WEBVTT - Triumph Sees Structural Freight Tightening 0:00:07.760 --> 0:00:10.600 Hi everyone, This is Lee Clasgow and we're Talking Transports. 0:00:10.680 --> 0:00:14.080 Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host, 0:00:14.240 --> 0:00:18.840 Lee Clascow, Senior Freight transportation logistics Analysts at Bloomberg Intelligence, 0:00:18.880 --> 0:00:21.639 Bloomberg's in house research arm of almost five hundred analysts 0:00:21.680 --> 0:00:25.239 and strategists around the world. A quick public service announcement 0:00:25.280 --> 0:00:28.160 before we dive in. Your support is instrumental to keep 0:00:28.160 --> 0:00:31.560 bringing great guests and conversations to you, our listeners, and 0:00:31.640 --> 0:00:34.520 we need your support. So please, if you enjoy this podcast, 0:00:34.920 --> 0:00:37.440 share it, like it and leave a comment. Also, if 0:00:37.479 --> 0:00:40.040 you've got ideas, feedback, or just want to talk transports, 0:00:40.159 --> 0:00:42.199 I'm always happy to connect. You can find me on 0:00:42.240 --> 0:00:46.400 the Bloomberg terminal, on LinkedIn, or on x at Logistics. Lee. 0:00:46.520 --> 0:00:49.760 Today we're doing something a little different. You get too 0:00:49.800 --> 0:00:52.479 Bloomberg Intelligence Analysts for the price of one. With me 0:00:52.560 --> 0:00:57.240 today is Eric Biddell, Bloomberg Intelligence US MidCap bank Analysts. 0:00:57.320 --> 0:01:00.240 I invited him to join us because of our guest today. 0:01:00.440 --> 0:01:04.039 He straddles the freight in financial markets. With us today 0:01:04.160 --> 0:01:07.479 is Aaron Graft, the founder, vice chairman and chief executive 0:01:07.520 --> 0:01:11.120 officer of Triumph Financial, the company trades under the ticker 0:01:11.319 --> 0:01:14.200 tfi N and as a market cap of roughly one 0:01:14.240 --> 0:01:18.320 point five billion dollars. Welcome to Talking Transports. 0:01:17.800 --> 0:01:20.520 Aaron, good morning, and thank you for having me. 0:01:21.000 --> 0:01:23.679 And Erica welcome to the podcast as well. Thanks for 0:01:23.760 --> 0:01:25.360 joining us, Thanks for having me. 0:01:25.560 --> 0:01:28.680 I feel good about being able to connect a banking 0:01:28.720 --> 0:01:31.920 analyst and a transportation analyst like this is my dreams 0:01:31.920 --> 0:01:34.040 are coming true. 0:01:34.520 --> 0:01:38.080 Well, you know, Triumph, maybe everybody doesn't know what you 0:01:38.120 --> 0:01:41.040 guys do. Can you just give us a quick synopsis 0:01:41.200 --> 0:01:41.840 of the company. 0:01:42.600 --> 0:01:47.360 Sure, so, while on bank and that that part is 0:01:47.720 --> 0:01:52.000 a given. What makes us different is so much of 0:01:52.040 --> 0:02:00.600 our business is about about handling facilitating the payment of 0:02:00.680 --> 0:02:03.720 invoices in the trucking industry. So specifically, what do we 0:02:03.760 --> 0:02:09.560 do in transportation and specifically over the road trucking. I mean, 0:02:09.600 --> 0:02:15.280 you're talking about a massive industry we touch, you know, 0:02:15.480 --> 0:02:21.160 about what seventy billion in freight annually. We either audit 0:02:21.200 --> 0:02:24.680 the invoices, we pay the invoices, we buy the invoices, 0:02:24.840 --> 0:02:28.960 or we aggregate the invoices to provide the market some 0:02:29.240 --> 0:02:32.679 intelligence about where the market is going. And that aggregation 0:02:32.960 --> 0:02:36.560 of data, in my opinion, and to my knowledge is 0:02:36.560 --> 0:02:42.040 probably the largest single point aggregation of data, especially for 0:02:42.160 --> 0:02:47.160 broker freight, but possibly of all the trucking industry. 