Triumph Financial, Inc.

Good morning. It's 9.30 in Dallas and cold and icy, but we all made it. We're looking forward to visiting with you this morning. Thanks for your interest and triumph, and thanks for joining us this morning to discuss our fourth quarter 2025 results. With that, let's get to business. Aaron's letter last evening highlighted our progress on our stated goals, revenue growth, and our focus on lean operations. Aside from the core business improvements, there were a few non-recurring items that went our way also. This demonstrates two things. First, our focus gives us the ability to hold non-core elements of our operations loosely and execute on capital-creating opportunities when they arise. Second, our results this quarter demonstrate metrics moving in the right direction for our long-term goals and that we are keeping the main things the main things. The quarterly shareholder published last evening and our quarterly results will form the basis of our call today. However, before we get started, I would like to remind you that this conversation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking 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?

Good morning. Thank you for joining us. As Luke mentioned, the conditions outside are not stellar, but we all made it for the call. Before I do some opening remarks, I want to welcome David Valliere to the table, president of Loadpay. Since he was the new guy, we made him wear a tie for this call. But going forward, we'll see. Maybe he can take the tie off. But welcome, David. Glad you're here. And we're glad to do this. And as usual, we're going to jump into Q&A quickly. But I did want to make one or two brief comments before I turn the call over for questions. I know that different investors have different perspectives. Some of you are focused on growth. Some are focused on efficiency. And some are focused on balance sheet strength and credit quality. All three of those we know are important. As a management team, our goal is first and foremost to help the industry transact confidently. That means strengthening our network so that people can more efficiently and securely transmit data and payments. Pursuit of that goal over the last five years has generated volume and revenue growth, even as the trucking industry has been mired in a historically bad recession. We believe in the value proposition of what we're doing, as do eight now of the largest 10 freight logistics companies in the country. To that end, we were excited to recently welcome J.B. Hunt to our network. The second thing, as I alluded to earlier, that is important to investors is to translate our vision of a secure network into profits for our enterprise and investors. We are on that trajectory. Growing revenue and holding expenses in check is a sure path to greater profitability. That is what I expect to continue to do this year. For just one example, our core payments business will trend above its 30% EBITDA margin currently in 2026 and on its way to our ultimate goal of 50% or greater. And if you look out over the longer term, load pay should contribute in that segment at even more accretive and capital-efficient margins, so that in the end, our payment segment should have all the financial metrics of the most successful financial technology companies. Underline that the industrial logic of directly connecting the payor and the payee across the payment rails of our bank is very clear to us, and it is becoming increasingly clear to the market. And finally, we want to build the network and improve our margins and profitability with a balance sheet that is strong enough to withstand unforeseen cycles. We have done that to date, and going forward, we will continue to do the same, even as we work through legacy assets and narrow our fairway for credit exposure going forward. In doing that, we will always maintain enough capital to persevere through a rainy day or many rainy days. That is our plan. We will now turn the call over for questions.

We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. When you are called upon, please unmute your line and ask your question. We will pause now for a moment to assemble the queue. The first question is from Joe Janchenis from Raymond James. Please unmute yourself and begin with your question.

Good morning. Good morning, Joe. So I was hoping to start with expenses here. So in your shareholder letter, you reiterated your 4Q26 expense outlook. And was the sale of the building and airplane and the subsequent $6 million savings baked into that initial guide, or are those expenses being redeployed to other areas?

It'll be a combination, Joe. We've got so many moving pieces coming in and out, but you're always going to see a jump in expenses a little bit in the first quarter of any year, just given the natural resets that happen. And that's going to require us to find additional resources It's going to require us to find additional efficiency as we go throughout the year. But, yes, that building and the plane, the savings from that, about that $6 million a year, that is baked into the first quarter estimated as it will be part of the run rate going forward.

Okay, I appreciate that. And then kind of shifting over to load pay, so maybe, David, you can help with this. So, load pay exited the quarter with annualized revenue of $1.5 million. You got into tripling this amount in 2026. So, I know you're working on some enhancements to the product that could increase the revenue per account. To triple load pay revenue in 2026, what are the underlying assumptions around account growth versus increasing revenue per account?

