Earnings Call Transcript - TFIN Q1 2026

Luke Wyse, Head of Investor Relations

Good morning. It's 9:30 in Dallas. Thanks for joining us this morning and for the interest in our first quarter results. We're glad you're here. We've all had our coffee, so let's get to business. Aaron's letter last evening outlined a quarter of real progress on the things that matter most. During the slowest quarter of the trucking calendar, we grew Factoring customers and outgrew the general market seasonal decline. Payments demonstrated the revenue growth and continued margin expansion we've been alluding to and LoadPay now exceeds more accounts than we have Factoring clients. The positive momentum is palpable, and you can see the results in Aaron's comments in the letter. 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 call 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 statement. For details, please see 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, Chief Executive Officer

Thank you, Luke. Good morning, and thank you all for joining us. For those of you who read the letter before the call, I hope you appreciated the shift in tone. It was intentional because Triumph is now in a different place. We have moved from talking about logos and density and product development pipelines to talking more about revenue and margin. And that shift has shown up in our numbers even with the seasonality Luke talked about. Now the shift in tone does not mean we are done innovating or investing for the future. For example, LoadPay and Intelligence are not yet profitable, and we still continue to invest in them because we see the growth and the opportunity to create long-term value. It's the same vision we had years ago for Factoring and for the Payments Network, both of which have paid off. Speaking of those two lines of business, our operating margin in Factoring is 80% better than it was a year ago. And the core Payments network is growing rapidly and is on its way to achieving a 50% EBITDA margin. I believe those are industry-leading numbers. The cascading requirements for being a successful technology company are: first, can you build it? Second, can you distribute it? And third, can you be profitable at scale? We are at the third step of that analysis for a large part of our transportation business, and I believe the results speak for themselves. We grew transportation revenue over the last year by 23%, and that was done in a freight environment that was very difficult. We expect to grow at least 20% again this year. There is a lot of good to celebrate after what has been a very long winter in freight. Speaking of a long winter in freight, I'm not sure outsiders have appreciated how much the freight recession of the last four years has tried to throw sand in the gear of what Triumph has been building. It's been a tough slog, but we stayed committed to our vision. And if we get a more normal market from here, we are very well positioned to benefit from it. With that, I'll turn the call over for questions.

Operator, Operator

Our first question will come from Gary Tenner with D.A. Davidson.

Gary Tenner, Analyst (D.A. Davidson)

I had a couple of questions. First, in your shareholder letter, Aaron, you have a lot of updated thoughts around profitability margins, KPIs, et cetera. Where it leads off with the North Star commentary below that first table and talking about if you achieve the revenue growth and margin targets, all else equal, you should generate roughly $1 of incremental earnings annually. What is that relative to? I'm not quite clear in terms of my understanding of what that is relative to what the base is and what you're comparing?

Aaron Graft, Chief Executive Officer

Sure. What I meant by that is our target was 15% or greater transportation revenue growth annually. If you can do that at the margins at which we currently operate, which are not yet at those final North Star metrics, but at the margins we currently operate at, you're going to generate about $1 per share of earnings if operating income in the bank stays relatively flat and the corporate segment stays relatively flat. So that was what we were trying to show. Does that make sense?

Gary Tenner, Analyst (D.A. Davidson)

I think so. If I have a follow-up to that, I'll do so. And then I'm curious, and I've had some inbound questions about the yields this quarter. It looks like the yields really in all three segments came down, the bank segment particularly. I'm just curious about noise there, what the drivers were. And frankly, beyond the bank segment, in the Factoring and Payments segment, I know that, obviously, there's an element of timing of collections that impact the yields, but just curious what the moving parts were there?

Todd Ritterbusch, Chief Banking Officer

Yes. I'll take the bank segment part of that question. There are really two main drivers, one of which impacts our bottom line and one of which actually doesn't impact our bottom line. The one that impacts our bottom line, of course, is the rate environment. So the declining rate environment certainly contributed to lower yields, and that was a significant part of the overall decline you saw. The one that doesn't is related to the additional mortgage warehouse deposits that we brought in in the quarter and the fact that the way those are compensated is through loan rebates. So rebates on the yield of the mortgage warehouse loans. Net-net, that benefits us as an enterprise, but it does compress the yields as they're reported.

