TriumphPay, the payments and processing arm of Triumph Financial, turned in a positive EBITDA for the third quarter for only the second time in its history.
Positive earnings before interest, taxes, depreciation and amortization at TriumphPay has been a highly sought goal for its parent, Triumph Financial (NASDAQ: TFIN), for many quarters. TriumphPay recorded a slightly positive EBITDA margin in the fourth quarter of 2023, so small that the $36,000 in positive EBITDA margin is listed in the company’s earnings history with a dash rather than a number.
But the third quarter number was $70,000, and the margin was 5%.
In the company’s letter to shareholders, a lengthy treatise chock-full of not just data about Triumph but observations about the freight market as a whole, Triumph Financial CEO Aaron Graft touted the return to positive EBITDA. But he cautioned that “performance should continue to improve from here, but it is unlikely to be linear.”
Graft’s letter opened with what is now a standard observation about the state of the freight market.
“The freight recession is closer to ending than when it began, but that does not necessarily mean it will end soon,” he wrote. “We are 33 months into a freight recession. That makes it the longest since deregulation in 1980.”
He said weaker capacity “is leaving the system but not at a dramatic rate.” Triumph does “not have an opinion to express about when this cycle will end.”
Graft’s letter is an opportunity to discuss how the TriumphPay Network, its open loop process for processing invoices, has grown.
More C.H. Robinson activity to come
TriumphPay in June snagged the biggest broker of them all, C.H. Robinson (NASDAQ: CHRW), to use the TriumphPay Network. Graft said the company’s financial data on how well the network performed partially reflects C.H. Robinson activity, but he added that the 3PL only “hit the network” in the latter part of the quarter.
“That volume will begin to scale in Q4,” Graft said.
The letter to shareholders had a graphic of the “estimated payment volume” for the top 25 brokers as ranked by Transport Topics. However, the latest rankings by Transport Topics already have been disrupted by the acquisition of Coyote Logistics by RXO (NYSE: RXO), which closed in September.
If RXO moved up to third, that still leaves Total Quality Logistics as the second-biggest broker. The chart showing the unidentified brokers and their payment volume was not highlighted for No. 2; a spokesman for Triumph Financial confirmed TQL is not a client.
He added that the chart of the top brokers has been modified to reflect the Coyote acquisition of RXO, which is shown as a user of TriumphPay’s services.
If TQL were to be signed up to the network, it would push TriumphPay closer to another goal: processing more than 50% of broker invoices through all its services.
Triumph’s estimate is that the brokered market in truckload is $110 billion. Graft’s letter said the annualized network engagement in the third quarter was about $52.5 billion in brokered freight, or 48% of its estimated total market. Graft noted that the figure is not just processing through the TriumphPay Network; auditing services are in the figure as well.
“To add density quickly, it makes sense to focus on the largest brokers,” Graft said. There will be further C.H. Robinson revenue accruing to the company in the fourth quarter.
Among other highlights of the Graft letter:
The average size of the invoice factored by Triumph’s factoring segment fell, but lower diesel prices may have been a cause of part of that decline. The invoices factored by Triumph include the cost of diesel, so that the total figure is impacted by fluctuations in the price of the fuel. Diesel prices fell more than the overall decline in the size of an average invoice factored by Triumph, suggesting some stability in freight markets.
Even with the move to a positive EBITDA, total volume on the TriumphPay Network fell 5.7% from the second quarter. That was caused by the loss of one “tier 1” factor from the network, Graft wrote, without identifying the company. “The transportation industry has continued to struggle in this freight recession, and that has been particularly hard on factoring companies,” Graft wrote. “Prolonged pressure of this kind requires companies to make difficult decisions.”
But there was no decline in the number of invoices handled by Triumph’s factoring business. At 1.48 million, the figure was up 3.3% sequentially and 3.6% year on year.
In earlier calls, Graft has talked about the need for Triumph Financial to keep a check on expenses. His letter said the goal was to keep expenses under $97 million for the quarter, “and we hit it.”
TriumphPay will be rolling out an audit and payment product for the less-than-truckload sector in the fourth quarter.
The LoadPay offering, a sort of digital wallet aimed mostly at small carriers, will also be rolled out in the fourth quarter. The product was announced in January. Within that announcement in the earnings came Triumph’s estimate of the number of independent owner-operators active today, based on fleets of one to three trucks. Triumph said it estimates there are 200,000 independent owner-operators active in the U.S. It said the Owner-Operator Independent Drivers Association publishes a number of 350,000, but “in the current market environment, we do not believe all of those O/O are active,” Graft said.
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