Melissa Forman: Yes, and if I could just add Aaron, I think what is most important for us, again, growing that network density, making sure that the payments network in general is valuable to all of our constituents, but in this market right now, my primary job is to make sure that my clients, Tim, as a factoring customer, all of my other factoring clients, my broker clients, my shipper clients, that I’m giving them the data they need and the efficiencies they need to help their trucking companies, their clients thrive. And that is what is heavy on our hearts that we take and make a priority every day, is how do I help this industry thrive? Not just how do I make my quarter numbers look good.
Frank Schiraldi: Great. Thank you.
Operator: [Operator Instructions] Our next question will be from Gary Tenner from D.A. Davidson.
Gary Tenner: Thanks. Good morning.
Aaron Graft: Hey, Gary.
Gary Tenner: Hey, I wanted to ask about the revenue chart that you’ve got on page four of the shareholder letter by customer cohort, if we were to look at that based on payment volume or transaction volume versus revenue dollars, how might that look different over the last couple of years as your customers ramp and then stabilize?
Aaron Graft: So I want to make sure I understand the question. So, there’s a ramp associated, obviously, the revenue from new customers, it doesn’t all come on at one time. So revenue dollars is — you’re not getting an accurate picture for 2023 and 2024 cohort of what the entire opportunity set is relative to revenue dollars. But if we think about where those revenue dollars come from, the discussions, and the work that Melissa and the team are doing, you’re creating revenue dollars, number one, with just the contractual arrangement what we get paid to handle audit and payment. Number two, we make money off of the float, the timing difference between when we draft payment and when payments are actually made, and then finally, we make money by injecting liquidity into transactions using our balance sheet.
So, what that chart is designed to show, and I hope this is answering the question, is if you look into the pre-2019 cohort where we were thinking about TriumphPay really as a balance sheet-only solution is that the volatility in the revenue was correlated to the size of the invoice, very much like our factoring business. If you fast forward into these more recent year cohorts, we still have some volatility tied to the size of the invoice. Seasonality is still a real thing in TriumphPay, but that volatility is muted by the fact that we’re doing these contractual year-long arrangements to facilitate a certain expected number of transactions at a certain price. And so you start to see that volatility dampen, which is what we think a network should do.
I think that answers the question. But if I need to get more specific, I will do my best. Gary, just let me know.
Gary Tenner: No, that helps, Aaron. I appreciate it. And then sort of an unrelated question, just from a capital perspective. I mean, finished the quarter still pretty close to 12% on CET1, I think down maybe 10 basis points versus year-end. Any updated thoughts, especially with the stock having come in a little bit in terms of deployment of capital? I know you’ve talked about trying to keep some in reserve if there’s kind of an acquisition opportunity that comes about, that could help propel the business, but just update how you’re thinking about it.
Aaron Graft: Sure. So, I think that broadly, I’m going to take your question as an invitation to answer just how we think long-term. So, if you look at the business and our businesses, the community bank can stand alone, right? The community bank is mature got, the team, the balance sheet, all that’s in place, and it can grow. We haven’t historically been growing it, because we didn’t think the risk opportunity made sense. And we have a tremendous deposit franchise. I think something a lot of people miss. If you look at the factoring business, that is a mature business. It’s a business that we have intentionally restricted growth on because we wanted to honor the commitment that we don’t want to be the largest factoring company in America, that’s not our goal.
We want to see the factoring industry update and become and stay relevant in the 21st century, and we want to help that. But our factoring business, this is the worst quarter I remember, and it was still a pre-tax 2.5% or better ROA, so that business can stand alone. TriumphPay is not at a place to stand alone. It’s not going to be at a place to stand alone in 2024, in 2025, and I don’t even think delivering a few percentage points of EBITDA margin to the positive means that it can stand alone because it requires investments. And so we’ve got two options, right, how do you access the capital required to go make the investments for TriumphPay to go win at the scale that we are telling you we believe we can win? Well, one option is to fund it much the way that a venture capital-backed or PE-backed firm would fund it, and allow it to run with a lot of losses and hope that you scale it up over time and then you hit an inflection point in the curve three to five years from now.
And you can do that. But I think that would dilute our investors, the people who’ve been with us since the beginning and made the long-term bet that we could just take retained earnings and build this without creating that kind of dilution. We believe that the value of TriumphPay belongs to our current investors. So we choose to take our near-term profitability, which we could make this place a lot more profitable if we cared how much in any given quarter or in any given year, but we choose to take that profitability and we choose to invest it into something that we think has a multiple attached to it from a growth perspective and a valuation perspective, that helps us all win. So when I think about $190 million in excess capital, I think about it through that grid.