Yeah, so it's going to be a combination of the two things in 2026. So first and foremost, right, we're expecting to open between 7,000 and 12,000 accounts over the course of the year, building off the momentum from last year. And second, you know, what we really look for is being able to link and fund the accounts, right? So account opening is our first step in the process, but then getting high levels of utilization. So as we talked about in the letter, we still forecast that we'll be at about $750 per account on a revenue basis. But if we look at the total portfolio, our customers are very different in the way that they use the accounts. And so some, we haven't had LinkedIn funded. However, our top ten accounts, are all tracking to over $5,000 a year in revenue. So in that mix is how we're going to get to 750. And so the goal of the team, as we look at improvements throughout the course of 2026, is really about how do you drive that LinkedIn-funded percentage higher.

The next question is from Tim Switzer at KBW. Please unmute yourself and begin with your question.

Hey, good morning. Thanks for taking my questions.

Morning, Tim.

My first question, Aaron, is on the outlook you provided in your letter, specifically on the low teens growth in factoring. What, you know, how much of that is driven by factoring as a service if it, you know, if it contributes a lot at all? And, you know, what does that assume in terms of the freight recovery aspect? And, like, what's the potential upside if we get, you know, a true recovery in the industry?

Sure. If I answered that second question, Kim, who's sitting next to me, would start punching me. So I'm going to be circumspect in how I answer that. But on the first part, Factoring as a service as a percentage of that low teens growth is immaterial. It is growing way faster than everything else, but you're talking about growth off of a very low revenue base versus the rest of the business. Secondly, for the projections of next year, we just assumed the market stayed as it finished Q4. Now, remember, and remember this from an earnings perspective, in Q1, you will see, I very much expect you will see, a decline over where we ended the year because of normal seasonality in our business. So we assumed a flat freight market for the course of the year, which just means that as we work, as the team is growing our factoring business organically, we're widening the amount of customers we serve. We're going deeper with those customers. Kim has the difficult job of both serving the very largest end of the market. We serve some extremely large customers in our factoring business. And then we also serve thousands of small carriers who also use us for load pay. And so the assumption is that we will organically grow that penetration, and that's where the underlying low-teens revenue growth comes from.

Interesting. Okay, that's helpful. And then another thing in your letter you talked about was, you know, only 22% of your customers are using both payments and audit within T-Pay. But now that you've, you know, reached agreements with, it sounds like most of the legacy contract customers, you know, how does that change over the rest of the year? I assume a lot of them are now going to be on next-gen audit, will probably be using payments and audit.

um yeah just curious like how that moves and i assume that helps revenue quite a bit certainly so when we talk about the fact that we have not cross-sold payments and audit uh to the extent that we would have liked a lot of that goes back to the legacy of how we built the network and the acquisitions that we made so a lot of the audit clients came over with the hub train acquisition whereas the payments network was built basically on our own bringing clients on to payments one after another The intersection there obviously has a lot of room to improve. And as we get through repricing of the payments business, keep in mind that the audit business is always charged a per-invoice fee, you'll see more and more overlap, more and more opportunity for us to be able to leverage one part of the relationship for the other.

Okay, gotcha. And I think historically you guys have disclosed in the letter like the percentage of payments for which you charged a fee, I think it was 31% last quarter. Are you guys able to update us on where that was in Q4?

Sure. So for fourth quarter as a whole, it moved up to 35%. In December, it was 38%. And January 1st was another key date where more of the new contracts went into effect. So you'll see significant increases in the first quarter.

Well, very impressive. All right. Thank you.

Next question is from Matthew Olney at Stevens. Please unmute yourself and begin with your question.

Hey. Thanks. Good morning, everybody. I want to go back to the factoring discussion, and I think that pre-tax margin of factoring was around 33% in the fourth quarter. A really good improvement over the last year. Can you talk more about the drivers of that improvement? And then looking forward, that pre-tax margin within factoring, what does the guidance imply as you exit 2026 and then longer term? What do you expect that pre-tax margin to approach?

Yeah, so the margin expansion is really from our focus in technology and automation and also reduction in headcount through the back end of 2025. And so our focus is to continue to drive all of our automation in our back office. And so you'll continue to see that margin expand through 2026 and 2027.

