In his quarterly note to shareholders, Triumph Financial CEO Aaron Graft predicted that the headline on the earnings might be “TriumphPay swung to a loss this quarter” — one quarter after that growth segment at the trucking-focused bank had become EBITDA-positive.
And so it was: Earnings before interest, taxes, depreciation and amortization for TriumphPay was negative in the quarter. But as Graft noted several times in his unique quarterly shareholder missive, Triumph Financial is playing the “long game” with TriumphPay, and the first quarter provided numerous data points he touted as showing that the strategy is steadily working.
Triumph Financial (NASDAQ: TFIN) also includes the company’s traditional factoring business. The data from that group continues to show the weakness in the trucking market.
The average transportation invoice size in Triumph’s factoring segment was $1,771 in the first quarter. It was $1,781 a quarter earlier and $1,773 in the second quarter of 2023. That quarter marked a significant downturn from the first quarter of 2023, when it was $1,911. (Triumph offers factoring services in other markets and does provide an average invoice size for the company overall — $1,806 for the quarter — but it is the transportation-specific number that provides greater insight on the state of the freight market.)
Moreover, Graft said that so far in April, the average invoice size has dropped an additional $9.
Deterioration through the first quarter was evident in the fact that Graft, in his investor letter for the fourth quarter of 2023 released Jan. 23, said January’s average invoice up to that point was $1,839. Given the $1,771 final average for the quarter, market conditions weakened from there.
“Freight continues to be softer than most people predicted,” Graft said in his letter’s opening point, a market observation that had been brought home the past couple of days by weak earnings at J.B. Hunt (NASDAQ: JBHT), reduced guidance at Knight-Swift (NYSE: KNX) and an underwhelming performance at Marten (NASDAQ: MRTN). “We are in the 24th month of the longest freight recession in history. It is a grind and there is no way to cheat the grind.”
TriumphPay is the segment at Triumph Financial that contains the payments and auditing network built on top of the company’s acquisition of HubTran, which was announced three years ago. Its primary market is targeted at brokers, but it also services factoring companies and some shippers.
TriumphPay did turn EBITDA-positive in the fourth quarter of 2023, barely, but slipped to an EBITDA loss of $1.73 million in the first quarter. That is still a vast improvement over a year ago, when the EBITDA loss was $5.42 million.
Keeping eyes on the long term
But other data on TriumphPay’s performance supported Graft’s repeated insistence that it is the long-term picture that matters.
He said the full TriumphPay network added Werner Enterprises (NASDAQ: WERN) and 3PL Fitzmark Enterprises as clients that are fully or partially “conforming” users of the network, which has a lengthy onboarding process and allows users access to the auditing and payment functions of the TriumphPay network.
The latest additions, according to Graft, mean that three of the top five, seven of the top 10 and 57 of the top 100 freight brokers are now fully or partially conforming users.
This quarter’s letter sought to establish what is known as a total addressable market (TAM) for TriumphPay. The figure would not include the existing factoring business.
Adding to Graft’s remarks in the letter, a spokesman for Triumph Financial said TriumphPay’s current iteration, which doesn’t include its fledgling LoadPay business, has a TAM about $500 million in revenue. The serviceable addressable market (SAM), which is what the company “can reasonably expect to capture,” the spokesman said, is half that.
The spokesman added the SAM was calculated based on “current TriumphPay revenue streams.” Its revenue currently stands at about $52 million.
(LoadPay, announced late last year, was described by Graft on the Triumph Financial earnings call as a “virtual wallet that allows our customers and the fuel cards they use to exchange value with each other, regardless of the time of day, regardless of whether it’s a holiday.”)
“If we get more than 50%, great, but 100% is probably not realistic,” the spokesman said in an email to FreightWaves. “We believe 50% as a mark is achievable.”
Looking to touch 50% of the market
Positive EBITDA has been touted as a goal, reached only once so far. But Graft has also discussed as a goal the percentage of “touches,” where TriumphPay — whether it’s the fully conforming network or a quick pay solution — is involved in some aspect of a transaction.
According to Graft, during the first quarter, TriumphPay “touched” roughly $48.9 million in what the letter referred to as “unique brokered freight transactions.” He said that was more than 44% of the market and up about 1 percentage point from the fourth quarter. It does not include volumes where a shipper is a TriumphPay client.
The prediction by Graft: That percentage will rise to 50% by the fourth quarter of this year.
The Triumph Financial spokesman said the company’s in-house estimate is that the brokered freight market is about $110 billion per year. The touches measure transactions where TriumphPay is involved through payments, audits or both.
He said the $110 billion figure was constructed internally using a variety of sources.
Graft’s letter said TriumphPay now has 36 network factors on the payments network and 64 factor clients overall. The spokesman said the 28 that aren’t using the network are utilizing TriumphPay audit capabilities “to validate carrier broker relationships, awareness of disputes and held loads, and view payment status. This helps the factor on expense discipline and resource management.”
As far as the traditional factoring business, Tim Valdez, the unit’s head, said on the company’s earnings call that he “had never seen anything like it.”
Valdez said first-quarter data suggests that small carriers utilizing Triumph’s factoring services have “stabilized,” but only because “the average invoice amount for the small carrier can’t go any lower … because we’re already at breakeven or below in some cases.”
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