Aaron Graft, Chief Executive Officer

And Gary, in the other segments, I would assume you're also referencing the Factoring segment, which Kim and I can speak to. But I would just say that that is always going to be driven by mix shift, meaning the mix of large enterprise factoring clients versus smaller clients, which we wrote about in this letter, the difference between having a single fleet with 500 trucks versus 500 owner-operators. And then secondly, the industry and technology trends are making the industry more efficient. That yield profile reflects that. While Triumph is improving, we would be foolish to think we're the only ones improving efficiency. So I think those are the two largest contributing factors.

Operator, Operator

Your next question will come from Timothy Switzer with KBW.

Timothy Switzer, Analyst (KBW)

I was looking for a little bit more color on the freight environment, Aaron. I really appreciate your comments in the letter. But do you guys believe we can continue to see truckload freight pricing move higher even if this Delilah Law is not passed rather than just pricing stay where it is? And do you have a sense at all for this law passing and the timeline for it, given it's a midterm year and we have a war going on and that can distract Congress a bit?

Aaron Graft, Chief Executive Officer

Well, obviously, this is the question that a lot of people have. I'm going to start, and then I'd love for Kim to follow up because I think our Factoring business tells part of the story and just what we've seen there. There is a whole lot getting written about this in our industry. We agree with the overall view that this is supply-side driven. We are seeing a structural change in trucking capacity as a result of multiple regulatory initiatives, some of which are new and some of which are simply enforcing laws that are on the books. We started seeing that last year. The question is, will we see that continue? I think the answer is yes because you don't even need Delilah's Law to pass to see what's already been set in motion from the Department of Transportation and FMCSA. The second big question is what happens if supply stays structurally changed as it now appears to be and demand increases throughout the rest of the year. That would create a very tight market. So we think the pressure is holding on the supply side. Kim, I think it would be great to speak about what we're seeing with 8,000 clients in our Factoring business.

Kim Fisk, Head of Factoring

Yes. Right now, we're seeing a healthier pipeline than we saw the previous year. Exiting 2025, we started to see carriers leaving the market with the English proficiency issues and the non-domicile conversations we were hearing. So we are seeing movement in the spot rate and continued improvement.

Aaron Graft, Chief Executive Officer

Could you speak specifically about what we've seen a year ago and what we've seen even quarter-to-date?

Kim Fisk, Head of Factoring

Our average invoice price a year ago was about $1,769 and ending the quarter was $1,897. Today, quarter-to-date, we're seeing $2,011.

Timothy Switzer, Analyst (KBW)

Okay. On the other side of the outlook, at what point do higher oil prices begin to offset the higher pricing in the Factoring business, higher invoice levels? Is there an oil price level or duration where elevated costs fully offset the benefit from higher invoice prices?

Aaron Graft, Chief Executive Officer

If you're talking purely about the math of an average invoice, higher diesel prices can drive up average invoice prices and can improve margins in the spot market. But the increase in the spot market started before oil prices moved materially in March; it really started in December, continued in January, and has picked up since March. The real test is at what oil price the overall economy slows down. If the economy slows, demand degrades. What we've seen so far in what should have been our slowest quarter is that demand has not fallen off. Except for flatbed where we've seen a tick up, it's been relatively flat. You've seen a structural change from capacity leaving the market and, since March, you're seeing the impact of the spot market adjust; the contract market will follow and adjust for higher diesel prices. As Kim alluded to, you're seeing average invoice prices month-to-date in April over $2,000. We're not back to Q4 2021 or Q1 2022 levels around $2,500 invoice prices. That was a very different market. But you are seeing strengthening despite capacity leaving the system. The question is when do higher oil prices hurt demand, and we're not economists; we can't precisely answer that.

Timothy Switzer, Analyst (KBW)

Got you. Totally understand. I'll jump back in the queue. I know you guys have always been hesitant to call the bottom of the freight recession, which I think you proved right on. But it seems like this is maybe the most optimistic scenario you guys have had in front of you in terms of the Factoring business over the last three or four years.

Aaron Graft, Chief Executive Officer

I used the term long winter in the opening, and there was a reason for that. Our job is to create value for customers, which translates into value for investors. The test isn't what it does for Triumph; the real test is can a law-abiding carrier earn their cost of capital. From mid-2022 through the end of last year, a significant portion of law-abiding carriers struggled to earn their cost of capital because the market was soft and because there was capacity operating outside the rules. As a society, we've passed laws to have safe roadways, and as an industry we should want a marketplace where shippers, brokers, carriers, factors, everyone can earn their cost of capital. What we're seeing now suggests dawn may be breaking after a long period. There are risks—war, geopolitics—but right now I'm as optimistic as I've been in a long time.