Yeah, and Matt, on the long term, I think what you would expect, and first of all, just backing up to set the context for a few things. Number one, there was a season of time in the building of the network where growth in factoring was not prioritized. And I think it was last quarter we made it clear that we now see that the opportunity to grow is very real and connecting factored customers to load pay accounts back to the network is a very real thing, even while we serve network factors, right? Those two things can both be true. And... So that being said, you're seeing us now and you will see, I expect, over the course of this year, us to grow customers in a way that we haven't in the past. The second thing is just understand, at least as it relates to last year, We held a higher staffing base as we were trying to understand what the volume of growth in factoring as a service would be, which was not coming out of the gates quite as fast as we thought. And so we've normalized that base. And then finally, the addition of technology, the use of artificial intelligence, machine learning that sits on top of these massive piles of proprietary data that we've built up that allows us to do things well. If you extrapolate that into the future, I believe that our core operating margin and factoring will eventually be over 40%. Will it be there this year? I don't think so. But as we go forward, that would be our target. And, of course, in certain windows of time, if invoices spike, that will push up margin a lot. One of the fantastic things that I think – Tim and team have done in that business is the margin improvement of where we sit now didn't just come from invoice size growth. It came from getting more efficient. And those efforts are not done. And I'm very excited about where it's headed.

The next question is from Gary Tennant at DA Davidson. Please unmute yourself and begin with your question.

Thanks. Good morning, everybody. Morning, Gary. Hey, I wanted to ask, in terms of the transportation growth, I looked at 25% of the payments revenue specifically for 2026. I think that's, you know, the overall mix of revenue growth for this year is kind of similar to what you kind of suggested in October. Obviously, I guess I would suggest that J.P. Hunt and any revenue impact from that relationship is already embedded in the guide as you're looking out to 2026. That's correct. Would you be any more specific about what type of revenue contribution or benefit you'd expect from that relationship over the course of the year?

Yeah, we can't talk to the specifics of pricing or revenue associated with any individual client. I would just say that generally it's consistent with the guidance that we've provided in the past about how we intend to price relationships.

Okay, and then the follow-up, in terms of the, I think you got into either that margin of 30% or better in the first quarter in the payments segment. Can you give a sense of kind of the T-pay or payment-specific expense run rate you'd expect for the first quarter to try and kind of get a sense of how that moves relative to your more consolidated guide on expenses for the first quarter?

Certainly, yeah. So within the core payments business, that's the business where we reported the 29.5% EBITDA margin for last quarter. We're going to see continued revenue growth associated with the repricing, associated with the new names that are coming on board, and we're going to hold expenses relatively flat. They're not going to be completely flat, but they won't grow anywhere near as fast as the revenue is growing, and so that's what's going to drive that EBITDA margin higher.

Okay, and that core payments – I've got to start right there.

Well, I just want to make it clear, hopefully for you and for investors listening, when we describe, we have a payment segment. And the payment segment, by the way I view the world, you have payors, which are generally brokers and shippers, and you have payees, which are generally carriers and their factoring companies. And I think based on feedback from analysts and investors, They want to understand what the core business has done. That's the business we announced back in 2021, although I'm not sure it really is the business we've announced back in 2021 because so many changes. We've learned so much. It shocks me how little we knew when we set off on this journey as I look at it now in hindsight. But that business... Is generating a 30% EBITDA margin and is trending higher? And you already heard Todd talk about the number, the percentage of invoices that we are monetizing continues to grow because the value has grown. But when we say that, I think it's important for the long-term thinkers to understand that doesn't mean load pay is not core to payments. Load pay is once again a drag on earnings, right? Just like back in the day, core payments was a drag on earnings. But load pay over the long term and all that connectivity and the source and the type of revenue is really exciting. And so when you look at a 16% EBITDA margin for that segment, just know that there's a lot of investment in load pay. Obviously, we believe in that investment. We think we can triple revenue next year. But I just want to say that we'll continue to describe quote-unquote core payments. so that people can see what has happened to this business we began in 2021 and mark our progress. Totally understand, want to be accountable for that. But please don't ever view that what payments is doing and load pays part of that as anything other than part of the core long-term strategy. And together, those businesses, I believe, will generate 50% EBITDA margin or better. You will see it continue to progress. in that segment is extremely attractive. So sorry to riff on that. I just think it's helpful, and I want you to understand how we think about it so investors can understand internally how we view those two lines of business working together in a single segment.

