Although some of the metrics at TriumphPay weakened in the second quarter, the trucking-focused Triumph Financial said that segment — which management sees as the key to its future — continued to move toward EBITDA profitability.
The management at Triumph Financial (NASDAQ: TFIN), which operates the TriumphPay payments and audit network as well as its traditional factoring activities, has repeatedly invoked earnings before interest, taxes, depreciation and amortization as the measurement of success for the company’s grand project to combine TriumphPay’s fast payment services with the audit operations of HubTran, which Triumph paid $97 million to acquire two years ago.
In the middle of a historically weak freight market, progress continued in the second quarter. In its quarterly earnings released Thursday, Triumph said the EBITDA margin at TriumphPay had improved to negative 55%. The margin comes from dividing EBITDA — which was $5.3 million for the quarter — by total revenue of $9.7 million.
That negative 55% EBITDA margin was the strongest number in the last year. The third quarter of 2022 was negative 75%, followed by negative 114% and negative 66%.
Triumph Financial CEO Aaron Graft releases a lengthy letter to shareholders with the company’s earnings. In the second-quarter letter, Graft reiterated that while the company does not offer an earnings forecast for Triumph Financial as a whole, it had provided guidance that it expected EBITDA at TriumphPay to be between negative 40% and negative 60% by the end of 2023. With the negative 55% number in the books, Graft declared that the target had been reached ahead of schedule.
The other forecast is that TriumphPay would be EBITDA breakeven by the end of 2024. The company is sticking to that forecast, Graft said, adding that breakeven might be reached “possibly sooner.”
“We are experiencing momentum that could propel us to EBITDA breakeven ahead of schedule,” Graft wrote. “I believe we are reaching the inflection point in the curve as it relates to the question of whether the market wants TriumphPay as an audit and payment solution and whether we can deliver it at scale.”
TriumphPay regularly announces when it has signed up a key broker — which it calls Tier 1 brokers — to use its network. (A network user utilizes both the fast-pay services of TriumphPay as well as the audit capabilities of the legacy HubTran business. Not all clients use both.) A Tier 1 broker is an internal metric at Triumph that includes companies servicing at least $500 million of annual freight spend.
In late May, TriumphPay added WorldWide Express as a network customer, which it said was the largest broker utilizing the network. It also announced during the quarter that RXO (NYSE: RXO) had signed up as a customer.
Graft’s letter also said it picked up $2 billion in annualized payment volume to the network in the quarter from non-Tier 1 brokers, including Flock Freight, Trident Transportation and Maersks’s Visible Supply Chain Management.
Beyond EBITDA, the earnings report for TriumphPay showed other signs of growth. The payments activity of TriumphPay processed 4.52 million invoices in the quarter. That was up from 4.26 million in the first quarter but was lower than the second and third quarters of 2022.
Network invoice volume was solidly higher. It was 181,904 in the quarter, with that figure rising every quarter in the past year. Starting in the second quarter of 2022, the invoice volume totals have been 118,580, 144,253, 157,004 and 159,353 before its latest increase.
Graft’s letter is unique in that it is not just a recap of financial figures and the typical praise of the company’s staff for a job well done. He often uses it to wax philosophical about what is driving the company’s strategic plan.
He said a payments network is “not a linear business like a traditional loan book.” Rather, it benefits from what is known as the network effect: If two people utilize some sort of service, there’s a value to that service. If eight people use it, the benefits are generally more than 4x the benefits that you get when there are two users.
“The larger a network grows, the more benefits it offers to its constituents and the more compelling it becomes for others to join,” Graft wrote. “Over time, the network becomes more efficient and more effective at verifying and transmitting the necessary data to make near touchless payments while mitigating fraud.”
Graft’s letter used the opportunity to discuss its partnership with Highway to root out double brokering.
The initiative plans to take audit and payments data from TriumphPay and compare it to what Graft said was “Highway’s data on carrier identity and assets.”
With those two information channels running side by side, Graft said brokers and shippers can “identify carriers who appear to be over utilized, hauling more freight than their equipment would physically allow.”
Graft said a conservative estimate is that there is a $500 million to $700 million opportunity for the brokerage industry to eliminate double brokering (which usually ends up costing a brokerage house money out of its pocket to get things right with the carriers or customers that are victimized by double brokering). But he added that “because of the breadth of double brokering schemes occurring, the problem is more likely a multi-billion dollar problem.”
Data from the traditional factoring business at TriumphPay in the earnings shows the impact of a sliding market. Total invoices purchased dropped to $2.73 billion from $2.93 billion in the first quarter and $4 billion a year ago. The number of invoices purchased was 1.494 million in the second quarter, which was up slightly from 1.491 million in the first quarter but well below the 1.73 million in the second quarter of 2022.
Average invoice size in the quarter for transportation alone — about 95% of Triumph’s factoring business — was $1,828. One quarter earlier it was $1,962. A year ago it was $2,332.
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