to bring our earnings down relative to prior periods.

Speaker 2: Now, on the other hand, and if you have a long-term horizon, then there are definitely things to celebrate.

Speaker 3: I believe that our results from this quarter answer the question of whether Triumph Pay will become the payments network for trucking.

Speaker 3: I also believe it demonstrates that we can grow profitably in our payment segment despite a very difficult market. When the market turns, whether it takes two months or two years, we will be poised to profit from that. With that introduction, we will turn the call over for questions.

Speaker 2: We will now go to Q&A. If you have dialed into Zoom and would like to ask a question, please use the raise hand feature at the bottom of your Zoom window.

Speaker 2: We will now go to Q&A. If you have dialed into the Zoom window and would like to ask a question, please use the raise feature on the bottom of your Zoom window.

Speaker 3: once called upon, please feel free to unmute and ask your question.

Speaker 2: Our first question comes from Tom Wendelhiller from Stevens.

Speaker 4: Tom One-Liller from Stevens. Tom.

Speaker 5: Please go ahead.

Speaker 6: Hey, good morning, everyone.

Speaker 7: I wanted to start out with the...

Speaker 6: Thanks, morning. I was getting a little color around the supply chain financing within T-Pay. With this being more of a closed loop business, is it more of a shorter term opportunity or a longer term part of T-Pay's growth story?

Speaker 3: Yeah, great question and I attempted to address that in the letter. So a couple different ways to look at it in the short term, it is certainly an opportunity for us to generate revenue for the payments network.

Speaker 3: Beyond that, it's one of the few financing opportunities that you will ever see where...

Speaker 3: The payment you are already handling, we are being paid a fee to handle the payment irrespective of whether we provide balance sheet liquidity. So it is an extremely efficient form of finance.

Speaker 3: As we go forward, I think supply chain finance will be with us for some time and will contribute materially to revenue alongside the fee income growth we generate inside the payments network.

Speaker 3: As the payments network scales beyond our own balance sheet, I think you will see the opportunity to do supply chain finance both exist on our balance sheet and be

Speaker 3: syndicated out to other capital providers for the network. So it's with us for the short term, and I think a piece of it will exist with us for the long term.

Speaker 8: And I think Aaron, I would just add to that, you know, we.

Speaker 8: We had provided supply chain finance before with our quick pay opportunities. And with the state that the market is in right now being recessionary, we are just answering the call for our customers. So we will be there to meet them where they need us, to help them get through this recessionary period.

Speaker 6: That's great color, thank you. And then one more for me. We saw a step up in broker deposits last quarter. Could you maybe speak to the term of these deposits and how you're thinking about the funding profile of the company now that the supply chain financing will likely drive increased balances of T-PAY? In short, the bulk of everySoftidenLa hygiene a dye is going to go higher than trading price.

Speaker 2: The question about program funding, if you dig in under that just a little bit, you'll see that that.

Speaker 2: with a pretty considerably decrease in our use of federal Home Loan Bank advances. We

Speaker 2: took out several hundred million of home loan bank advances in March in the wake of the Silicon Valley failure and the related issues of the banking sector overall out of an abundance of caution. But if you look at those two funding sources, they're very comparable in cost and we will sometimes use them interchangeably. Each has its own advantages, but the broker CDs have the advantage of being fully.

Speaker 2: insured, FDIC insured deposits. So all else equal, we'd gravitate there. And the term, as you asked, is generally pretty much a ladder between about one month and about a year. So those will be kind of a rolling form of our funding base. And I think that over time, you'll see some form of wholesale funding be a part of a broader community.

Speaker 2: our funding strategy because that provides a lot of flexibility to us going forward.

Speaker 8: I think I would add to your question about how it impacts T-PAY. So T-PAY is already self-funding, so we are using our own deposits to be able to leverage for our supply chain financing and are able to contribute some of that now back to the bank. So we have plenty of room to grow in our supply chain financing with our own deposits at this point. Just talking a little bit and showing how we get this back into the service.

Speaker 6: All right, I appreciate the color, and thanks for answering my questions.