Very good.

Thank you.

The next question is from Joe Youngness from Raymond James. Please unmute yourself and begin with your question.

Thanks for answering a couple more for me here. I was hoping we could pivot to the intelligence segment. So segment revenue was relatively flat, but in your shareholder letter, you know, you contracted, you know, a million dollars of incremental annualized revenue. So when should that begin to show up in reported results? And then additionally, what is the expected revenue contribution from the trusted freight exchange with highway embedded in your 2026 outlook? And, you know, kind of a little more on that. How should we think about the potential intermediate term revenue opportunity from the freight exchange?

Yeah, thank you for the question. So bookings from Q4 were generally 30 days, right, from booking to billing. So that has already started to show up in the Q1 numbers, and that will continue to do so. As for TFX, the contribution, TFX is still very new. While we are counting on it as a driver for revenue growth for this year, it is not the largest opportunity that we see. We believe the largest opportunity is actually the cross-selling opportunity with our audit and payment customers. For example, only 14% of our current audit and payment customers are also using our intelligence solution. So that's really where we see the largest opportunity, and Todd and I are both already working very closely with our sales and commercial team to ensure that that happens in 26.

Great. That was very helpful. And just – You know, with the inter-quarter announcements of J.B. Hunt, you know, as you mentioned earlier, eight of the ten brokers are now in your payments network. I understand T-Pay's business model has evolved since its inception. Success, you know, really isn't reliant on the adoption from competing factory companies. But at what point do factories, you know, feel pressure from the brokers to adopt your payments network? You know, I'm curious to hear your opinion on that potential catalyst.

Yeah, that's a great question. The answer is, Joe, I don't exactly know. If you think about how the network actually works and how factors work, I mean, factors are very technological forward businesses, way more, I think, than people expect. And so what they are trying to consume in the network, is information about the transaction to make a pre-purchase decision. And I'm going to let Kim come clean up anything I say afterwards because she knows this stuff so much more deeply than I do. But we have 60 to 70 network factors, and we serve those factors. We try to make their processes easier. Obviously, we're pushing data to them. So I don't know if ultimately the quote-unquote pressure comes from the brokerage industry. I think at some point factors will just decide, have they updated their own technological stack to be able to ingest the data we can give them in a way that makes their business easier, more than it's brokers forcing them to do something they don't want to do. Tim?

add on to that yes what i would say is that i think the payments network really helps factors become more efficient and being able to transact through payments rather than directly with the broker and so you have one place to go for many rather than contacting many brokers for just a single invoice okay perfect one last thing i mean it's a great observation

I think we owe it to you to admit we can celebrate what we got right, but we should also own what we got wrong. I thought the way this would work for factors would turn out differently than it has. The network has grown in ways I didn't foresee. The ability of other factoring companies to come in and use this has had some success. The majority of the top 100 use it, but for the largest, they haven't. They don't consume it in quite the same way I foresaw. So, look, that's what happens when you set off to do something that hasn't been done before. You get some things right and you get some things wrong.

And I totally understand that and completely fair. But with the current business model, if a top ten factor were to opt in, you're going to see those conforming or network transactions go up in general for the network. But is there enough volume right now where a factoring company could derive savings from lower headcount from joining the network?

Yeah, I would absolutely think so. I mean, if you're talking about a top ten factor, you're talking about a lot of invoices that are being processed. And so you're not looking at just pre-purchase decisions. You're also looking at payment statuses. So I do think that they're going to get front-loaded and back-loaded efficiencies through the network.

So it sounds like the biggest – we're still at the carrot phase of getting factors to join versus the stick phase. Is that fair? Yeah.