0:02:47.520 --> 0:02:49.400 And could you just give us a little history, you know, 0:02:49.440 --> 0:02:52.560 because you're you're not like a bank that was established 0:02:52.560 --> 0:02:56.120 in the seventeen hundreds, so you're relatively new. Can you 0:02:56.280 --> 0:02:59.600 talk about, you know, the fact that you are a founder, 0:03:00.120 --> 0:03:02.000 you know when you founded it and why? 0:03:02.560 --> 0:03:07.720 Yeah? So I grew up in a rural part of Oklahoma, 0:03:07.960 --> 0:03:11.640 went to college law school, went to work at a 0:03:11.639 --> 0:03:15.240 big law firm. And one of the things you learn 0:03:15.360 --> 0:03:17.760 working at a big law firm, which was great people, 0:03:17.880 --> 0:03:24.120 smart people, great work, but you learn there that if 0:03:24.120 --> 0:03:25.920 you want to have a long career in law, you 0:03:25.960 --> 0:03:29.040 should be detail oriented and risk averse. And I was neither. 0:03:29.680 --> 0:03:33.120 So at twenty eight, I left with a laptop and 0:03:33.200 --> 0:03:36.839 started Triumph. Had no aspirations of being in banking, had 0:03:36.840 --> 0:03:41.600 no aspirations or understanding of serving the freight markets. What 0:03:41.960 --> 0:03:45.320 I started off doing was buying distressed commercial real estate 0:03:45.360 --> 0:03:48.400 debt because that's what I'd done as a lawyer. And 0:03:48.440 --> 0:03:52.400 then you know, I September of eight happened. Lehman failed, 0:03:52.440 --> 0:03:57.360 the world went, the world lost confidence and I was 0:03:58.160 --> 0:04:02.400 twenty nine years old, and I figured the best thing 0:04:02.480 --> 0:04:05.240 to do in the face of the greatest uncertainty that 0:04:05.280 --> 0:04:08.880 we'd seen, maybe since the nineteen thirties was just double down, right, 0:04:08.920 --> 0:04:11.720 because you're young. If you're wrong, you know, hopefully you 0:04:11.760 --> 0:04:13.280 got a chance to dig yourself out of it. So 0:04:13.320 --> 0:04:16.840 I went to my mentors and said, nobody wants to 0:04:16.839 --> 0:04:20.320 touch banks. Let's buy a bank. Let's find a bank 0:04:20.360 --> 0:04:24.039 that's in trouble with failing, a small, hopefully Dallas based 0:04:24.040 --> 0:04:26.719 bank is where I lived. And so that's what we did. 0:04:26.920 --> 0:04:30.000 We bought a very troubled small bank. It was very 0:04:30.000 --> 0:04:33.359 difficult to get regulatory approval, very difficult to raise the 0:04:33.400 --> 0:04:37.320 capitol because I was asking investors to back me in 0:04:37.360 --> 0:04:39.920 an endeavor and I'd never really worked in a bank. 0:04:40.600 --> 0:04:44.440 But we did get it done in twenty ten November 0:04:44.480 --> 0:04:47.200 of twenty ten. We spent a year cleaning the bank up. 0:04:47.800 --> 0:04:51.400 And during that period we came across this little business 0:04:51.839 --> 0:04:55.719 that factored trucking invoices. And you know factoring, if you 0:04:55.839 --> 0:04:58.560 dig into it, it's the oldest form of commercial finance. 0:04:59.080 --> 0:05:01.960 It's where you it's actually not lending, You buy the 0:05:02.000 --> 0:05:05.680 invoice from your customer, and then you collect from the 0:05:05.680 --> 0:05:08.160 party who your customer did the work for. And it's 0:05:08.160 --> 0:05:11.960 been around forever, and so this little business did this 0:05:12.279 --> 0:05:15.400 for the trucking industry, and it seemed to me that 0:05:15.480 --> 0:05:18.119 this was a great business to put inside a bank 0:05:18.200 --> 0:05:22.080 because the invoices turned quickly, the yields were very high, 0:05:22.880 --> 0:05:27.359 and so we bought it Friday, January the thirteenth of 0:05:27.480 --> 0:05:32.159 twenty twelve, and it was about forty million of invoices 0:05:32.200 --> 0:05:35.000 we were buying at the time. They turn every thirty days, 0:05:35.600 --> 0:05:40.480 and from that has come everything we've built since. So 0:05:40.800 --> 0:05:43.240 I know that I had no idea at the time 0:05:43.240 --> 0:05:45.640 what I was getting into, both the hard and the 0:05:45.680 --> 0:05:49.600 good and the opportunity of it. It was only much later, 0:05:49.720 --> 0:05:53.039 as we begin to live inside the trucking ecosystem that 0:05:53.080 --> 0:05:57.040 we saw the opportunity to grow and expand. So there 0:05:57.120 --> 0:06:02.039 was a lot of providence and luck in us being here, 0:06:02.360 --> 0:06:05.360 maybe more than I should give myself credit for coming 0:06:05.400 --> 0:06:07.800 into this with a fully developed plan, because that is 0:06:07.839 --> 0:06:08.599 not what happened. 