Speaker 4: Our next question comes from Joe Yanchunas from Raymond James. Joe, you may unmute and ask your question. BARNETT FITZPATRICK, PRESIDENT AND CEO , PLATY trust Firstbulb Owned by 200-200 People

Speaker 4: Our next question comes from Joe Yanchunas from Raymond James. Joe, you may unmute and ask your question. Morning. So.

Speaker 9: He said Agent Bill

Speaker 10: They announced several big customer wins interquarter. Then in the shareholder letter you called out some incremental volume coming from some mid-tier brokers.

Speaker 10: Assuming a static market, how much payment and audit volume do you expect that you'll add from these customers that are currently live and ramping on your payment network?

Speaker 3: There's two things, Joe.

Speaker 3: The first of all, from a revenue standpoint, I think we disclosed that at the end of last quarter the runway was 38 million. As we sit here today, revenue is just under 43 million, so a pretty dramatic step up on an annualized basis.

Speaker 3: Some of that's tied to the supply chain financing initiative. That does not include all of the revenue that comes from those wins.

Speaker 3: supply chain financing initiative. That does not include all of the revenue that comes from those wins. And it.

Speaker 3: For what's contracted and going live, it's roughly $9 billion in payment volume that should come on in the next few quarters. We would hope by the end of the year, some of that may spill over into the first quarter of next year. So a significant amount of volume. But how much audit volume?

Speaker 8: I would say that the majority of that would also be in the audit network as well. What I would point out is that regardless of whether they're on our audit product or their own internal solution, they will be

Speaker 8: contributing to the network as a fully conforming broker, so full network broker.

Speaker 8: as a fully conforming broker, so full network broker. Got it.

Speaker 10: So I mean, what I'm trying to understand is, you know, in the quarter the interchange fee had a nice increase.

Speaker 10: And I understand the customer mix and you know, there's the payment versus audit mix, how it can impact that number.

Speaker 10: Are recent customer wins expected to be accreted to that fee?

Speaker 11: Yes, they are.

Speaker 3: Just so we're clear on that, as Melissa said, yes, definitely they are.

Speaker 3: What you should understand, and I think we've talked about this in the past, but I just want to reiterate it, when someone goes live and we announce them, especially a tier one broker, especially someone in the top 10, the full monetization of that relationship may take up to a year because they have multiple divisions.

Speaker 3: It doesn't just switch on like a light switch day one. So the things you've seen us announce.

Speaker 3: that incremental revenue w

Speaker 3: And it may even come on beyond that because what we've also found is the longer we go with someone as a part of the network, the more things we find that we can help them with, which increases our revenue per customer.

Speaker 5: Understand.

Speaker 2: And then lastly for me, the corporate segment expenses had a pretty noticeable increase in the quarter. Did you provide more color on the increase to remind us of the composition of that segment? The composition of that corporate segment is really everything that supports the enterprise as a whole.

Speaker 2: both people and hardware and software to support our growing transportation efforts.

Speaker 3: And one thing I want to, Brad said the executive team, that would include Brad and me, that would not include Melissa, Tim or Todd.

Speaker 3: of whom would be allocated to the segments that they lead along with their teams and their specific technology teams. All of those live inside the segment. Perfect. And they saved my questions. I'll hop back in the queue. Our next question comes from

Speaker 12: Could you just give us a feel for...

Speaker 12: The long-term impacts of adding highway in your investment in trucks. It seems

Speaker 12: all the functionality, all the platform participants would want to have.

Speaker 12: and a payment audit and fraud prevention network. And as of right now, it's hard to see those pieces come together from just our knowledge. I want to get.

Speaker 12: Want to get your?

Speaker 12: perspective on that. Those are pretty new announcements in the last 90 days.

Speaker 3: Sure. So let's start with our shipper strategy.

Speaker 3: That's a 250 billion dollar mark.

Speaker 3: There are some legacy players in that market who are banks that have been in that market for a long time.

Speaker 3: Our strategy is threefold. Number one, go find companies who are operating in that space who've developed more advanced technology than the legacy players. Partner with them and invest in them and equip them to go compete against the legacy players.

Speaker 3: by giving them access not just to the payments capacity of a bank, but to the payments network itself.

Speaker 3: And there's a big distinction between those two things. It's one thing to have access to the Fed rails and be able to make payments and 4,000 other banks can do that. There is no other bank in the United States.