Yeah, and I don't think you build the best business models doing anything with a stick. That's just not in our DNA. It's not how we operate. We have a value proposition we've offered to shippers, brokers, carriers, and other factors. and when we tell you what the value is going to be, we're going to do our dead-level best to deliver it. And if that works for you and the way you run your business, because not every factor runs their business the same way, not every factor uses the same technological stack, technology stack, then I think that they can trust our brand reputation to do what we say we will do. But if they built their business a different way, then – I think they'll continue to operate it a different way. And ultimately, Joe, I think we talked a lot about network transactions. We still report it as a KPI. I'm not sure it's the greatest KPI as important as it once was. Since we gave it to you, we want to continue to give it to you. I think things that I focus on is what Todd disclosed earlier, which we need to put in the letter going forward, which is the percentage of actual payments that we are charging a fee on, because that means that demonstrates in black and white that the network has gotten more valuable. So in the end, the way the network is delivering value and is being monetized is not exactly what we thought it would be five years ago. But the long-term prospects are at least as rosy as we thought it was going to be five years ago.

Understood. Thanks for taking my follow-ups. For sure.

And the final question is from Donald Broughton at Broughton Capital LLC. Please unmute yourself and give me the question.

Ladies and gentlemen, the –

Oh, no, I thought that was going to be an extremely interesting question. Oh, heavens.

Well, we can work it into one. It sounds a little bit like the qualified versus unqualified opinion by an auditor, right? I read it a couple of times. I'm like, I think I know what it means, but indulge me. What does that mean?

Okay, I am so sorry, but first of all, what we saw on our side was a picture of two very attractive dogs when you started the question. Yeah, and then it went blank. The audio went down for a second. Sorry, indulge you about what does what mean.

Oh, it's one of those things that's kind of like a qualified or unqualified opinion by auditors. I know it's counterintuitive. I sat there and read it a couple of times. The negative credit loss expense. And that bit of it.

Go ahead. A negative credit loss expense just implies that we had greater recoveries than we did new provisions or charge-offs. It was recoveries of prior period expense that we took.

That would have been my guess, but it was like I really don't know. And don't feel special playing companies out there, GE and others, who had all kinds of issues with, say, these other things. Can you explain a little bit more about the risk aspect? in that business? Is it duration matching what you're borrowing and what you're lending at? Is it improperly assessing the credit worthiness of the person you're lending? Is it the assets underlying? Where is the risk exactly?

If you're referring to our credit loss expense in aggregate, I would say it's the second of those things. It's understanding the risks associated with the underlying borrowers. We lend in a lot of different ways to a lot of different clients, and looking specifically at those clients within each of those businesses is the most important thing that we do. It's not really about duration. Duration plays to our advantage because we have very, very short duration on average, specifically in our factoring business and the mortgage warehouse. And so as we think about how we manage credit risk going forward, We're focused on things, first of all, that are aligned with our transportation strategy. So those are areas where we're going to tend to lend more and more over time. And we will continue to lend in other areas that provide other strategic benefits to us. So if you take the community bank, for example, that is the source of our low-cost deposits, which really is valuable to the enterprise as a whole. Other lending businesses may contribute to the business, but it's very important for those businesses to have very tight credit policies and discipline to avoid creating any noise or distraction for management or for investors. And so that's how we look at those businesses.

So the AVL business, I would think that that would be not necessarily what you want to be pursuing the most, but isn't it just kind of a complementary business to the things you're doing? If I'm using you to factor freight bills, then I own trucks and trailers, and those are assets you obviously understand.

Sure. The ABL business, we did expect to have strategic benefit to transportation. You can think of other offerings, ABL light, ledger lines, things like that, that might work with clients that no longer need factoring or for which those offerings would be a better solution than factoring. In practice, that hasn't really played out. We haven't seen that really take off. And so we've been left in the ABL business with non-transportation related exposure. And so, yeah.

Okay, that makes a lot more sense. I would have thought it would have been something complementary to your business, but, you know, like many businesses, you think that's going to be a great thing, and you're walking into it, and then you spend a little time there, and you go, well, not quite what I planned. But anyway, congrats on a good quarter. Thanks for answering the questions. Of course.

There are no more questions at this time. I would now like to turn the call over to management for closing remarks.

Thank you all for joining us. Stay warm and we'll see you next time.