Q1 2025 Triumph Financial Inc Earnings Call
Speaker Change: 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.
Speaker Change: Aaron's letter last evening, discuss the court of results and laid out the court transaction in detail, describing it as the foundation for all our transportation business.
Speaker Change: Despite persistently strong freight headwinds, we are demonstrating the ability to monetize what we built, and the underlying precursors to that revenue later in the year become clearer each quarter.
Speaker Change: 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.
Speaker Change: The company undertakes no obligation to publicly revise any forward-looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The headline earnings number is what it is and the transportation market is clearly suffering from headwinds.
Speaker Change: 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 payment segment
You can also see that our credit quality improved.
Speaker Change: I think the answer is yes because we have made the investment to get us in a position to do so as hard as things are right now.
Speaker Change: 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.
Speaker Change: Great businesses do that, and we have built a great business.
Speaker Change: There is always the option to reduce investment in order to achieve profitability.
Speaker Change: It's not the option I prefer or believe we need at this time, but the fact remains that we have choices.
Speaker Change: With that paradigm set in place, let's turn the call over for questions.
Speaker Change: We will now go to Q&A. If you have connected via Zoom, and would like to ask a question, please use the RAID hand feature at the bottom of your Zoom window, or if you have dialed in, press star 9. Once called upon, please feel free to unmute and ask your question.
Speaker Change: Our farthest question comes from Gary Tenner from DA Davidson. Please go ahead.
Thanks, morning, everybody.
Speaker Change: I wanted to I wanted to ask about you and you kind of addressed a little bit Aaron just in your quick remarks here, but
Nihazi, talk about expenses. [inaudible]
Speaker Change: 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...
Speaker Change: Upside, if you will, to revenue would come kind of from two areas, one, you know, potentially loadpaying the second green screens, one stack, it's integrated, you start generating revenue there. Is that is that the way that you're thinking about it in terms of where you think the revenue opportunities are as you look at or the next three quarters?
Speaker Change: Oh, 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, you saw and you've tracked us for a long time. You saw how all the KPIs moved in pain.
Speaker Change: Now we have said that we were not going to monetize the CH Robinson relationship and that's just one of many relationships but that went in particular until the back half of the year.
Speaker Change: So you would expect to see, as those KPIs move upwards, not just because of CHR, but 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 payment segment.
Is there a tremendous opportunity?
Speaker Change: to go to our original, our legacy clients and demonstrate the value we have created for them.
Speaker Change: when we started this product four or five, six years ago of how much better the technology sweet, the product sweet is, and so there's an opportunity to grow revenue from the existing customer base.
Speaker Change: The good news is current customers are paying our quoted pricing.
Speaker Change: So just organically farming inside of that customer base, it's now time to do that.
In addition,
Speaker Change: While factoring, clearly you've got revenue headwind there, and of course all the uncertainty around Terrace.
That uncertainty creates opportunities for us.
Speaker Change: some of whom left us back when when the run up and freight was happening and went 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
Speaker Change: 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 factory business.
Speaker Change: What you're going to see from both green screens and load pay, which you've already evident [inaudible]
Speaker Change: When you put all of that together, yeah, I mean, it's what I said in the opening, we must...
Grow revenue,
Speaker Change: 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. So it's really perhaps the cleanest...
Speaker Change: Sightline to revenue will come in the back half of the year and we have lots of levers to pull in order to achieve that.
Thanks for that, Aaron, and then just as a...
Speaker Change: kind of follow-up second question. You know, if I look at the-
Speaker Change: Conforming invoice volume, if you look and say second quarter last year or first quarter this year to eliminate some of the noise with the factor that left the network. .
Aaron Graft
You know, your conforming invoice volume is up only about
Luke Wyse, Aaron Graft
Aaron Graft: Sure, yeah, I'll take that one. So those are two 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. [inaudible]
Aaron Graft: That doesn't have to be network transactions. 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.
Yeah, I just, I would just, [inaudible]
Speaker Change: 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.
Speaker Change: Company for that. So you can grow revenue, including high-value-c income revenue. Away from network transactions, it's our preference to grow both.
God appreciate the clarification, thank you.
