Editor’s note: the article has been changed to reflect that the year on year comparisons in the first three paragraphs are quarterly comparisons, not annual comparisons.
There are a lot of numbers in the quarterly earnings report of Triumph Bancorp. But the one that clearly matters most for the long-term strategy of the company is 21.7%.
That is the quarter-on-quarter volume growth of what are known as “conforming payments” on the payments network of TriumphPay, the invoice processing and payment arm of Triumph Bancorp (NASDAQ: TBK) that last year was radically changed by the acquisition of HubTran.
Another separate but significant number is 6.6%. That is the growth in total volume quarter on quarter handled by TriumphPay, not all of it conforming payments.
The Triumph earnings statement is now fashioned as more of a letter to investors — and it’s fairly lengthy — from founder and CEO Aaron Graft. There also is a call with investors that now is a live video presentation, with five members of the Triumph team seen onscreen, as are the analysts who ask questions.
In the letter, Graft laid out the actual numbers for that 20%-plus increase. The conforming transactions that utilized the core of the former HubTran network rose to 144,523 in the third quarter from 118,580 in the second quarter. The dollar volume processed on the network rose to $288 million from $253 million. That is more than double the second-quarter dollar volume of this year, which was the first three-month period during which the company broke out conforming volume.
By September, the annualized run rate was at $1.2 billion, Graft said.
During the call with analysts, TriumphPay President Melissa Forman said no fourth-quarter deals with the larger Tier 1 brokerages — which Graft described as more than $500 million in freight spend — are expected to be announced, describing it as a quarter in which peak season consumes those brokerages’ focus.
But Forman said the network added 18 brokers of all sizes in the quarter. And in his letter, Graft said the gains in volume and revenue were accomplished by “booking a series of small wins while progress continued on achieving bigger wins.”
That allowed growth even though Graft said outbound tender volumes were down about 3% during the quarter, payment volume was down 1.4% to an annualized rate of $23.8 billion, and the average invoice price dropped 7.3%. The 6.6% invoice processing volume growth also contributed to the overall growth numbers with the network.
As far as growth, “our pipeline here remains full,” Graft said.
A selling point of the network combination with HubTran is the ability to provide a larger range of data to the counterparties using the system.
Forman said more than 34% of those payments are “conforming-enabled” with the network, “which means the payee on the receiving end of those transactions can get access to the data we provide in the network.”
One of those areas where information can be shared to users of the network is fraud, and Forman addressed it in the earnings call.
“There is so much activity, fraudulent activity in the industry today,” she said, according to a transcript of the call. “And as times get tougher in transportation, they’re just going to continue to grow. And we see daily opportunities for us to be able to share information with our customers about carriers that have bad behavior or that look like they’re doing something wrong.”
Forman also put numbers on the size of a factoring company’s invoices that would need to go through the TriumphPay system to reach a critical mass that can provide benefits beyond processing.
When a factoring company and a carrier get to the point where at least 15% of their payment volume is conforming on the network, “that’s really going to be where it moves the needle and allows them to be able to make meaningful changes to their day-to-day processes and allow them to innovate and create more efficient ways to do business,” Forman said on the call.
Why 15%? Because the actual factoring arm at Triumph Bancorp, which is called Triumph Business Capital (TBC) is getting about one in six of its payments processed by TriumphPay. “And that would be a wonderful proxy for the rest of the industry,” Graft said.
On average, that number is now at 5% among TriumphPay clients, Forman said. Graft described a conforming payment as one “where the payor has given us both the remittance information and the audit information.”
Given the vast number of invoices Triumph sees, either through TriumphPay or TBC, its views on the strength of the market are always notable. Among the highlights:
— The average invoice handled by TBC was $2,073 in the quarter. A year ago it was $2,195. In the second quarter, it was $2,401. That number for the third quarter is getting toward a bottom, according to Graft. “I struggle to see how we will return in the spot market given current market conditions to $1,500, $1,600 or $1,700 invoices,” he said. “No matter how soft the market gets, people are not going to haul freight at a rate at which they’re losing money. So this is not an economic prediction. But I think I think you’re going to anchor around that $2,000 number.”
— The decline in freight rates is starting to show up at TBC. September’s gross revenue was $17.2 million, 8.2% less than a year ago. October is already tracking down 19% from a year ago, Graft said in his letter.
— Nonperforming loans at TBC in the quarter came in at 1.26%, showing some deterioration from prior quarters this year, which all have been around 0.9%.
— For the quarter, the average yield was 14.11% on a factored invoice. That is up from 13.75% a year ago but down slightly from the prior three quarters.
— Carriers that had grown because of higher rates and were more qualified to enter into more bank-based financing are now struggling to keep the covenants that were part of their arrangement with their lender. The result? “They return to factoring,” Graft said.
— About 65% of TBC clients generate less than $1,000 per month. But Graft said there is a future with them. “The seed of today is the tree of tomorrow,” he said.