0:06:09.279 --> 0:06:12.520 Well, it sounds like a great story, and so far, 0:06:13.080 --> 0:06:15.640 so good, I would say, given you know what I've 0:06:15.680 --> 0:06:19.120 seen about your earnings and the trajectory for your earnings. 0:06:19.720 --> 0:06:22.720 Could you know your your company? Lake you mentioned you're 0:06:22.760 --> 0:06:25.560 really involved in the trucking industry and you probably get 0:06:25.600 --> 0:06:28.599 to see a lot of interesting data. What is the 0:06:28.640 --> 0:06:32.039 information that you're seeing telling you about the freight markets 0:06:32.120 --> 0:06:32.559 right now? 0:06:32.920 --> 0:06:38.200 Freight markets right now are tightening in a way that 0:06:38.480 --> 0:06:43.200 we have not seen since twenty twenty one and or 0:06:43.240 --> 0:06:47.240 twenty twenty when when basically the government injected a tremendous 0:06:47.279 --> 0:06:50.360 amount of stimulus into an economy where people were home 0:06:50.440 --> 0:06:53.400 bound and needing to buy things. Beyond that, since the 0:06:53.440 --> 0:06:56.080 deregulation of trucking in nineteen eighty, I don't know if 0:06:56.120 --> 0:06:59.720 you've seen as many forces converging at one time. This 0:06:59.800 --> 0:07:04.360 is an incredibly unique situation, very different than twenty twenty 0:07:04.360 --> 0:07:06.719 and twenty twenty one, because this is not a demand 0:07:06.839 --> 0:07:13.520 driven spike. It is a supply driven spike, and a 0:07:13.600 --> 0:07:16.440 whole bunch of things are happening at one time to 0:07:16.720 --> 0:07:21.000 take capacity off of the roads, and that means that 0:07:21.040 --> 0:07:23.680 can mean multiple things, take it off the roads entirely 0:07:23.880 --> 0:07:29.280 for illegal carriers, et cetera, but also restrict carriers who 0:07:29.320 --> 0:07:32.480 can operate to operating within the parameters that they're supposed 0:07:32.480 --> 0:07:38.240 to observe. And as a result, freight rates are have spiked. 0:07:38.400 --> 0:07:41.720 I believe they are going higher. This will be inflationary. 0:07:42.240 --> 0:07:45.240 It is healthy for certain segments of the transportation market. 0:07:45.320 --> 0:07:48.680 It is painful for other segments. So it is a 0:07:48.720 --> 0:07:51.800 time of profound change for sure in transportation. 0:07:52.760 --> 0:07:55.800 And are you seeing I guess because of this and 0:07:55.880 --> 0:07:58.239 the information you see, are our truckers are their balance 0:07:58.280 --> 0:08:00.720 sheets in a better position today than they a year ago? 0:08:01.120 --> 0:08:03.760 Well, that's a great question. I mean, first of all, 0:08:03.760 --> 0:08:06.680 when you use the term truck or you're describing all 0:08:06.760 --> 0:08:11.080 of trucking. And what I would say is, in a 0:08:11.120 --> 0:08:15.800 given year, in our payments business, we're gonna pay about 0:08:15.840 --> 0:08:19.280 one hundred and thirty thousand carriers, okay, And a carrier 0:08:19.360 --> 0:08:22.679 might have one truck, they might have ten thousand trucks. 0:08:24.120 --> 0:08:27.640 Not all truckers are created equally. And you know, people 0:08:27.880 --> 0:08:31.440 quote the FMCSA data and how many trucking authorities are 0:08:31.440 --> 0:08:33.680 out there, and they quote these huge numbers, And I 0:08:33.720 --> 0:08:36.240 don't disagree that that's what the numbers are, but that's 0:08:36.520 --> 0:08:41.079 maybe somewhat like attendance or membership figures in a church. 0:08:41.520 --> 0:08:43.720 How many people actually show up on a Sunday like 0:08:43.760 --> 0:08:45.920 how many people are active in the market, And I 0:08:46.000 --> 0:08:49.080 promise you it is a much smaller number than what 0:08:49.240 --> 0:08:51.480 those numbers are being reported. We're going to run in 0:08:51.559 --> 0:08:54.640 a twelve month period, I would argue to you in 0:08:54.720 --> 0:08:57.559 the four higher market, there's less than two hundred thousand 0:08:58.000 --> 0:09:02.199 carriers that are active and moving freight. Now, when you 0:09:02.240 --> 0:09:05.400 ask about balance sheets, let's just first of all acknowledge 0:09:05.400 --> 0:09:08.760 that a single truck owner operator or someone with less 0:09:08.800 --> 0:09:11.920 than four trucks, which makes up ninety five percent of 0:09:11.960 --> 0:09:15.719 those two hundred thousand more or less truckers. I mean 0:09:15.720 --> 0:09:18.439 that balance sheet is really really a personal balance sheet. 