Triumph Financial, Inc.

Good morning. It's 930 here and a typical spring day in Texas. It's time for our first quarter earnings call. So let's get to it. I'd like to open today by thanking you for sharing your morning with us. You'll notice the set looks a little differently today, and we're proud to unveil our new desk. This desk was constructed by Cody and Chris at the TBK workshop, along with participants from our inaugural Forge the Future program. The workshop is a makerspace we've developed that is focused on community outreach through workforce development and educational initiatives. You'll notice another difference this morning in our group here at the studio. Dan Curtis, our chief operating officer in Triumph Pay, will be filling in for Melissa. Melissa's daughter is completing her active duty service in the Navy, so Melissa will be attending a family celebration on board the USS Carl Vinson. Given the once-in-a-lifetime opportunity, and to celebrate her daughter's service, she wanted, and of course we wanted for her, to be present at this special event. Dan brings a wealth of industry experience and an informed understanding of the market dynamics facing Triumph Pay, as well as the opportunities we are pursuing. So please join me in welcoming him today. Melissa will be back with us in the studio for next quarter's call. Speaking of, let's get to business. Last evening, we published our quarterly shareholder letter. That letter and our quarterly results will form the basis of our call today. However, before we get started, I'd like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. For details, please refer to the safe harbor statement in our shareholder letter published last evening. All comments made during today's call are subject to that safe harbor statement. With that, I'd like to turn the call over to Aaron for a welcome and to kick off our Q&A. Aaron?

Thank you, Luke. Good morning. Thank you for joining us. I hope that you found the letter we published last evening informative and helpful. I'll make a few opening comments, and then we'll turn the call over for questions. Depending on your position related to Triumph Financial, I have one piece of bad news and three pieces of good news. So let's start with the bad news. The freight recession is here and it's real. The softness in the market took a toll on our earnings for the quarter. Further, I think investors should know that the market has remained soft for the beginning of the second quarter. If the market stays this soft for a long period of time, many companies and transportation will experience financial distress. We don't have any projections for how long or how deep the recession will be. That is the bad news. Now for the good news. Even if the freight market stays soft, investors should expect Triumph Financial to remain profitable. Freight is the biggest part of what we do, but it is not the only thing we do. Further, we were reducing long-term freight risk when the market was the frothiest two years ago. For example, we slowed our growth in equipment finance in the last few years because we wanted to be particular on credit. We didn't know when the market would turn, but we never forgot that the freight market is cyclical. We expect to navigate this freight cycle just like the ones in the past. and past experience has taught us that bad markets often present compelling opportunities. The second piece of good news, all of the ills that have caused trouble for the banking industry in the last 60 days are just generally not true of us. We have ample capital and liquidity, we take very limited interest rate risk, and we have avoided growth in the areas most likely to experience credit risk. And now for the final piece of good news, Do not let the falling freight market confuse you on Triumph Pay's performance. You will not see us use this freight recession, however long it may be, to walk back our guidance on profitability in that segment. To the contrary, we expect to do better. Depending on which markers you use, the truckload freight market is down between 10 to 30% over the past year. And the brokered freight market is towards the higher end of that range. In that same timeframe, Triumph Pay has grown its volume by over 7%. In other words, we're taking market share in a falling market. But more important than growing volume, we have improved our EBITDA margin by over 50% in one quarter. That improvement is not episodic. We always believed that the float we created in the network would be valuable. We just needed a different interest rate environment to demonstrate that value. That rate environment has now arrived. Last quarter, we noted that Triumph Pay was self-funding as a segment for the first time. For this quarter, Triumph Pay generated excess funding. Investing that excess funding at the Fed funds rate created interest income of over $1.5 million for the quarter. Second, certain upfront expenses in Triumph Pay burn off over time. It is difficult and it is costly to onboard new clients, but that effort pays off over the long run. As a result, we are more bullish than ever on the long-term value of the network. And for the team and the board and our long-term investors, we think that is the best news of all. And so with that intro out of the way, we'll now turn the call over for questions.

Thank you. We'll now move on to Q&A. If you're dialed into Zoom and would like to ask a question, please use the raise hand feature at the bottom of your Zoom window. Once called upon, please feel free to unmute and ask your question. Our first question comes from Matthew Olney from Stevens. Thank you, Matthew. Hey, good morning. Can you guys hear me okay?