Operator, Operator

Your next question will come from Joe Yanchunis with Raymond James.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

It sounds like the groundhog didn't see a shadow.

Aaron Graft, Chief Executive Officer

We hope not.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

I was hoping to start with the Supreme Court case over broker liability and the potential impacts to Triumph should the industry lose that case. I would assume it would be a headwind for your Payments and Factoring segments, but potentially beneficial to your Intelligence and Insurance divisions. Any thoughts on this would be helpful.

Aaron Graft, Chief Executive Officer

All businesses desire certainty, and we've had that for many years with the understanding that responsibility for licensing carriers is a governmental responsibility. I think I can speak for all of Triumph that we would side with the brokerage industry on this Supreme Court case. We don't know how it will play out. What we do know is the government appears to have woken up to its responsibility for licensing regulation and enforcement, which is welcome. We don't think it's effective for industry providers to be tasked with that; it feels like a governmental responsibility. If the Supreme Court removes federal preemption and state tort claims like negligent entrustment become more prominent, freight will still move and brokers will remain important. But it will change the role of insurance and how brokers think about tendering freight to certain carriers. You'll see more jurisdictional variation and friction in the business. We need safe roadways and clear operating parameters because freight must move quickly through a repeatable transactional process. I don't know how the Supreme Court will rule, but it will inject volatility. Generally, we're positioned to weather that and in some cases to benefit. For the good of the industry, we hope federal preemption remains in place, coupled with proper enforcement of regulations to keep roadways safe.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

Shifting to the outlook. The outlook calls for at least 20% transportation-related revenue growth in 2026, while the freight market seems to be strong now. C.H. Robinson is calling for spot rate growth of 17% ex fuel. In your shareholder letter, you reiterated that Factoring segment revenue growth would be in the low teens. How do we square that with current market strength, the recent average invoice levels over $2,000, and recent market share gains? What type of invoice volume growth and average invoice size are implied in this low-teens growth outlook for Factoring?

William (Brad) Voss, Chief Financial Officer

Sure. As we look at the Factoring portfolio specifically, our number of invoices purchased in the first quarter of this year was about 12% higher than the first quarter of last year. So that low-teens growth is consistent with what we were approaching this past year. We should be able to continue that. Anything we get from invoice price growth would be welcome, but we're not counting on it.

Aaron Graft, Chief Executive Officer

We are not recasting projections. When we gave those guidelines and the North Star metrics, they were not forecasts but guidelines. For operations, they inform what we need to do to position ourselves to grow revenue. We won't make assumptions about what the market might do; that's not our job as operators. Of course we pay attention. For Factoring, Kim and the team have positioned us to organically grow, which we haven't done for several years, while improving back-office efficiency. I'm thrilled with that. If we also get a market tailwind, those mid-teen numbers could change, but we're running the business to the guidelines we gave and acknowledging the environment changes daily. Right now it's very positive, but we can't predict the next quarter.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

It sounds like the outlook could be conservative for 2026 if current trends stay. By the way, your AI and improved efficiency metrics: by my math in Q1 you purchased roughly 7,200 invoices per FTE in factoring, up from 5,600 a year ago, which is a material increase. Given AI's rapid improvement, by your estimation, what inning are we in for the use of AI and automation for improving fraud detection and providing analytics to some of your Payments clients?

Kim Fisk, Head of Factoring

We have a lot on our roadmap to improve automation through AI and large language models. Operationally, I think we're just in the beginning innings. You will continue to see improvements in volumes of invoices per full-time employee.

Todd Ritterbusch, Chief Banking Officer

Within the Payments business, our application of AI is aimed primarily at delivering a better client experience. For example, using AI to improve our audit product means we're referring fewer invoices back to brokers for adjudication; we're handling them ourselves. That's real value for the client. It creates cost efficiencies but, more importantly, it improves client experience. There are other opportunities to apply AI for cost efficiencies, but right now our focus is a better client experience.

Operator, Operator

Your next question will come from Matt Olney with Stephens.

Matt Olney, Analyst (Stephens)

We talked in the past about invoice pricing exposure being predominantly on spot rates but also having some exposure to the contract market. Aaron, as you said, the contract market could lag the spot market. Can you remind us of the company's exposure within Factoring and Payments—how much is currently spot versus contract and how that could change?