Speaker 3: States of America who's paid 280,000 truckers in the last few years or in the last quarter we paid 127,000 truckers.

Speaker 3: And what happens is you take that audit functionality and you compliment that with our payments data and it allows these tech first, freight audit and pay providers to go aggregate market share, they win, we win. So that's that part of the strategy and it should generate a significant amount of float over time.

Speaker 3: It generates a significant amount of data, and it also expands the reach of the network. Because a day will come, even in an environment like this, where supply chain finance opportunities will exist for shippers. They may want to extend their days to pay. Whether we hold that on our balance sheet.

Speaker 3: or that gets pushed out to the capital markets, we can facilitate that transaction because we understand it.

Speaker 3: So that's a very powerful way for us to go to market, not altogether different than having a merchant acquirer or go out and expand the Visa network for them. You can look at a freight audit and pay company in that way.

Speaker 3: turning the high way because I think I heard you ask about that.

Speaker 3: If you take what I just said, that we paid 127,000 carriers in the last quarter, we paid 280,000 carriers in inception to date, 160,000 plus have registered on Triumph Pay. We know a lot about the active carrier universe.

Speaker 3: We know more about the active carrier universe than any one broker or shipper could possibly know.

Speaker 3: And when you take that payments data that we have, the audit data we have, and you have a 360 degree view of the market, or maybe we don't have 360 degrees yet, but it certainly grows every time we add one of these large players. And you license that data to someone like Highway, who has built a profile that tells you how much equipment a certain carrier presumably has.

Speaker 3: you can very quickly see carriers that are hauling five to ten times the amount of loads that they should be able to haul. With that data, you can start to make decisions, risk decisions, if you're in the business of procuring capacity.

Speaker 3: You have to think long and hard. What loads am I willing to give to a carrier who apparently is hauling more freight than they have equipment to haul? They are likely engaged in double brokering which could ultimately lead to fraud and it could ultimately lead to a service standard that's below shipper expectations. And so that's just a feature of the network and as the network grows these features...

Speaker 12: all that functionality and then it inviting in new platform participants.

Speaker 12: What could you see the take rate or your pricing power be? It's kind of just dare to dream a little bit. What do you think it could be? Does the take rate come up to the 20 base points, 30 base points, or is that still something still to be determined? I'll give you a look.

Speaker 3: I mean, I would hesitate to give you specifics, but let's talk about the ways which we currently monetize the network. And first of all, I want you to hear, like we're at today, as we sit here, almost a $43 million revenue run rate. Compare that to where we were.

Speaker 3: handle that transaction, they outsource it to us. There are other things that Malisca could go into far greater detail about how we can manage indexing on behalf of some of our, that's a feature we're rolling out that would be valuable to others in the network. All of those are fees that are charged on a subscription basis or a per invoice basis.

Speaker 3: there's a migration of that to a more standardized.

Speaker 3: to a more standardized format.

Speaker 3: because some of these customers were signed up years ago when Try and Pay was more of an idea than a market reality. The second way is supply chain finance. Extending days to pay by seven days can improve working capital for many of our freight brokers.

Speaker 3: Or, in the alternative, we can help them manage their accounts receivable upstream from them. Because no freight broker created a load without a shipper above them. So you have the ability to help on the AR side and the AP side. Some of that can live on our balance sheet at high yields and short duration. Some of that will eventually live in the capital markets and what you will see Triumph Pay where it would be nice for them to come.

Speaker 3: is almost the facilitator of pushing that data out to someone who can make a balance sheet decision using our integration. And that's what Visa does.

Speaker 3: So that is a syndication fee, an interchange fee, you can talk about it different ways. But that's a syndication fee, you can talk about it different ways.

Speaker 3: an additional fee opportunity. Then lastly, and you see an example of this in highway, is the value of the data itself. Our job is to protect the data of our customers and we will absolutely do that. However, if they ask us.

Speaker 3: to license the data back to them in a format that's valuable for their business. We will do that, but we will not.

Speaker 3: do that for free. So to just answer this in the form of take rate, a network transaction should, in this market, generate roughly $5 in revenue when you combine the payor side and the payee side, but I think that's looking at it too small. It's all the things that the network could do. Melissa, I'm sure I left things out. What would you add to that? Yeah, I think.