0:09:18.880 --> 0:09:22.200 There's no company balance sheet, and so I don't know 0:09:22.320 --> 0:09:26.000 that those balance sheets. That's a hard thing to answer. 0:09:26.400 --> 0:09:29.360 The durability of small truckers to stay in the game 0:09:30.280 --> 0:09:34.000 despite really hard markets has impressed me for going on 0:09:34.080 --> 0:09:37.080 fifteen years. What generally happens is they pivot to do 0:09:37.160 --> 0:09:39.400 other things, They figure out how to park their truck 0:09:39.400 --> 0:09:41.800 when they can't make money driving their truck, and they 0:09:41.800 --> 0:09:44.200 stay alive. And that's not staying alive because of a 0:09:44.240 --> 0:09:49.480 balance sheet. They're staying alive because of their entrepreneurialism as 0:09:49.520 --> 0:09:51.760 it relates to the large asset carriers, the ones you 0:09:51.840 --> 0:09:54.120 and I can see that are publicly traded. I don't 0:09:54.120 --> 0:09:58.360 know that we've been in this long enough to speak 0:09:58.400 --> 0:10:01.320 to how much their balance sheets have changed, but certainly 0:10:01.800 --> 0:10:04.680 the earnings estimates for the asset based carriers have to 0:10:04.720 --> 0:10:07.480 go up in a market like this, and so you 0:10:07.520 --> 0:10:11.599 would expect that their balance sheets, their earnings, their multiples 0:10:12.040 --> 0:10:15.320 are all going to go up given what's happening in 0:10:15.360 --> 0:10:16.199 this marketplace. 0:10:16.800 --> 0:10:19.559 All right, great, I'm going to bring in Eric because 0:10:19.640 --> 0:10:21.920 I think he has some interesting questions that he wants 0:10:21.960 --> 0:10:23.280 to ask you about the company. 0:10:23.760 --> 0:10:27.120 Yeah, thanks, Lee and Eron. You know, I was really 0:10:27.120 --> 0:10:30.360 fascinated with Triumph from day one. When I learned about you, 0:10:30.600 --> 0:10:31.960 I was wondering if you could just talk to us 0:10:32.000 --> 0:10:35.800 a bit about why you started the payments network specifically, 0:10:36.440 --> 0:10:40.960 and you know what value that brings to your clients 0:10:41.000 --> 0:10:43.640 and also just all the participants in the network. 0:10:43.840 --> 0:10:47.480 Yeah, so let me answer that by and I think 0:10:47.480 --> 0:10:51.000 this is relevant to you both. Think about how freight 0:10:51.400 --> 0:10:55.079 and specifically the payments in freight moves. You start off 0:10:55.080 --> 0:10:58.679 with a shipper, that's the person who makes the thing, right, 0:10:58.720 --> 0:11:02.800 whether they're distributor manufacture, whatever they are, and the shipper 0:11:03.640 --> 0:11:06.199 is going to tender freight either to a carrier or 0:11:06.240 --> 0:11:10.200 a broker or some carriers who have a brokerage within them, 0:11:11.120 --> 0:11:14.360 and that's going to be just for farmers math Let's 0:11:14.400 --> 0:11:17.080 just call it that a two thousand dollars load, and 0:11:17.160 --> 0:11:21.120 in turn, that broker or either the carrier then hauls 0:11:21.120 --> 0:11:23.880 the load and gets paid, or in the case of 0:11:23.920 --> 0:11:26.760 the growing part of broker freight, that broker then turns 0:11:26.800 --> 0:11:31.720 around and needs to purchase capacity, purchase a truck to 0:11:31.800 --> 0:11:35.320 move that freight. And on a if it's if they're 0:11:35.360 --> 0:11:38.240 getting paid two thousand dollars to move the load, then 0:11:38.320 --> 0:11:41.079 ideally they're going to be able to buy a truck 0:11:41.120 --> 0:11:43.680 to haul that load at seventeen hundred dollars, in which 0:11:43.720 --> 0:11:46.120 case they would make a fifteen percent margin, right, and 0:11:46.160 --> 0:11:48.360 that's what they live off of. That broker has to 0:11:48.400 --> 0:11:51.800 be supported off of that. What's happened in the last 0:11:51.840 --> 0:11:55.440 twenty plus years is when the broker hired the trucker 0:11:57.000 --> 0:12:02.160 brokers weren't actually paying truckers brokers. It turns out seventy 0:12:02.200 --> 0:12:05.000 five percent of the time ish this is an approximation 0:12:05.400 --> 0:12:09.800 well paying factoring companies because these companies had come in 0:12:09.920 --> 0:12:13.360 and become the financing partners for the small trucking industry. 