Triumph Financial put it right at the top of its fourth-quarter earnings report: Its TriumphPay division, which combines its traditional quick pay services with the “open loop” invoice processing known simply as “the network,” was EBITDA-positive in the last three months of 2023.

In his lengthy note to shareholders, Triumph (NASDAQ: TFIN) CEO Aaron Graft said the milestone had been achieved one year ahead of schedule “despite a freight recession.”

Graft said several factors contributed to the trucking-focused bank’s earlier-than-expected success on earnings before interest, taxes, depreciation and amortization. As recently as the third quarter of 2023, EBITDA margin at TriumphPay was negative 15%, and Graft said the company was on track for a positive report by the end of 2024. The actual EBITDA margin in the quarter was reported at a rounded figure of zero; the actual figure was $36,000.

Graft said the “interest rate environment” helped offset the weak freight market. Revenue produced by the “float,” the time between receiving revenue and needing to pay it out — when it can earn a small return — has “grown materially” at TriumphPay because of an increase in float balances as well as the more favorable direction of interest rates. “We acknowledge that and take no credit for it beyond being ready to react to the market opportunity,” Graft wrote. But he added that “many other metrics” contributed to the improved EBITDA profitability.

He noted that since the first three months of 2022, the invoices processed by the TriumphPay network (which are not the same thing as the invoices factored by Triumph’s more traditional factoring business, Triumph Financial Services) have been falling in size, but total TriumphPay revenue has been rising “rapidly.”

“Revenue growth in TriumphPay was particularly strong in the back half of 2023, as new clients came on board and new sources of revenue were implemented,” Graft said. The end result, he added, is that fee income in the company’s Payments segment, which includes TriumphPay, was up 40.6% for 2023 compared to 2022. Year-on-year comparison for the fourth quarter recorded a gain of 60.8%.

“To put a point on this discussion, we expanded revenue, added relationships, improved the network during the worst freight recession since the Great Financial Crisis and we achieved positive EBITDA,” Graft wrote in his letter. “This was an impressive year for TriumphPay.”

Other key numbers at TriumphPay: The number of invoices processed was 13.2%, and total payment volume was up 16.7% to $24.9 billion. Broker clients accounted for $21.3 billion of that, with the remainder attributable to shippers.

It can be difficult at times to fully understand the capabilities of the open loop network that was created in 2021 with the acquisition of Hub Group. Graft sought to make it more digestible in his letter: “Network transactions and the fees we generate … are most similar to fees investors see in a Visa/Mastercard payments network,” he wrote.

The road to positive EBITDA was also helped by limited growth in expenses. Triumph reported an increase of just 1.5% sequentially from the third quarter for noninterest expenses.

Part of the story TriumphPay has been telling the investment community has been the growth in top brokerage clients using the network to bridge the payment process between shipper and carrier. The onboarding process is not short, so Triumph will often tout by name new brokers who come on board. In the fourth quarter, it was Coyote Logistics that was cited as the most significant 3PL signing up for the network.

Graft’s letter said TriumphPay now has three of the top five brokers, six of the top 10 and 55 of the top 100. Ten new unidentified brokers were added to the network besides Coyote during the quarter. Four new factoring companies also were added, the Graft letter said.

At Triumph’s more traditional factoring business, the average invoice factored climbed slightly to $1,781, up $9 sequentially. Year on year, it was down $220. 

But in a sign of an improving trucking market in 2024 so far, Graft’s letter said the average invoice factored in January so far was $1,839. The improvement in the quarter and so far in January comes even as diesel prices continue to decline, which impacts the size of a factoring invoice. 

Great quarterly data from factoring business at $TFIN. It shows avg size of an invoice factored at Triumph Financial Services by quarter. Data taken right from the road: a bill charged for moving freight, sent to Triumph for factoring. It can’t lie about the state of #trucking.

— John Kingston (@JohnHKingston) January 23, 2024

“Carrier capacity continues to leave the market, albeit at a slower pace than expected,” Graft wrote. He also noted that his view on the strength of the freight market is unchanged: “It is going to be a tough year,” he said.

Triumph Financial also used the occasion of its earnings to announce a new product, LoadPay, a service mostly aimed at smaller carriers built on an acquisition it made of a broker payments platform in the first quarter of 2023 from 

Specifics on when LoadPay will be launched were not disclosed, and Graft conceded he needed to be somewhat vague on LoadPay’s operating features.

In his letter, Graft said smaller carriers often find themselves in a squeeze to have adequate working capital but that “digital wallets” like LoadPay, developed by the growing fintech sector, can help bridge that gap.

What Graft described as “power users” will be “incentivized to sell LoadPay the same way issuing banks are incentivized to sell Visa or Mastercard.” That is a reason why LoadPay will have separate branding from TriumphPay.

“Power users” are brokers and the factoring companies that service carriers, Graft said.

“Incentivizing power users makes us a network of networks as every freight broker and factor has a network of carriers with whom they regularly communicate,” Graft wrote. “Involving them in the distribution of LoadPay gives it the highest chance of success.”

More articles by John Kingston

Wells Fargo lowers stock rating amid wait for TriumphPay’s profitability

Triumph’s Graft: The concept is proved, on to producing revenue

TriumphPay records progress on profitability in tough quarter

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