The second quarter earnings call of Triumph Bancorp (NASDAQ: TBK) was notable not so much for the financial numbers that were discussed. Rather, it served as a sort of kickoff to a company that has been radically transformed in the past year, with two key acquisitions that make the topics of discussion on such a call much different than what would have been discussed just 12 months ago.

One acquisition grew the size of the bank’s factoring book: the July 2020 purchase of the factoring business of Covenant Logistics (NASDAQ: CVLG), a transaction that was not without difficulties (and still has a few outstanding loose ends, according to the company’s earnings report). 

The second is more recent: adding the open loop payments processing capabilities of HubTran to TriumphPay, the quick payments division of Triumph that has been the focus of much of the company’s growth strategy. The acquisition was announced in April and closed in June. 

With all of that now under the Triumph umbrella, it gave CEO Aaron Graft a good opportunity on the company’s earnings call with analysts this past week to further spell out the vision of the much larger and much different company.

The growth in the book of business at Triumph Business Capital, the bank’s factoring arm, has been impressive. While the Covenant acquisition is part of it, the fact is that Graft did not mention Covenant by name during the call.

And the size of the Covenant purchase is starting to look relatively small compared to the overall growth of the factoring book at Triumph Business Capital. For example, at the time of the acquisition, the companies said Triumph was acquiring more than $100 million of receivables. A year ago, that was a big part of the business. Triumph reported $532 million of factored receivables at the end of the second quarter 2020. At the close of the second quarter of 2021, however, receivables stood at $1.28 billion. 

On the conference call, Graft said the second quarter had several days in which its purchase of invoices topped $50 million, averaged close to $48 million and saw the company’s list of active clients top 10,000. By comparison, the number of clients in the first quarter was 8,835, and was 6,302 in the second quarter of last year. 

“This is a significant lift versus any prior period in our history,” Graft said.

The growth in the book is fueled in part not only by volume of invoices purchased but also their size, which in turn is lifted by rising freight rates. Graft put a specific number on the impact of rate increases on Triumph’s bottom line: a $100 increase in the average price of an invoice lifts the company’s annual earnings per share by about 26 cents per share. 

And that growth in the average invoice size has certainly been enough to have a significant impact on the company’s EPS. The average invoice size in the second quarter rose to $2,189 from $1,524 in the second quarter of 2020. For the quarter, the parent Triumph Bancorp’s average diluted earnings per share was $1.17, working out to $4.68 on an annualized basis.  The impact then of adding $665 to the average invoice over the course of a year–about $1.72 per share–is significant.

The earnings call was the first since the acquisition of HubTran closed June 1. 

Previously, the core trucking-focused business of Triumph could be summarized as factoring loans from Triumph Business Capital often processed through TriumphPay, if a driver or broker had chosen to have TriumphPay process the funds. 

From the perspective of trucking, the company is providing factoring loans from Triumph Business Capital to a larger pool of customers, bolstered by the Covenant acquisition, but the loans won’t receive favorable processing treatment by the combination of QuickPay and HubTran. Graft has made clear in other discussions that bringing the open loop system of HubTran into the payment processes of Triumph would offer no specific advantage to Triumph’s factoring business; it would be open to all factoring companies. 

On the call, Graft said the company now has 60 factoring clients and 482 brokers who are using either TriumphPay, HubTran or both. “Our focus going forward is to create full product relationships with each of them as we build out the network,” Graft said.

The potential–and the long climb ahead–was evident in a slide presented by the company in conjunction with the earnings call. Among the top 25 brokers, six are using TriumphPay, 10 are using HubTrain, but only one is using both. Of the top 20 factoring companies, 11 are using HubTran, leaving 9 as what Triumph called “prospects.” (There are eight prospects among the top 25 brokers who are using neither HubTran nor TriumphPay.)

Graft spelled out the differences between TriumphPay and HubTran in detail. One aspect of the HubTran system, he said, is that it is an “audit function” that clients can use to be sure an invoice is in order before a factoring company actually purchases it. 

That’s different from TriumphPay, he said, which is involved in the “presentment” of invoices and their payment. However, it does not have the audit function that HubTran brings to the table. 

The merger of the two platforms is not expected until the first quarter of next year, Graft said. A quick boost to Triumph’s bottom line from the consolidation is a ways off, however. The consolidation is “exceedingly complex,” he said: “TriumphPay’s customers need to see the value we are offering in their bottom line before we can meaningfully see it in ours.”

Graft said the increased numbers of clients and the number of invoices processed are a function in part of the number of drivers who are going out on their own in the current strong freight market. One of their first needs: liquidity. “That creates a bit of a perfect storm for us,” Graft said. 

Although the factoring business has always been seen as one in which the customers are carriers or brokers, Graft has spoken about trying to bring shippers in as clients as well. What the company has learned in paying carriers and brokers can be transferred to shippers, Graft said on the earnings call. He noted that by sometime within the next 12 months, Triumph is likely to have paid 90% of all “active truckers.” “Those truckers don’t just haul in brokered freight, they haul in contract and brokered freight,” Graft said. 

Graft mentioned one other notable shift: a significant change in the company’s financial reporting structure. In particular, the payments segment that includes TriumphPay will be broken out separately, as will the factoring business from Triumph Business Capital.

 While the current financial reporting at Triumph does give specific figures on several factoring metrics, the new reporting method should give a clearer picture of how these two key legs at Triumph–payments and factoring–are performing. 

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