0:12:13.840 --> 0:12:16.920 So now you've got shipper tendering money. It's tendering freight 0:12:16.960 --> 0:12:20.680 to a broker broker then hiring a trucker to haul it, 0:12:21.280 --> 0:12:23.200 and then when the broker needs to make the payment, 0:12:23.280 --> 0:12:25.760 they're not paying the trucker. They're not paying their vendor. 0:12:25.800 --> 0:12:28.720 They're paying a factoring company who charged let's just say 0:12:28.720 --> 0:12:31.480 a two percent discount. So if that was a seventeen 0:12:31.559 --> 0:12:35.160 hundred dollars invoice, then the factoring company made thirty four 0:12:35.240 --> 0:12:38.680 dollars to provide instant liquidity to the trucker. And so 0:12:39.200 --> 0:12:42.600 what started out as a two thousand dollars transaction between 0:12:42.600 --> 0:12:45.960 a shipper and a broker ends up by the time 0:12:46.000 --> 0:12:49.640 it makes it into the carrier's pocket book, is sixteen 0:12:49.720 --> 0:12:53.160 hundred and fifty six dollars, right, because the broker had 0:12:53.160 --> 0:12:55.640 to make their margin, factor had to make their margin. 0:12:56.280 --> 0:12:59.199 So Triumph got wool and Gillet at being the factoring 0:12:59.280 --> 0:13:02.720 company two small truckers. We're the second largest in North 0:13:02.720 --> 0:13:06.080 America and probably the world. We buy a billion dollars 0:13:06.480 --> 0:13:12.520 of invoices a month. So what you find when you 0:13:12.559 --> 0:13:15.400 do that is it's a very high margin, high turn business. 0:13:15.559 --> 0:13:18.760 If you cover banks, you understand we're making well collecting 0:13:18.800 --> 0:13:21.880 out every thirty three days, so the yield is dependent 0:13:21.960 --> 0:13:26.080 upon how quickly we're collecting. Your biggest expense, or one 0:13:26.120 --> 0:13:30.920 of your biggest expenses, is the cost of sales. You 0:13:30.960 --> 0:13:34.880 can onboard a new carrier, and the average duration that 0:13:34.880 --> 0:13:37.360 that carrier will stay with you is twenty two months, 0:13:37.720 --> 0:13:40.040 and that's actually the averagest sort of lie. What it 0:13:40.040 --> 0:13:41.920 really is is a barbelle. You end up with some 0:13:42.080 --> 0:13:45.200 carriers who only stay with you three months because they 0:13:45.200 --> 0:13:47.240 find out they don't want to run under their own authority, 0:13:47.760 --> 0:13:49.760 or you know, any number of reasons, and they go 0:13:49.800 --> 0:13:51.720 work for someone else. And then some stay with you 0:13:51.760 --> 0:13:55.160 for years. So when I stepped back and looked at it, 0:13:55.200 --> 0:13:57.000 and it wasn't just me, but as a team we 0:13:57.000 --> 0:13:59.439 stepped back and looked at things. We said, look, we 0:13:59.520 --> 0:14:03.120 got all the carriers, like today, Triumphs serve seven two 0:14:03.240 --> 0:14:06.600 hundred carriers in our factoring business, and those seven two 0:14:06.679 --> 0:14:10.800 hundred carriers own about sixty thousand trucks. But there's churn 0:14:10.960 --> 0:14:13.600 all the time. You know, we said, you know where 0:14:13.600 --> 0:14:16.920 that actually we should go. Let's go to the freight 0:14:17.040 --> 0:14:21.320 brokers and offer to make all of their payments to 0:14:21.440 --> 0:14:25.200 their carriers, and let's do it at the time, let's 0:14:25.200 --> 0:14:28.440 do it for free. And people were like, that's that's 0:14:28.440 --> 0:14:31.360 a crazy idea. Why would we do that? And I said, well, 0:14:31.360 --> 0:14:35.120 the reason is we know that seventy five percent of 0:14:35.160 --> 0:14:40.480 those