Stronger market helped Triumph in 2Q, Graft stresses other factors

The complex lengthy letter from CEO and founder Aaron Graft to the shareholders of Triumph Financial this quarter touted the benefits from a stronger freight market, but not too much.

Graft's letter, which tries to both explain and defend the performance and strategy at a company that operates a bank but is ultimately like no other in the logistics field, acknowledged in one of his first paragraphs that "market conditions have become more favorable for Triumph's earnings."

But he quickly added that "over 30% of the revenue growth we have experienced in transportation year-to-date has come from organic growth."

More of the focus in the letter was on a concept Triumph first introduced last quarter : the North Star Metrics.

It is a set of long-term targets, and Triumph (NASDAQ: TFIN ) did well in meeting them in the second quarter.

Transportation revenue growth, with a long-term target to grow 15% annually across all the transportation businesses. That grew 30.9% in the second quarter year on year.

Factoring operating margin, with a 40% target. Actual performance in the second quarter just fell short.

Payments EBITDA excluding (for now) its LoadPay digital wallet offering, with a 50% target. It came up well short with 34% in the quarter.

The fledgling Intelligence unit, with a target of 85% and a second quarter year-on-year performance that was just shy of that.

He referred to the metrics as constituting Triumph's "value chain": audit, payments (both activities are in the company's Payments segment), liquidity (provided mostly by Factoring), digital banking (LoadPay) and Intelligence.

"Triumph's value chain moves money and data along the line of supply from shippers to carriers and injects liquidity as needed along the way," Graft wrote.

In the letter, Graft came back to the point that financial performance at Triumph is not 100% correlated with the strength of the freight market.

But the Factoring business' performance clearly benefited from a stronger freight market, which Graft acknowledged.

"Not all our transportation-related revenue is tied directly to freight invoice size," Graft wrote. "Portions of our business – particularly Payments, Intelligence, and Audit – generate revenue through transaction fees and subscriptions. That said, our Factoring business remains a significant contributor to earnings, and it benefits meaningfully when invoice sizes increase. The operating cost structure of Factoring is directionally fixed, which means increases in invoice size tend to flow through to revenue with little corresponding increase in expense beyond funding costs."

Triumph's average transportation factored invoice in the quarter was $2,160, up 23.4% from the fourth quarter. (The first 17 days of July saw that rise further to $2,210.)

Diesel during the month was up about 30% on average. And while diesel prices are embedded in a factored invoice, Graft did not mention them in his letter. (Diesel is up significantly from July 1, which presumably contributed to the higher invoice price in the first 17 days of the month).

Graft said a $100 shift in invoice prices "moves our annual pretax income by approximately $7 million."