Kim Fisk, Head of Factoring

It's difficult to put an exact number on contract exposure. We see a higher average invoice price in the Factoring portfolio because of diverse commodities and different sizes of carriers. In the past, we've said about 30% of our portfolio is directly to shippers, so you see more contract and dedicated lanes through that. That's the closest proxy for potential contract and dedicated lane exposure.

Matt Olney, Analyst (Stephens)

That's helpful. It seems like we're much more focused on transportation growth on this call, but the challenge in the first quarter was within the banking segment that's still half the company's revenue. Todd addressed loan yields, but it sounds like bank loan balances will be down this year. Help us think about the drag we could see on banking revenue in 2026. If I look year-over-year Q1 2026 versus Q1 2025, it looked like core banking revenue was down 12%. Is that level of drag likely to continue throughout the year?

William (Brad) Voss, Chief Financial Officer

Matt, I don't think you'll see a lot of further degradation from here. Our intent is to hold things flat. Keep in mind we are a bit asset sensitive, so as rates have declined, that accounts for a portion of what you saw year over year in the first quarter, along with our ABL and liquid credit portfolios running smaller, which will likely continue this year. But our mandate is to keep it in the fairway: keep credit quality clean and the balance sheet pretty stable.

Operator, Operator

Our next question will come from Eric Bedell with Bloomberg Intelligence.

Eric Bedell, Analyst (Bloomberg Intelligence)

I'm curious about Factoring invoice purchase volume. What should we expect in terms of how much you're going to pick up over the next few quarters? I know we touched on it, but curious if we're going to see similar levels to Q2 2025.

Kim Fisk, Head of Factoring

In Q1 you normally see a seasonality drop, although because we saw additional client count in the first quarter, we only dropped by a little over 3%. So quarter-over-quarter, you'll see that increase, especially with a solid pipeline coming in.

Aaron Graft, Chief Executive Officer

If it's hard to compare period-to-period because client growth changes the composition. We're organically growing clients now, and you can't just compare Factoring numbers period to period and assume they reflect industry performance. Consider client growth, utilization per carrier (which ties to seasonality), and average invoice price. Triumph Factoring's average invoice price at over $2,000 is materially higher than many other factoring businesses. Our Payments average is more like $1,200 or $1,300 because a significant portion of our Factoring portfolio is with larger carriers doing longer-haul or different types of freight. There are directional signals in both businesses, but don't overlook our organic growth; it complicates simple comparisons.

Eric Bedell, Analyst (Bloomberg Intelligence)

That's helpful. On the payment side, I appreciate seeing revenue per invoice and the increases there. Is there a target level for dollars per invoice into the end of the year?

Todd Ritterbusch, Chief Banking Officer

We don't have an aggregate target for dollars per invoice. Historically, we've shared that our price on a per-customer basis should be $1.25 for the core Payment service, and audit generally adds about $1 per invoice. So you could put those together and say $2.25 would be the target at a per-customer level. We won't achieve that across the entire portfolio, but it's an aspiration for every client.

Eric Bedell, Analyst (Bloomberg Intelligence)

And the repricings—how long does that take to come through? Should we expect that on a 12-month basis?

Todd Ritterbusch, Chief Banking Officer

Pricing ramps for clients beginning to pay us now are generally about a three- to four-quarter ramp period. What you'll see in Q2 is brokers that began paying us modestly on January 1 will now be paying us significantly more, and we're bringing a new set of clients on board to begin paying us. Those two dynamics will have a nice additive effect to overall pricing.

Aaron Graft, Chief Executive Officer

On migration from where the Payments network was to where it is today, over the last four or five years many investors have asked why we haven't priced faster. Our belief has been value-based pricing. We want to deliver more value than we're asking for. That's the only sustainable approach. The pricing ramps are tied to value ramps that came before. We take that seriously. Others could push pricing faster, but Triumph focuses on showing our customers the network's value, not just audit and payment in isolation. The network's value is becoming more real every day and will create and distribute value to both payers and receivers of payments.

Eric Bedell, Analyst (Bloomberg Intelligence)

One last one on LoadPay account growth. What are you doing to convert new accounts into active accounts? What's that relationship like? Is there any churn yet? More color would be helpful.

