With its acquisition of Covenant’s factoring business now a done deal, Triumph Bancorp’s third-quarter earnings call focused on the future, with TriumphPay a focus of its growth plans.
The overall numbers for Triumph Business Capital — the traditional factoring business at Triumph Bancorp — and TriumphPay marked significant increases over prior quarters and the prior year. While many of those numbers were first disclosed late Monday when Triumph Bancorp released its earnings, the conference call gave its executives an opportunity to reveal other statistics and talk about their plans for TriumphPay.
On the call, Aaron Graft, Triumph Bancorp’s CEO, went through other numbers that showed the third quarter was a knockout three months for factoring. The dollar volume of invoices purchased by Triumph during the quarter was $1.98 billion, up 60% from the second quarter of this year and 37% more than the third quarter of last year.
Part of that increase was as a result of the Sept. 30 closing of Triumph’s acquisition of Transportation Financial Solutions (TFS) from Covenant. But Luke Wyse, the company’s director of investor relations, said there was significant organic growth at the company beyond the acquisition.
While some of that increase could be attributed to invoices carrying a larger amount due to higher freight rates, the outright number of invoices purchased rose as well, Graft said. Triumph purchased 1 million invoices during the quarter, up 26% from the second quarter of this year and 15% from the third quarter of last year.
And driven in part by the higher freight rates, the average size of the invoices rose consistently for Triumph. The average factored invoice for Triumph was $1,931 for the quarter, though roughly 12% of that is non-transportation business. The average size of the invoice climbed consistently through the quarter, to $1,820 in July, $1,968 in August and $2,127 in September.
The average invoice for transportation was $1,787, up from $1,378 in the second quarter.
Triumph Business Capital and TriumphPay are “two sides of the same coin,” Wyse told FreightWaves in making a distinction between the two groups. He said TriumphPay, rolled out in 2017, “embeds itself with the broker to pay all the brokers carriers and offer a revenue share with the broker for those quick pays that are selected by the carrier. This is cheaper for the carrier and doesn’t require the broker to allocate their balance sheet for an in-house quick pay program.” (The words quick pay and factoring are often used interchangeably to describe the same process.)
Triumph Business Capital views carriers as its direct customer in which there would be a “traditional carrier factoring relationship,” Wyse said.
Graft spent a lot of time on the earnings call talking about TriumphPay. The platform is offered free to brokers, who can then use it to allow carriers to have quick payments as part of the entire relationship with their broker. The alternative has been for a carrier to set up a separate factoring relationship with a factoring company.
During the quarter, TriumphPay’s payments were $1.2 billion, rising 74% from the second quarter and up more than fivefold since last year.
Graft said TriumphPay had signed up a fourth tier-one broker — Redwood Logistics — to offer TriumphPay services. That would make four of the top 20 brokers in the business using TriumphPay, he said, with four additional unidentified brokers from the top 20 in various stages of integration. Those four are expected to be live by the end of 2021’s first quarter, Graft said.
“That will move us much closer to becoming the nexus of billing and payment for the trucking industry,” Graft said on the call, a transcript of which was provided by SeekingAlpha.
The run rate at TriumphPay in the quarter annualizes out to $4.8 billion. But Graft said the company’s target for TriumphPay is an annualized run rate of $7 billion or more by the end of the year. While that may seem a reach, Graft noted in answering an analyst’s question that September’s annualized run rate was $5.7 billion.
Profitability for TriumphPay is targeted in the “back half” of 2021, Graft said.
TriumphPay is also in the process of rolling out its Select Carrier program. Under it, carriers that become Select Carrier clients can have their invoices paid quickly by a broker on TriumphPay.
Graft said Select Carrier is getting close to 3,000 carriers signed up for the program, with a goal of 8,000 by the end of the year. He said that number would be accelerated by bringing large brokers into TriumphPay that the company is courting.
That creates a network effect. While Graft didn’t use that term, what he described is largely the same thing. “It’s sort of the virtuous cycle,” he said. “The more carriers that do that and the more brokers that come on the system, the more automatic quick pay becomes part of your daily process, which drives profitability.”
And then there’s the fact that if a carrier has chosen to become a Select Carrier now, even if the base of brokers using TriumphPay is relatively limited, there may be a near-automatic tie-in to TriumphPay later. As Graft said, if a carrier signs up with Select Carrier now and then one of its brokers signs up with TriumphPay, “they are almost treating TriumphPay as their source of financing as long as they’re hauling for a TriumphPay broker.”
Graft said TriumphPay is a product that doesn’t have one-for-one competitors. “We’re penetrating a part of the market that’s previously been untouched by ourselves or other competitors in the factoring space,” he said. “So that’s exciting to us because that’s new territory.”
Graft did concede that the strong quarter was a “perfect storm” that featured a “liquidity surge, low capacity, unique consumer behavior, inventory restocking and seasonal holiday builds.” Current spot rates might not be “sustainable in the long run,” he said.
Graft added that even if the TFS acquisition is set aside, the total invoices purchased and the fees generated in October are trending above the third quarter.
Wyse told FreightWaves that about 50% of all loads are factored. The ultimate goal for TriumphPay is to have those brokers who sign up for the program process 20% of their customer base through TriumphPay.
Graft said that some of the brokers on the system are now processing as much as the “high teens” through the platform.