payments are new liquidity injected into them. In other words, 0:14:41.080 --> 0:14:43.160 the trucker was never going to be able to wait 0:14:43.240 --> 0:14:44.960 thirty days to get paid or if you haul for 0:14:45.040 --> 0:14:47.880 anheuser bush forty five days to get paid. And so 0:14:48.000 --> 0:14:52.880 we will create an embedded supply chain financing opportunity, call 0:14:52.920 --> 0:14:55.880 it reverse factory. I mean, it's the same transaction. It's 0:14:55.880 --> 0:14:57.920 just whether you're on the payor or the pay east 0:14:57.960 --> 0:15:01.840 side and let's go bill this. And so that's what 0:15:01.880 --> 0:15:06.640 we started to do. And that when and you learn 0:15:06.680 --> 0:15:08.280 a lot of things. Right when you walk up to 0:15:08.320 --> 0:15:11.240 a fortune one thousand company and you say, outsource all 0:15:11.280 --> 0:15:15.200 of your payments to me, that's a big thing. And 0:15:15.240 --> 0:15:19.400 what makes it unique is supply chain finance. The big 0:15:19.440 --> 0:15:21.720 banks have been in this for years, right, They work 0:15:21.800 --> 0:15:25.400 with big companies manufacturing companies, and they do supply chain 0:15:25.400 --> 0:15:29.800 finance programs for their vendors. What's different here. A five 0:15:29.880 --> 0:15:36.000 hundred million dollar manufacturing company might have fifty primary suppliers 0:15:36.080 --> 0:15:40.120 or vendors that you need to onboard into its supply 0:15:40.200 --> 0:15:44.760 chain finance program. A five hundred million dollar broker probably 0:15:44.800 --> 0:15:48.040 worked with fifty thousand trucking companies in the last twelve months, 0:15:48.440 --> 0:15:51.440 and supply chain finance never had the technology or the 0:15:51.480 --> 0:15:55.960 infrastructure built in it traditional supply chain finance to handle 0:15:56.040 --> 0:16:00.000 fifty thousand vendors getting paid seventeen or eighteen hundred dollar. 0:16:00.640 --> 0:16:05.800 So we built a technology, product, ecosystem, and value chain 0:16:06.520 --> 0:16:09.760 that created a network that allowed the brokers and the 0:16:09.840 --> 0:16:12.800 carriers and the factors to all see each other and 0:16:12.960 --> 0:16:18.520 transmit information in a structured format and remove the friction 0:16:18.640 --> 0:16:20.800 from that process. That's why we did it. 0:16:21.280 --> 0:16:23.760 Yeah, you know, eron just a quick question. I mean, 0:16:23.800 --> 0:16:25.720 you know, you mentioned you know, you guys started as 0:16:25.760 --> 0:16:28.120 a bank, but would you consider yourself a bank, a 0:16:28.120 --> 0:16:30.400 fintech or something else right now? 0:16:31.120 --> 0:16:33.360 I mean I think what you are is what you do. 0:16:34.160 --> 0:16:38.000 So we're a financial technology company. We build financial technology 0:16:38.600 --> 0:16:41.200 that has created a network and a platform for the 0:16:41.200 --> 0:16:44.560 freight industry. We just happened to do that as a 0:16:44.560 --> 0:16:48.240 publicly traded bank, and I think this is a benefit 0:16:48.240 --> 0:16:50.200 that I never grew up in banking, so I didn't 0:16:50.200 --> 0:16:52.360 begin with a premise in mind of what a bank 0:16:52.400 --> 0:16:54.760 should look like. I don't think banks have to be 0:16:54.880 --> 0:16:56.760 box a box. I think a bank can be a 0:16:56.800 --> 0:17:01.440 bag and can be conformed to your ideas. So we 0:17:01.480 --> 0:17:04.040 are a bank, but what we build is financial technology 0:17:04.560 --> 0:17:07.840 for a very specific industry that happens to be a 0:17:07.920 --> 0:17:08.920 very large industry. 0:17:09.440 --> 0:17:12.160 So maybe if you could expand that a bit, what's 0:17:12.200 --> 0:17:16.520 the advantage of having a bank versus just being a fintech? 