Watch Now

Soothing market’s nerves will be challenge for Triumph’s HubTran acquisition: CEO

Aaron Graft has been assuring users HubTran’s open loop system will not be giving Triumph’s factoring business an unfair advantage

Photo: Jim Allen/FreightWaves

The earnings call of Triumph Bancorp (NASDAQ: TBK) Thursday morning, a day after it released its first-quarter financial report, was likely the last of its kind: the final campfire chat with analysts about a company that is about to shift its focus toward making more of its money as a fintech story that grows through the generation of financial transaction fees.

Triumph bought payments processor HubTran in the first quarter, and CEO Aaron Graft said on the earnings call that he expects the transaction to close in the second quarter. The goal in the HubTran acquisition was to merge it into the operations of TriumphPay, the division of Triumph Bancorp that has been the focus of its growth as a speedy processor of factoring payments made to brokers and shippers in order to get cash into the hands of fleets quicker. 

HubTran brings Triumph an “open loop” payment system and its services will be available to other factoring companies. But that means some things in the existing Triumph structure will need to change, and those shifts were discussed extensively on the call, the first since the acquisition was announced.

When Triumph made the announcement of its acquisition, it emphasized that the open loop system of HubTran would put the factoring business at Triumph — Triumph Business Capital — on the same basis as all other factoring companies using the system. On the call, Graft sought to drive home that point again and said allaying those fears with other factoring companies has been a major focus of recent Triumph efforts.

“They know us to be a formidable competitor through Triumph Bancorp, and all of them wanted clarity on what does this mean for them,” Graft said about factoring companies that were now using the HubTran platform. “They wanted to know whether this meant that Triumph was going to take away the features and tools that the factors now use with HubTran.”

More starkly, Graft said, other factoring companies wanted to know whether Triumph “was going to weaponize our data against us.”

Graft said Triumph has been meeting with users of the HubTran system “face-to-face” with a message: “We would never spend the kind of money we did on HubTran, buying on a technology multiple, to turn around and destroy its base for a lead generator.”

The CEO said he believed that message is getting through. “I think we do have relationship capital with the industry that we have always done what we said we would do,” Graft said. 

Even if the use of the HubTran system to be embedded in TriumphPay won’t change, the acquisition is going to shift the structure of Triumph Bancorp, Graft said. 

As Graft said, the performance indicators of TriumphPay will change. The primary product at TriumphPay has been quick pay services, bringing in invoices from brokers and shippers to process their obligations and get money rapidly in the hands of drivers. But as Graft noted during the call, generating fees from financial transactions using the HubTran platform within TriumphPay will now be the focus. 

At another point in the call, Graft reviewed the economics of current invoice processing. The estimate that Triumph used in its calculations is that processing an invoice now contains about $60 of what he called “liquidity and friction” costs. 

There is nothing that can be done about the liquidity costs, he said. But he said the $30 in friction costs can be reduced drastically by an open loop system that eliminates such low-tech operations as phone calls and emails to brokers and shippers. 

Additionally, there is a fraud risk in the current system that can be sharply mitigated by the technology that HubTran acquisition brings, Graft said. 

Eliminating or greatly reducing those friction costs is the “value proposition” of the HubTran acquisition and integration, he added.

Graft spent time on the call assuring analysts that the primary factoring business, Triumph Business Capital, is not going away despite the emphasis that it will not have a special seat at the table with the combined TriumphPay and HubTran. He said the team at that group is “amazing” and that the way it had continued to operate and thrive even as TriumphPay became more of the focus of the parent corporation was striking. “There are very few companies that can incubate a fintech operation and still deliver returns on common equity more than 20%,” he said. 

But one thing has changed: Triumph Capital is not looking to make acquisitions in the factoring sector. Given the work ahead in the planned growth of TriumphPay with HubTran merged into it, the interest in acquiring assets in the highly fragmented factoring business is “probably lower than it has ever been in the past,” Graft said. 

Making more acquisitions might also help damage the message that Triumph is hoping to make with existing factoring companies: that the platform after HubTran is acquired and integrated is open to all and is not a tool to give an advantage to Triumph Capital. “We need to demonstrate that we have their best interests in mind rather than going out and buying a bunch of competitors,” he said. 

On other issues, Graft reviewed the state of the charges connected to the acquisition of the factoring business of Covenant Logistics (NASDAQ: CVLG). Those figures were detailed in the earnings released the day before.

But he went a step further and described the acquisition as a “mess.” However, he also praised the leadership of Covenant as some of the “finest people” he has worked with and said they had exhibited high levels of integrity through the “workout” of the problematic factoring customers. 

Addressing the current market, Graft said he doesn’t believe the average invoice size will “appreciate upward materially from here, but I don’t think they wil go down from here.” Utilization rates will stay high, “and there are really strong secular things going on that appear to be setting us up for a very good year for freight.”

The average transportation invoice handled by the company in the first quarter was $1,974. That is a significant increase from the $1,481 in the corresponding quarter of 2020. 

More articles by John Kingston

U.S. Bank rolls out cafeteria-style payment system for carriers

Drilling Deep: the scattered factoring business might become a lot more unified

Everything was bigger in fourth quarter for factoring business at Triumph

John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.