Speaker 8: you can't use a basis point calculation to figure out, based on our payment volume, how much revenue we're going to be able to derive from that. Same thing with our audit volume. As we mentioned last quarter, at last quarter we had $37 billion in freight under management with rate compression, average invoice compression, we're now at $35 billion.

Speaker 8: even though our transaction volume has increased over 6%. So by just looking at it from a view of basis points per dollars that we pay, you're missing out on much of the revenue opportunities that we're seeing.

Speaker 8: though our transaction volume has increased over 6%. So by just looking at it from a view of basis points per dollars that we pay, you're missing out on much of the revenue opportunities that we're seeing and that we're able to start. We've already shown we're bringing into the network.

Speaker 4: All right, our next question comes from Gary Tenner from DA Davidson.

Speaker 4: Thanks. Good morning.

Speaker 2: Aaron, you've made some comments in the release last night regarding kind of some factoring pricing issues in terms of the ability of factors to kind of scale pricing beyond the standard $3 per invoice price. So I guess my first question is, is Tramp business capital?

Speaker 2: Aaron, you've made some comments in the release last night regarding some factoring pricing issues in terms of the ability of factors to scale pricing beyond the standard $3 per invoice price. So I guess my first question is, is Tri-P Business Capital doing that at this point?

Speaker 2: Yeah, I think Tim should take that question. Yeah, so there's a lot of opportunities for us. You know, historically what has happened is the factoring market is on a very flat discount rate.

Speaker 2: Yeah, I think Tim should take that question. Yeah, so there's a lot of opportunities for us. You know, historically what has happened is the factoring market is on a very flat discount rate.

Speaker 2: And it creates some diversity or some division when you come into a very volatile economic environment. And so today what we're looking at is a variety of different initiatives within the product mix to enhance earnings as we run into those challenges within the environment.

Speaker 3: And Gary, something that we would add, and we've been talking about this internally, and there's no perfect measure, but I think this is directionally correct.

Speaker 3: $1.68 a mile is in the last quarter where the market was. Most small carriers, not all small carriers, but most small carriers are going to need $2.00 a mile to break even.

Speaker 3: So the market, we talk about this freight recession, there's different ways you can look at it. I think we're 17% ish below where many carriers could break even. Now long established carriers who have no debt, they can make it through markets like this.

Speaker 3: I think you're seeing some forces since the 1st of July press those rates back up, but they're not near up 17% yet. Now there are some catalysts out there that may change that. So we have to make a decision as a company, do you push through a cost of funds increase at a time when many of your customers cannot break even? And in some cases you do if they're not profitable customers.

Speaker 3: in a market in where rates have gone back to a price point where customers can earn their cost of capital.

Speaker 3: in where rates have gone back to a price point where customers can earn their cost of capital. So we're just in the trough right now.

Speaker 13: So the follow-up to that though was

Speaker 13: you know, because I've always thought about the flat rate, right? So if rates that factors charge or the discount rate increases, if after we try to push that through, is there a competitive race to the bottom potentially by factors when funding costs go back the other way down the road? Or is this an element that we've seen before when funding costs go back the road?

Speaker 3: bottom. I mean, technology has driven discounts down.

Speaker 4: Think about it this way.

Speaker 3: when in the old days, 15 years ago, the discount per invoice for a small owner operator was 4.9%.

Speaker 3: 15 years ago, the discount per invoice for a small owner operator was 4.9%.

Speaker 3: That's a 60% APR, but you were doing the whole back office for them. Now we'll look at triumph as a whole. Our average discount is 1.4%. That's roughly half of a credit card swipe.

Speaker 3: And so what has happened to scale and technology for the whole industry, especially the top 20 factoring companies, has driven the yields down. What with that?

Speaker 3: the cost, the operating costs have also gone down from where they used to be. But long term, if you just plot on a yield chart our...

Speaker 3: yield in our factoring se downward inevitably it wi or it won't go lower. We catalyst to drive it lower to aggressively create th in the United States. Tha

Speaker 3: with great customers and make great customer service and help the whole factoring industry get better because that's how we win the biggest way. That is our goal.

Speaker 3: great customers and make great customer service and help the whole factoring industry get better. Because that's how we win the biggest way. That is our goal.