0:17:16.720 --> 0:17:22.040 Okay, So take a given invoice, and remember we started 0:17:22.080 --> 0:17:24.280 off with the two thousand dollars invoice that went from 0:17:24.280 --> 0:17:26.919 the ship, where became a seventeen hundred dollars invoice at 0:17:26.920 --> 0:17:30.239 the broker level, became thirty four dollars of revenue at 0:17:30.240 --> 0:17:33.080 the factoring company, which put sixteen hundred and fifty six 0:17:33.160 --> 0:17:37.520 dollars into the trucker's bank account. Chase that one step further, 0:17:38.640 --> 0:17:41.240 what does the trucker do with the money? Well, the 0:17:41.359 --> 0:17:43.840 number one expense that comes out of that sixteen hundred 0:17:43.840 --> 0:17:46.440 and fifty six dollars they're left with is to pay 0:17:46.520 --> 0:17:49.880 their labor. All right, So let's just roughly say that's 0:17:49.920 --> 0:17:54.119 six hundred dollars. What's their second biggest expense? Fuel? They 0:17:54.160 --> 0:17:56.320 got to go buy fuel, you know, whether it's depending 0:17:56.359 --> 0:17:59.199 upon the market. Of course, today's a very destorted market. 0:17:59.600 --> 0:18:01.760 Up to time, percent of their cost is going to 0:18:01.760 --> 0:18:04.800 be fuel. What happens after that, I've got insurance, and 0:18:04.800 --> 0:18:06.920 then I've got all the things that the trucker either 0:18:07.040 --> 0:18:09.959 needs to buy as an independent owner operator or as 0:18:09.960 --> 0:18:15.320 a company driver. And how does that money get spent? Well, 0:18:15.359 --> 0:18:18.119 if you chase it all the way down, it generally 0:18:18.160 --> 0:18:21.000 gets spent on a card. And if money is spent 0:18:21.040 --> 0:18:23.520 on a card inside a truck stop, either out at 0:18:23.560 --> 0:18:27.159 the high volume diesel pump or inside the store for 0:18:27.640 --> 0:18:33.840 coats and snacks and food, there are interchange fees right visa, MasterCard, 0:18:33.840 --> 0:18:38.560 et cetera. So Triumph now is involved in the ecosystem 0:18:38.720 --> 0:18:42.600 all the way from the shipper to the merchant, and 0:18:42.640 --> 0:18:44.800 which is why we built load pay. So we are 0:18:44.840 --> 0:18:48.080 both the issuing bank and the program sponsor for the 0:18:48.119 --> 0:18:51.720 card that the trucker uses. At the point of sale. 0:18:51.840 --> 0:18:54.200 You cannot do that unless you're a bank. If you're 0:18:54.240 --> 0:18:55.879 not a bank, you're a fintech. You got to go 0:18:55.880 --> 0:18:58.199 to someone as your banking as a service provider and 0:18:58.280 --> 0:19:01.320 you give away margin to them. As it is, Triumph 0:19:01.400 --> 0:19:03.600 keeps one point six to one point seven percent of 0:19:03.640 --> 0:19:07.120 the interchange fees which we use to help our truckers right, 0:19:07.160 --> 0:19:11.240 and we fund our business. Go one step back from that, 0:19:11.960 --> 0:19:16.560 the second revenue opportunity in factoring. The revenue opportunity is 0:19:16.600 --> 0:19:21.400 you exchange your balance sheet for a fee to give 0:19:21.480 --> 0:19:25.480 liquidity to the trucker. That's how factoring works in any industry, 0:19:25.520 --> 0:19:28.679 whether you're a bank or a commercial finance company, you 0:19:28.880 --> 0:19:31.040 have to have the ability. You have to have the 0:19:31.119 --> 0:19:33.959 funds in in order to be able to sell the funds. 0:19:34.280 --> 0:19:37.120 As I said, we buy a billion dollars of invoices. 0:19:38.440 --> 0:19:42.639 Actually today it's probably more like one point two billion 0:19:42.680 --> 0:19:45.480 dollars one point three billion dollars a month. Well, that 0:19:45.680 --> 0:19:48.720 money has to come from somewhere. If you're a commercial 0:19:48.720 --> 0:19:54.000 finance company, you're going to borrow that money from a litterer. 0:19:54.359 --> 0:19:57.439 If you're a bank, you're going to use your deposits 0:19:57.640 --> 0:19:59.679 and so if our cost of funds and a bank's 0:19:59.680 --> 0:20:01.840 one point point seven percent, I think is about where 0:20:01.840 --> 0:20:03.679 ours is right now, which because we have a very 0:20:03.680 --> 0:20:07.640 good deposit franchise and your yield on your factoring book 0:20:07.720 --> 0:20:10.640 is fourteen percent. I mean you've covered banks long enough 0:20:10.640 --> 0:20:13.600 to know that net interest margins spread there is extremely high, 0:20:13.920 --> 0:20:17.520 which is why our factoring segment generates pre tax