Speaker Change: Our next question comes from Joe Yanchunis from Raymond James. Please go ahead.
Hi there.
Gordon Goe
Speaker Change: So, let me kind of tackle Gary's question a little bit differently here.
Speaker Change: So with revenue from CH Robinson, expected to come online the back after the year, you had the wraparound benefit from clients that bring in extra audits
Speaker Change: You got accelerating adoption from vacuuming as a service and low 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, you know, just all else equal, static break market, no benefit from green screens. Thank you very much.
Is that something that you can help us?
I mean, that is a tough thing, Joe, for...
Speaker Change: I mean, you know, it's not our historical practice to give revenue guidance segment by segment. We give expense guidance.
Speaker Change: But as to like going specifically what we will do in each of those, I'm just staying on a consolidated consolidated basis.
Speaker Change: You know, kind of for the balance of the year or something in that realm.
Speaker Change: Well, so here's what I would say, the transportation, the revenue from our transportation businesses.
Speaker Change: Right now is 206 million I think was we are 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... [inaudible]
Speaker Change: Factoring and the largest contributors on a gross dollar basis there would be between factoring and payments, for sure.
Speaker Change: Load Paye comes more towards the back half of the year.
Speaker Change: You know, 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 in the next year. So if I can answer your question well, I think the bulk of the revenue growth comes in payments and factory. [inaudible]
Okay, I appreciate that. And then...
Speaker Change: Over the last two quarters, you called out an annualized benefit of about four million from upgrading legacy contracts to your next shinhaw to platform and my cross selling broker's on your payments platform.
Speaker Change: Can you help us understand the remaining financial opportunity for migrating your partners to the next gen audit, you know, how long are these new contracts and we expect additional pricing
Speaker Change: We're still in the early stages of the next gen audit, migration, and I would expect that you'll see that play out the course of the next several quarters. [inaudible]
All right. Well, thanks for taking my question.
Who's Joe?
Our next question.
comes from Matt Olney, from Stevens. Please go ahead.
Matt Olney: Yeah, thanks, guys. Good morning. What a follow-up on the factoring as a service discussion and to definitely appreciate that the going importance of this yet not monetizing the portion of that until the back at the year.
Speaker Change: Can you tell us, think about some of the longer-term KPIs and goals that we should consider with our forecast within this the next few years?
Sure.
So, the first thing is to understand.
Speaker Change: You know, why is there just one customer using it currently and I mean it's-
Speaker Change: 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...
Speaker Change: And once you get it right, then you start monetizing it.
Speaker Change: So that is the phase we're in and we are seeing the growth happen.
Speaker Change: In the back half of the year, we will be adding another FAS clients. That'll bring us to two. In the year 2026, we will add a few more and I think the onboarding of those will be way easier than numbers one and numbers two. [inaudible]
Speaker Change: 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.
Speaker Change: that, you know, years that were significantly above that for many of the quarters, but I specifically said that in the journey to one billion that we would expect to see
Speaker Change: and I stand by that, and I do mean at least double. And so that revenue that you see...
Speaker Change: in factoring, a lot of that will show up there. As we get more clients on, can we break it out between what is organic, trying, factoring, and fast, sure? 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. [inaudible]
Speaker Change: Okay, I appreciate that. And then I get on the green screen side, I totally get the strategic
Speaker Change: What this brings the company and how it can monetize the data What else can you tell us about just the financial impact of green screens? And you know, it's not something that's currently in my forecast. So trying to you know, get additional data So what else can you share with us about the impact of the green screens?
Matt Olney: It's really not a lot, Matt, that we can share at this time, we have
Speaker Change: Submitted all the regulatory applications and so forth. We do expect to close it in the second quarter.
Speaker Change: But for the time being, it's still a privately held company 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.
Matt Olney: I don't know that this helps your model, but what we can answer to you is this, right? When you stomp up, what the industry is?
Matt Olney: 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 it's probably even higher than that.
Matt Olney: So 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.
Matt Olney: We capture this data in both our factoring and our payments business in a more granular way than anyone in the industry.
Matt Olney: The second part of that is we know that there is a big addressable market and that people desire this data and they desire it to be delivered in a better way.
Matt Olney: Then 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 those things to come into play but
Matt Olney: 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.