Speaker 3: the factoring industry has not yet responded to the greatest rate cycle in 40 years. They just, people are holding their fees where they are waiting for this, because not only did the rate cycle happen at the exact same time a freight recession hit. And so your ability to price that in is difficult. All that being said.

Speaker 3: Our factoring segments, pre-tax, pre-provision ROA in its worst quarter in a long time was still 2.7 plus percent. It's a great business. We've got a great leader for it.

Speaker 13: We just have to follow what the market does from here.

Speaker 13: Yeah, and I guess my questions were kind of a long way of getting to the point that if, as you said, we're in a kind of long-term race to the bottom from a pricing perspective on the factoring side, that that should make factors increasingly willing to move on to the trying to pay platform and participate in that business because they can save costs on the other side.

Speaker 13: Yeah, you speak to that. Correct. One of the things are so go ahead. Gary. No good.

Speaker 13: But I think that there's a couple of advantages there is one we get very efficient at processing documentation quickly from the time of a submission from a carrier. So it gives opportunities for us to fund outside of normal business hours. It gives us opportunities to fund more efficiently and quickly all the way along.

Speaker 13: and T-Pay integrated within our client base.

Speaker 13: If I could ask one more, that was a lot.

Speaker 13: Aaron, you also mentioned that there's a path to getting to EBITDA IBRIC even a little bit earlier than kind of the exiting 2024.

Speaker 13: view and I think as this momentum is building on the broker ads, I try and say,

Speaker 13: kind of start trying to start thinking about, and I think investors are starting to think about 2025 a little bit. So maybe a little bit premature, but if you get to that EBITDA break even, if it's looking better and better, even if it's at the end of 2024 or not earlier, do you have any sense of kind of what that base?

Speaker 3: means for EBITDA in 2020, margins in 2025? Yeah, if I tried to answer that question, the people on the left and right of me would tackle me, but I mean, here's how we think about it. Our factoring business over a long period of time is.

Speaker 3: ratio of our factoring business. In fact, if it doesn't, we shouldn't be doing it. And it should, this triumpay should also help other factoring companies improve their efficiency ratios.

Speaker 3: So then it just becomes a question of how much of the market

Speaker 3: So then it just becomes a question of how much of the market is available for us to go get.

Speaker 3: We have five of the top 10, two of the top five. We have a very full pipeline behind that. And I think

Speaker 3: There are things that, and I alluded to this earlier to Hal's question, there are things that we are now thinking about that Melissa and her team are now doing that we didn't even imagine when we had a lower scale than this.

Speaker 3: So I know that investors want to try to figure out a long term, you know, where does triumph land? Here's what I'd say. You can look at our banking segment, our banking segment, which does not get talked about nearly enough, because there's just a finite amount of investor attention for us, outperforms on a spread basis, almost any other bank, and that does not include factoring.

Speaker 14: of the business.

Speaker 3: Triumph pay should be more efficient at scale than our factoring business. It may not generate as much revenue because it's more fee driven than balance sheet driven, which is great from, you know, as investors think about things, but it should be more efficient. And so if you put together a high performing bank, a factoring company that is more profitable than most.

Speaker 3: we can see it from here. We're not there yet. We are going faster than I think most people thought we would go despite a market that's down over 30%. But when we get there, if you add those three components together, in my opinion, and of course I'm biased.

Speaker 3: It's very compelling as a consolidated enterprise.

Speaker 4: Our next question comes from Jared Shaw from Wells Fargo. Jared, you may go ahead.

Speaker 4: Hey, good morning. Thank you. Can we go through some of the dynamics of margin and the expectation around margin?

Speaker 4: you know, more looking at the broker deposits, looking at the, if you said the core bank beta has been great, but, you know, maybe walk through some of the dynamics of margin and where we should expect to see that going over the next few quarters.

Speaker 2: Yeah, just as a reminder, and I know that we talked about this before, but as a reminder,

Speaker 2: our margin over time will be dominated by our asset mix. To the extent that our factoring operation is a greater portion than it is now, which at some point I would expect to see a rebound in that, then you'll see margin expansion regardless of what else is happening in the economy and what else is happening on our balance sheet.