ROAs 0:20:17.920 --> 0:20:21.520 return on average assets that are above four percent. You're 0:20:21.560 --> 0:20:26.280 doing it seventeen hundred dollars at a time, millions that 0:20:26.320 --> 0:20:29.480 will buy thirty three thirty four thousand invoices a day 0:20:30.200 --> 0:20:35.199 that you have to ingest, audit, reconcile, pay well. This 0:20:35.280 --> 0:20:38.439 goes back to the network and how we reduce friction 0:20:39.119 --> 0:20:43.040 from that experience. So all of the things we do, 0:20:43.560 --> 0:20:46.800 I suppose could be done by a non bank fintech 0:20:46.880 --> 0:20:50.320 financial company. But I want to tell you when we 0:20:50.440 --> 0:20:55.120 went to the largest users of our payments network. Think 0:20:55.160 --> 0:21:02.320 about H Robinson, RXO, JB Hunt traded companies. When you 0:21:02.440 --> 0:21:06.520 start to talk to them about making their payments, it 0:21:06.600 --> 0:21:11.399 is that's a significant financial counter party assignment for a 0:21:11.440 --> 0:21:14.720 free broker. It helps when you're a publicly traded bank. 0:21:15.800 --> 0:21:17.520 I'm not saying it couldn't be done, but it just 0:21:17.640 --> 0:21:20.439 I mean, because they know the regulatory audits we face. 0:21:20.840 --> 0:21:24.680 They understand we're connected to the banking rails, the FED ach, 0:21:25.240 --> 0:21:27.800 you know, all the things we can do, and so 0:21:28.320 --> 0:21:31.440 we have found it to be helpful to be a bank. 0:21:31.760 --> 0:21:34.239 I think we're fulfilling the mandate of what banks are 0:21:34.280 --> 0:21:39.520 supposed to do, injecting liquidity into a dynamic marketplace. And 0:21:39.600 --> 0:21:42.920 so we're very content being a bank and a financial 0:21:42.960 --> 0:21:44.600 technology company all at once. 0:21:45.080 --> 0:21:49.640 You know, you mentioned the broker industry a couple times here, 0:21:49.760 --> 0:21:52.720 and obviously there was a huge case that was decided 0:21:52.760 --> 0:21:57.480 on last week, the Montgomery case that was at the 0:21:57.560 --> 0:22:01.680 Supreme Court. How is is it going to impact your 0:22:01.720 --> 0:22:04.600 company at all? Is there a ripple effect to Triumph 0:22:04.680 --> 0:22:07.080 or is it just more or less going to provide 0:22:08.280 --> 0:22:12.440 some issues with the brokers that actually maybe might provide 0:22:12.880 --> 0:22:15.320 Triumph with some opportunities. 0:22:15.960 --> 0:22:21.960 Yeah. We generally try not to use a loud microphone 0:22:21.960 --> 0:22:25.159 and opine about things we fail to fully understand. And 0:22:25.200 --> 0:22:27.080 I hear a lot of people doing this about what 0:22:27.160 --> 0:22:29.480 this case is going to mean. Right now, everybody's become 0:22:29.560 --> 0:22:34.600 constitutional law experts and freight experts and experts on business 0:22:34.600 --> 0:22:37.240 outcomes and all the things. So, and here's what we know. 0:22:37.960 --> 0:22:40.640 One of the things Triumph has to do every day 0:22:41.400 --> 0:22:46.080 is underwrite the credit worthiness of freight brokers. Why is that, Well, 0:22:46.080 --> 0:22:48.479 it's because we buy their invoices on behalf of our 0:22:48.520 --> 0:22:52.960 trucking companies. Well, we extend credit to them doing supply 0:22:53.119 --> 0:22:56.440 chain finance as their partner. What do you think about 0:22:56.440 --> 0:22:59.240 a freight broker that is a balance sheet light business? 0:23:00.080 --> 0:23:02.320 Speaking right, I mean it should be it should be 0:23:02.720 --> 0:23:05.200 a high return on invested capital business because you don't 0:23:05.200 --> 0:23:07.919 own the assets, et cetera. Well, what we have just 0:23:08.400 --> 0:23:11.680 seeing two things I know will be true. Number One, 0:23:11.840 --> 0:23:15.600 insurance costs are going up for an industry that is 0:23:15.720 --> 0:23:19.560 operating at very tight margins. Freight workers depends on their 0:23:19.560 --> 0:23:22.199 business mix, But I think it's safe to generalize and 0:23:22.240 --> 0:23:25.400 say this is a tight market for the brokerge industry. 0:23:25.800 --> 0:23:28.440