David Vielehr, Head of LoadPay & Payments

We're really excited about the growth in Q1; it shows the amount of demand out there. Triumph has wide distribution to the carrier network from our historical Factoring work across the Payments business. As Aaron mentioned, we're about creating additional value. Some enriched feature sets in Q1 started to show why we saw an uptick in active accounts. We have another set of material upgrades in Q2 and expect active accounts to grow. We're already seeing more of a carrier's total workflow being done within the LoadPay application. A carrier who logged in on December 1 versus April 1 is getting a much richer experience to successfully run their business and be a profitable carrier.

Operator, Operator

We will return to Joe Yanchunis with Raymond James.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

Thanks for bringing me back. I was hoping we could talk about expenses. How much of the Q2 $97 million guide is fixed versus variable? How should professional fees and salaries trend from here? And provide some color on tech spend over the past couple of years and when we could expect it to moderate, which would materially impact operating leverage. What needs to happen for you to get quarterly expenses back to, say, the $80 million range?

William (Brad) Voss, Chief Financial Officer

I think $80 million a quarter is very aspirational given our growth plans in the transportation businesses. That's not what we're trying to do. We're trying to keep expenses from growing materially. We're happy to pay commissions and bonuses when we're able to grow the business. The tech spend over the last few years—most of what we need is in place; you shouldn't see a huge amount of growth there. We're always looking to become more efficient across operating businesses. Over the next couple of years, corporate expenses and fixed overhead should grow at most with inflation and hopefully decline a little. In our operating businesses, expenses should grow materially slower than revenue; that's our aim.

Aaron Graft, Chief Executive Officer

Joe, I appreciate the question, but it's not conceivable for us to grow transportation revenue 15% or 20% and cut expenses 20% at the same time. We've already pulled $30 million of expense out of the business. There's likely more churn underneath that. We told you we'd finish at $96.5 million. I return to the North Star metrics because different investors view us through different lenses—bank, payments, fintech. That's why the metrics are framed as guidelines. Number one, revenue growth over 20%: we've already said we'll hold expenses relatively flat. If you get 20% transportation revenue growth, the bank stays flat and expenses stay flat, you get operating leverage. Number two, we're telling you the operating margin in Factoring will exit the year around 40%, which is materially higher than many commercial finance businesses. We're saying the Payments network EBITDA margin is moving toward 50%, and the Intelligence gross margin will stay where it is while growing revenue materially. Where we finish this year exactly, I don't know, but we're progressing toward those goals. If investors expect us to reduce quarterly expenses to $80 million, you're looking in the wrong place. The play is holding expenses where they are and growing revenue from here. For context, we've been able to stay roughly at $1 per share of earnings run rate through seasonality. If we repeat what we did last year and hit the margin targets, earnings will increase materially. We're calling our shot; cutting back to $80 million a quarter is not the plan.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

That was crystal clear. A couple more for me. Shifting to the Intelligence product, how would you characterize current demand for that offering? And similar to Payments, will you try to build density before increasing pricing?

Dawn Salvucci-Favier, Head of Intelligence

In Intelligence, demand is strong. In the past two quarters we've brought on about 50 net new logos; top-of-funnel pipeline is very strong. Deals are taking a bit longer to materialize in the P&L because, as Aaron said, we need to demonstrate customer value through proofs of concept. It's been a year since Triumph acquired Greenscreens and ISO to form Intelligence. We've integrated three teams, two products, and Triumph's network data. Triumph acquired these businesses to monetize the data; we're now there and working through voice of the customer to find best-fit products for each market segment. Pipeline and net new bookings have been strong for the past two consecutive quarters, and we're very happy with where we are.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

Appreciate that. Last question: how quickly will you be able to wind down the ABL and liquid credit portfolios? Assuming they're completely gone, what impact would that have on your provision?

Todd Ritterbusch, Chief Banking Officer

We will have the ABL credits we're exiting off the books probably within the next two to three quarters. We may choose to keep one on through the next renewal, which could take a bit longer, but by and large you'll see those wound down by the end of this year.

Joseph (Joe) Yanchunis, Analyst (Raymond James)

And the impact on provision from reducing balances—would provision grind lower?

Todd Ritterbusch, Chief Banking Officer

Yes. The way the math works, provision will grind lower as those balances decline.

William (Brad) Voss, Chief Financial Officer

Joe, you could anticipate the provision on those two lines of business as a percentage of loan balances to be higher than our overall average.

Operator, Operator

There are no more raised hands at this time. I'd now like to turn the call over to management for closing remarks.

Aaron Graft, Chief Executive Officer

Thank you all for joining us. Have a great day.