Speaker 2: In the near term, assuming kind of a status quo freight market, and based on what we see on our balance sheet now, I would expect net interest margins to be roughly flat for the next two or three quarters.

Speaker 15: Uh, the forces that, that will.

Speaker 2: impact that as I just mentioned our mix of factoring. And then the other big one is, you know, how well we are able to keep attrition in our community bank, core deposit franchise at bay. And we've done a pretty good job of that so far, but those are kind of the forces that are at play. Cause any, any attrition in the community bank deposit franchise.

Speaker 2: will be backfilled by wholesale funding, which is, you know, is more expensive. So we do have probably $40 million a month or so of.

Speaker 2: fixed rate loan principal payments coming in that have the opportunity to be reinvested at higher rates. So that creates a little bit of upward pressure on the margin. And then any repricing of our deposits would go the other way. But on balance, I would expect a pretty flat margin over the next couple of quarters.

Speaker 10: And if you don't mind, I'll just elaborate a little further with respect to the core bank. So with respect to lending yields, we may see lending yields drift higher because of the rate environment that we may also see them drift a little higher because of next. The focus is on rotating out of lower yielding lending products into higher lending yielding products, and any new origination we're doing, we're doing at yields that are very attractive, even if we have to fund them with more expenses, wholesale sources.

Speaker 10: As it pertains to the core deposit mix, we have different buckets of core deposits. So Brad alluded to those core community bank deposits, which are highly granular, very stable. We continue to reprice those only on an exception basis. And so the betas on those deposits have been very, very low. We also have large commercial deposits that are associated with our commercial finance businesses. And in particular, the mortgage warehouse has seen the most significant growth in the last 10 years.

Speaker 10: isn't going to have a really big effect on the overall cost of funds. If you're replacing a mortgage warehouse deposit with the wholesale funding source, it doesn't affect you that much. Conversely, gaining a bunch of new mortgage warehouse deposits is going to help us that much with respect to our overall cost of funds. One other thing I meant to add here is that I would

Speaker 2: And if you look at our overall cost of funds for the quarter, it was about 123. As we sit at the end of the quarter, our spot rates on that are probably 10 or 15 basis points higher than that as we roll over some older, less expensive funding. So there will be a little bit of a drift on the cost of fund side.

Speaker 4: I would expect that to rise, but I would also expect, excuse me, asset yields to drip a little bit higher as well. Thanks. And then any color on the charge off that was identified but not related to TFS.

Speaker 3: That was the legacy mail carrier. You remember several quarters ago, we did an acquisition of a factory business connected with one of our large clients. And as we dug into that business, the way those trucking companies who operated with the U.S. Postal Service.

Speaker 3: And so that charge off was identified by them a significant portion pursuant to agreement, you know, several years ago, and the only thing that remains is that, and we disclose it every quarter that receivable from the United States Postal Service tied to postal fleet services I think it's roughly 19 and a half million.

Speaker 3: We, or I, am absolutely convinced that they owe us the money and we will collect it at the pace that it needs to happen. We would like for the government to go faster, I can't control that. And once that is done, that is the end of triumph's exposure to

Speaker 3: USP at least trucking trucking related companies in the in the postal services. So that's what that came from. We have one left that we're dealing with. Then we hope to be done with that.

Speaker 3: USPS, at least trucking related companies in the postal services. So that's what that came from. We have one left that we're dealing with, and then we hope to be done with that. So.

Speaker 4: that lawsuit or I guess is it a lawsuit or just a request for payment from the post office that's still fully outstanding and is this a charge off or write down associated with that or is this totally separate from that previously discussed you know whatever it is with the post office.

Speaker 3: It is neither reserved nor charged off. It is identified and we've spoken about it in prior letters. I think it's identified in the queue as well. It is a matter of litigation between us and the United States Postal Service.

Speaker 2: Okay, Joe, that that 19 million is is reflected in our past new numbers and our classified asset numbers that you see. But as Aaron mentioned, it is we have not reserved against it. We fully expect to collect it.

Speaker 4: Okay, and there's no no update on expected timing on that though. The only update I have for you is litigation is never fast. Okay, no there is not unfortunately. Okay, alright, thanks.