Matt Olney: 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 screen.
Matt Olney: We believe firmly that the delivering this product at the margins that we expect to deliver it will deliver more long term shareholder value.
Matt Olney: Then Vineback 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. [inaudible]
Thank you guys.
Speaker Change: As a reminder, if you have 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, press down now. Once cooled upon, please feel free to unmute and ask your question.
Speaker Change: Hey, good morning. Thank you for taking my questions. I was going to follow up on a topic brought up by Joe
Speaker Change: 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.
Speaker Change: 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? There's all in the same paragraph, so I'm not sure.
Speaker Change: Yeah, that was only the client that we'd upgraded and cross-sold.
Speaker Change: Tim, you can tell me that I didn't write very clearly. I'm sorry, I should have added another paragraph.
Um, no, it was a great, great, later.
Great letter. I just wanted to clarify.
Matt Olney: Aaron, you also talk to Val, you're shifting your focus to monetizing the payments.
Speaker Change: Can you talk, and you've been talking about this for a few quarters, 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 turn and how many of them are upgrading before that legacy contract is up.
Speaker Change: I don't know that we should give you a specific number on that, and Todd may follow up with specifics, but where, from where does the confidence come that we can move people forward? It's that all the new clients who are 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.
Speaker Change: 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...
Speaker Change: 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 onto us. [inaudible]
Speaker Change: How much we are protecting them from fraud with all the things we do? I think we have undersold or underspoken about that and that's something that Todd is going to do a great job of helping us. [inaudible]
Speaker Change: Do I mean the difference between what the product was for someone who's paying the rates four years ago and what the product is today?
Speaker Change: 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? I would say, even before I took on this new responsibility, there was a team that was working on repricing these legacy clients.
Speaker Change: and even without all the resources that I think they need to have to have these conversations, they were having success in those conversations.
Speaker Change: 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 resource towards having those conversations but the early indications from those first conversations were positive. Thank you very much.
Speaker Change: Okay, great. That was really helpful. I'm going to switch topics real quick, but it's good to see some of the improvement in the credit metrics and I think you convey some confidence and continuing to see improving. Thank you very much.
P.A. is going forward.
Speaker Change: You know what gives you that confidence given all the economic uncertainty we've seen and you know rates might not be coming down we might have some issues. Thank you very much.
Speaker Change: With regards to tariffs and that could really impact, I would assume the equipment finance portfolio as well. Can you just provide some more color there and maybe some detail on what you expect for like provision expense. Thank you.
Speaker Change: Yeah, I'll jump in there. So, you know, first of all, what we saw in the first quarter was the product of...
Speaker Change: you know, 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 had set, recognizing that we had credit stress building in the equipment finance portfolio, for example, from the freight recession. So we had been working on that for some time. We saw the fruit some of the fruits of that benefit in the first quarter, but there's still more to do. [inaudible]
Speaker Change: I would say we're only about 40% of the way through working 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 great recession or anything like that. So we're going to do that in the second quarter based on sort of a steady state environment not assuming a steady state environment not assuming a steady state.
Speaker Change: Now you lay it in the tear of 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. [inaudible]
Speaker Change: 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 in the economy as a whole, we have less concentration in those areas that would be most effective. Thank you.
Speaker Change: Yeah, and just to follow up, Tim, it's what we've said for years.
That...
Speaker Change: 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 reprise every 36 days, right? Like that's that's what happens.
Um...
Speaker Change: So, your revenue volatility is that's out of our control. Now, we talked about it's our job to grow revenues, 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 sit on executive loan committee, like every asset in the bank of size that is classified, I can tell you the name. [inaudible]
Speaker Change: 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 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 amortized down very quickly.
Speaker Change: Here's the news flash. We've been in the bottom of a freight cycle for now over three 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 and freight. [inaudible]
Speaker Change: 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 seemed like trucking. [inaudible]
Speaker Change: was forever going to go up and I know that because I see him 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.
Speaker Change: 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 a creative to the bottom line? And we fully intend to do that. [inaudible]
Speaker Change: That's good to hear. It'll be good to see things turning around back after the year. Thank you guys.
There are no further questions at this time.
Thank you.