Speaker 12: Our next question comes from Michael Parita from KBW. Michael? Hey, good morning, everyone. Thanks for taking my questions. I just had a couple things I wanted to touch on quickly. I think you guys have hit a lot of it, so I appreciate all the color provided already. But just...

Speaker 12: On the expense side, the guidance to hold expenses flat for the remainder of the year, minus maybe a project here or there that could drift that higher. What does that assume around kind of pipeline closure? You know, like, I mean, is there, cause as I think Aaron, you mentioned when a larger client gets signed on, there's some ramp up and there's, you know, the revenues don't kind of come into later, but does that include, does that include, does that include,

Speaker 2: you could expect to see a similar bump. I think we called out about a million three in additional expenses this quarter that were related to those client successes. Those are the type of expenses I'm happy to see. Beyond that, I would expect things to remain flat.

Speaker 3: And I believe everything that is in the pipeline that we expect to close is in the expense guidance we gave. So if we deviate from that expense guidance, that would be new wins that are not currently in the pipeline.

Speaker 12: Got it. And then just secondly, you know, in the release you spent some time, Aaron, speaking about how your second largest credit exposure is the equipment finance portfolio. And it sounds like you guys over the last few quarters have maybe made some changes

Speaker 12: changes or tweaks, I guess, for lack of a better way of putting it, of how you underwrite those loans for the environment as it's deteriorated. But just wondering if you could maybe spend an additional minute talking about the credit performance of that book, and how that has been seen and what your expectations are there as we think about it.

It has always been to be pretty consistent through the cycle, but not necessarily to follow any sort of spike in asset prices.

So when asset prices did spike, our natural reaction was just to require down payments, which allowed us to stay within what we consider to be safe, long-term loan to value. We continue to be in that position. And so that allows us in a situation where a carrier is running short on cash today, that has equity value in their equipment.

for us to think about ways that we can work with them to extend and lower their payments. In some cases, that is going to be necessary as this freight recession continues. But we are fortunate that we continue to have the collateral coverage that allows us to do that. We work with long-term relationships. The carriers that we lend to are not every carrier.

that we provide factory services to. Most of our factory clients wouldn't qualify for equipment financing with us. Those that have been through the cycle, and many of them have been through the cycle with our own equipment finance leadership team, know how to work through these situations. And so we feel very comfortable with that sort of relationship in place. If we get to the point where we actually have to liquidate this equipment.

Obviously, if we're within collateral values, that helps a lot. But, again, the relationships come into play because we have relationships with other buyers and others who can help us to put those – liquidate that equipment, either as a whole for that carrier, if that carrier is going to cease operations, or just if that carrier has decided that they want to scale down their operations a little bit. So that's how we're managing through the freight recession. Just last week for me, thanks for that.

for buybacks after doing the ASR in February . Who will?

Yeah, our appetite is the same as we've disclosed previously. We believe in the long term value of what we are creating. We are building something unique and something that will be hard to compete with at scale.

So it's just how do we steward that for the journey? The three things we use capital for. Number one is a buffer against uncertainty. There is always, you can have a great plan, and a recession could put you in a position where you...

You have to dilute yourself and greatly give away future value. We won't let that happen. So we have, if you look at regulatory minimums, we were almost 200 million of capital above that.

The second thing we maintain capital for is to acquire or invest in companies that will expedite the journey of Try and Pay to becoming the payments network. You saw that last quarter with an investment in Trax. There are other companies we're interested in. Those companies are fighting the freight headwinds now. And valuations look very different than if we had...

back any shares, we do have a 10-d5 plan in place so that we can trade outside the window if market forces drive our shares down, we don't want to miss that opportunity. And that's just something as a board we think about, we're not growing our balance sheet, we are trying to grow our revenue, and we're definitely trying to grow our profitability. And so over the long term, that would lead you to believe that the more shares we buy back the better. This quarter, we did not that doesn't mean next quarter we won't, we continue to evaluate.

Thank you operator. If you would like to ask a question, please dial star 5.

Once called, please ask your question. I will pause for a moment to compile the cube.

Again, if you would like to ask a question, please dial star 5.

At this time, there are no questions. I'd like to turn it back to the presenters for closing remarks. Thank you.

Thank you for joining us this morning. We hope to see you soon. Have a great day.

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